Well, we're not going to touch "what is currency and what is not". Each city will simply have an amount of "wealth" generated by the basic productive activities of its citizens.
A farmer growing crops is producing "wealth". A Lumberjack felling trees is creating "wealth" of a sort, and the lumber mill that processes them into logs is creating wealth by adding value to the material. Everything anybody
does creates "wealth".
Say you have 3 cities in a line, aptly named "A", "B, and "C"; City A being a primarily agricultural city, B being a mining town or general "raw material source", and C is a big city with factories that produce manufactured goods.
A:
-Imports: Manufactured goods
-Exports: Food
B:
-Imports: Food, Manufactured goods
-Exports: Raw materials, Food, Manufactured goods.
C:
-Imports: Food, Raw Materials
-Exports: Manufactured goods
or:
Food: A-->B-->C (B both imports and exports Food)
Raw: A___B-->C (A trades no Raw materials)
Goods:A<--B<--C (B both imports and exports Goods)
Let us assume that an equal number of citizens in each city are gainfully employed in tasks that each produce the same amount of wealth in their respective jobs. All cities will have the same amount of base "wealth".
A will gain "wealth" by exporting Food, and so the per-capita wealth will increase, but it will lose "wealth" by importing Manufactured Goods, thus decreasing the per-capita wealth.
B will lose wealth by importing food, but gain some back by re-exporting it to C. This represents a trade-route going through the city. It will also import and export manufactured goods. It will gain wealth through its export of Raw materials.
C loses wealth by importing food and raw materials, but gains it by exporting manufactured goods.
So...what is this "wealth" thing, and why would I want to impoverish myself by importing foreign goods?
Simply put: You import it because you
need it. You are not self-sufficient. if you can't produce very much and you must import to cover most of your needs, then let's face it,
you're poor.
Ok, I'm poor, but what did I have in the first place?
Umm...well you see, um, it's like this...say you have 2 cows...no wait that doesn't work. That is a tricky and uncomfortable question.
Think about it this way: If you're a farmer, and you grow a lot of food, you will not go hungry. However, there is a limit to how much food you can usefully grow for yourself; the rest simply rots wastefully in the fields. So grow as much food as you want, but you're never going to get above a certain amount of wealth unless you export your surplus. When you export your surplus, that additional productivity suddenly means something, since you can trade it for the Widgets you so desperately need. Through trade, your standard of living has improved.
However, say you don't actually produce enough surplus to cover the expenses incurred by the purchase of Widgets. You
need widgets. You're gonna have to sell some food that you would rather have liked to have eaten, or buy fewer widgets than you would like, but likely some combination of the two. This "having less of what you would rather have liked to have" is also known as "Low Per-Capita Wealth". Now, in reality, the amount of food that you eat and the amount of goods that you buy is flexible, but at the end of the day, your "Wealth" is how much of your needs have been satisfied.
If you produce vastly more food than you can consume, and so can buy all the Widgets you want and still have surplus left over, then a few things are going to happen: You're going to eat more, you're going to have more Widgets (because you like them), and the price of food will drop due to the large supply, and so it will in fact take more food to purchase a Widget than it would in a low-food economy. So things will kinda balance out, but you're still gonna be better off than the dirt-farmers in the neighboring city.
Now, anybody in any city can try to grow food, but some places will be less fertile and so will not yield the same amount of food as other regions given the same amount of labor involved. In infertile places, it simply won't make economic sense to try to grow your own food when your labor could be better spent in the salt mines. If the value of salt you can produce is greater than the cost of importing food (purchase price + shipping and handling), then you're gonna mine salt. If there is just a small amount of good land, like near an Oasis, then you'll have some farmers, but there is a limit to the number of farmers that can grow food there, and everybody else will have to do non-agricultural activities. For a small population, you'll be self-sufficient food-wise, but as your population rises you'll need to start importing food.
If, however, there is
not a salt mine, and finite arable land, then you're gonna run into a problem: unemployment. For a given terrain and city-development, there are a finite number of productive jobs that people can do. Once the population exceeds the limit of the number of useful things there are to do then you're Per-Capita "Wealth" will drop. Not because your city has less wealth, but because there are more capitas who contribute nothing further. However, in reality, many of those people would simply be under-employed, or be forced to work marginal land and produce less per-capita wealth and so still be a net loss to the city. In such situations, you will have a bunch of unhappy people, many of whom will decide to emigrate to a land of milk and honey where jobs are plentiful and per-capita wealth is high. Thus, this simulation will take into account immigration as well.
That's all I can think of for now, but my friend and I wrote a bunch of notes on this somewhere.
