Category Archives: Economics

Building an Economy: Capital

12 Thursday May 2022

Posted by in Economics, Finance, Politics, Politics for Worldbuilders, State Formation, Writing

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Last post, we briefly noted that economies need capital to generate wealth and resources. Sometimes this amounts to a circular definition: we use money to make money. Moreover, money is infinitely flexible: we can use money profitably in a number of ways. If you have a moneymaking venture, and opportunities shift, you can easily shift your money in response. And it doesn’t have to be money; other forms of capital are also flexible and easily repurposed, like a computer, or a college degree in English.

But some kinds of capital are very specific: an aluminum-smelting furnace is designed to do one thing, smelt aluminum. You can’t use an aluminum smelter to bake bread, or dig a hole, or weave cloth. The smelter is capital, but it is a form of capital that cannot be repurposed; and if you tried to sell it, you’re likely to get back a fraction of its original cost. That changes things a great deal. If you invest in capital that is inflexible—whether because it has only a few use cases, or literally cannot be moved once it’s built—you’re committed. You will resist changes that make your capital worthless, and you will likely continue trying to pursue the original venture even after it stops making sense.

This has effects in the economy narrowly, but also in politics. Michael Hiscox argues that if the prevailing technology of capital in a society is flexible, capital can readily shift between uses and the important distinction is between people with lots of capital and those with little. As a result, you would tend to see broad political coalitions based on class: capital against labor, or haves versus have-nots. Policies favoring particular industries would be of little importance in the political system, since failing industries will simply have capital shift out of them with little drama; more important would be how to allocate the economy’s gains in general.

On the other hand, if capital is largely specific and inflexible—for example, large factories built around a single product that cannot be retooled easily, or large sources of natural resources like oil—then it will be difficult to shift between industries, and the economy will see a wide variety of industry-based interest groups. In such a setting, the workers in these industries would tend to be allies of their bosses; if the factory closes down, both groups suffer. And each industry will fight fiercely to defend its position, to push policies that favor it, to defeat policies that threaten it, and to squelch potential disruptor industries.

In the real world, economies tend to feature a mix of flexible and inflexible capital, which complicates things. (Some oligarchs’ wealth might be based on flexible capital, for example, and others’ on inflexible capital, which would potentially put them in conflict.) And it gets even more complicated once you factor in other types of resources—particularly land and labor, which we will discuss in future posts. (But we’ll be going nice and slowly, not least because I’m still figuring out the best way to present all of these factors, and build them into a workable model!).

Still, just the difference caused by flexible versus inflexible capital is already a powerful tool for story conflict. Not bad, eh?

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(This post is part of Politics for Worldbuilders, an occasional series. Many of the previous posts in this series eventually became grist for my handbook for authors and game designers, Beyond Kings and Princesses: Governments for Worldbuilders. The topic of this post belongs in the planned second book in this series, working title Tyranny for Worldbuilders. No idea when it will be finished, but it should be fun!)

Building an Economy: The Struggle Between Urban and Rural

10 Tuesday May 2022

Posted by in Economics, History, Politics, Politics for Worldbuilders, State Formation, Writing

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As Trotsky noted, much of politics is about “who and whom?” In other words, which social group gets to benefit at which other group’s expense? This plays out vividly in the conflict between rural farmers and city workers—and governments often take the side of the city. This clash of interests can be a fantastic engine for fictional conflict, in your stories and your worldbuilding.

(This post is largely based on Robert Bates, Markets and States in Tropical Africa, with some flavor from Charles Tilly, James C. Scott, and David Graeber.)

We said before that cities play important roles in generating wealth and projecting state power, but that their size is limited by their access to food (or more abstractly, the energy surplus of the society). This also means that city dwellers and farmers have precisely opposite interests with regard to the market price of food: farmers are selling food and would like a high price for their crops, but city dwellers must buy food and want a low price.

Another limiting factor is capital, the fuel not for people’s lives but for their ability to produce goods and infrastructure. (This often takes the form of money, but remember that money is simply a convenient representation of other things people need—natural resources, machines, human labor, et cetera.) This presents a problem for state rulers in a dangerous world: if they want to develop modern industries and manufacturing in a country that is presently agrarian, where do they get the capital from? Often, the best available source of capital is the rural farmers—who might be individually poor, but still collectively have the largest available source of capital: their crops.

Worse, keeping the cities happy is often far more important to states than is keeping rural provinces. The reason is simple: the state officials are in the cities. If the state antagonizes a bunch of farmers a hundred miles away, they can do little to the state officials; but if the state antagonizes a bunch of city dwellers, the city dwellers will riot and perhaps lynch state workers or even overthrow the government entirely.

Thus, states trying to build up their cities must somehow balance off three competing priorities:

  • keep food prices low;
  • extract capital from the rural populace and use it to develop city industries (or perhaps to build a military, or other purposes); and
  • don’t leave farmers so poor that the food supply dries up.

In ancient times, this was done straightforwardly. Taxes were levied on food directly, which the government then distributed to its own personnel and to associated artisans; and people were also drafted for terms of forced labor (“corvée labor”), their own bodies providing the capital that the state needed. (The Bible, for example, attests to people being drafted for three months out of every twelve during the period of King Solomon’s great building projects.) If taxes became too burdensome, the people would resist, but as long as the state didn’t push the populace to the breaking point they could access a fair amount of resources with little trouble.

In more modern times, states had some fancier tools available. Robert Bates writes of postcolonial African states, which were able to make use of a preexisting colonial institution, the monopsony—a single buyer which farmers were obligated to sell all of their cash crops to at a given price. (As opposed to a monopoly, a single seller of a good.) This allowed states to extract foodstuffs from the rural populace at artificially low prices, which could then be sold to urban workers or exported for cash. (To do so, they often had to ban export of crops as well when the world market price was higher than what they were paying.) This meant that urban workers could pay low prices for their food, and the state had lots of capital available for economic development (or other, less useful purposes).

But how to sustain the farmers if you’re paying dirt-cheap prices for their goods? The answer was to subsidize farming inputs, such as machinery, fuel, and access to cheap credit. This had the additional advantage to the state that you could direct the subsidies to chiefly benefit your own supporters, often wealthy members of the government who entered farming specifically to soak up all the subsidies they could. In practice, therefore, a regime of subsidized inputs and too-low output prices would squeeze the peasants while benefiting large farms owned by elites.

(Meanwhile, farmers often resisted by shifting some of their crop production to goods not covered by the monopsony, and by selling some of their goods on the black market. Bates estimates that no more than 30% to 40% of agricultural production was captured by the monopsonies, on average.)

Such systems in real life often performed worse than expected, because the states’ programs of economic development were poorly run, frequently corrupt, and prone to pursue prestige industries such as heavy manufacturing that were impossible to sustain with the countries’ given level of technology, human capital, and infrastructure. But that is a story for another post. For now, the point is to highlight the conflicting interests between urban and rural populations—and how the state, trying to augment its own power and economic resources, will favor the city over the countryside.

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(This post is part of Politics for Worldbuilders, an occasional series. Many of the previous posts in this series eventually became grist for my handbook for authors and game designers, Beyond Kings and Princesses: Governments for Worldbuilders. The topic of this post belongs in the planned second book in this series, working title Tyranny for Worldbuilders. No idea when it will be finished, but it should be fun!)

Building an Economy: Types of Cities

06 Friday May 2022

Posted by in Economics, History, Politics, Politics for Worldbuilders, State Formation, War, Writing

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Part of worldbuilding is deciding on the map of your territory, whatever that looks like. (A vast empire sprawling across continents, or a tiny province nestled in the hills, or a series of star systems?) And part of that process involves deciding where the cities are. As my last post indicates, cities play a vital role in the economy—but they can also play a key role in politics directly. We’ll discuss that aspect in more detail in future posts, but for now, the key point is that cities can be built for several different purposes—and which purpose a given city was built for will explain where it is located geographically.

So this post will inventory those purposes, to set the stage for our future discussions of cities in politics.

(The concepts here are largely taken from Jane Jacobs’ Cities and the Wealth of Nations, as discussed in the previous post; Charles Tilly’s Coercion, Capital, and European States, AD 990-1992, which we’ll discuss more in the future; and my hazy memories of Fernand Braudel.)

First, we should define our terms. A city, as I’m using the term, is a large settlement of people, most of whom are not producing food. This distinguishes a city from a village, which might feature a few specialists like a blacksmith or cartwright, but will mostly consist of farmers or ranchers. By contrast, a city depends on the efficient production of food by others, and its transport to the city, often from the surrounding rural areas.

A society’s capacity to support cities will depend on the size of its energy surplus and its ability to efficiently transport and distribute food. Tilly notes that during the Middle Ages, perhaps 10% of the European populace lived in cities because agriculture and especially transportation could not support more. An oxcart of grain could travel perhaps a few hundred kilometers before the oxen had eaten more than they carried. The most efficient transport was over water, either by sea or on the rivers. It was not uncommon for waterfront warehouses to be filled to bursting with grain that could not find a buyer, while a few hundred miles inland villages were starving.

By contrast, today over 80% of the North American population lives in urban regions, and over 56% of the world’s population. We commonly transport food across the globe, and many people have never even seen a farm, much less worked on one.

So why do people live in cities, and why do they get built in the first place? For our purposes, we’ll focus on the following:

  • commercial cities,
  • industrial cities (loosely defined), and
  • administrative/garrison cities.

And of course, once a city exists and starts to grow, it often takes on aspects of the other roles as well.

Commercial Cities

Cities that naturally emerge to facilitate commerce and trade are the most common, the most “natural,” and the most easily sustained. The simplest model for a commercial city would be one that grows up in the middle of a collection of rural villages; all the villagers from the different villages converge in the center to trade with each other, and somebody has the bright idea to build houses there and set up permanent establishments to more efficiently cater to the villagers. It grows over time as more industries set up, and eventually could start trading with other more distant cities as well; eventually its size reaches the limit of what its food supply can support, but its wealth might continue to grow if more valuable industries develop.

The Platonic ideal of a commercial city springs up on its own, as a result of people freely coming to the city and setting up shop. People are attracted by the prospect of working in a trade, or markets for their goods produced back at the farm, or even finding a spouse. If economic prospects in the city dim, it will lose population as people head for greener pastures.

The biggest commercial cities are at the intersection of trade routes and along the coast or rivers (the highways of the old world), especially where a river reaches the sea or several rivers intersect—or even better, if they don’t actually intersect, but pass close enough together that one can transport goods overland from one river to the other, passing through the city in the process. Think of Paris, Lyon, London, Amsterdam, the great Italian cities, and the like.

Conversely, if the trade routes shift, the city might find itself cut off from much of its commerce. For example, when the railroads were laid down across the United States, they largely ran along flat terrain since trains could not climb slopes of more than a few degrees. Communities that had previously lived in hilly regions near small rivers found themselves sucked inexorably into the lowlands as trade patterns shifted, and many towns and cities dried up as a result.

Industrial Cities

By “industrial,” I mean a city whose main purpose is to provide a place for people to live while they work at their jobs. This could include “factory towns” or “company towns,” essentially the dormitories of a major company’s factory workers; mining camps, where a bunch of individuals collect together as they work in the surrounding areas; or even “college towns,” where a college or university is placed in the middle of nowhere and a town grows up around it to support it.

Naturally, the industrial city will be placed convenient to the site of the work, be it a factory, a region rich in raw materials, or the like. It will have to have access to a food supply, but will pay for it with the proceeds of its production, rather than as a hub for trade in general. In some cases, the industrial city itself is a center for food production (making it an edge case for our definition of “city” above), but differs from a large village due to its size and that it mainly produces for export.

Industrial cities are common in supply regions that disproportionately produce materials for export (see previous post). Over time, industrial cities may develop elements of the commercial city as well, which might form the basis of more durable prosperity; but if such development is limited, the industrial city will rise and fall with the fortunes of its industry.

Sometimes, industrial cities will emerge spontaneously, especially of the mining-town variety. Other times, these cities will be built at the initiative of the cornerstone company or industry, which invests heavily in the city as a part of its production base and might even import workers from elsewhere. Sometimes, industrial cities can be built by governments trying to encourage particular industries or patterns of development, and sometimes they are populated by force—with slaves, or serfs, or other captive peoples carried off from their homes.

Administrative/Garrison Cities

These cities have little or no commercial basis, at least not initially; they are typically created and supported by governments, to project government power and authority.

Garrison cities are bases for military units; some might be in the heartland, where they can be easily supplied, but others might be placed on the frontier for defensive or offensive purposes. Often they are walled, or might be actual castles or fortresses. Such garrisons must be provisioned at great expense if they are outside the normal trade routes; sometimes they even grow their own food. A garrison would feature the soldiers themselves, plus their families and whatever camp followers or support specialists would be necessary, such as smiths or doctors. Depending on the garrison, other civilians might live there as well to sell services to the soldiers, hoping to drain the cash of a captive populace of bored young men (or women?) with little else to do.

(Some garrison towns might play host not to state military units, but to strong mercenary units.)

Administrative cities might overlap with garrisons, but are generally placed in the heartland. Their main function is to collect taxes, or otherwise enforce the laws. They act as nerve centers for the bureaucracy, often including the state security services if these are different from the military. While garrisons are placed where military necessity dictates, administrative cities are placed where the people are, the better to control them. People living in an administrative city are usually state functionaries, or those selling services to them. (Think of Washington DC, for example.)

Such cities produce few or no economic goods and rely on tax revenue, and when the state stops supporting them they wither away (unless they have developed a commercial or productive basis in the meanwhile). The exception is when a garrison city, or an administrative city hosting a police force, simply takes food from surrounding regions at swordpoint to support itself once the tax money dries up.

Cities and Power

As we noted above, cities can play multiple roles at once, and many do once they have existed long enough. But the initial location of a city is determined by its starting role; and once it takes root, it influences economic, political, and strategic changes around it. Cities are critical tools for the development of economic and political power, so where you put your cities will condition the conflicts that break out in your stories.

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(This post is part of Politics for Worldbuilders, an occasional series. Many of the previous posts in this series eventually became grist for my handbook for authors and game designers, Beyond Kings and Princesses: Governments for Worldbuilders. The topic of this post belongs in the planned second book in this series, working title Tyranny for Worldbuilders. No idea when it will be finished, but it should be fun!)

Building an Economy: Cities and the Wealth of Nations

13 Wednesday Apr 2022

Posted by in Economics, Politics, Politics for Worldbuilders

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Suppose you’re writing a story that involves trade between cities, or maybe between a city and a rural area. Maybe your protagonist is a merchant, or a farmer selling goods in the marketplace, or the Lord Mayor. So you’d better have at least some concept for how a city economy works, and how cities interact with their surrounding regions. There is much to say about the topic, of course; Fernand Braudel (for one) wrote three massive books on cities and capitalist economies. But you’re not writing an economics textbook; you just want a simple yet powerful model to sketch out some background for your story. If so, you’re in luck. I love simple and powerful models, and here’s a good one.

Writing in the 1980s, the pioneering student of cities Jane Jacobs produced a short, scintillating book that should have been like a torpedo into the waterline of conventional economics, Cities and the Wealth of Nations. She argued that most national economic policy was wrongheaded, because it focused on economic activity at the national level, rather than at the level of the fundamental unit of economic activity: the city. Globalized supply chains of the type we are familiar with, on the other hand, don’t tend to produce regional prosperity, because they don’t generate complementary webs of economic activity in the places that feature nodes of the supply chain.

Needless to say, Jacobs’ work has not been popular among the business class or conventional economists. And many of her arguments get complicated by the radical decentralization of the internet. Still, especially for authors writing about pre-internet societies, Jacobs’ work provides a useful set of tools for understanding complex economic effects. If you want to feature economic change as a major contributor to your plot, read on.

*****

Jacobs argued that the main way that a city can generate sustainable prosperity is by developing local industries that produce things that the city formerly imported. This allows the city to internalize the profits that formerly went to the trade partners. But more importantly, it allows the city to develop webs of technical expertise and complementary industries, which it can then build on to grow related industries and replace more complex imports, and so on.

Meanwhile, the city does not import any less than it once did; it may in fact import more as it grows wealthier. But it does import different things than before (including innovative goods produced by other cities), raising its material standard of living. Imports thus play three roles: they are consumed; they are the earnings of successful economic development, and thus stimulate that development; and they are candidates for local replacement. (This makes them different, and more economically potent, than simply throwing money at a city in order to magically produce economic growth.)

(This echoes our discussion of energy surpluses as the spur to material and cultural development.)

As the city replaces imports, it exerts five kinds of forces on surrounding regions:

  • Enlarged markets for new goods from rural regions or other cities;
  • Increasing numbers and kinds of jobs in the import-replacing city;
  • Displacement of former city industries into surrounding rural areas;
  • New uses of technology, especially to increase rural productivity; and
  • Growth of city capital.

When these five forces are in balance, they tend to make the surrounding region more prosperous as well, anchoring a general growth in wealth and human flourishing. That is, a balanced city turns its hinterland into a city region. A city region benefits from the increased economic activity of the city, but is not distorted by it; it still produces more for its own use than for export to the city. But the availability of city markets for rural goods, city jobs for people who lack employment at home, and new industries spilling out from the city, along with new productive technology and the money to pay for its use, make the city region thrive.

The five forces often do not act equally, however. When one or two of the forces acts with disproportionate power on a given region, the region becomes distorted in characteristic ways.

A stagnant region, for example, features widespread poverty, a sluggish economy, and a low level of technology. If a nearby city becomes more prosperous, the stagnant region does not benefit. It cannot produce much that the city needs, and for whatever reason cannot support the industries that are being displaced from the city. What does happen is that the most productive and adventurous people living in the stagnant region pull up stakes, and move to the city to work. The stagnant region, already in a desperate state, becomes hollowed out as its workers leave. If workers send remittances home, that can help improve the standard of living of those still there; but only by funding current consumption. Such remittances don’t tend to generate local industries and economic growth, because the stagnant region cannot support new businesses or work the way that the city can.

In a clearance region, on the other hand, new technology makes production more efficient, displacing some of the existing workforce, but few or no new jobs are forthcoming. Many people are driven from the land or from their previous jobs, and they suffer as a result. The ones who are able to stay, on the other hand, benefit from the new technology and their improved productivity. For example, in the 1970s, India, seeking to improve conditions for the rural poor, sponsored the development of a bicycle-powered spinning wheel. Using it, a villager could produce as much yarn as twelve workers using traditional spinning wheels. However, the other eleven villagers, who had spent their whole lives spinning wool, had no other work to do; the new spinning wheel simply made them destitute, even as the first worker benefited. So India could not dare to encourage the use of the labor-saving device it sponsored.

If growing city capital and growing city markets combine in an unbalanced search for raw materials, a region can be transformed into a supply region, where economic activity is dominated by the extraction and transport of raw materials for export (like timber, iron, or coal). Without new local industries to balance out the economic effects of the city’s inexorable need for raw materials, most workers in the supply region will depend on supplying the one thing that the city wants. Extractive activity doesn’t tend to generate new webs of productive or commercial expertise in the supply region; the region instead goes through unproductive booms and busts as its main resource becomes more or less valuable. This is the “banana republic,” the “oil town,” where momentary wealth goes into expensive imports from the outside world that do not generate sustainable prosperity in the region itself. (Partly due to the “Dutch Disease” or “Resource Curse,” which I hope to discuss in a later post.) If the supply region is particularly unfortunate, its populace may even be enslaved by the armies of the cities that need its resources. The Congo Free State was a particularly tragic example.

Finally, some regions are lucky enough (or so they think) to attract an economic transplant. These are large factories belonging to huge companies trying to create a regional, national, or even global supply chain. However, transplant factories are not integrated into the local economy, but are like self-contained bubbles of productive capital, parachuted from the sky. Unlike factories that emerge organically in a city or city region, the transplant factory might employ local workers but does not depend on local support industries and so does not generate complementary economic activity or technological development. Specialized equipment and the technicians who get it working are flown in from the company’s home base; production inputs might come from another country, or several other countries; and the local workers don’t tend to learn transferable skills. Even though local governments often compete furiously to attract such transplants, they rarely end up generating broad growth as the governments hope.

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Now, Jacobs’ theory predated the internet, and even when it was written it had detractors. But for authors’ purposes, it gives a handy set of conceptual tools we can use. Five major forces that productive cities exert on other cities or regions; four examples of what happens to regions when those forces are out of balance. Easy to wrap your head around, but rich enough to generate lots of story texture.

Plus, material for new stories. (How many fantasy stories spend a lot of time on the trade between cities? I’d sure like some more.)

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(This post is part of Politics for Worldbuilders, an occasional series. Many of the previous posts in this series eventually became grist for my handbook for authors and game designers, Beyond Kings and Princesses: Governments for Worldbuilders. The topic of this post belongs in the planned second book in this series, working title Tyranny for Worldbuilders. No idea when it will be finished, but it should be fun!)

Building an Economy: Energy

11 Monday Apr 2022

Posted by in Economics, History, Politics, Politics for Worldbuilders, State Formation, Writing

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In my quest to give worldbuilders powerful tools to make their stories cooler, I’ve hesitated for a long time to tackle the subject of wealth and economics. Economics matters for politics quite a lot, and authors who want grist for compelling conflicts can find an embarrassment of riches here, so to speak. But how the heck do you turn such a complex subject into a useful model?

However, my recent post on the vicious internal politics of the Russian economy proved illuminating. I now think that the correct approach is not to try and jam all of political economy into a single model. Instead, we’re going to lay out several distinct lenses that you can pick and choose between, to organize your worldbuilding the way you want it. No one lens will tell the whole story, and we’re not going to try. But each lens will highlight a specific set of conflicts that can play out in economic behavior. In your own stories, you can focus on a single lens that clarifies the conflict you want to write about, or layer several lenses on top of each other if you’re feeling ambitious.

(This is similar to how we discussed empires in a previous post.)

We begin with the most fundamental level of economic analysis: energy.

(The following is largely based off of ecologist Joseph Tainter’s massively useful book The Collapse of Complex Societies. It also takes some from Lewis Mumford’s Technics and Civilization.)

By “energy,” I don’t just mean electricity or oil, although these are important. “Energy” includes any accessible way to turn a resource into work. The most fundamental energy source is food. If we don’t eat, we die. So, much of our activity is organized around producing calories and other nutrients that we can then consume. We invest the energy source of human labor and transform it into calories, which then are turned into more human labor to produce more calories.

Let’s say that it takes a full day’s work for a man to get enough food to feed himself. If so, the man would be in a desperate state: no clothing, no shelter, no leisure activities other than collapsing at the end of the day in total exhaustion. All activity would be directed toward getting food. A group of people in such a state would have a low level of culture, hardly worthy of the term.

Now, suppose that this group developed some way to get food more efficiently. It could be a new division of labor between male hunters and female foragers that raises the productivity of each; it could be finding a new, energy-dense food like tree nuts or buffalo. In either case, suddenly the group has a new surplus of food production. People have a few hours in their day to do something other than produce food. Or, the work of one person can now feed more than one person; so not everyone needs to gather food, and some people can devote their time to other kinds of work.

Note that the availability of an energy surplus presents options for how to benefit from it. Perhaps everyone gets to work a little less hard, but then devotes the rest of their time to leisure. The society that results would have about the same low level of material wealth, but might develop a rich culture of games and storytelling. Perhaps everyone spends less time gathering food, but they also develop different arts and crafts with the rest of their time; people might make better clothing and live in more comfortable shelters, and accumulate various prestige goods. Perhaps most people keep gathering food as before, but the surplus food goes to feed a small class of artisans who do useful work for the group: blacksmiths, potters, tanners. And perhaps another class of functionaries who do rather less work: chiefs, priests, poets, or professional warriors.

The development of a group and its culture depends on the availability of an energy surplus, its source, and its size. Possibilities for cultural development are very different if the average person works 12 hours a day to produce enough food for everyone, compared to 11 hours, or 3. How a culture responds to the availability of an energy surplus will dramatically influence its future development. Perhaps everyone will benefit, or perhaps some people will benefit from the surplus and others will work as before. And the manner in which they work and benefit could vary widely.

But back to the source of the surplus. A surplus can be generated in three main ways:

  • exploiting a new energy source;
  • using existing energy sources more efficiently or productively; or
  • allocating the surplus unequally between persons.

Suppose a farmer is working a small farm with hand tools. It’s grueling work and long. But then she gets the idea of yoking a donkey to a plow. Suddenly, she controls a new source of energy than just human labor: animal labor. The animal can do a lot of the work, and the farmer needs to work less hard, or can produce more food. And the animal eats food that people would not. The energy surplus grows.

Then, benefiting from the strength of her donkey, the farmer develops a new and heavier plow that can produce more food with the same effort. The energy surplus grows again.

Then she realizes that if animals can be made to work for a larger energy surplus, so can people. Slavery is born: slaves are made to work for more of their day than their owners would have, and the surplus is captured by the owners. The benefits of the energy surplus are divided unevenly. It gets even worse if the slaves are fed less than free people would eat; the energy surplus grows and the slavers benefit, but the slaves may waste away and die. The slavers would have to capture new slaves, perhaps by raiding other groups, perhaps by enslaving unfortunates within their own group.

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For most of human history, the main energy inputs were human labor and animal labor. Firewood too; the chemical energy from fire was used in cooking food and keeping us warm, and later for other things as well. The invention of the sail turned wind into an important energy source, which made ocean transport much easier. But then the gear was invented: suddenly, kinetic energy from other sources could be transformed into useful work. The windmill and watermill were able to replace labor that was previously done by animals. Then came the steam engine, and suddenly coal became a useful energy source. Then the combustion engine and the battery, then nuclear power, and so on. Each new energy source brought benefits with it, but also brought political changes—in part because the people who controlled that energy were different.

In our time, the computer has revolutionized all of society. In this model it is not a new energy source, but allows us to use existing energy sources more productively. It also changes the allocation of our energy surplus, as unskilled labor becomes displaced and technical expertise becomes massively more productive than at any previous time in human history. The rise of robotics is already having similar effects, and those effects will grow as robots replace more and more human labor. We now must ask what we will do, as a society, with all the available human capacity that is no longer needed for its former employment.

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This discussion was quite brief, but you can already see how it provides a powerful way to think of economic conflict in your stories. We can add another layer and ask what happens when energy surpluses suddenly shrink. Suddenly, societal arrangements that worked with a given level of energy become unsustainable. If you want to know what happens next, check out Tainter’s book. (The title is a spoiler, though!)

*****

(This post is part of Politics for Worldbuilders, an occasional series. Many of the previous posts in this series eventually became grist for my handbook for authors and game designers, Beyond Kings and Princesses: Governments for Worldbuilders. The topic of this post belongs in the planned second book in this series, working title Tyranny for Worldbuilders. No idea when it will be finished, but it should be fun!)

Wealth, Power, and Social Orders

26 Thursday Apr 2018

Posted by in Economics, History, Politics, Politics for Worldbuilders, State Formation, Uncategorized, Writing

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(This post is part of Politics for Worldbuilders, an occasional series.)

Suppose there were two people on a desert island. One owns a crate of food; the other owns a gun. What is going to happen?

Very shortly, the person with the gun is going to also “own” the food; the other person might be dead, or might be reduced to the level of a slave. (In the immortal words of Clint Eastwood, “There are two kinds of people in this world…”)

This illustrates the fundamental problem of property’s relationship to power: if an actor has a lot of power but little wealth, it will often try to gain more wealth through violence. If an actor has much wealth but little power, it will often try to use its wealth to gain power—if only for self-defense! And this dynamic has played out throughout history, leading to endless cycles of bloodshed and misery.

To survive, as North, Wallis, and Weingast (NWW) argue, groups of people need to come up with some solution to this danger—a way to align the interests of those who have wealth and those who have power. This is called a social order.

NWW identify three kinds of social orders: the foraging social order, the limited-access or “natural” social order, and the open-access social order. Foraging bands deal with the problem of wealth and power very simply: group members have roughly equal wealth, physical strength, and social status. There is relatively little incentive to take more with violence, as the other group members will unite to destroy you.

As we will discuss fully at another time, egalitarian bands use several techniques to enforce social equality: malicious gossip, mandatory gift-giving, and the threat of splitting the group if one faction becomes too powerful, to mention a few. However, these methods do not guarantee success; it often happens that a respected chief is able to accumulate enough personal loyalty, wealth, and prestige that he can gain lasting control over the group, which is passed on to his descendants.

That brings us to the limited-access order, which has been the predominant mode of social organization throughout the history of states. In a nutshell, those with power are also given control over wealth as a consequence, in a tacit agreement between elites in order to minimize conflict between them. In the words of NWW, “By manipulating privilege, interests are created that limit violence.” The most obvious example was European feudalism, in which brigands with large armies “went legit” and set themselves up as landed aristocrats, along with supporting networks of bureaucrats and clergy to help them run things. As NWW put it, “In all natural states, economics is politics by other means: economic and political systems are closely enmeshed, along with religious, military, and educational systems.” One could also look at Soviet-style communism, in which wealth flowed to the regime leaders by virtue of their control over the military and police apparatus.

A key aspect of the natural order was that impersonal law and procedural equality did not exist. The regime was not a neutral arbiter of people’s social and commercial disputes; it existed to defend the privileges of the ruling coalition as a class, and thus your treatment by the regime depended on your personal relationship with the ruler or other elites. As NWW put it, “Personal relationships, who one is and who one knows, form the basis for social organization and constitute the arena for individual interaction, particularly personal relationships among powerful individuals.” This limited the ability for people to form complex organizations, in business or society more generally: if they could not settle disputes internally, the state would not do the job for them and the organization would collapse.

Partly, this was by design. Elites protected the value of their “rents” by deliberately restricting the ability of those outside the regime to organize groups of people. It may seem strange to us, in our society of mass organizations, but in the feudal era it was tantamount to treason to organize an independent guild of craftsman outside of the regime-sanctioned guild, or to have a town of people who swore loyalty oaths to each other. That was why English entrepreneurs needed to petition the Crown for the right to form a joint-stock corporation, for example. And in Communist or Fascist regimes, even such mundane organizations as chess clubs needed to be approved by the regime. In this way, a limited-access regime is able to retain control over economic activity and take its cut, and to prevent possible competitors from arising via new organized groups in the populace.

Again, the natural order is the most prevalent throughout history. It is almost inevitable for those with power to demand wealth, for those with wealth to seek access to power, for the two classes of people to become incestuously intertwined and then to use their power to suppress competition. Think of the relationships in many Latin American countries between oligarchs and generals. Think of the paramount business associations and unions found in much of Western Europe, organized and maintained by the state, which have the effect of protecting incumbents and squelching entrepreneurialism.

The biggest problem with the natural order, however, is that it is fundamentally unstable. If someone becomes too powerful or too wealthy too quickly, suddenly there is a mismatch between what he has and what he (or others) might want. This generally leads to a breakdown of the delicate balance of power in the regime, culminating in violence or even civil war. This is why, argue NWW, autocratic regimes tend to underperform democracies in economic growth over time: because their relatively better performance during good times is outweighed by frequent destructive episodes of civil war and social breakdown.

(This is a crucial reason why dictators need to gain control over their countries’ wealth: not merely out of greed, but to protect themselves from rich competitors. Regime outsiders who strike it rich represent a deadly threat to the regime.)

The third form of social order, the open-access order, is a historical anomaly: it first emerged only a few centuries ago in Britain, as elites gradually transformed their particular privileges into general rights (through a long and subtle process that NWW discuss in detail). This does not merely mean democracy, though Britain and the United States are the chief examples. In the open-access order, elites have no special privileges in law, and military power is removed from partisan politics or the extortion of wealth, becoming a neutral enforcer of the political system; it stays neutral because no single political or business leader has the opportunity to bring it under his or her control.

What distinguishes the open-access order, and what makes it work, is that anyone is allowed to enter politics or business, and to organize companies or political parties or activist groups without the permission of the regime. And you need both parts: political freedom is protected by economic dynamism, as new companies challenge the old leaders and displace them before they get too cozy with the government. Economic freedom is protected by electoral competition and turnover in political leadership, which makes policies that benefit the mass populace relatively more attractive to ambitious politicians compared to policies that benefit a handful of powerful companies. (See the post on selectorate theory.) NWW call this the “double balance.”

It should be noted, however, that for all its achievements the open-access order is profoundly fragile and in danger of backsliding into a natural regime. This can happen in either of two ways (or both simultaneously). First is for the government to become too powerful relative to the economy, in which case it can throttle free competition. Second is for individual businesses to become too wealthy and influential compared to their competitors or the government, which leads businesses and governments to build corrupt relationships with each other, with businesses gaining special privileges and returning the favor by keeping favored politicians in power. To a degree, such backsliding is always present (the military-industrial complex comes to mind, as does the growing political power of Google, Amazon, and Facebook). And the natural tendency is for such collusion to accumulate like layers of sediment over time.

As Mancur Olson warns in his The Rise and Decline of Nations, it is always easier to organize a small group of powerful actors to lobby government for some subsidy, than it is for the mass of the citizens to organize against them. This is because the average person is barely affected by the average subsidy and won’t bother to get involved, whereas the beneficiaries have a great deal to gain. Over time, this tendency results in a steady calcification of the economy and the government, as interest groups accumulate to feast on the populace’s wealth through direct or indirect means. The only way to prevent such decline, Olson suggests mordantly, is for an invading army to sweep away the existing corrupt relationships.

Fortunately, this invasion can be metaphorical. David P. Goldman (AKA “Spengler”) argues that American corruption declined in the 1980s, as the new tech industry displaced the existing corporate titans despite their close relations with government. The same can happen in the political sphere, if a determined political faction dismantles corrupt bargains and is rewarded electorally for it. That is the strength of the open-access system.

But it remains fragile. In the United States, we ought to be alarmed by the unprecedented decline in new business formation in the past decade, and the manner in today’s tech oligarchy is actively stifling competition—even as they exert themselves in the political sphere.

As authors, how can we use these concepts? Here are some points of conflict: growing power brings the temptation to take the wealth of others. Growing wealth attracts violent vultures, or inspires the wealthy to gain power as well. Sudden shifts in power and wealth will threaten to destabilize the balance of power in a society, with war as a likely result. (A brief glance at the history of the Congo will provide many depressing examples.) These tendencies are rich ore for story conflict, and the thoughtful author can build powerful plots from them.

****

(And don’t forget, I’m accepting submissions to a fantasy anthology, Ye Olde Magick Shoppe. Check out the announcement and start writing!)

The Power of Guiding Metaphors

19 Saturday Dec 2015

Posted by in Better Fantasy, Economics, History, Military, Politics, State Formation, War, Writing

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I’ve lately been reading The Axis Grand Strategy, a book published in America during World War Two. With only light editorial comments, it presents translated writings from German military theorists and officers about different aspects of warfighting. (The editors are presenting this material, in part, as a demonstration of Nazi perfidy; they highlight passages in which the Germans offhandedly note various breaches of international law—for example, that the invasion of neutral Belgium during WWI was conceived of a decade in advance.) The book is incredibly interesting from many points of view, and even as a historical artifact itself; I did not know, for example, that the Allied powers were calling themselves “The United Nations” even during the war.

One point that the book is reminding me of is the importance of metaphors in structuring thought. Over and over again, the German authors refer to the ideal military enterprise as a well-oiled machine, operating with incredible precision down to the smallest detail. To make such a machine possible took a stupendous level of planning and organization, which had to be carried out years in advance (and which the authors describe in great detail). This was one factor that pushed German doctrine to the conclusion that to have any hope for victory, they needed to decide upon war several years before actually carrying it out, and then to direct all of their government policy and grand strategy to support that decision. That is, once the German decision for war was made, it became largely inevitable that war would result even three or five years later—because German leadership believed that such decisions needed that much lead time for the planning process to be adequate, and victory to be possible.

To be sure, the “well-oiled machine” metaphor was not the only reason that German doctrine came to that conclusion, or even the most important one. But it surely played a role, because it presented an ideal towards which to aspire.

Lewis Mumford, in his Technics and Civilization, presents a similar argument about the development of vast hierarchical bureaucracies. He writes that the age of coal had dramatic impacts not only on our economy, but on the mindset of society’s leaders. Where previously, water-powered manufacture had been relatively decentralized, coal-fired steam power created tremendous economies of scale. The most efficient method would be to tie all of your machines into a massive central boiler; this also meant that they had to be standardized, coordinated, and operated without any sort of individual discretion or initiative.

According to Mumford, the success of centralized manufacture led thinkers to imagine that other centralized projects were ideal as well—massive bureaucracies, mass armies, central planning of the economy, and so on. These people had been conditioned by the guiding metaphor of coal-fired steam boilers, and the resulting hierarchical organization of mass factories. Many would even make the parallel explicit. Individual initiative simply made a mess; better to control everything from the head. The result was the age of totalitarianism.

Economist Richard Bronk, in his The Romantic Economist, makes a similar argument about the development of the idea of equilibrium markets in economics. He says that the guiding metaphor there came from thermodynamics; in an attempt to make economics into a mathematical science akin to physics, champions of quantitative economics proposed simplifying assumptions such as “utility” or “self-interest” that could transform economic behavior into something predictable, something that could be captured in quasi-thermodynamic equations. Bronk argues that such metaphors have been played out, and the further progress in economic thought needs to borrow metaphors from the Romantics—biological processes, or ecosystems, or webs of interdependence.

Today, we netizens are conditioned to think about networks, or crowdfunding, or robots. These new guiding metaphors have in turn produced new ideas of how governments should work, or how organizations should be structured. Some of these new ideas are even useful. But in any event, they are very different from the sorts of ideas that would come from a person accustomed to steam-powered factories.

The concept of a guiding metaphor is important if you are any sort of creative thinker, whether in business or government or the arts. If you write fiction, think about what metaphors influence your characters or even whole societies. If you have a business, think about how new metaphors can suggest new products or services. If you are in government, stop trying to bludgeon your society with models of coercive government that date from nineteenth-century proto-fascism.

If you want to create something new, try applying a different metaphor.

When Do Societies Face Unrest?

02 Thursday May 2013

Posted by in Better Fantasy, Economics, History, Politics, Revolution, Self-Promotion, War, Writing

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I have just read a recent journal article by the brilliant scholar Peter Turchin, in which he elaborates on his theory of the dynamics of social instability over time and tests it on the United States from 1780 to 2010. Put briefly, his theory holds that one can expect a society to suffer greater social violence (such as riots or lynchings, as opposed to routine crime) in a relatively predictable cycle. The larger “secular” cycle occurs every 150 years; a smaller cycle of violence occurs roughly every 50 years, superimposed on the secular cycle. Thus in the United States, we had peaks of societal violence near the years 1870, 1920, and 1970, with the Civil War being the peak of the secular cycle. Turchin forecasts that the next secular peak should hit sometime around the year 2020. Turchin’s previous work has detected the same sorts of cycles in societies from ancient China to revolutionary France.

Of course, detecting a pattern does not tell you what has caused it. Turchin’s theory for when violence intensifies depends on two major factors. Both of these factors might derive from excessive population growth; in the early version of Turchin’s work, he was focusing on agrarian societies in which population growth leads directly to food shortages. But now that he is considering Industrial societies, Turchin is focusing more on the immediate causes laid out below.

First, whether from excessive population growth or technological disruption or whatever, there emerges a labor glut. The average wage drops in response, leading to diminished standards of living. Thus you see larger segments of the populace who are in a precarious situation, with the potential for violent outbreaks such as labor struggles, or ethnic competition with minorities, or political upheaval.

Second, there emerges “an oversupply of elites.” This can happen for a few reasons, and Turchin focuses on the economic one. The low cost of labor means that it is easier for those on the top to become far wealthier than they might have done in a more normal setting, leading to the accumulation of vast fortunes and a polarization of society. A consequence of this is that there is much more competition for the leadership positions in society, such as control of government offices. Politics becomes more nasty and partisan, leading in extreme cases to violent rivalries between elite factions struggling to secure their hold on power. Such violence is made easier by the larger number of poor, desperate people in society who can serve as a demagogue’s muscle.

In Turchin’s research, he finds that oversupply of elites has the strongest association with societal violence. This is easy to understand when one looks at places like the Philippines, in which politicians routinely employ armed militias to attack competitors (a horrifying example was the Maguindanao Massacre of 2009), or the Congo, which has been wracked with coup after coup. But even in the United States, a surplus of would-be leaders will tend to produce extreme ideologies, such as militant unionism in the 1920s, or the present upsurge in eco-terrorism.

I think many people, writers among them, mistake the relationship between cheap labor and exploitative rich. Often, a super-wealthy class emerges as a result of lots of poor people, who make it easier to be rich—that is, to benefit from the production of lots of other people. This is not to say that an exploitative class won’t try to keep everyone else poor, once it emerges. But the dynamics are complex here, and societal violence is one of the things keeping them in check.

(How might such violence be averted? Full discussion will have to wait for another post, but I find it rather interesting that the Biblical institution of Jubilee, in which land was returned to its ancestral owners and debts forgiven, follows a 50-year cycle.)

(Have I mentioned lately that my new book is available on Amazon Kindle? It’s called The Best Congress Money Can Buy: Stories of Political Possibility. You can read the first story for free here, and then buy it if you like. Enjoy!)

Concerning Cooperatives

25 Sunday Nov 2012

Posted by in Economics, Politics

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Thinking about how to make an economic system that is more humane, and less riven by class struggles, many social reformers have advocated for workers’ cooperatives (the Distributists being one example). Cooperatives differ from the traditional capitalist firm in that workers share ownership and management of the company, as opposed to being salaried employees with no participation in the profits besides what management feels like giving them. They differ from a socialist commune in that there is still private property, and individuals can benefit directly from the success of the firm, which tends to mitigate the typical Socialist tendency of “They pretend to pay us, and we pretend to work” and lead to more creativity and enterprise.

With these advantages, why hasn’t the cooperative become more popular in the United States? In part, because cooperatives come with some drawbacks. First, if workers share ownership in the company, what happens when you hire new people? Does that mean that you’ve just diluted the ownership of the existing employees? If so, then there will be a tendency of the owner-employees to delay hiring more people, even if it means sacrificing business opportunities. Or do different classes of employees have different shares of ownership? If so, then the cooperative differs from a typical capitalist firm only by degrees.

How much of the ownership of the firm accrues to the investors, as opposed to the employees? After all, without the initial investment, there would likely be no business in the first place. And asking employees themselves to buy in, as some cooperatives do, places a high bar in front of poor job-seekers.

Additionally, there will always be a place in a large-sized firm for experts of some kind, who will be paid more for their expertise. Should such experts, be they management or whoever, also get a disproportionate share of the company?

All of these questions have answers, and the answers will vary depending on the particular needs of each cooperative. But even if you could come up with an ideal structure for your own situation, it is far from clear that existing law could support the ownership structure you want. To my knowledge, in the United States the most common means for employee ownership of their company is the ESOP, or Employer Stock Option Plan, and these are typically structured so that employees have partial ownership without true control. While American law has well-understood prototypes for traditional capitalist firms, like the C-Corporation or the S-Corp, there are few prototypes for worker-owned cooperatives.

If such prototypes existed, then new insights could be gained as people experimented with them and figured out what works and what does not in different contexts. And cooperatives could become more accepted in modern industrial economies—which is not to say that they would displace the typical capitalist firm entirely, or even mostly. Each firm structure solves different problems. The best structure depends on your own situation, and the imperatives of your industry. Still, more options are good.

One handicap of your typical utopian social reformers is that they tend to focus on parapolitics, action outside the system, rather than trying to work within the system. True, such parapolitics often has an effect, but you only get mass adoption of your ideas in the face of total collapse of the system you are opposing. In this case, those who seek to have the cooperative form catch on in society ought to be lobbying for its inclusion in the tax code, the same way that a C-Corp or S-Corp is. With an off-the-shelf model to work with, with well-understood procedures for sharing ownership and profits, more entrepreneurs may elect the cooperative model without any political or social goal at all—which is how you win.

Random Fiction Excerpt #5

22 Thursday Nov 2012

Posted by in Credit, Economics, NaNoWriMo, Writing

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From my current NaNo:

“The news had gone out that Morris had gone deeply, staggeringly into debt in order to pay for his new mansion, and his reputation had correspondingly skyrocketed up into rarified territory. Estimates on how long he would have to work at his current income to pay down the debt ranged from a hundred years to nearly three hundred, depending on which prediction of future interest rates you went by. With this move, a master-stroke of commitment, Morris had demonstrated the depth of his loyalty to the socio-political system, on which he was now totally dependent in order to stay solvent.”