NES Economics Thread

[das]

Noted, I'm fairly sure if we look back a great many barbarian eruptions can be linked to economic and environmental stresses caused by common property ownership exacerbated perhaps by a drought or some such calamity... I would be interested to know if there is a correlation between climatic troubles, and an invasion of barbarians into civilized regions…

That's the most likely explanation for the Huns (and the domino effect that followed) and, if I recall correctly, the Mongols, though ofcourse there were other factors involved as well - I think they just helped, though. I wonder if this applies to the Arabs in and after the 7th century AD as well; it probably was at least one of the reasons for that outburst.

technology can just feed Mathlus and much as I like new growth theory technology in itself is not all that important at this stage

Depends on the technology in question; given that the main source of wealth in a pre-industrial society is land, better agricultural tools that allow the development of new land seem to be one of the only ways to make the economy grow (although after a while, Malthus does indeed set in).

 

[Masada]

Here’s what my old textbook has to say on economic growth…

Preconditions of Economic Growth [They miss transport…]

“The most basic precondition for economic growth is an appropriate incentive system. Three institutions are crucial to the creation of incentives:
1. Market
2. Property Rights
3. Monetary Exchange

Markets enable buyers and sellers to get information and to do business with each other, and market prices sent signals to buyers and sellers that create incentives to increase or decrease the quantities demanded and supplied. Markets enable people to specialise and trade and to save and invest…"

So to elaborate, in a small town with only one blacksmith the only pricing information generally available to your average pre-industrial citizen, was rumour, perhaps some first hand information gleaned from work done in another town or nearby village, and perhaps some work done some time ago in a city some distance away (never-mind the city closest to that one, might as well be on the moon in most cases).

So the price is not just historic (which is what most people base price decisions of, note the propensity of people to say “this was not what it used to cost!&#8221, people are happy to ignore factors which explain the rise in price [comments on gas prices and market speculators will get you my ire ].. Assume for a moment that one is aware of a potential iron shortage somewhere distant, heard from a trader, lo and behold the smart blacksmith will raise his prices to deal with potential iron shortages in the future, of course these iron shortages might be totally un-factual or might have no bearing of the supplies that the blacksmith uses. So prices in the Pre-Modern world were historic by nature, and did not respond much at all to the underlying factors of supply and demand (great abundance was followed by great shortages, in just about everything, since the market was “dumb” to price signals). Famine in one region could be matched against bounty in another region but starvation could still occur because of the terrible price information, a merchant will not make a trip to an area on the off chance that the crop has failed, it is also instructive to note that in many periods of history price in a legal sense was set historically, the Code of Hammurabi set ceilings for prices of essential food goods and provided punishments for hoarding and profiteering [some iterations of the code that is]. So prices are not responsive, and do not reflect the true dictates of supply and demand which is not impossible to overcome, well organized, safe states have a natural advantage over states which are poorly organized, and unsafe (by organized I include such things as a simple customs regime, relatively few internal customs divisions, a good transport system, a reasonably competent bureaucracy and other considerations which might ****** information in-flows and out-flows and their agents generally merchants and other petty traders). If this can achieved then there are a few other critical considerations, critical mass in transactions is needed, the more transactions the less error and the closer the price convergence to the “true” price, one can easily test this, imagine for a moment that there are but 3 people handling transactions, they each only sell but a few times a week and your stay in the area is only for a while, say two to three days, the maximum amount of transactions you can expect to see in a given period is only a few if any, you therefore have little knowledge of the true price (to put it another way the width of possible bargaining is a fair indication of poor price signals, merchants should know there costs much better than you know the “true” price). Add 50 people with only a few sales a week and you will get a much better knowledge of price, and with each additional person all things being held equal you end up with competition which will drive down price (another fun bit of trivia, in a great many Medieval States setting to low prices was a crime “unfair competition” suits were fairly common, heck they happened in Roman Law as well). You need a market of some description for economic growth,

Property rights are social arrangements that govern the ownership, use, and disposal of factors of production and goods and services. They include the right to physical property (land, buildings and capital equipment), to financial property (claims by one person against another) and to intellectual property (such as inventions). Clearly established and enforced government give people an assurance that a capricious government will not confiscate their income or savings.

Growth does not work well when the state is in a particularly confiscatory mood, and pre-modern states tended to like doing this, be it through the form of monopolies, through all out theft, to rigging legal apparatus (often institutionally), through to the seizing of inventions. All of these acts weaken the incentive to work, and well the incentives to do anything.

If you are a merchant or nobleman and whenever the state needs cash it forces you to lend to it at a low rate of interest with little intent to repay you will have suffered a common practice in the pre-industrial world (all out theft was a more direct option), so what the natural fall back? Commonly one would hide, divest or deliberately make less money that one could make, oddly it would appear that this was a common practice (wills are an interesting document… and it has been remarked that wills seldom correlate well with the taxes paid to the state).

Property rights also confer another key advantage, people have a vested interest in improving that which they owe, people have little incentive to improve on that which others own, rental properties are the exemplar of this, I know of no rental property which has ever been improved upon by renters (aside from non-fiduciary contributions).

Certainly finance could not function with the absence of property rights, if one were free to appeal to the Courts or the King for remission of onerous debt, then there exists the possible (and let us never forget that law is precedent based, even in non common law systems) then all lenders on aggregate will increase the rate of interest, and refrain from lending. A single court case, a loss of confidence or predatory behaviour could potentially destabilize the financial markets, since money is quite free-flowing and is not easily tied to a single nation. Capital flees on wings, people flee on foot.

Monetary Exchange facilitative transactions of all kinds, including the orderly transfer of private property from one person to another. Property rights and monetary exchange create incentives for people to specialise and trade, to save and invest, and to discover new technologies.

It’s a no brainer that currency is superior to barter, if one has a mere 16 goods there are a total of 256 different combinations with which to trade with, and even assuming you can find the good you want and figure out the rough price in your trade good the other party might not accept your particular good on offer.

Transport

A reliable transport system is also needed, for without infrastructure the other factors cannot be of use, in a particularly bad area, it is entirely plausible to have an internally balkanized nation. With different markets in different regions all not connecting to each other. It need not be said that this is not conducive to maintaining a strong centralised state.

[I lost my chain of though about midway through this, so the entries got shorter, and yet again rather general, but I think I need to keep it that way to be useful to others, textbooks tend to be horrible pieces of work generally...]

I like to think of these as “growth” frameworks, economic growth is severely stymied by a lack of these factors. It can happen, and I’ll grant it has (but there is a big difference between catch-up growth and long term stable growth from a mature economy) but it will be tepid in comparison to a state which has all of these factors.


Any increase in technology which increases production or efficiency will increase population. Advances in technology, lead to an investment in new capital, which makes labour more productive, more and more business starts up. This greater demand increases the real wage (money wage/purchases of goods, a nifty means of removing inflationary effects) and spurs employment. This increase the subsistence real wage rate (the rate at which life is maintained, can be higher than the “subsistence” rate as we view it), when the wage rate rises, population increases… and the growth is spread amongst more mouths! Malthus always sets in and given your 25 year turns (and the ability of populations to double in a generation, which to be honest is not much more than 25 years) Malthus kicks in.

 

[das]

So if there is a turn of considerable increased overall prosperity, then it will be followed immediately by a turn in which the state is forced to deal with population pressure and everything that comes with it? I like the sound of that.

Still, what about colonisation and development of new areas? That should at least temporarily relieve the population pressure or temper its effects. The colonisation of southern China is a classical example, I think.

Also, it would be nice to have a more clear correlation between the economics you brought up and the changes in the actual in-game Income stat.

 

[flyingchicken]

Also, it would be nice to have a more clear correlation between the economics you brought up and the changes in the actual in-game Income stat.

Hear, hear!

 

[Neverwonagame3]

What significant changes in average taxes (on peasants) in Europe if any happened over the 1400s, and what were their economic results?

 

[Masada]

Overpopulation is not quite what I’m talking about (certainly possible), the population will return to the subsistence wage (so you would have one turn where per capita GDP might rise, then it would slowly fall in the next generation as population destroyed any gains made in per capita terms.

Overpopulation will occur if an increase in technology is coupled with a series of goods harvests, you have the double problem of having an increased population ceiling with an additional factor of a series of good harvests, which will likely lead to overpopulation (good harvests raise the birth rate).

Now, I will stress this the subsistence wage need not be “low”, technology can in fact raise the subsistence wage (and by no means is it the same from state to state), trade can do the same, as can value adding. It is entirely possible that state A might have a considerably higher subsistence wage than state B due entirely to handling of trade, value adding, and technology which does not increase production or efficiency of the labour force, think a blanket in a mild climate, on its own it cannot (by any measure I can think of aside from erotic undertones perhaps) add to population. It therefore just raises the material living standard of the population.

Yes new areas will certainly raise materially the living conditions, and increase GDP at the same time. How long, well it will depend I guess but it could be quite a while if inferior tillage in the original area is left fallow for instance… of course if you just skim of the top of the population and take a few here and there you will get about a generation of relief…

So what does this practically mean? For one thing, measures of living conditions are irrelevant, the individual lot of your people in aggregate is going to be much of a
much-ness, stability is bad for the subsistence wage the more people the lower the wage (so a long demographic trend of population increase is going to cause problems internally as people’s wages fall, it’s certainly noticeable in many cases since it might well take place over a generation well within living memory), I’m sure there are more general things I can note.

But as to income, the states income will rise with increases of population (since lets face it the population is growing so is your tax base, but everyone on aggregate is getting poorer, a smaller share of a constant pie, with but the occasional swelling of its size), and it will decline proportionally with the decline in population (not always, the effect of increased wages might well offset any slow demographic declines, a sudden change in population it will not!).

There are a few interesting side effects of an increase in population, paradoxically it might in fact decrease your income, as everyone gets poorer you might actually find that any previously set taxation rates will now be to high (its happened), so with each increase in population, the taxation burden might be forced on an increasingly smaller proportion of the population.

One of the more interesting possibilities in a state with a long slow decline in population, is a fiscal death spiral (they also happen in states with high military needs), as the population declines, the states receipts might decline (as Malthus can be reasonably slow, wages are sticky and don’t like to fall, people prefer to go out of work instead of seeking employment at lower wages if possible, economics jargon of the day: Its called “Job Search”, 5 year cycle for the first cycle of wage falls, certainly not 25 years) so the state jacks up the taxes which refills the treasury in the short, which is then followed by a further collapse in the population (of a slightly diminished pie), which is then followed by more tax increases… continue till the system collapses.

An even simpler form of fiscal death spiral is this, the state raises taxes, very marginal farmers are forced of the land by the taxes, the state overall loses revenue, raises taxes to compensate, more farmers are forced out, the state repeats the exercise… till nobody is farming, and the taxation burden in crushing on the remaining farmers, starvation looms or is already there and the state is stuck in a position of needing the funds to function.. (It essentially cannot pull out of the cycle, unless it is prepared to drop taxes for a significant period).

Hope that is adequate, is it quite relevant not just to state revenues but more pertinently to the stability of the state (running hand in hand in many a peasants rebellion or regime change is a long slow decline in living standards, a rise in food costs, a reduced level of wealth, and a shortage of land for children; nobody wants to see children move down the social ladder as is wont to happen in a Malthusian increase in population).

@NWAG: (Also relevant to Das)

What significant event happened around that period which might have reduced population? The Black Death, now use the Malthusian model to chart the likely results for wages for a sharp decline in population, followed by a large upswing (taking place over as little as 2 decades to as much as about 4) repeated around 6 or so times measurably.

One will also see state revenues bouncing up and down following the sharp decline in population and the general chaos following the plague, followed by a long steady upswing in state revenues (since at that stage state revenues did not do to well at taxing “wages” but worked far more efficiently at taxing by social group if you will, the taxation itself was not targeted very well, window taxes are a classic).

The plague itself also well and truly snapped feudalism in many a place, or at least weakened it severely, things like feudal dues went out the window in the most affected places, since a serf could “shop around” for a better lease deal.

In some places the taxation rates went up due to rising incomes, in others they fell due to a weakening of feudal bonds. English taxation rates fell, Irish ones remained fairly constant, French ones fell, some German ones fell others rose (they met in the middle generally), Italian ones fell and in some places rose, taxation divergence was felt in areas where boundaries were close together.

I can’t talk about Europe in general, since I doubt anyone has been insane enough to try and do a “general” taxation rate for Europe at the time (calculating a single nations taxation rate at the time is almost impossible, I personally discard them, since the rates varied between estates, regions, ownership of land etc).

What were the results, everyone got wealthier on average, then everyone steadily got poorer capped by a series of peasant results and instability, generally followed by another bout of plague which made everyone wealthier on average then a repeat till the plague burned itself out.

Short answer, average European peasant taxation rates are not measurable in a useful way (the data itself is all over the place and is often contrary), and the economic results varied between areas.

 

[Neverwonagame3]

Another question:
If a ruler in medieval times raises taxes, what would be the economic result?

 

[Masada]

Yet again a very general question.

It's hard to say, the net result might be an increase in revenue in the short term followed by a decrease in revenue in the long term. Or it could be anything of a million possibilites. Specifics help.

 

[das]

the taxation burden might be forced on an increasingly smaller proportion of the population.

What do you mean by "proportion of the population"?

the states receipts

I assume you mean revenues.

Don't worry, I got the rest of it (I think ).

As for the scenarios themselves:

One of the more interesting possibilities in a state with a long slow decline in population, is a fiscal death spiral (they also happen in states with high military needs), as the population declines, the states receipts might decline (as Malthus can be reasonably slow, wages are sticky and don’t like to fall, people prefer to go out of work instead of seeking employment at lower wages if possible, economics jargon of the day: Its called “Job Search”, 5 year cycle for the first cycle of wage falls, certainly not 25 years) so the state jacks up the taxes which refills the treasury in the short, which is then followed by a further collapse in the population (of a slightly diminished pie), which is then followed by more tax increases… continue till the system collapses.

This is one of those cases where development of new lands would be mighty useful, I think. That and a social reform, though it would be very difficult to carry out until things actually collapse, at which point it would likely to be done by whatever leaders thrive in the resulting anarchy. Anyway, what is more likely is indeed the system collapsing. That said, I doubt that it would necessarily mean the end for the country, unless the population is reduced beneath a certain level; it is fairly likely that after a century +/- 50 years, the country will undergo a (possibly quite limited, especially if some of the basic geographic preconditions of its existence have changed, such as rivers shifting) restoration, either under some foreign conquerors or under a new local dynasty. That's purely speculative, though.

By the way, under high military needs, I assume that you mean something like a constant need to recruit more and more troops for more and more expensive campaigns, thus gradually crippling the manpower pool/tax base.

An even simpler form of fiscal death spiral is this, the state raises taxes, very marginal farmers are forced of the land by the taxes, the state overall loses revenue, raises taxes to compensate, more farmers are forced out, the state repeats the exercise… till nobody is farming, and the taxation burden in crushing on the remaining farmers, starvation looms or is already there and the state is stuck in a position of needing the funds to function.. (It essentially cannot pull out of the cycle, unless it is prepared to drop taxes for a significant period).

Again, an agrarian reform would also be required (and probably carried out when things get desperate/flexible enough).

Going back to the correlation of income and population: so the income rises as the population rises, then begins to decline again as the Malthus factor kicks in, eventually stabilising around a lower level until the next major change. Or would it actually decline within the same turn as the population increase?

 

[Symphony D.]

What do you mean by "proportion of the population"?

The ratio of two numbers gives their proportionality. It's typically called a "fraction".

 

[das]

Thought it might be something like that.

 

[Masada]

Percentage of the population.


Receipts=Revenues in a taxation sense


A long term decline in population is liable to fix itself after a while (collapse of the state to internal stimulus in this situation would be comparatively rare, external stimulus would be far more common), certainly slow environmental degradation or something else might be lessened by a decline in population and population might begin to grow again. Your right it the cycle can be broken, it’s just very hard for the existing state apparatus to do it. A regime change, or a foreign conquer would be able to do it.

Military needs are an odd thing, it does not necessarily need to be an increasing number of troops, once the first cycle hits the percentage of the state revenue to even maintain the same army in the field increases, which in itself may force increasing taxation, but yes it functions best with a constant need for troops, and war materials increasing at a rapid rate, but even small increases set against a worsening taxation climate is liable to do the same, the question is how quick will it take. Even in the worst case scenarios (and I’m not talking about the propensity of NESer’s to fight total unrelenting wars on a grand scale against each other), with maybe a few campaigns a year, some significant losses, and a gradual increase in military preparedness in terms of troops etc, your looking at maybe a turn (in the largest Empires you could be looking at a 100+ years).

Again, an agrarian reform would also be required (and probably carried out when things get desperate/flexible enough).

Going back to the correlation of income and population: so the income rises as the population rises, then begins to decline again as the Malthus factor kicks in, eventually stabilising around a lower level until the next major change. Or would it actually decline within the same turn as the population increase?


Yes an agrarian reform would probably solve the problem a few examples I can think of would be remitting marginal farmers from taxation (the consequence of which is a shifting of the burden to a smaller percentage of the population), or infrastructure projects to raise production (might exacerbate the problem in the long run), or a stripping of land from the wealthy (might cause a collapse in revenue, since in some states the rich are the prime controllers of the land and the largest taxpayers). Course options are always available to fight a new war, lots of poor disaffected young men rearing to snaffle up some land are always good soldiers (or fodder), a plague can fix it etc. There’s lots of options open, but the difficulty is pulling out of the spiral itself, one needs to probably cut government expenditure, and that is not always easy, soldiers hate having their pay cut or their equipment age and well most taxation at the time went to the armies.


Going back to the correlation of income and population: so the income rises as the population rises, then begins to decline again as the Malthus factor kicks in, eventually stabilising around a lower level until the next major change. Or would it actually decline within the same turn as the population increase?

Yes income should rise as population rises, then it should begin to decline again as Malthus kicks in (depending on if you tax the very poorest of your people), it then stabilises and waits for the next major change. If the change is monumental, ie a whole massive area is inhabited, then it’s going to take a few turns for Malthus to kick in, if the change is small like a slight improvement in food production then Malthus will kick in and equalise in the first turn after it happens.

Hope I’ve been of service.

 

[das]

then Malthus will kick in and equalise in the first turn after it happens.

So income will neither go up nor go down to a significant level, but the economy will undergo a brief disturbance (with resonances elsewhere)?

Hope I’ve been of service.

Yes, you have been. I'm going to have to look for some more questions tomorrow.

 

[Dachs]

Yes, you have been. I'm going to have to look for some more questions tomorrow.

At least you have more questions. I'm still unclear on how debt should work in the late 19th century.

 

[Masada]

Onto Das In all but the longest upswings in population, and the longest downswings income will move, generally in a 25 year period I expect to see it remain fairly static yes. It's a judgment call on your part, I'm sure you can recognize when demographics might start getting rather unstable and act accordingly; economics like law seldom has one right answer .

Onto Dachs, now in terms of debt you have a few options, you have perpetual bonds, and bonds with a set time limit for maturation.

Perpetual bonds are that, perpetual they never mature the state pays a constant interest rate. Those would be the ones you set aside a fraction of your income for.

Timed bonds (probably the most common by that stage, not universally so I believe though) mature after a set period, normally around 5 years to as much as 15 years, these you would set a fraction of you income aside, as well as periodically having to repay the full bond.

There are always going to be bonds, no questions asked, governments tend to have irregular cash flows, bond issues are a means of smoothing that out. These bonds however would already be calculated into your existing income.

Player issued bonds (so bonds the player issues), will be in one of two forms, perpetual bonds which will give out a lower rate of interest with no maturation time and bonds with a specific time period (I would ask the players to specify the period) with higher interest rates and a lump sum payment at the end of the term.

Those are bonds, they tend to have relatively low interest rates (most European rates, would be around 3-4% maybe a touch higher for much of the century, and do not typically fluctuate with interest rates, at least at this early period, that comes around later). Bonds are typically sold to your patriotic citizens, and represent a very safe form of income, the only real limit is how much your citizens want to dump into them, maybe half of national income or GDP at most in a year (even at that level your going to have problems).

Loans are a different kettle of fish, governments at that stage actively avoided (at least developed European ones) taking on foreign debt if they could avoid it. Typically interest rates were fairly stable, and banking laws between nations also strongly stifled inter state lending. You can make a distinction, or you can just lump it all into a generic debt label, with some of it being paid back in full with interest and other bits of it not maturing and only paying interest.


More questions are always welcome. I'll try to avoid jargon, its not always possible... sometimes the jargon finger gets twitchy.

 

[qoou]

@Symph below:
Nothing really. I was just a bit out of it.

 

[Symphony D.]

... what does that really have to do with economics?

 

[Dachs]

So. Tariff income. How the devil are we supposed to represent that?

 

[Masada]

Not easily.

The only means I can think of how to do it, would be to have an international trade market value, with designated import/export values (needless to say this is incredibly finicky).

It’s instructive to remember that for every nation with a trade surplus there is generally one with a trade deficit, take nations A and B in a closed system, A has a trade surplus of 20, B therefore has a trade deficit of 20.

One could make up an excel spreadsheet, assume a growth in annualised trade of 1.5% (which would be fairly close to the average), extrapolate this into the trade statistics for the baseline year adjust for the changes in the NES, and then work at that (blackbox everything except for the revenue stream). However it would not be dynamic, and because everything is being held equal any increase above the 1.5% annualised trade figure would need to work hand in hand with a decrease in someone else’s trade and vice versa.

Then if you want to do it properly comparative advantage is probably needed, otherwise trade is really an arbitrary figure and of really no use to anyone…

 

[Symphony D.]

So, I have a question: what is being done to actually produce a usable model out of all this? Or, as a certain CEO once rendered it as an incisive statement: "You ivory tower intellectuals must not lose touch with the world of industrial growth and hard currency. It is all very well and good to pursue these high-minded scientific theories, but research grants are expensive. You must justify your existence by providing not only knowledge but concrete and profitable applications as well. "