Economics, the business cycle, national currency, the stock market, the Fed, etc.

OK, my economic plan. I know that economics has been hammered on for ages, but few are in any way coherent. I've used ideas from everywhere, plus my own.

1. National currencies:
2. The Business Cycle:
I'd say more, but I don't have the time. I'll adress the Stock Market, the idea of private enterprise, and other things later.

Lockesdonkey said:

1. National currencies:

I find it highly unrealistic that all of the world's nations use the same currency. Obviously, until economics advanced to a certain level, everyone did use gold, but they mixed in silver and used different standards of value. And in many ancient civilizations, gold was not the standard currency: in China, for example, the most valuable currency under the Han dynasty was the square of white deerskin, work 400,000 coins; among the Iroquois, the standard currency was the shell of certain freshwater mollusks, called wampum (interestingly, wampum was valuable because it took a long time and hard word for shells to become true wampum--an early example of the Marxian labor theory of value) and horses were the standard currency of early Arabia and Mongolia. So each nation has its own currency. So what? You can set the value of your national currency to a different resource, and after Economics, have it set to represent the value of the national economy. In fact, you can invest in other nations' currencies, to hopefully make good on the investment later (and possibly keep a trading partner afloat). You can manipulate things in other ways, as well; you can take advantage of exchange rates as well. For example, let's say you're the Egyptians, with the currency of deben. You want to negotiate a deal with Rome, currency denarius. At the moment, the trend is five denarii to the deben, but six turns ago, it was eleven denarii to the deben, and you expect Roman economic growth to continue. So you want a per-turn payment out of Rome, and have the option of a fixed number of deben or denarii out of the Roman treasury (there would be another option, to use the currency of the dominant power, but here, let's assume that you are the dominant power). Since the Roman currency is rising in value, you insist that the payment be in denarii (because the deben value of the payment will increase as time goes on). Conversely, if the rival's currency is going down, you can take it in your currency, assuring a steady income. The value of the currency can vary according to the business cycle, which I will adress presently.​

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I think that to change to multiple currency would be counterproductive. It would make things more difficult without adding any fun. While in real life they did use different currencies, this game is not a simulator of RL. Stick with the easy to use concept of universal currency.

I have thought about a more involved economic system in Civ but at the end decided what was already in place worked on an abstract level.

National currencies:

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You can assume its there, but Civ abstracts it by using the gold standard. The beauty of the 'gold' unit of accounting is, it has its internal logic. Gold as a medium of exchange means that the government can't print money (hence no inflation) and your economy can only grow as big as your gold reserves (not quite what you have in Civ3) but what using gold has meant was Firaxis was able to abstract away both foreign currency fluctuations and inflation. It's something I think they should keep for Civ4.

The Business Cycle:

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Could be interesting. But it adds another random factor into the game and might be detrimental for enjoyment.

The problem with C3C right now is communism is made too powerful and you can actually make more gold per turn as a communist government with a large emprire than say a democracy or a republic because of the communal corruption and Secret Police HQ~. What is lacking in the freer governments, aside from the current hardcoded trade bonus, is an additional modifier.

The Corporation for example gives us Stock Exchanges, and you can build these too under communism! They should make it that stock exhcnages no longer function in the less free governments.

wampum was valuable because it took a long time and hard word for shells to become true wampum--an early example of the Marxian labor theory of value

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It was valuable beause it took a long time to make and thus supply would be quite limited. It has nothing to do with labor put into it but everything to do with supply and demand. There just happens to be a positive correlation in supply between ease and difficulty of production.

First, on NatCurrency:
Many of you don't understand the mentality that I have been molded into by my experience with the game. I play USA pre-WWII style, isolationism in treaty, but also the world's economic powerhouse (after a particularly nasty game in which I barely extricated myself from a mess caused by innumerable mutual protection pacts--I will never enter into one again!). In short, I gear my strat to economic and industrial growth, with the military on the back burner (though not upgradewise, I just don't build that many units), so the ability to invest will be an invaluable asset to me. Call me a plutocrat, but I like the idea of being able to control or at least have great influence over other nations not militarily, but economically. If I can invest in their currency, if I'm what's keeping their economy afloat, I like that, since it gives me considerable leverage. It's why I thought of the Stock Market thing (I'll adress that later), since I could, through careful manipulation of securities, increase both my nation's wealth, yes, but also my nation's power, and without having to build up my military, which can be costly. Dominating your rivals and losing money to support it (however little it may be) or making money through the same process that allows you to control your neighbors? For me, at least, it's a no-brainer. So I justify national currencies, and also the stock market system I will adress later. And I assure you that until a given late-medeival or possibly early- to mid-Industrial tech is researched, the currency names will largely be useless. And how many modern nations are on the gold standard? I rest my case.

As for the business cycle, well, I admit that it'll be rather annoying at times, but it adds an element of risk, since the upswings and downswings will be relatively random, the only rules being, if the econ's in an upswing, the next move will be a downswing, and vice versa, and each time the swings grow slightly more violent each time, until you build the National Bank small wonder, which stabilizes the magnitude of the swings. It's not the realism here, it's the gambler's desire for risk. If you don't like it, maybe it can be turned off. But I like the prospect of gambling with the nation's finances if I choose to go down the path of investment. If you don't want to risk your nation's financial security, then don't invest in the stock market and insist that all payments be in your currency. Of course, you couldn't possibly totally escape the business cycle (unless you turned it off in the options menu pre-game) since it would increase the chances to go to war. In fact, this may turn out to be the advantage of more militaristic players, since the game, if it has this, should be programmed to allow a deep recession to be a legitamate excuse for war (wartime=economic boom, if long enough).

The Stock Market: Civs develop corporations after--you guessed it--The Corporation. Exceptions are obviously Facist and Communist nations. Corporations are founded, at random, in cities, according to resources nearby and improvements within it. A city with oil in its radius will develop an oil company. A city with a Barracks develops a defense contractor (expandable with Harbor and Airport). Cities with Airports develop airlines, the ones with harbors develop shipping companies, ones connected to railroad develop railroad companies, etc. These can do several things. Immediately after their foundation, mergers will begin, so companies from different cities in the same business will consolidate. If they're improvement related, then they increase the effect of the improvement (because it's assumed that they are building more of the same improvement in the city). I don't know about railroad companies, but the'll do something. And you can invest in these companies once you've built a Stock Exchange in at least one of the cities where they do business. And since one corporation doing business in a city does not preclude another business in the same industry from doing business there, you inevitably get the large corporations entering almost all the cities of your nation. This can be good and bad; competition increases profit margins, but something will be have to be done to prevent monopolies from forming. What it is, I don't know. In any case, corporations would 1. improve the efficiency of the city's improvements, 2. increase the benefits from a given resource (i.e. oil company makes oil produce more sheilds and commerce, meatpacker makes cattle produce more food and commerce, rubber company makes rubber produce more commerce, etc.), and 3. allow for investment. You can invest in both foreign and domestic companies; domestic just for profits, while if you have a significant stake in foreign companies, that can be used to increase your leverage over that country. You can also request that a company invest in a particular nation's industries (a kind of company, the investment bank, which develops with banks can do this in all industries, other companies can invest only in companies with the same industry) in order to increase your economic leverage. When war breaks out, all that money is pulled out of their economy, leaving your enemy badly beaten economically before the first shots are fired.

I'm going to elaborate on why this could be a good idea:

Look at the current situation with the US dollar. The East Asian central banks have massive power over the US now. Why? Because they hold so many US dollars. If China, South Korea, and Japan release their hoards of dollars, you can rest assured that the value of the greenback will plummet, there will be runaway inflation, and nothing Alan Greenspan could do would be able to prevent the utter ruin of the US economy. If incorporated into Civ IV, it would be possible to do the same thing and hold a great deal of leverage over other nations. In other words, it allows you to set up a carrot-and-stick incentive for other nations if you invest strategically in their currencies. For example, let's say you are China and you wish to gain more leverage in negotiations with Korea. You can snap up massive amounts of the won (Korean currency) and let them sit. Now you go up to the Koreans and they're alot more willing to trade on your terms. Why? Because there is the unspoken threat: Give us what we want, or we'll ruin your economy. Of course, a ruined economy must have some effect; so for the moment a ruined economy is:

1. Worker efficiency reduced slightly,
2. More unhappiness,
3. Cities produce less money,
4. Citizens bring in fewer resources (sheilds, food, etc.),
5. Luxuries have less effect,
6. Improvements have less effect,
7. And others.

This allows for a different kind of gameplay where you don't need a large military to become a major power.
You can do the same thing with businesses, but first, I have to explain in full what this means:
Businesses are set up as you go along after the Corporation. You can invest in their stocks. Stock price depends on a few things. First, supply and demand. This only applies for resource-based businesses (Wine companies, fur companies, oil companies, iron companies). Supply is the total number of resources to which you can get access to, so in other words, in your empire and in all empires with which you can trade. So if you are connected to the Romans, all of the sources of iron in Rome are counted to the supply pool even if you don't trade with them. If the Ottomans are on an island all to themselves, unconnected to everyone else, then their resources do not count to the pool, even if they have half the world's iron supply. I can't say what determines demand for strategic resources, but luxury resources are tied to the population of the cities. But more important to stock price is the business cycle, which I will explain later.

I think the foreign currency system would be rather simple and I like the idea. There could be an advisor that just watches over your currency. There could be a symbol for each currency and the amount of each that you have. For example, 2348 American currency units, 234 Mongolian currency units, 647 Spanish currency units, etc. You could have an exchange rate for each currency listed below and whenever you felt like you could trade in the money. If a country goes through a revolution, the money is worth nothing and you lose it all when it loses its value. If the country hits a golden age the money worth more. If it's too complicated, you could just negotiate deals where you get money in your own currency. It's like any diplomatic deals in CivIII, it can be as simple or complicated as you want it to be; you can take what the civ first offers you or you can negotiate for 20 minutes to get all that you can get.

I also like the idea of the resources near cities becoming companies and stuff. I'm not sure how monopolies would work in the game or mergers but the idea that an oil company would start near oil and gradually produce more sheilds as the company grew seems very realistic, and it would really rely on too much attention from the player. It would just happen over time.

Thanks. Some good ideas.

Now to the business cycle:

The cycle begins with Economics and gets gradually larger. At The Corporation, a huge jump is made (to represent the increase in business) so when the economy is on the upswing, you make lots of money because almost all stocks increase in price, and when its down, you lose alot because all stocks lose value. Currencies also ride the business cycle, but not to such a great extent. I have an idea for an Assets screen where all your assets are listed: foreign currency and stock, plus the national treasury and a listing of exchange rates and their general trends (exchange rates possibly in graph form). You can set up the National Bank Small Wonder to stabilize the currency and a Securities and Excange Commission Small Wonder to stabilize stock prices, so the business cycle can never lead to a total economic crash (such as the Stock Market Crash of 1929). JanSobeiski gave me an idea: you can trade securites in diplomacy (I'll give you some of my shares in Egyptian Oilco for Computers!)

Continuing:

Trade:
You should have commerce with other nations. I don't know how; but the trade should only be allowed after you have a trade connection and a Peace Treaty. A Trade Pact should be an agreement increasing trade.

Gold is gold is gold. When economies go into the tank, the only thing that has real worth is the gold and platinum backing it up. So it actually makes sense for a world currency to be made out of the stuff, since it would be universally accepted.

Aegis said:

Gold is gold is gold. When economies go into the tank, the only thing that has real worth is the gold and platinum backing it up. So it actually makes sense for a world currency to be made out of the stuff, since it would be universally accepted.

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You are aware that the US went off the gold standard during the Depression, right?

Lockesdonkey said:

If China, South Korea, and Japan release their hoards of dollars, you can rest assured that the value of the greenback will plummet, there will be runaway inflation, and nothing Alan Greenspan could do would be able to prevent the utter ruin of the US economy. If incorporated into Civ IV, it would be possible to do the same thing and hold a great deal of leverage over other nations. In other words, it allows you to set up a carrot-and-stick incentive for other nations if you invest strategically in their currencies. For example, let's say you are China and you wish to gain more leverage in negotiations with Korea. You can snap up massive amounts of the won (Korean currency) and let them sit. Now you go up to the Koreans and they're alot more willing to trade on your terms. Why? Because there is the unspoken threat: Give us what we want, or we'll ruin your economy.

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That wouldn't work out too well. I doubt that US foreign policy is much affected by things like that (if such a thing is possible; I'm not an economics major). America has a pretty nasty trade deficit with most everybody. That is to say, America buys lots of stuff from them. If America's economy collapsed, nobody would buy all those "Made In China" products, and the Chinese, Japanese, etc. economies would take some nasty blows as well.

Today, no nation I am aware of is based on the gold standard. But it still makes sense to use anonymous "gold" as the game currency. Your gold reserves are a combination of actual backed currency and 'fiat' value of printed money. To use real world examples, the US currency has very little backed value (but it still has a huge gold reserve, in that senbse there is something backing it). However, the fiat value is immense. It is valuable because people believe the US economy is strong. Conversely, people don't believe the Polish zloty is up to all that much, which is why plain paper costs more per square inch than a 50 zloty note.

Basically, modelling separate currencies would have to wait for the game to model the citizens attitude to the currencies first. And it would probably require an economics major to take advantage of as a game concept anyway.

I once suggested a currency model that was not really realistic, but would be interesting. Basically everyone has gold has their standard, but their currencies would have value. Inflation occurs in one of the following ways:

1) 'Print money to pay for maintenance or military' - This does exactly what it says, allowing you to invest in more taxes(although why?), research, or luxuries. Of course your making your money worthless outside your nation.
2) 'Print money for treaty' - This is usually a last resort option when all other methods of payment would not satisfy a treaty. THis would allow for 'mercantilism' and Germany post WWI.

Relative currency only matter in negotiations(make you pay more gold for the same thing). Also, having a relatively inflated currency will make you earn less money on background trade versus what your partner earns.

Of course 'printing money' should require Currency or even Economics.

Way off-topic, I know, but Lockesdonkey's experience with MPP's shows EXACTLY why a system for demanding an end to a war, within diplomacy, should be included in Civ4. Because, then, an MPP could simply mean that you are somewhat obligated to try and end said war by whatever means neccessary-with a declaration of war being the last resort. Of course, an ability to 'opt out' of MPP's should exist-but with major diplomatic costs.

Anyway, I promise my next post will be more 'on topic' !

Yours,
Aussie_Lurker.

sir_schwick said:

I once suggested a currency model that was not really realistic, but would be interesting. Basically everyone has gold has their standard, but their currencies would have value. Inflation occurs in one of the following ways:

1) 'Print money to pay for maintenance or military' - This does exactly what it says, allowing you to invest in more taxes(although why?), research, or luxuries. Of course your making your money worthless outside your nation.
2) 'Print money for treaty' - This is usually a last resort option when all other methods of payment would not satisfy a treaty. THis would allow for 'mercantilism' and Germany post WWI.

Relative currency only matter in negotiations(make you pay more gold for the same thing). Also, having a relatively inflated currency will make you earn less money on background trade versus what your partner earns.

Of course 'printing money' should require Currency or even Economics.

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Technically speaking, you CAN'T print money in Civ games, they've always been based on the gold standard and your 'cash' is measured in gold, not paper money. Besides, if you can print money, the game would have to model inflation among other things or printing money would really just be a cheat code allowing you to increase your treasury at no cost.

Please note what I said several posts ago regarding exchange rates, inflation and printing money.

You can assume its there, but Civ abstracts it by using the gold standard. The beauty of the 'gold' unit of accounting is, it has its internal logic. Gold as a medium of exchange means that the government can't print money (hence no inflation) and your economy can only grow as big as your gold reserves but what using gold has meant was Firaxis was able to abstract away both foreign currency fluctuations and inflation. It's something I think they should keep for Civ4.

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I think there is a way in which we can 'mimic' some of the more interesting elements of the international currency system, without turning civ4 into an economics 'mini-game'.
The way I see it is that you maintain the current 'gold standard', but have the RELATIVE value of each nations 'gold unit' based on a couple of important factors:

1) Relative Productivity.

2) Relative Wealth.

3) Current Account Balance.

Nations with strong productivity and wealth, relative to the international average, will have a gold unit of much higher value than those of nations with less wealth and productivity. Budget deficits will reduce the value of a nations 'gold unit' relative to other nations, whilst budget surpluses increase the value of the unit.
So, what does this mean? Well, where you have a nation whose gold unit is of greater value than another, then the base value of its resources and commodities (per unit) will be higher. Nations with weaker gold units will have goods whose base value is lower than normal. Of course, the FINAL value of any goods will depend on the past relations of two nations, their cultural/military strength and the like, but would be calculated off this base.
What this effectively means is that economically weaker nations will be good at SELLING their goods and resources, wheras nations with strong economies will tend to become net importers of goods. Of course, nations with strong economies can afford to 'subsidise' their goods-by selling more, but at a lower cost per unit-thus locking out competing exporters.
Another issue is that-with stonger economies-resources, infrastructure and commodities cost more from an internal trading point of view-meaning that strong economies might tend to source more of their goods and resources from economically weaker nations, in order to save money.
Anyway, this is just a rough outline, but I think it has promise, without overcomplicating the existing game.

Yours,
Aussie_Lurker.

Mewtarthio said:

You are aware that the US went off the gold standard during the Depression, right?

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I suppose Fort Knox is being guarded so heavily for no reason, then.

The dollar is still backed by gold, regardless if gold is still being set aside for that purpose.

rhialto said:

Today, no nation I am aware of is based on the gold standard. But it still makes sense to use anonymous "gold" as the game currency. Your gold reserves are a combination of actual backed currency and 'fiat' value of printed money. To use real world examples, the US currency has very little backed value (but it still has a huge gold reserve, in that senbse there is something backing it).

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Thank you. =o)

Another factor in economics is the role of a nations degree of 'Capitalism' and 'Materialism' in the determination of its overall wealth and economic health. This way, it would be possible to have a socialist government, which keeps the bulk of the 'essential' infrastructure under its control, whilst keeping productivity and the general economy booming by encouraging the Private Sector-via increased Capitalism. Increased materialism can boost the value of the luxuries and consumer goods you produce and trade internally. Of course, the flip-side to this vibrancy and increased wealth is higher inflation and poor 'exhange rates' in global trading.
Anyway, once again I confess that it is all very rough, but I think its a start.

Yours,
Aussie_Lurker.

dexters said:

Besides, if you can print money, the game would have to model inflation among other things or printing money would really just be a cheat code allowing you to increase your treasury at no cost.

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That is why I am saying inflation is simply a result of you printing 'extra money'. There is also a cost associated with it, you get less stuff for the same price when d4ealing wtih others. Hopefully trade will mostly be dealt with on the board, be background, be affected by policies rather than individual trades made, and be lucrative.

sir_schwick said:

That is why I am saying inflation is simply a result of you printing 'extra money'. There is also a cost associated with it, you get less stuff for the same price when d4ealing wtih others. Hopefully trade will mostly be dealt with on the board, be background, be affected by policies rather than individual trades made, and be lucrative.

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It complicates things beyond reason. Inflation would imply more than you think it means. it would cost you more shields over time to build units and more beakers to research a tech. Because your workers would demand more wages, materials would cost more and scientists would also have higher wages

Civ has kept these aspects in 'real' terms and thus avoided inflation. There's really no need to 'print' money.

The gold standard, albeit not the currency regime in our current world, is the best format to approach this. There's no inflation, no printing money and no currency exchange rates that would turn Civ into Money Tycoon.