Fictional Economics - Deflation in Basic Goods prices

For the serious discussion of weighty matters and worldly issues. No off-topic posts allowed.

Moderators: Azrael, Moderators General, Prelates

jseah
Posts: 517
Joined: Tue Dec 27, 2011 6:18 pm UTC

Fictional Economics - Deflation in Basic Goods prices

Postby jseah » Wed Apr 20, 2016 8:43 am UTC

I'm not sure if this is the right subforum, but couldn't find an analog of Fictional Science.

So the situation I'm considering here is a scenario where a pseudo-medieval society finds a cache of well-index and explained modern day science (it comes with a librarian). Assume also that the printing press escaped political control along with a copy of the entire library resulting in it becoming public domain. The ensuing rapid transition from an agrarian society to an industrial revolution results in a sudden and massive increase in productivity, to the tune of an order of magnitude in the span of less than a generation. Remembering that these people don't have to reinvent all the efficiency increasing innovations when they can simply build a better machine design from the library that is now possible using the tools they previously built, also from the library.

On the other hand, politics didn't keep up so the currency isn't even a gold standard currency, the coins are minted with actual bits of gold and silver (the proportion of the coin that is gold controls it's value) and the structure of the coins makes it obvious how much gold is in it so the government can't even debase the currency.
-this fictional setting allows the gold bit to be easily removed for weighing and assaying and the government doesn't have a monopoly on force required to make everyone accept a declared value, so the value of the currency is stuck at the gold content. Gold supply does increase due to mining however, so the money supply does expand, but probably not as much as the supply of everything else.

---------

So we have a situation of a static money supply in a world that used to have scarcity (people regularly didn't get enough to eat) and suddenly doesn't. It seems quite obvious that a massive deflation in the price of goods is inevitable especially given that the marginal cost is falling rapidly as they continue to build the tools to build the better tools, etc.
In the extreme case where production does increase an order of magnitude, the 'price' of money will fall by 10x during this period leading to crazy levels of deflation to the tune of the value of money rising by 50% year on year. It probably won't be quite this drastic however.

Given the dangers of deflation as known by modern day economics, what happens to this economy? It seems paradoxical to have what is apparently a doomsday scenario of no monetary levers + high deflation, along with the sky high savings rates this generates. But with an inevitable rise in the standard of living?

Or could it be that deflation is only bad in an economy reliant on deferrable purchases (like cars and houses) that require debt (which an ancient agrarian economy does not have), and isn't bad when the price crash is happening on non-deferrable consumption like food, water and medicine? After all, it's not like people are going to stop buying food regardless of what happens to the price. The bread might be 5% cheaper tomorrow but you still need to eat today. Deflation would not lead to starvation, but maybe a lack of fancy houses.
Would this prevent deferrable consumption from ever actually happening, resulting in a plateau once the production capacity expands to meet all the immediate needs? Or would the sudden overproduction cause mass unemployment as the remaining employees of the firms selling necessities don't want to buy what the others have to sell?
Stories:
Time is Like a River - consistent time travel to the hilt
A Hero's War
Tensei Simulator build 18 - A python RPG

User avatar
johnfrmcleveland
Posts: 66
Joined: Wed Mar 27, 2013 11:24 am UTC

Re: Fictional Economics - Deflation in Basic Goods prices

Postby johnfrmcleveland » Wed Apr 20, 2016 11:59 am UTC

One thing you would see with deflation is a built-in incentive to not invest your money into production. When there is a limited amount of money, money itself becomes a (the?) limiting factor; all one has to do to profit is to sit on their money, at no risk of failure and no risk of inflation.

One of the more useful inventions to be found in that library would be credit, but I don't think that's the direction you want this thread to go in. :)

Tyndmyr
Posts: 10175
Joined: Wed Jul 25, 2012 8:38 pm UTC

Re: Fictional Economics - Deflation in Basic Goods prices

Postby Tyndmyr » Wed Apr 20, 2016 2:31 pm UTC

Along with other advancements, it's likely that this civilization will learn how to acquire more gold.

Leaving aside real world considerations to answer your actual question, deflation would probably slow reinvestment, but in the end, it'll still happen.

User avatar
duckshirt
Posts: 558
Joined: Thu Feb 15, 2007 1:41 am UTC
Location: Pacific Northwest

Re: Fictional Economics - Deflation in Basic Goods prices

Postby duckshirt » Wed Apr 20, 2016 2:56 pm UTC

Tyndmyr wrote:Along with other advancements, it's likely that this civilization will learn how to acquire more gold.


This

But, this question is sort of a paradox - we are assuming there is rapid economic growth, but then asking whether the fixed money supply would prevent economic growth, which we already assumed there is a lot of. Interest rates would be very high to encourage lending, and borrowers would be able to pay it off. And there is never 'zero risk of failure or inflation' for savers - only in hindsight.
lol everything matters
-Ed

DanD
Posts: 270
Joined: Tue Oct 05, 2010 12:42 am UTC

Re: Fictional Economics - Deflation in Basic Goods prices

Postby DanD » Wed Apr 20, 2016 4:35 pm UTC

One thing that's missing here is that many medieval societies were extremely cash poor to start with. Much of the "economy" was in-kind payments. This is likely to mean that some form of non-material currency will develop.

The other thing that's missing is the "tools to build the tools" timing. Just because you get the blueprints for a computerized loom, doesn't mean you have the steel and aluminum to make it. Let alone the ability to make the computer chips that run it. See the "1632" series for a reasonably well thought out case of a small cluster of modern individuals and technology in the late renaissance.

And finally, what environment are we introducing this into? A manorial system, where all the capital was in the control of the lords? Or guilds, where the skilled craftsmen to make the tools are more interested in maintaining their power than maximizing productivity? Or a late medieval/renaissance system with a well off middle class of merchants?

Because only in the latter are you going to get any sort of rapid economic development that increases the standard of living across the board. In the first two, the labor and raw materials are both under the control of people who will limit development to what they can control.
Last edited by DanD on Wed Apr 20, 2016 9:51 pm UTC, edited 1 time in total.

User avatar
LaserGuy
Posts: 4391
Joined: Thu Jan 15, 2009 5:33 pm UTC

Re: Fictional Economics - Deflation in Basic Goods prices

Postby LaserGuy » Wed Apr 20, 2016 6:11 pm UTC

Yeah, I think that in such a system, assuming that the country couldn't mine enough gold to print more currency, is that something else would rather naturally supplant the established currency.

As DanD points out though, simply having this knowledge exist doesn't necessarily imply that such economic development invariably happens. We certainly don't see that happening in here in the real world--ie. "Third World" countries don't spontaneously and rapidly begin developing as soon as they can get access Wikipedia. There's a lot of other factors, economic, social, political, etc. that have to also be in place for this type of development to occur. More to the point, if the economy is engaged mostly in subsistence farming, than having that knowledge probably won't do all that much good in the short term since people can't put it to much use until they can use the "better farming practices" sections of the knowledge to start building up a food surplus (and likewise most of the population wouldn't be literate enough to read the material anyway).

User avatar
duckshirt
Posts: 558
Joined: Thu Feb 15, 2007 1:41 am UTC
Location: Pacific Northwest

Re: Fictional Economics - Deflation in Basic Goods prices

Postby duckshirt » Wed Apr 20, 2016 6:51 pm UTC

LaserGuy wrote:As DanD points out though, simply having this knowledge exist doesn't necessarily imply that such economic development invariably happens

True, but that's a bit of a tangent. The knowledge is no guarantee of instant progress but it helps speed things up. I think the real question here is: would a very tight money supply impede their progress, or would could they progress quickly despite it?
lol everything matters
-Ed

User avatar
Zamfir
I built a novelty castle, the irony was lost on some.
Posts: 7313
Joined: Wed Aug 27, 2008 2:43 pm UTC
Location: Nederland

Re: Fictional Economics - Deflation in Basic Goods prices

Postby Zamfir » Wed Apr 20, 2016 7:15 pm UTC

Much of the "economy" was in-kind payments.

And credit - don't underestimate that part. You see a lot of mention of coinage in medieval documents, but that doesn't always imply actual coins. Just as our contracts don't imply suitcases of bills.

People put purchases on the tab, with a coin amount mentioned as accounting measure. And people don't settle those tabs with coins, but with other debts owed to them. The sheperds drink on the tab of the inn, and after shaving time they settle their bill with the debts owed to them by wool merchants. You get "reckoning days" once in a while, usually after harvest time. The whole village comes together, and they cancel as much mutual debts among each other as possible. With some open accounts left for the coming year, and with some of the richer villagers acting as "banker" who take over external debts and credits, and settle them later in a larger town.

Same goes for trade fairs- there's a few days of trade, then a clearing round on the final day. It's a big reason why you had these concentrated fairs in the first place - more trades close together makes it easier to settle open accounts. The famous ones where the Champagne fairs - those had many days of settlement, and would settle much more than just the trades of the fair itself. The big bankers and merchants of north and south Europe would travel to the fair every few months, with the big open accounts of their clients. Then they had a continent-wide week of reckoning.

So, actual metal coins are not as crucial to such an economy as it might seem at first. From sheperd to banker, people make coin-denominated trades without using real coins.

jseah
Posts: 517
Joined: Tue Dec 27, 2011 6:18 pm UTC

Re: Fictional Economics - Deflation in Basic Goods prices

Postby jseah » Wed Apr 20, 2016 10:12 pm UTC

Zamfir wrote:
Much of the "economy" was in-kind payments.

And credit - don't underestimate that part. You see a lot of mention of coinage in medieval documents, but that doesn't always imply actual coins. Just as our contracts don't imply suitcases of bills.<...>So, actual metal coins are not as crucial to such an economy as it might seem at first. From sheperd to banker, people make coin-denominated trades without using real coins.

Mmm, so if the in-kind and credit portion undergo an expansion, like they will in this scenario, then what you get is essentially a natural re-invention of the gold standard currency and fractional reserve banking? Because people will end up trading loans and promises as if they were real money?

LaserGuy wrote:As DanD points out though, simply having this knowledge exist doesn't necessarily imply that such economic development invariably happens. We certainly don't see that happening in here in the real world--ie. "Third World" countries don't spontaneously and rapidly begin developing as soon as they can get access Wikipedia. There's a lot of other factors, economic, social, political, etc. that have to also be in place for this type of development to occur. More to the point, if the economy is engaged mostly in subsistence farming, than having that knowledge probably won't do all that much good in the short term since people can't put it to much use until they can use the "better farming practices" sections of the knowledge to start building up a food surplus (and likewise most of the population wouldn't be literate enough to read the material anyway).
Wikipedia isn't detailed enough for what I'm thinking of. I was thinking more something like a manual of blueprints with ready-to-build designs at all tech levels. So you wouldn't just have a rotary printing press design that could print ten thousand broadsheets a day but also a hand-powered wood one only good for a few hundred per day that the local blacksmith could build in a few weeks.

Something like an unobfuscated copy of all the major industrial patents (and trade secrets formatted like patents) since the early 15-1700s. Or what a patent for that invention might look like if patents hadn't been invented yet at the time of the invention.

The point on literacy is a good one though. Assuming however that copies of the cache escape political control, would that be a sufficient incentive to want to learn to read to significantly affect the literacy level?
Stories:
Time is Like a River - consistent time travel to the hilt
A Hero's War
Tensei Simulator build 18 - A python RPG

User avatar
ucim
Posts: 5644
Joined: Fri Sep 28, 2012 3:23 pm UTC
Location: The One True Thread

Re: Fictional Economics - Deflation in Basic Goods prices

Postby ucim » Wed Apr 20, 2016 10:47 pm UTC

jseah wrote: Assuming however that copies of the cache escape political control, would that be a sufficient incentive to want to learn to read to significantly affect the literacy level?
... or would that be sufficient incentive to control reading itself (i.e. a tax on windows, a tax on lamplight, stuff like that). Control of information can be accomplished many ways.

Jose
Order of the Sillies, Honoris Causam - bestowed by charlie_grumbles on NP 859 * OTTscar winner: Wordsmith - bestowed by yappobiscuts and the OTT on NP 1832 * Ecclesiastical Calendar of the Order of the Holy Contradiction * Please help addams if you can. She needs all of us.

morriswalters
Posts: 6950
Joined: Thu Jun 03, 2010 12:21 am UTC

Re: Fictional Economics - Deflation in Basic Goods prices

Postby morriswalters » Thu Apr 21, 2016 12:01 am UTC

jseah wrote:I'm not sure if this is the right subforum, but couldn't find an analog of Fictional Science.

So the situation I'm considering here is a scenario where a pseudo-medieval society finds a cache of well-index and explained modern day science (it comes with a librarian). Assume also that the printing press escaped political control along with a copy of the entire library resulting in it becoming public domain. The ensuing rapid transition from an agrarian society to an industrial revolution results in a sudden and massive increase in productivity, to the tune of an order of magnitude in the span of less than a generation. Remembering that these people don't have to reinvent all the efficiency increasing innovations when they can simply build a better machine design from the library that is now possible using the tools they previously built, also from the library.
There is a bare minimum of population required to develop and maintain a specific level of technology. And it appears that things have to happen in order. Increase the population too quickly by reducing the death rate before first introducing more modern farming techniques and you run the risk of outrunning the food supply and creating famine. There are multiple dependencies that must be met, both material and technological. Without the librarian the average medieval member wouldn't be able to do much with it. To much data and too little experience. The value of the index is dependent on the literacy of the person using it.

User avatar
Zamfir
I built a novelty castle, the irony was lost on some.
Posts: 7313
Joined: Wed Aug 27, 2008 2:43 pm UTC
Location: Nederland

Re: Fictional Economics - Deflation in Basic Goods prices

Postby Zamfir » Thu Apr 21, 2016 1:05 pm UTC

Mmm, so if the in-kind and credit portion undergo an expansion, like they will in this scenario, then what you get is essentially a natural re-invention of the gold standard currency and fractional reserve banking? Because people will end up trading loans and promises as if they were real money?

Not reinvention. Just continuation. Trading loans is a common and widespread practice, often in pretty sophisticated form. It's not some recent invention. The recent development is a very controlled version of it. Where some loans to banks get a government-supported status as official currency, while the government strictly monitors and regulates how much of those accounts are created.

That creates a sharp division for us: some loans (bank accounts) are currency, indistinguishable from other forms of currency. They are used for payment everywhere and people hardly think about them as loans. While other loans (even loans to the very same bank) are almost never used directly for payment.

The historic norm is more grey. On the one hand, many kinds of loans are used for payment, depending on what a seller is willing to accept. On the other hand there is no true currency in our sense, that is always accepted without thought. A letter of credit from a reputable family might well be a wider accepted currency, than a coin of dubious provenance.

"Fiat money creation" happens automatically in such a system, every time a reputable person extends a line of credit.

DanD
Posts: 270
Joined: Tue Oct 05, 2010 12:42 am UTC

Re: Fictional Economics - Deflation in Basic Goods prices

Postby DanD » Thu Apr 21, 2016 4:15 pm UTC

jseah wrote:Wikipedia isn't detailed enough for what I'm thinking of. I was thinking more something like a manual of blueprints with ready-to-build designs at all tech levels. So you wouldn't just have a rotary printing press design that could print ten thousand broadsheets a day but also a hand-powered wood one only good for a few hundred per day that the local blacksmith could build in a few weeks.


If the librarian that came with the knowledge was a good one, and able to tune the information they were getting to not only what they could actually produce at the time, but also what would tend to increase productivity you would see fairly rapid advancement.

The first criteria is obvious, I think. If there's an million different printing press designs in the document, how do I pick out the best one that is within my capability. How do I know that introducing the bessemer process is the single most important step forward I could make in terms of manufacturing production (well, after the required coking ovens, obviously), and not get caught up in attempting to produce an electric arc furnace first? (and so on).

The second is a little less certain, but, for instance, your typical late Renaissance metal founder and gun smith could probably work from a series of patents to produce a rifled, breach loading flint lock. A few per year. Doing so maintains their status, gives them a high income (a huge profit per rifle, even at low volume) but it doesn't significantly advance technology.

If that same founder introduces the bessemer process, and the gun-smith introduces standard measures, interchangeable parts, and the assembly line, then those techniques advance technology greatly. However, the gunsmith's profits don't go up that much (a lot more rifles, but more labor to pay for, and much less profit per).

Once again the Eric Flint's 1632 universe, or David Weber's Safehold are both reasonably good stories about an outside force driving forward technology at the level you are talking about. Neither has greatly addressed farming, although the Flint series discusses some of the basics, at least. Which brings up another issue. I'm assuming your "librarian" is a reference computer or some such? Because if they are a human, they won't have enough detailed knowledge of where to look for everything (even reference librarians aren't perfect). The Flint series is a shared universe, and he eventually had to cap the number and skill sets of people in (unintentionally) time travelling town, because new authors kept bringing in new people or unlikely skill sets so their own technical special interests could be developed.

The other issue, of course, is that whoever developed the reference library is likely to have gaps. Knowledge of the chain of technical development is imperfect for many processes.

Tyndmyr
Posts: 10175
Joined: Wed Jul 25, 2012 8:38 pm UTC

Re: Fictional Economics - Deflation in Basic Goods prices

Postby Tyndmyr » Thu Apr 21, 2016 5:42 pm UTC

morriswalters wrote:There is a bare minimum of population required to develop and maintain a specific level of technology. And it appears that things have to happen in order. Increase the population too quickly by reducing the death rate before first introducing more modern farming techniques and you run the risk of outrunning the food supply and creating famine. There are multiple dependencies that must be met, both material and technological. Without the librarian the average medieval member wouldn't be able to do much with it. To much data and too little experience. The value of the index is dependent on the literacy of the person using it.


Yeah, I imagine that the first few species we uplift, we're going to make a clusterfuck of it. Can't make an omlette without cracking some heads, though.

ijuin
Posts: 799
Joined: Fri Jan 09, 2009 6:02 pm UTC

Re: Fictional Economics - Deflation in Basic Goods prices

Postby ijuin » Thu Apr 21, 2016 6:01 pm UTC

Something interesting and unprecedented in the history of money is the total de-monetization of all precious metals that occurred almost worldwide when the Bretton-Woods system was dismantled and fiat currencies were allowed to float freely. This development essentially made it no longer possible to use any form of money other than those fiat currencies permitted by the local government. If someone possessed currencies that their government disapproved of, then said government could essentially unilaterally declare that wealth to be null and void.

DanD
Posts: 270
Joined: Tue Oct 05, 2010 12:42 am UTC

Re: Fictional Economics - Deflation in Basic Goods prices

Postby DanD » Thu Apr 21, 2016 6:29 pm UTC

ijuin wrote:Something interesting and unprecedented in the history of money is the total de-monetization of all precious metals that occurred almost worldwide when the Bretton-Woods system was dismantled and fiat currencies were allowed to float freely. This development essentially made it no longer possible to use any form of money other than those fiat currencies permitted by the local government. If someone possessed currencies that their government disapproved of, then said government could essentially unilaterally declare that wealth to be null and void.


Really? So what's a bitcoin? Or a check? They're both "money". So's a line of credit.

Not to mention, if you're seriously in love with commodity based money, use iron, use aluminum. Use diamonds (don't actually recommend this, bit artificially inflated), or emeralds, or whatever. Use potatoes and wheat and pork belly futures.

Exchange of value is exchange of value. Gold and silver is just as arbitrary a medium of value exchange as anything else. All Bretton Woods did was create a situation where mutiple international currencies were fixed to each other, but still not to anything of real value. Fiat currencies just make it a little easier to do that exchange without requiring a limited supply of a single commodity to dictate the value of anything else.

ijuin
Posts: 799
Joined: Fri Jan 09, 2009 6:02 pm UTC

Re: Fictional Economics - Deflation in Basic Goods prices

Postby ijuin » Fri Apr 22, 2016 9:17 am UTC

I said nothing about Bretton-Woods creating the paradigm--merely that the system which replaced it is one in which currency prices are bid up and down like shares of stock, with no connection to the value of any particular asset other than perhaps the credit rating of the currency's issuing authority.

Anyway, what I meant was that, forty-odd years ago, it was a NEW paradigm for all curculating currencies to be the unbacked fiat type, with all commodities (including the traditional precious metals gold and silver) being de-monitized. Previous regimes allowed a mix of specie and fiat currency (often leading to the fiat currency inflating relative to specie), but this was the first worldwide ban of specie as a medium of payment. You know, it was actually illegal for private parties to own gold bullion in the USA without a license in the 1930s-60s?

Aa for Bitcoin and the like, they are examples of the new paradigm in which currency value fluctuates in response to speculation as buyers bid the prices up or down.

DanD
Posts: 270
Joined: Tue Oct 05, 2010 12:42 am UTC

Re: Fictional Economics - Deflation in Basic Goods prices

Postby DanD » Fri Apr 22, 2016 3:01 pm UTC

ijuin wrote:I said nothing about Bretton-Woods creating the paradigm--merely that the system which replaced it is one in which currency prices are bid up and down like shares of stock, with no connection to the value of any particular asset other than perhaps the credit rating of the currency's issuing authority.

Anyway, what I meant was that, forty-odd years ago, it was a NEW paradigm for all curculating currencies to be the unbacked fiat type, with all commodities (including the traditional precious metals gold and silver) being de-monitized. Previous regimes allowed a mix of specie and fiat currency (often leading to the fiat currency inflating relative to specie), but this was the first worldwide ban of specie as a medium of payment. You know, it was actually illegal for private parties to own gold bullion in the USA without a license in the 1930s-60s?

Aa for Bitcoin and the like, they are examples of the new paradigm in which currency value fluctuates in response to speculation as buyers bid the prices up or down.


The point on Bitcoin and the like was in response to your "government can just eliminate money it doesn't like".

And my point is that the value of goods has always fluctuated relative to the value of currency. Gold, in real terms, is still an unbacked currency. No one has to accept it for payment, and definitely not at a particular rate for potatoes or lumber. It has no fixed value in relation to things that individuals actually need. All the gold standard did was enforce an international rate of exchange, a gap that the money markets have filled quite nicely.

(Heck, a decent chunk of our trade balance issues with China are because they won't let their currency float freely).

To make it a clear statement: Gold is not some platonic ideal of money. It functions as a means of exchange because people agree it is worth something, which is exactly the same way dollars work.

User avatar
duckshirt
Posts: 558
Joined: Thu Feb 15, 2007 1:41 am UTC
Location: Pacific Northwest

Re: Fictional Economics - Deflation in Basic Goods prices

Postby duckshirt » Fri Apr 22, 2016 9:55 pm UTC

Gold does have some intrinsic value. But the role of gold in the gold standard is not to back it with something immediately useful, but to prevent flight from a fiat currency/hyperinflation or government manipulation.
lol everything matters
-Ed

jseah
Posts: 517
Joined: Tue Dec 27, 2011 6:18 pm UTC

Re: Fictional Economics - Deflation in Basic Goods prices

Postby jseah » Fri Apr 22, 2016 11:13 pm UTC

ucim:
In an era of weak central government, how would suppression of reading even work? It's not like you can tell if someone can or cannot read just by looking at them.

Zamfir:
An interesting read. I did some light reading on Wikipedia regarding the history of banking, the grain debt trade was rather enlightening. Who knew the commodity futures market predates formal banking...

DanD wrote:The first criteria is obvious, I think. If there's an million different printing press designs in the document, how do I pick out the best one that is within my capability. How do I know that introducing the bessemer process is the single most important step forward I could make in terms of manufacturing production (well, after the required coking ovens, obviously), and not get caught up in attempting to produce an electric arc furnace first? (and so on).

The second is a little less certain, but, for instance, your typical late Renaissance metal founder and gun smith could probably work from a series of patents to produce a rifled, breach loading flint lock. A few per year. Doing so maintains their status, gives them a high income (a huge profit per rifle, even at low volume) but it doesn't significantly advance technology.

If that same founder introduces the bessemer process, and the gun-smith introduces standard measures, interchangeable parts, and the assembly line, then those techniques advance technology greatly. However, the gunsmith's profits don't go up that much (a lot more rifles, but more labor to pay for, and much less profit per).

Assuming that the library is readable in its entirety, the people attempting to recreate it would have to understand the process in order to build it. Wouldn't they quickly figure out that say, they understand the explanation of carbon ratios in steel but don't have a clue of what this electricity thing is.

Also,
I would have thought that the first areas the improvements would touch would be farming, iron, cloth, paper and the like. Not fiddly things like guns. In areas where mass production is feasible given the current tech level, you might expect the craftsmen of those areas to attempt it. After all, if the current market price of books is through the roof, the first person to build a workable printing press will reap the massive short run profits.

I've read the two works of the good men Flint and Weber. Indeed, you can tell where some of the inspiration for this idea comes from...
Stories:
Time is Like a River - consistent time travel to the hilt
A Hero's War
Tensei Simulator build 18 - A python RPG

User avatar
ucim
Posts: 5644
Joined: Fri Sep 28, 2012 3:23 pm UTC
Location: The One True Thread

Re: Fictional Economics - Deflation in Basic Goods prices

Postby ucim » Sat Apr 23, 2016 2:23 am UTC

jseah wrote:In an era of weak central government, how would suppression of reading even work? It's not like you can tell if someone can or cannot read just by looking at them.
If government (of all sorts) is weak enough, there is no suppression, but there is also no law. If central government is weak, it allows local (tribal) government to be strong. But so long as there is some entity that can lay down the law, you suppress reading by making it hard, or expensive. A tax on books, or paper, or ink, would work in that direction. A tax on lamplight is a more subtle (or devious) method; the trick is to make the stated purpose reasonable while being effective at its unstated purpose. If the printing press were illegal to own, the state could effectively control what you read (and thus, what you think).

You don't have to know whether somebody is literate; you just have to condemn the activity some way or other.

Jose
Order of the Sillies, Honoris Causam - bestowed by charlie_grumbles on NP 859 * OTTscar winner: Wordsmith - bestowed by yappobiscuts and the OTT on NP 1832 * Ecclesiastical Calendar of the Order of the Holy Contradiction * Please help addams if you can. She needs all of us.

morriswalters
Posts: 6950
Joined: Thu Jun 03, 2010 12:21 am UTC

Re: Fictional Economics - Deflation in Basic Goods prices

Postby morriswalters » Sat Apr 23, 2016 3:36 am UTC

Build a Church if you want to censor knowledge.

I was curious if anybody had thought to quantify the size of the Library that would be needed to contain the knowledge of a, say a 1950 era industrialized society. Quite a bit of modern innovation requires a lot of knowledge. An encyclopedia of that time ran to 20 or more volumes and doesn't have anywhere near the level of detail to recreate the era. Just the basics required for the minimum levels could run to some thousands, or even hundreds of thousands of texts. The idea that the information could be democratized may be a stretch. Much of the information would be in pictures, unreproducible in a medieval society at any price. Although I suppose overall they could be organized by technical level

DanD
Posts: 270
Joined: Tue Oct 05, 2010 12:42 am UTC

Re: Fictional Economics - Deflation in Basic Goods prices

Postby DanD » Mon Apr 25, 2016 3:59 pm UTC

morriswalters wrote: The idea that the information could be democratized may be a stretch. Much of the information would be in pictures, unreproducible in a medieval society at any price. Although I suppose overall they could be organized by technical level


Depends on exactly when "medieval" we are talking about. If late enough, engraved wood block printing predates movable type. If earlier, then yes, you are talking about hand copying of drawings. Not impossible, but accuracy will be lost.

jseah wrote:Assuming that the library is readable in its entirety, the people attempting to recreate it would have to understand the process in order to build it. Wouldn't they quickly figure out that say, they understand the explanation of carbon ratios in steel but don't have a clue of what this electricity thing is.


But they also have instructions on how to produce electricity. (And it's really not hard if you already have water power, the ability to draw copper, and some form of lacquer, or silk.) If this is early enough that they don't have blast furnaces, both processes will be new development. And yes, they may realize they can do one more easily than the other, but it's not clear that they would. And there would be many other similar cases. Sulfuric acid is wonderful stuff, industrially, but you need stainless steel before you can produce it in quantity. A casual reading of the specifications, however, might not indicate that "stainless" means anything other than "un-rusted". And these are just the simple ones that I can think of off the top of my head. Without guidance, there would be a lot of false starts, a lot of industrial accidents, a lot of wasted time, and, honestly, a lot of scams.

As far as what comes first, well, what's the interest of the people with the resources to invest in development? Yes, farming improvements will probably happen under a manorial system, but not any that give actual power to the serfs (mechanized tractors will be a long time coming). A gutenberg style press might show up, but it might not, again, why share what's benefiting you. On the other hand, the lords of those manors have a very strong interest in improving their ability at warfare, but not, again, putting those improvements in the hands of serfs or peasants. A hand full of breach loading flintlocks gives the lords the ability to face down an entire army of rebellious serfs armed with farm tools. So they'll want a few dozen produced, not thousands.

But it doesn't matter where the improvements start. No matter where, it's going to be simple to move to the end products without improving the process, and the process is what really made the industrial revolution. Common measures, interchangeable parts, the switch to assembly line style production in place of master craftsman style production, those are critical, and they had to overcome serious societal inertia to do it, even after the development of a mercantile class that cared more about the availability of goods than who was making them.

User avatar
Yakk
Poster with most posts but no title.
Posts: 11053
Joined: Sat Jan 27, 2007 7:27 pm UTC
Location: E pur si muove

Re: Fictional Economics - Deflation in Basic Goods prices

Postby Yakk » Mon May 16, 2016 5:56 pm UTC

Well, it could fizzle. As noted, there are many areas of the world with access to high technology that aren't growing at the 50%-per-year rate you are describing.

On the other hand, it wouldn't take many years of grows to take that small area, and turn it into a military powerhouse. Now we have this rapidly industrializing area with increased military might. Deaths fall, nearby provinces fall under its sway, conscripts are recruited and used to expand empire. Materials are plundered to fuel the engine of industry.

If gold is the unit of wealth, then the value of gold will inflate (and hence cause deflation). This will encourage getting gold above other tasks -- the empire will build fleets and invade places with gold rather than continue to grow its industry, or it will produce goods to sell to places where there is lots of gold. Failing that, as the rate at which gold gains in value exceeds the industrial growth rate, investment will cease.

Interest rates and required ROI on investment to be profitable is real real rate - deflation rate. So with 50% year-over-year deflation, an investment with a 45% ROI is not worth doing. This can easily cripple growth. What more, the "guaranteed increase in gold's value" (as evidenced by the last 2-3 years of growth) can lead to people over-betting on gold, causing faster deflation, which then cuts out even more non-gold-hording economic activities from being options.

Now, the crippling of growth can reduce deflation, which can then recover. The redirection of effort away from growth and towards aquiring gold becomes continually stronger. But the effect can easily overshoot in both directions.

If it would takes 10 oz of gold (in non-gold wealth) to invade a nation that has central reserves of 1 oz of gold, you don't do it *just for the gold*. But with 50% deflation, 6 years later that invasion is profitable *just for the gold*. Now, it has to be fast, as even wars suffer the same time-value-of-money problem.

Even if the state doesn't do it, a sufficiently wealthy area is going to spawn individuals or groups who become wealthy enough to personally overthrow other nations.

Another problem is going to be social coehsion, which will fray badly under that kind of stress.
One of the painful things about our time is that those who feel certainty are stupid, and those with any imagination and understanding are filled with doubt and indecision - BR

Last edited by JHVH on Fri Oct 23, 4004 BCE 6:17 pm, edited 6 times in total.

User avatar
Quizatzhaderac
Posts: 1510
Joined: Sun Oct 19, 2008 5:28 pm UTC
Location: Space Florida

Re: Fictional Economics - Deflation in Basic Goods prices

Postby Quizatzhaderac » Tue May 17, 2016 9:58 pm UTC

jseah wrote:Given the dangers of deflation as known by modern day economics, what happens to this economy? It seems paradoxical to have what is apparently a doomsday scenario of no monetary levers + high deflation, along with the sky high savings rates this generates. But with an inevitable rise in the standard of living?
Deflation would limit investments: with 10% deflation only investments with an ROI over 10% would make sense. So you get a feedback loop where deflation slows the growth that's driving it.

But in such an extreme situation as you postulate, I'd say gold and silver would stop being the main form of currency. I'd say probably some goods that are fungible and close to average in terms of how much the ability to produce them is growing, would become effective currencies. With all of this complication causing a lot of effort in people keeping their books straight.

As for contract and laws where gold/silver is mentioned, those would all cause problems. As has been mentioned medieval people totally had debts and contracts all around.

Are you familiar with the concept of a market basket? The basic concept is that the best unit of currency is, not proportional to any one thing, but proportional to one of everything. So to implement this one might follow a sample peasant around for a year and track everything they purchase. We'll set all that stuff equal in value to one yarr. The relative prices of goods in the basket might change but that set of everything remains at the value of one yar. The fact that more things are produced means that there are more yarrs.
Last edited by Quizatzhaderac on Wed Aug 16, 2017 9:39 pm UTC, edited 3 times in total.
The thing about recursion problems is that they tend to contain other recursion problems.

ijuin
Posts: 799
Joined: Fri Jan 09, 2009 6:02 pm UTC

Re: Fictional Economics - Deflation in Basic Goods prices

Postby ijuin » Wed May 18, 2016 12:56 am UTC

In essence, a deflation rate of X% will have the same effect as an additional X% interest paid to all cash (or cash-denominated assets) held, including debts.

Hilister
Posts: 1
Joined: Sun Aug 14, 2016 5:09 am UTC

Re: Fictional Economics - Deflation in Basic Goods prices

Postby Hilister » Mon Aug 15, 2016 11:29 am UTC

duckshirt wrote:Gold does have some intrinsic value. But the role of gold in the gold standard is not to back it with something immediately useful, but to prevent flight from a fiat currency/hyperinflation or government manipulation.


Do you think it is advisable to collect gold and keep inside the safe than keeping cold cash inside a cash vault for the years to come? I am considering the idea of venturing into buying gold.

User avatar
ucim
Posts: 5644
Joined: Fri Sep 28, 2012 3:23 pm UTC
Location: The One True Thread

Re: Fictional Economics - Deflation in Basic Goods prices

Postby ucim » Mon Aug 15, 2016 2:25 pm UTC

In real economics....

If you simply want to store value, you need to consider how desirable the item will be in the future. Fiat currency is subject to inflation, and inflation seems to be a goal of monetary policy. This means that cash becomes less valuable with time, compared with goods and services. It's hard to store services, so goods are... gooder.

Of the goods, gold is pretty classic. It's dense, rare, stable, and has a history of being valued. So, between cash and gold, I'd opt for gold.

In fictional economics, it depends on what the parameters of your fiction are. Given the OP, I notice that "cash" has gold built-in. So I'm not sure it makes a difference.

For a (real) parallel, it's better in the real world to hold cash as opposed to holding computers; computers are getting cheaper faster than money is. If gold in your fictional system is like that, then cash is better.

Jose
Order of the Sillies, Honoris Causam - bestowed by charlie_grumbles on NP 859 * OTTscar winner: Wordsmith - bestowed by yappobiscuts and the OTT on NP 1832 * Ecclesiastical Calendar of the Order of the Holy Contradiction * Please help addams if you can. She needs all of us.

User avatar
Quizatzhaderac
Posts: 1510
Joined: Sun Oct 19, 2008 5:28 pm UTC
Location: Space Florida

Re: Fictional Economics - Deflation in Basic Goods prices

Postby Quizatzhaderac » Mon Aug 15, 2016 3:09 pm UTC

Hilister wrote:Do you think it is advisable to collect gold and keep inside the safe than keeping cold cash inside a cash vault for the years to come? I am considering the idea of venturing into buying gold.
Physically keeping gold as opposed to a keeping a financial instrument is generally pretty pointless. Apart from mad max situations, the benefits are mainly in avoiding the law (which I won't advise you on the details), and still, unless you're a drug dealer or something, you should be much more worried about it being physically stolen. Within a mad max situation, lot of people are going to want to trade their gold for Ramen noodles.

As for gold as an investment, it might be a good idea, you can probably get better advice from the the first hit of a google search for "gold outlook". As for myself, I'm biased against investments that don't inherently grow. Whether or not it is going to happen, it makes sense for gold to stay at the same value forever. Long term, the concept of typical stocks and bonds not returning more than was put in doesn't make sense.

For the most vanilla investment I'd suggest a S&P500 index fund.
The thing about recursion problems is that they tend to contain other recursion problems.

Tyndmyr
Posts: 10175
Joined: Wed Jul 25, 2012 8:38 pm UTC

Re: Fictional Economics - Deflation in Basic Goods prices

Postby Tyndmyr » Mon Aug 15, 2016 3:36 pm UTC

There's also a certain coolness in having goods. Like, say, a treasure hunt as part of your will or something. An actual chest of gold or what not would be badass.

That's probably hard to quantify in any economic sense, though.

User avatar
Zamfir
I built a novelty castle, the irony was lost on some.
Posts: 7313
Joined: Wed Aug 27, 2008 2:43 pm UTC
Location: Nederland

Re: Fictional Economics - Deflation in Basic Goods prices

Postby Zamfir » Mon Aug 15, 2016 5:46 pm UTC

Also expensive, unless It's a very very small chest.

What size can a chest be before it feels cheatingly small? Say, 0.5x0.3x0.2 meter? (In Mickey Mouse units, that's 1.66x1x0.66 ft).

Let's say 2.5cm walls, 2/3 full, random packing factor 0.5, 18 carat gold coins. Gives me 84 kilos of gold, over 3 million euros worth of gold. Perhaps you can push it down to a single million. But that might start to feel miserly, for a treasure chest...

User avatar
Quizatzhaderac
Posts: 1510
Joined: Sun Oct 19, 2008 5:28 pm UTC
Location: Space Florida

Re: Fictional Economics - Deflation in Basic Goods prices

Postby Quizatzhaderac » Mon Aug 15, 2016 6:21 pm UTC

Or maybe go with a different definition of "chest"
Image
The thing about recursion problems is that they tend to contain other recursion problems.

Tyndmyr
Posts: 10175
Joined: Wed Jul 25, 2012 8:38 pm UTC

Re: Fictional Economics - Deflation in Basic Goods prices

Postby Tyndmyr » Mon Aug 15, 2016 6:41 pm UTC

Zamfir wrote:Also expensive, unless It's a very very small chest.

What size can a chest be before it feels cheatingly small? Say, 0.5x0.3x0.2 meter? (In Mickey Mouse units, that's 1.66x1x0.66 ft).

Let's say 2.5cm walls, 2/3 full, random packing factor 0.5, 18 carat gold coins. Gives me 84 kilos of gold, over 3 million euros worth of gold. Perhaps you can push it down to a single million. But that might start to feel miserly, for a treasure chest...


You can probably pad it out some with silver, etc. Some gems are surprisingly reasonably priced, and give an appropriately treasure-like feel.

But yes, a chest of treasure isn't going to be terribly cheap.

And we haven't even started discussion construction costs for the dungeon and necessary traps.

User avatar
Quizatzhaderac
Posts: 1510
Joined: Sun Oct 19, 2008 5:28 pm UTC
Location: Space Florida

Re: Fictional Economics - Deflation in Basic Goods prices

Postby Quizatzhaderac » Mon Aug 15, 2016 7:13 pm UTC

One of the secrets of the industry is that those dungeons are HEAVILY reused.

Any given dungeon will have a half a dozen outstanding quests targeting it. With the final boss and treasure switched out at the last moment for whichever hero shows up that day.

About once a year they move around the modular walls, decorations, and repaint.

While this seems cheap, one must keep in mind that it takes 100,000 times longer to build a dungeon than to explore it.
The thing about recursion problems is that they tend to contain other recursion problems.

User avatar
Zamfir
I built a novelty castle, the irony was lost on some.
Posts: 7313
Joined: Wed Aug 27, 2008 2:43 pm UTC
Location: Nederland

Re: Fictional Economics - Deflation in Basic Goods prices

Postby Zamfir » Tue Aug 16, 2016 9:32 am UTC

Any given dungeon will have a half a dozen outstanding quests targeting it. With the final boss and treasure switched out at the last moment for whichever hero shows up that day.

Which brings us back to the OP, and how fictional medieval societies can manage the money supply. Straight from Keynes' General Theory, though that has more of a Steampunk flavour:
Keynes wrote:If the Treasury were to fill old bottles with bank-notes, bury them at suitable depths in disused coal-mines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of repercussions, the real income of the community, and its capital wealth, would probably become a good deal greater than it actually is."


While this seems cheap, one must keep in mind that it takes 100,000 times longer to build a dungeon than to explore it.

Infrastructure spending usually has a strong GDP multiplier, but a relatively long lead time. So if you expect a short recession, you put more treasure in existing dungeons for a fast injection of currency in the economy. For a severe recession you switch to a crash program of dungeon-building, to benefit from the higher multiplier.

User avatar
Quizatzhaderac
Posts: 1510
Joined: Sun Oct 19, 2008 5:28 pm UTC
Location: Space Florida

Re: Fictional Economics - Deflation in Basic Goods prices

Postby Quizatzhaderac » Tue Aug 16, 2016 2:51 pm UTC

Hmm... that makes a certain amount of sense.

I'd also suspect that the dungeons serve the purpose of controlling and regulating violence.

The logical and socially acceptable thing to do (if one has a capability/tendency towards violence) is to go to the dungeons and kill monsters.

As for the monsters, they'd tend to attack humans wherever they find them, so it's best that they attack adventurers who are both more capable of dealing with them and who have implicitly agreed to fight them. These worlds also tend to be ones where disarmament is impossible and there are radical differences in martial capacity between individuals.

There must be some method of attracting the monsters of finite effectiveness; the dungeon can acquire an increased density of monsters, but not draw them all in. A one time draw in of monsters would be offset by the outdoor monsters just breeding the outdoor population to it's original level. They'd need to be continuously eliminated from the dungeon for it to continuously draw them in.
Last edited by Quizatzhaderac on Wed Aug 16, 2017 9:41 pm UTC, edited 1 time in total.
The thing about recursion problems is that they tend to contain other recursion problems.

Tyndmyr
Posts: 10175
Joined: Wed Jul 25, 2012 8:38 pm UTC

Re: Fictional Economics - Deflation in Basic Goods prices

Postby Tyndmyr » Tue Aug 16, 2016 2:57 pm UTC

Zamfir wrote:
Keynes wrote:If the Treasury were to fill old bottles with bank-notes, bury them at suitable depths in disused coal-mines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of repercussions, the real income of the community, and its capital wealth, would probably become a good deal greater than it actually is."


This, of course, is the broken dungeons fallacy. Sure, you're employing the peasants, but they're not creating new doubloons, merely working harder to move around the existing ones.

User avatar
Zamfir
I built a novelty castle, the irony was lost on some.
Posts: 7313
Joined: Wed Aug 27, 2008 2:43 pm UTC
Location: Nederland

Re: Fictional Economics - Deflation in Basic Goods prices

Postby Zamfir » Tue Aug 16, 2016 3:28 pm UTC

In that analogy, it would be that broken dubloon fallacy. Dubloon::window, dungeon::stone

But I don't think the broken window fallacy works for currency anyway? Unless the optimal currency policy is one that creates lots of currency at little cost.

Tyndmyr
Posts: 10175
Joined: Wed Jul 25, 2012 8:38 pm UTC

Re: Fictional Economics - Deflation in Basic Goods prices

Postby Tyndmyr » Wed Aug 17, 2016 7:59 pm UTC

Doubloon is wealth(which doesn't quite work for the name, I think.), because it's actual gold, and dungeon based economies generally lack fiat currencies. Therefore, there's no good way to decouple the two, and every random adventurer who finds a vast hoard of treasure both introduces a wealth of precious metals to his society, and simultaneously destroys his economy as currency devaluation is inextricably tied to the plummeting metal price.

The LOTR saga is a cautionary tale of the results of dragonslaying hyperinflation.

User avatar
Quizatzhaderac
Posts: 1510
Joined: Sun Oct 19, 2008 5:28 pm UTC
Location: Space Florida

Re: Fictional Economics - Deflation in Basic Goods prices

Postby Quizatzhaderac » Thu Aug 18, 2016 6:06 pm UTC

Tyndmyr wrote:This, of course, is the broken dungeons fallacy.
The key phrase there is "with the help of repercussions" real wealth would increase. Also key to Keynes' claims is non-trival unemployment. Previously unemployed people are digging up the bottles so the first order effect is bottles versus nothing, as opposed to the broken window fallacy where it it window repair versus running shop.
Doubloon is wealth(which doesn't quite work for the name, I think.), because it's actual gold, and dungeon based economies generally lack fiat currencies. Therefore, there's no good way to decouple the two, and every random adventurer who finds a vast hoard of treasure both introduces a wealth of precious metals to his society, and simultaneously destroys his economy as currency devaluation is inextricably tied to the plummeting metal price.
The significant majority of gold is owned for purposes expressly related to it being a fungible asset. The majority of the remainder is for jewelry/ornamentation which is largely dependent on the perception of being valuable. Using naive supply/demand curves, gold is overpriced by about 216% (sqrt(total use/natural use)-1). Probably much more in societies that don't need it's electrical properties and do use it as physical currency.
The thing about recursion problems is that they tend to contain other recursion problems.


Return to “Serious Business”

Who is online

Users browsing this forum: Yahoo [Bot] and 11 guests