Category Archives: Writing

Beliefs About Economic Growth

10 Monday Jul 2023

Posted by in Economics, Politics for Worldbuilders

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There have been many, many books written about culture (and you should definitely read a few!), and some of them discuss the effect of culture on politics, or the economy, or both. (We already discussed Ronald Inglehart in an earlier post.) Going too far into the weeds on this topic will take us very far afield, but I did want to point out one key bit of cultural variation that has massive political significance: Do people believe that the economic pie is fixed, or that it can be grown?

If you believe that economic wealth has a fixed quantity, then you believe that no one can gain wealth unless someone else is losing it. (This basic attitude was a staple of Continental socialism. Proudhon’s “Property is theft” and Balzac’s “Behind every great fortune lies a crime” come to mind.) If so, then the key ground of economic conflict becomes “Who gets what?” The characteristic emotion toward the rich will be jealousy. All else equal, more effort will be spent in redistributive activities such as government lobbying, speculation, and sheer banditry.

If you believe that economic wealth can grow in the aggregate, then your attention will be drawn towards ways that wealth can grow. An attitude of optimism may, or may not, coincide with a certain disdain for those who could be accumulating wealth but instead allow themselves the luxury of idleness (though this disdain tends to be characteristic of societies influenced by Calvinism in particular, per Max Weber). The key economic conflict becomes “What is standing in the way of greater wealth?” The characteristic emotion toward the rich will be admiration. All else equal, more effort will be spent building businesses, engaging in commerce, and building infrastructure.

Of course, in the real world we tend to believe in a complex, contradictory mix of both. Partly this is due to our evolutionary history. Prehistoric times were typically a rough approximation of the “fixed pie” condition, because people had few possessions—and what they had often needed to be shared, for the sake of mutual survival. And during long stretches of written history, economic conditions were persistently bad as societies were ravaged by war and famine. The last two or three hundred years featured an explosive growth of affluence beyond anything in our prior experience.

Additionally, it is clear that some people become wealthy by creating wealth, and others become wealthy by taking the wealth of others. Steve Jobs, for example, became fantastically wealthy by creating whole new categories of tools for the betterment of humanity (ideally!). By contrast, Trevor Milton bilked investors seeking to participate in the electric-car boom and sold them a bill of goods. (He may not remain wealthy for long, however, depending on his sentencing in September!)

Still, those two opposed attitudes towards wealth can motivate a whole range of beliefs and behaviors—excellent grist for the fictional mill!

*****

(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 Wealth [Commerce?] for Worldbuilders, along with some overlap with the planned third book, working title Tyranny for Worldbuilders. No idea when they will be finished, but it should be fun!)

Banking and Economic Development

09 Sunday Jul 2023

Posted by in Credit, Economics, Politics for Worldbuilders, State Formation

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If you think about the differences between a poor peasant society, a relatively affluent society such as an 18th-century English city, and a 21st-century technological society as we experience in much of the West, one of the big differences is the sheer amount of infrastructure that we have. If you think about roads, power plants and power lines, sewers, networks of schools and hospitals, and on and on, it’s a little bit staggering to think about how sheer stuff had to be built to enable our modern lives—and how much money had to be spent in order to build it all.

In poor societies of yesteryear, roads are typically mud tracks. Electricity does not exist, and people often had to cut their own firewood. What “public” facilities there were, such as single-doctor clinics, are small scale. This is not merely a question of technology. The Roman roads were tremendously useful tools of power projection (and consequently, tools of commerce), yet they remained the gold standard for perhaps fifteen hundred years in Europe because few people wanted to pay the huge amount of money it would take to extend, or even maintain, the road network. Even in major post-Roman European cities, there were no paved roads until the 13th century. (Baghdad had streets paved with tar beginning in the 8th century.)

What this means is that to take a society from abject “backwardness” to a high level of “development” (in the sense of Alexander Gerschenkron) takes not merely technology, or manufacturing ability, but the money and other resources to build the massive amount of stuff necessary.

Some types of development can be done gradually, in a decentralized manner. For example, local communities can each build a school, without necessarily needing to coordinate with other communities or a national authority. However, other types of development functioned more effectively if they were coordinated at the national level. (Or at any rate, that’s how it tended to work in our actual history, with the types of technology that we had to work with and the kinds of conceptual models that our national planners used, given the role of massive scale in the 19th and 20th centuries.) For example, the electrical grids in 19th- and early 20th-century Western European countries tended to be much more stable than those of America at the time (and even today), because the American grid was a patchwork of local grids built by local power companies, whereas the European grids were built according to a national plan, with money and resources mobilized from the entire country.

One key element in this was the role of massive banks. America had an early lead in its financial development, due to the proliferation of local state-chartered banks that soon blanketed American society. These banks were a tremendous stimulus to local and regional commerce and the development of new settlements. (The English experience was broadly similar, although it was still relatively difficult to start a bank in England.) European powers were slow to catch up, but in the 19th century settled on a strategy of having centralized national banks that would finance not merely local businessmen, but the vast infrastructure projects of modernization. America was hobbled by the system of unit banking, which tended to keep banks relatively small, and by the lack of a muscular national bank. (Such a lack was not necessarily bad, as the conflicts over the Banks of the United States indicate!)

In an era before banks, much wealth is economically sterile—golden and silver goblets sitting in some nobleman’s vaults (for example), where they do not contribute to ongoing commerce. But when such wealth is deposited in a bank, it can serve as the basis for lending and new capital investment. (It can also promote new kinds of systemic risks, but that’s a different discussion.) Banks thus can mobilize formerly unproductive resources and put them to good use. And when the bank is national in scale, it can attract the money of the vast middle and even lower classes (in the case of the postal banks of e.g. Germany and Japan) and pool the money into a vast fund, which can then be used by the state in its development plans.

Banks are not the only way to do this, of course. But in our history at least, the alternative was coercive taxation or sheer plunder by the state (as in the case of Tsarist Russia, and later the Soviet Union).

At any rate, the key point here is that to build up a society takes a lot of money, and often that money has to be pooled somehow and deployed in coordinated projects. How that process works in your invented setting is, of course, entirely up to you.

*****

(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 Wealth [Commerce?] for Worldbuilders, along with some overlap with the planned third book, working title Tyranny for Worldbuilders. No idea when they will be finished, but it should be fun!)

Building an Economy: Human Capital

06 Thursday Jul 2023

Posted by in Economics, Education, Politics for Worldbuilders, Writing

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Returning to the Labor component of the four factors of production in our quest to build a worldbuilding model of the economy, we will now discuss human capital.

Human capital, unlike other characteristics of one’s labor such as your health or general attitudes toward work, is often domain-specific. You may be a highly trained surgeon, but that would do you little good if you have to plant crops. You might be an expert at negotiating trade deals, but that doesn’t help you if you are trying to program your thermostat. In general, the value of your human capital depends on, and interacts with, the available opportunities you have to apply that human capital.

There are many kinds of human capital. In our model, we’ll focus on three:

  • Training,
  • Experience, and
  • Interpersonal skills.

Obviously, this categorization is artificial. Distinguishing between training and experience is not always easy or useful. And the development of interpersonal skills is influenced by training, but also by cultural context—both in terms of what is considered proper etiquette in that culture, and in terms of whether the culture encourages values like teamwork, taking responsibility, giving proper credit, and politeness or other values such as saving face, kiss-up-kick-down, dominance, and rigid separation of roles. So interpersonal skills should strictly speaking interact with the “Culture” factor of labor in our model. Nevertheless, as a scaffold for our thinking, we’re still going to use this three-part division.

Experience and interpersonal skills are fairly self-explanatory. (Some people develop particular skill in working with others, in a way that measurably shows up in company performance, and these skills can be learned; see Crucial Conversations: Tools for Talking When Stakes Are High.) In the rest of this post, we will be discussing training in particular, and focusing on a key question that has wide-reaching implications: who bears the costs of a worker’s training?

(Note: “costs” include actual money, but also instruction time and effort, the frictions involved in assigning real work to a trainee, and the like.)

Following Kathleen Thelen’s book How Institutions Evolve, we can talk about three kinds of vocational skills: general, industry-specific, and company-specific. General skills are widely applicable, such as literacy or basic computer skills. Company-specific skills, on the other hand, are only useful within a particular company—how to use a custom inventory system, for example. Finally, domain-specific skills are useful within a specific industry.

Because general skills make a worker more valuable across industries, a worker who gains general skills is more likely (all else equal) to leave her current employment and find a better offer. As a result, employers will generally not want to pay for their employees to gain general skills (all else equal), because even though they would benefit from having skilled employees, those employees are likely to be poached away and the current employers are less likely to keep the benefits of such skills. The employees, on the other hand, will want to pay for general skills because the risk is low: even if their current job goes away, the skills will be useful to many other employers. Employees thus get the benefits of having general skills, and are willing to pay for them (if they can afford it!).

For company-specific skills, companies have a much easier time paying for workers to develop them; the skills only have value within that company, so training your workers makes them relatively less likely to leave. As long as the employer is confident that a worker will remain, and as long as company-specific skills would actually be useful, the employer is likely to pay for such training. The employee himself is relatively less likely to pay for company-specific skills, for that reason.

But when we consider domain-specific training, we have a problem. If the worker bears the cost of his own training, he also runs a relatively high risk that no one will hire him for that job even after he is trained (since it only applies to one industry). If so, the cost of the training will be wasted, since he would not be able to apply the specialized training in a different domain. As a result, the worker will be less willing to bear the cost of his own training unless he had some sort of assurance that the investment would pay off.

Conversely, if the employer bears the cost of training a new employee with domain-specific skills, she runs the risk that the employee will receive all the expensive training and then happily jump ship to a different employer, or strike out on his own, or simply underperform at his new job. The employer will be unwilling to spend lots of resources training employees unless she had some sort of assurance that they would remain with her, and perform up to par.

This is probably why medieval Europe featured long apprenticeships and state-sanctioned professional guilds—apprentices could devote years of their life (but did not have to pay money) to learning a trade secure in the knowledge that their master would employ them (albeit under bad conditions), and the master could invest the considerable effort needed to train an apprentice secure in the knowledge that the apprentice could not run off early and ply his trade elsewhere, because the apprentice could be imprisoned or even executed. The apprentice was locked into his contract for several years, long enough for his master to reap the benefits of his growing skill.

On the other hand, there are significant drawbacks to the apprenticeship system. First of all, the master is taking a big risk—what if you turn out to be really bad even with training, or dishonest, or just unpleasant to be around? Second, the apprentice has to sacrifice many years of his life toiling for someone else—and what if the master is cruel, or incompetent, or just bad at business or teaching? Why not take opportunities to abandon your master and improve your life?

Most of all, an apprenticeship system requires overpowering coercion to work—either from a powerful state that enforces contracts between master and apprentice, if you’re lucky enough to live under one, or else a social milieu that tolerates private violence by masters and guild enforcers against the hapless apprentices. Or perhaps both.

In modern times, we typically use other means, which have varying levels of success and different outcomes. Here, we’ll talk about two models, and call these a “liberal” labor system and an “organized” labor system.

In a stylized “liberal” labor system where workers can move between companies and industries without restrictions, companies have less assurance that they will be able to keep workers around after they have been trained; as a result, companies tend to invest relatively little in workforce training (except for company-specific skills), and workers themselves are encouraged to finance their own training.

Workers, for their part, will therefore tend to invest in general skills that do not depend on a particular employer or industry, as they have a higher likelihood of benefiting from such investment wherever they end up. They will also invest (where possible) in especially valuable skills that are industry-specific (such as computer programming), because the expected return from such investment is still positive even with the uncertainty of the payoff.

But less valuable industry-specific skills (such as trades) will tend to be neglected. Moreover, the skill development of the workforce as a whole will largely depend on the workers’ ability to invest in their own skills. If they lack the funds, the time, or the access to credit, workers will not be able to get all the skills they want. (This is a particular problem at the beginning of your career, when you have no money!) As a result, a “liberal” system will tend to produce a workforce with reasonably levels of general skills and highly valuable industry-specific skills, and a large gap of skills in the middle.

One way to address this gap is for the state to provide free or subsidized education to younger people, especially to fund the development of general skills. Unsurprisingly, in the United States over half of the workforce has college degrees, while only perhaps 35% of German workers do (and many of these are professional degrees, rather than what Americans would recognize as a liberal-arts degree).

Another way is for companies to offer strong incentives for employee loyalty, partly mitigating the poaching problem. Examples include the Japanese system of worker seniority, or the common practice among American startups to offer restricted stock compensation that vests over several years.

By contrast, in a regimented system of long-term employment with few opportunities to switch jobs (what Thelen calls an “organized” system, as one finds in Germany), companies will be assured that they can capture the benefits of training investments; each company will therefore train its employees to the level that the company needs (or thinks it needs). However, workers themselves will tend to underinvest in their own skills; because of the limits on job choice, they will not reap all the benefits of such investment.

As a result, an organized system tends to produce a workforce that has good basic and “middle” domain-specific skills, but lacks skill on the high end. (In Germany, for instance, nearly half of workers have attended vocational schools, often funded by their future employers. Germany also features industry groups that collectively manage worker training, and agreements between companies to manage worker poaching.)

****

The upshot is that a skilled workforce doesn’t spring from the ground fully formed. Someone has to bear the costs of training, and that someone has to be confident that she will reap the benefits of that investment. There are several ways to resolve the resulting problems, but each of them will result in a characteristic pattern of skill development—and such patterns can add texture to your invented societies.

*****

(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 Wealth [Commerce?] for Worldbuilders, along with some overlap with the planned third book, working title Tyranny for Worldbuilders. No idea when they will be finished, but it should be fun!)

Factor Mobility and Political Conflict

25 Sunday Jun 2023

Posted by in Economics, Politics for Worldbuilders, Writing

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In an earlier post, I mentioned the argument of Michael Hiscox that whether investment capital is mobile or immobile will play a big role in the way that political conflict over the economy plays out. The truth is, Hiscox argued that the same basic principle applies to all the factors of production.

Human capital too can be of general usefulness, like being able to read, or it can be highly specialized, like knowing how to audit the internal reports of a McDonald’s franchise. Empty land near a city could be used to grow crops or graze cattle, or it could be repurposed for housing or a factory; but land in the middle of a swamp can’t be used for much except fishing or peat harvesting. Even people themselves might be mobile or immobile, depending on how easy transportation is between where they are and where they might want to be. (Hiscox references the Law of One Price in describing this tendency.)

We noted in the earlier post that if capital is inflexible, then it cannot easily shift between industries and people will fight hard to defend their own industry against competitors; politics thus features intense lobbying and narrow sectoral factions, with the bosses and workers largely allied to defend their own niche. By contrast, if capital is flexible, then if one industry is having trouble, investors will simply shift their capital to a more profitable industry with a minimum of fuss. Thus, politics shifts its focus to broad, class-based coalitions (workers versus owners, haves versus have-nots). (Additionally, flexible capital is better able to serve as collateral for lending, while in its absence entrepreneurs are forced to rely on equity finance, which is more difficult to get.)

Essentially the same is true for the other factors of production. Labor and land, too, have different political effects based on how easily they can be repurposed. Ease of transportation plays a particular role in allowing resources to equalize between different regions or different industries. So does the state of technology; if workers can easily adapt to the machinery in different industries, it is much easier to shift people around than if machinery is highly specialized and takes a long time to master.

Hiscox notes that political conflicts over the economy thus follow some consistent patterns based on the level of technological development of a society. In a preindustrial society, the factors of production are relatively immobile: knowledge of a trade doesn’t transfer well, most industrial capital is immobile and difficult to repurpose, and transportation is slow and risky. In particular, money itself (e.g. gold and silver bullion) is tricky to move around, which limits the ability of investment capital to flow into poorer regions where there might have been good uses for it.

As a result, capital and labor do not readily shift between industries or regions, with the result that you often see guild rivalries and conflicts breaking along professional lines, with class conflict as such usually taking second place. (This does not mean that it never happens; for example, the Bauerenkrieg or Peasants’ War of c. 1524 was largely kicked off when German nobility put in place new laws on land ownership to force the free peasants into serfdom.)

Early industrialization, by contrast, makes factors of production much more mobile. Transportation gets much easier, reducing frictions in shifting factors of production between regions or from one use to another. Unskilled people can more easily move between industries, since basic factory work is similar across industries in this stage of industrialization. Similarly, advanced education becomes useful in a wide range of industries, and someone initially educated to be a priest could readily become an engineer, scientist, diplomat, and statesman. Capital likewise becomes much more mobile, as much industrial equipment is relatively multipurpose.

It is no accident, says Hiscox, that mass politics based on class divides becomes much more salient in the period of early industrialization. (For example, Marx’s argument about the role of unemployed workers as the “industrial reserve army” of capital would make no sense in a preindustrial economy; unemployed weavers could not magically become potters or shipbuilders.)

Later industrialization causes factor mobility to decline again in relative terms. Human capital becomes much more specialized (for example, a growing number of Americans today are seeking master’s degrees, professional degrees, and PhDs, finding that a “mere” bachelor’s degree is not enough for their needs). So does productive capital (for example, the cost of building a single semiconductor plant can be as high as $10 billion!). Also, specific forms of human and technological capital can only be used with each other—a computer programmer is useless without a computer, and an astronomer cannot function as such without massive telescopes. So, says Hiscox, class-based political struggles tend to decline, and industry lobbying rears its head again.

(Hiscox notes that government policy can improve factor mobility, as in Sweden, and allow class coalitions to persist—and at the time of his writing, Sweden was able to respond to economic shocks much more rapidly as a result, particularly through wage equalization between industries.)

Since Hiscox wrote, I would argue that we have seen a relatively unbalanced situation develop where parts of the economy are getting more flexible, and other parts of the economy are getting more inflexible. It is far easier today to invest in, say, a broad-based ETF of Chinese companies than it was thirty years ago, and just as easy to yank your money out with a few mouse clicks. But building a factory now requires highly specialized robotic equipment, some of which is impossible to use in any other industry. A general grounding in basic computer use or marketing skill can be applied in many different industries; and at the same time, to be a physicist or biomedical researcher now virtually requires getting a PhD first, where in earlier times you could get started with a bachelor’s degree or even be entirely self-taught.

No surprise that our modern politics feature a weird mixture of class-based politics and sectoral-lobbying politics, in a volatile and high-temperature mix that makes it much harder for any political conflicts to be resolved.

*****

At any rate, Hiscox’s model gives you a handy lens to think about how factor mobility can affect the politics of your own invented worlds. In particular, if you want to have class conflict in your story, make sure that the economic environment is conducive to such conflict, as opposed to conflict between competing guilds, for example.

*****

(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 Wealth [Commerce?] for Worldbuilders. No idea when it will be finished, but it should be fun!)

The Structure of My Next Worldbuilding Book is Coming into Focus

17 Saturday Jun 2023

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The hardest part about writing my books for worldbuilders hasn’t been the content (which is basically vomiting out cool things I learned while studying for my PhD, and since)—it’s been figuring out how to structure the content. I beat my head against the wall for several years while working on Volume 1 before I finally settled on a structure that made sense, with each chapter building on and augmenting what came before it. More recently, I decided that I needed to break the planned Volume 2 into two separate books, since the “Commerce” material didn’t really fit with the “Tyranny” material. Ever since, I’ve been trying to figure out how to organize the chapters in “Commerce.” (Also, what the title should be! But that’s less urgent.)

At about 5:00 this morning (because of course it was…) I think I may have figured out the structure. First, I need to keep in the forefront of my mind that it’s not a book about economics, per se; it’s a book about how people organize themselves to better use resources, and the conflicts in so doing that we writers can exploit. (Yes, that’s part of economics, I know, I know! But I’m less concerned with, for example, demand curves or monopolistic markets or such like that. I’m not trying to write an economics textbook, I’m trying to write a resource for worldbuilders.) That gives me a landmark to orient with, to help decide what material needs to be in the book, and what material needs to be cut.

(For one thing, I need to more explicitly discuss government’s role in affecting transaction costs, for good and ill. I’d been groping in this direction before, but didn’t have a clear picture of where such discussions would actually go in the book, or what function they would play. Still, I had a nagging feeling that it would remain relevant. My subconscious is pretty smart, but I wish it were better at communication…*)

Second, I think at a high level, the book should begin with the discussion of energy surpluses as in my previous plan, but thereafter it would be organized around the four factors of production: Land, Labor, Capital, and Entrepreneurship. That gives me a neat framework to slot in more niche subjects like the governance of pirate ships (i.e. entrepreneurship) or the functioning of the stock market (i.e. capital) and have it make sense in the larger flow.

Starting with Land would also be very useful for worldbuilders, since it should help people draw their fantasy maps and figure out where everything needs to go. I’d be putting the discussion of cities in Land, as well as related things like ease of transportation. It’s all very concrete and immediately helpful, as opposed to the topics that will now go under Entrepreneurship such as uncertainty and transaction costs. Those latter topics will now make a lot more sense to the reader, since they will come after a lot of discussion of specifics. Starting with them would have been much too theoretical.

So, not much of consequence in this post—other than to report that progress is happening in the book project, and perhaps to solicit feedback from you, Gentle Reader!

* For one thing, my subconscious somehow understood that the topic of self-defense was important to Right Authority well before I even decided that RA would be my dissertation topic—but it neglected to tell me how it was important until three years later!

*****

(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 Wealth [Commerce?] for Worldbuilders. No idea when it will be finished, but it should be fun!)

Asset Values and Interference by Others

13 Tuesday Jun 2023

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Let’s say you have a merchant caravan of spices, going through dangerous territory. The success of your venture is partly, or even mostly, dependent on the actions of many other people. The spice dealer can choose not to sell you spices in the first place. The caravan workers can threaten not to work, or to run off with your spices. A bandit can threaten to rob your caravan; a government bureaucrat can threaten to deny you entry to your destination. Each of these sources of vulnerability will depress the expected value of your spices—unless you can mitigate the risks somehow.

Douglass North makes a key point on this subject in his book on institutions. We have said that uncertainty tends to lower the price of an asset, because the expected value of the asset—the likelihood that you will actually enjoy the benefit of owning the asset—is reduced. But uncertainty can come from several sources. Some uncertainty is “natural,” such as the chance of bad weather harming a wheat field’s harvest. But some is intentional: other people acting to damage or take your asset. North states that in general, the price of an asset will be reduced the more that other people are able to affect its value.

North states that the most efficient way to mitigate the risks that other people pose to your asset is to give each party a cut of the action—to give them incentives to cooperate with you. (Strictly speaking, he says that you should give each party property rights in the asset; but he’s using “property rights” loosely, to mean “a share in the benefits.”)

So you would pay the spice dealer a high enough price to induce her to sell to you; you would pay the caravan workers a high enough wage that they will not be tempted to shirk. You might pay the bandit a toll high enough that he doesn’t want to risk his life fighting for more (and if enough other people do this, the bandit might “go legit” and set himself up as ruler of a petty state controlling that part of the road). And you would pay the government bureaucrat (legally or illegally) to let you into the city.

And despite all of the money you’d be paying out, North says, you’d still end up making more money (on average) than if you decided to bear the risk yourself. True, if you managed to dodge all the dangers without paying, you’d be fabulously rich. But the chances of disaster would eventually catch up to you, which is why the expected value of your spice venture would be so low at the beginning.

Of course, you could decide to deal with your problems in a less cooperative way. You could deter the bandit by outfitting your merchant workers with guns, for example. You could try to smuggle your spices into the destination city, rather than paying off the bureaucrat. You could steal the spices rather than buying them. North, being interested in how people deal with property rights, is less interested in these solutions, but we as authors have a larger toolbox to work with—especially since we like conflict in our stories!

So this was just a quick post discussing another cool conflict that you can explore in your stories: all the ways that a hero’s venture can be stymied by other people, and how your hero manages to reconcile all the diverging interests. (This might be by killing off all the interfering people, depending on your story!)

*****

(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 Wealth [Commerce?] for Worldbuilders. No idea when it will be finished, but it should be fun!)

Building an Economy: Labor and Motivation

06 Tuesday Jun 2023

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We return at last to our discussion of the Land/Labor/Capital triad of the factors of production (plus entrepreneurship, which is nowadays considered its own factor). We’ll start with a broad overview of Labor as a factor of production, and then zoom into the role of motivation on labor productivity.

Labor is unlike other factors of production like raw materials, for two main reasons:

  • If you don’t use an iron bar today, you can use it tomorrow; but if you don’t work today, that work potential is gone forever. You can work tomorrow, but you could have worked tomorrow even if you also worked today. That is, labor is a perishable resource. (It’s also a flow, not a stock; you have a maximum intensity of work that you can do at a given time, and you can’t “store extra work” for later.)
  • Unlike resources like wheat, or gold, or cars, which are largely interchangeable with other units of the same resource, one person’s labor is not the same as another person’s labor. Our labor is affected by individual skill, training, motivation, and differing opportunities to apply that labor to useful work. Labor is thus heterogeneous. (Indeed, one of the trickiest problems with labor is the difficulty in measuring labor outputs, and in assigning people to where they can do the most good—a great source of frustration when you’re out of a job!)

As we are trying to build a simple but powerful model of a fictional economy for worldbuilding purposes, rather than trying to exactly describe the real world in all its messy glory, we’re going to identify three major factors that influence the labor productivity of a society:

  • Human capital,
  • Physical strength and health, and
  • Culture.

The rest of this post will discuss the impact of culture on labor productivity—and particularly, cultural influences on our motivations for working.

Culture has many effects on labor productivity—for example, whether individual initiative is rewarded or punished, whether people are used to teamwork and obedience or if they resist authority, whether people are diligent and careful in their work or take a slapdash attitude towards maintenance. (The eminent economist Thomas Sowell noted that in the early United States, a Scots-Irish Southern “cracker” would walk around or through a creek running through his property for years on end, without any thought of improving the situation; whereas a Puritan-descended Northerner would almost immediately build a footbridge. This is but one example of the larger pattern identified by Max Weber in his Protestant Ethic and the Spirit of Capitalism.)

All of that is important, but for now we will focus specifically on motivation. Different people are motivated by money differently, as John Médaille discusses. Médaille, in Towards a Truly Free Market (a fascinating argument for the Catholic-infused economic doctrine of Distributism), points out that employment is unlike most commodities in that “[l]owering wages does not [automatically] increase employment; only the prospect of selling more goods induces employers to take on more hands.” On the flip side, wages cannot rise arbitrarily high; at a certain point, either profit rates will go to zero (causing capital to withdraw from that industry in search of better returns elsewhere), or wages will rise above the capital substitution rate, i.e. the point where it makes more sense to spend money on infrastructure and robots than on people.

Moreover, unlike other commodities where rising prices stimulates more supply, higher wages will not automatically elicit more effort from people. In some cases, it actually reduces effort. Médaille presents three stylized models for worker motivation:

The surfer works only as much as needed. Once he earns enough money to feed himself and see to his other necessities in a minimal way, he stops working and goes surfing for the rest of the week. If you want to elicit more work from a surfer, you would actually need to pay him less. (This tendency occurs in many peasant societies. In 19th-century Germany, the ruling-class Jünkers found that they could increase agricultural yields by suppressing peasant incomes to a level of utter misery, forcing them to work more in order to survive; if they paid the peasants more, on the other hand, yields dropped as the peasants simply drank away the surplus.)

The homebuyer has goals: he wants to achieve a certain level of material comfort (such as buying a home), to take care of the family and achieve some level of social status. Increasing pay will elicit more work from the homebuyer as these goals become achievable—but only to a point. Once pay is high enough and the goals are achieved, the homebuyer will not continue to increase work output and may even start to reduce output at the high end, as other things (leisure time, time with family, social involvement, etc.) become relatively more important than another few thousand dollars in the bank.

The oil rigger, on the other hand, is highly motivated by money and will work more if he gets more of it. At a time in his life where he has few other commitments, the oil rigger is willing to work incredibly hard in exchange for incredible pay, with the plan of benefiting from the accumulated money later in life. The more you pay the oil rigger, the harder he will work, until the point of sheer exhaustion. Cut the oil rigger’s pay, on the other hand, and he will leave in disgust to find better opportunities elsewhere. (See also investment banking, many commission-based jobs, and so on.)

As a result, the productivity of a given society’s workers will be influenced by the relative proportions of Surfers, Homebuyers, and Oil Riggers among its workers. So what determines that proportion?

Ronald Inglehart’s 1997 book Modernization and Postmodernization argued that societies exhibit coherent patterns of cultural development that are partly predictable, based on economic conditions that allow for and stimulate cultural change. This change generally happens across generations; people’s values are usually set by their experiences in childhood and early adolescence, and do not change much as they get older. But in times of rapid economic change, the values of the next generation can differ significantly from those of their parents. Moreover, even though economic conditions make cultural change possible, the resulting cultures also have an independent influence over later economic performance.

A key argument is the scarcity hypothesis: people tend to most value things that are in the shortest supply. In a time of social disorder, people will value authority and tradition; in a time of poverty and starvation, people will value material things. In a time of material abundance but soul-crushing conformity, people will value self-expression and autonomy. And these values persist once they are stamped into a person during adolescence and early adulthood, even as external conditions change.

In this book and in later research, Inglehart argues for two discrete axes of broad cultural variation between societies (and to a much weaker extent, between individuals): traditional versus secular-rational values, and survival versus self-expression values. (He initially thought that these axes were independent of each other, but later research suggested that they correlate strongly.) A society with “traditional/survival” values is a Traditional society, marked by deference to tradition, low economic growth and consequently significant poverty and insecurity, and little importance placed on political rights or personal fulfillment.

In a society with growing wealth, increasing state capacity, and bureaucratic organization, this cultural pattern gives way to the “secular-rational/survival” configuration, which Inglehart calls Materialism. In short, the spread of rational methods and organization is thought to bring true prosperity into reach—all we must do is work hard to achieve it. As a result, traditional authority is displaced by Science, Industry, and the State, and people develop strong work ethics beyond what are typically found in traditional societies. Work brings reward, and so the more you work, the better you are rewarded.

As wealth grows even more, societies reach a point where increasingly hard work no longer yields as much marginal benefit. Material safety is now taken as a given by those who grew up with it; this new generation shifts from a survival mindset to a self-expression mindset, which Inglehart calls Postmaterialism. This generation lacks the focus on material reward that marked their parents’ work ethic; they work in order to express their values, not merely to feed themselves, and are not as willing in the aggregate to spend nights and weekends in the office for the sake of higher pay.

(Obviously, Postmaterialism depends on the material prosperity that enables it. If material conditions suddenly regress, a cohort with Postmaterialist values will struggle to adjust, and the social consequences of this struggle may be dire.)

So as worldbuilders, we can think about the cultural attitudes at play in our invented societies, and how they will influence labor productivity and the economic development of the societies. There are some fun stories that can be told on these themes; can you think of any?

*****

(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 Wealth [Commerce?] for Worldbuilders. No idea when it will be finished, but it should be fun!)

Uncertainty and Institutions

04 Sunday Jun 2023

Posted by in Economics, Politics for Worldbuilders, State Formation

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The world is a complicated place. Especially when you are dealing with lots of other people, it can be very hard to predict how other people will act. And that, in turn, makes it very difficult to plan what you are going to do. Which then makes it harder for other people to predict how you are going to act, and so on.

With all of this uncertainty, how do we manage to function during the day? And just as importantly, how do we make long-term plans for the future, such as building infrastructure or growing food? As Douglass North writes in his book Institutions, Institutional Change, and Economic Performance, we use institutions to reduce the uncertainty of our interactions with other people. As a result, the structure of a society’s institutions plays a huge role in its economic and social functioning.

(If you read my book Beyond Kings and Princesses: Governments for Worldbuilders, you might remember that a good chunk of the book was inspired by Violence and Social Orders, by North/Wallis/Weingast; this is “North” of that trio.)

In a nutshell, here is North’s argument: in a vacuum, there is often too much uncertainty to permit voluntary interaction between people. Institutions are created to reduce uncertainty. Then organizations form or entrepreneurs make deals to take advantage of the possibilities created by the institutions, and the feedback from same gradually changes the institutions.

Some institutions are formal, such as laws, rules, regulations, religious doctrine, and the like. Some are informal—North identifies three kinds: (1) extensions or modifications of formal rules, (2) social norms, and (3) personally imposed standards. Either kind of institution can be created for many reasons, and formal institutions in particular often are created for self-interested reasons by those in power. As North puts it, “Institutions are not necessarily or even usually created to be socially efficient; rather they, or at least the formal rules, are created to serve the interests of those with the bargaining power to devise new rules.”

Nevertheless, institutions have the effect of reducing uncertainty, by giving us stronger beliefs about how other people will act in a given situation. Because of this, environments of high uncertainty (such as quickly changing social or environmental settings) often drive people to create new institutions, either formal systems or new belief systems.

(That need not always be socially optimal; a cultural belief that “my countrymen will deal honestly, but foreigners will always rob and murder me” would certainly reduce one’s felt uncertainty in both directions, but probably would not be helpful overall—unless the foreigners in question would actually do so!)

Reducing uncertainty has the effect of reducing transaction costs in commerce—particularly the costs of gathering information, forming agreements, and enforcing them. This is a significant issue; many of the weirdest parts of our own economy are the result of difficulties in gathering information. (Think of how hard it can be to find a job or hire people, for example.) Thus, lower transaction costs can dramatically encourage economic activity.

Okay, but what happens next? North is particularly interested in the feedback process between institutions and the people acting in light of them. In particular, entrepreneurs can sometimes perceive new opportunities that exist thanks to a given institution, take advantage of the opportunity, and therefore incrementally change the environment, creating new opportunities etc.

(For example, Jared Rubin writes about how a financial instrument first created in Muslim lands, the bill of exchange, was gleefully adopted by Christian merchants to evade currency controls between countries and served as a key impetus for the development of international banking in Europe.)

There are limits to such incremental feedback, however. North writes, “Individuals act upon incomplete information and with subjectively derived models that are frequently erroneous; the information feedback is typically insufficient to correct these subjective models.” Additionally, some institutions are designed not for economic efficiency, but to facilitate exploitation and oppression; these institutions actually raise transaction costs. Entrepreneurial adaptation can help ameliorate their effects, but only to a point. Finally, some well-meaning institutions are so flawed that no amount of adaptation can make them useful, and some kinds of adaptation can actually make them worse. (America’s short-sighted regulatory policies around housing finance, and how they sowed the seeds of the 2008 financial crisis, come to mind.)

Another key point that North makes is the importance of path dependence. In short, a given institutional environment will reward some kinds of activity and discourage others, which will in turn cause future development to lean in a particular direction. Examples:

  • If there is strong rule of law and enforcement of contracts, there will be more impersonal economic exchange. If rights are weak, on the other hand, people will tend to exchange only in trusted networks. This will weaken the future development of economic networks.
  • Insecure property rights will encourage the development of technologies that have low sunk costs, and are mobile. This also discourages long-term agreements.
  • The advance of knowledge is in large part path-dependent. Knowledge influences ideology, which guides the search for knowledge.

And once a given institution is in place, it is often difficult to change. As W. Brian Arthur pointed out, there are at least four processes that make it less likely for people to change systems once put in place: large fixed costs; domain-specific learning; coordination effects; and adaptive expectations.

*****

What are some takeaways, especially for worldbuilders? First, every time that you think of some new organization or new law or new environmental condition, spend time thinking about how self-interested people will react to it—and how other people will react to them, and so on. Second, remember the importance of reducing uncertainty.

*****

(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 Wealth [Commerce?] for Worldbuilders. No idea when it will be finished, but it should be fun!)

Where Does War Come From, Anyway?

02 Tuesday May 2023

Posted by in Politics for Worldbuilders, War, Writing

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Worldbuilders and fiction writers often feature wars in their settings, often many wars. This is natural, given the importance of wars and their consequences in humanity’s recorded history. But note that I said “recorded” history. There are still a handful of societies (predominantly foraging societies without formalized leadership) in which war and feud does not take place. That does not mean that such societies are peaceful necessarily; often, homicide rates are quite high. (In one society without war, the Gebusi, homicide was traditionally thought to account for almost a third of adult deaths!) But while individuals might kill individuals, and groups might attack and kill offenders as a form of capital punishment, no one in these societies kills another solely because of his or her membership in a group.

Usually, your invented world will feature social organizations complex enough that the idea of war already exists for your inhabitants. But it’s still worth taking a few minutes to think about what makes war possible, and what it requires.

As used as we are to the idea of war, it can be hard to step back and consider that when you think about it, war is really weird. I’m supposed to kill that man in a uniform over there not because of anything he has done, or might do, but just because he’s wearing a uniform? And he’s going to try to kill me for the same (lack of) reason?

A great review of the anthropology literature on the subject is in Raymond Kelly’s Warless Societies and the Origin of War. Kelly distinguishes war from other forms of violence, such as brawls or assassinations, with the following characteristics:

  • War is collectively carried out.
  • Participants deliberately use deadly force.
  • The “deaths of other persons are envisioned in advance and this envisioning is encoded in the purposeful act of taking up lethal weapons.”
  • War involves advanced planning.
  • The killing in war is seen as justified, morally appropriate, and praiseworthy.
  • Finally, and in contrast to collective executions which target a specific individual, in war the targets are any member of a group, regardless of individual guilt or innocence.

Kelly points out that the default is for people to assign responsibility to individuals—if A murders B, B’s family will try to kill A, but not A’s brothers or sons or cousins. For a society to come up with the idea of feud (punishing an entire family for the crimes of one of its members) requires the concept of what Kelly calls social substitution, that killing A’s brother is somehow “just like” killing A. The same idea applies to war: war can only exist if the targeted people are socially substitutable, and killing one of them is as good as killing another.

There are two basic ways this can come about. Kelly the anthropologist focuses on the more common one, which is the development of durable group identities such that for A to murder B is an offense not only to B, but B’s group—and the offense came not merely from A, but from A’s group. In this view, war (and its smaller-scale cousin, feud) is carried out between groups. But that requires the concept of the group to be present.

He finds that in almost every case where war is not present in a society, the society is unsegmented, meaning that social organization features only the bare minimum of group identities. People who live together will cooperate, but there are no forms of organization that go beyond the immediate local group; and if you leave one group and join another, there is no sense of lingering affiliation with your previous neighbors. Extended families rarely function as a unit beyond the immediate nuclear or polygynous family. Vague senses of regional belonging can develop from periodic shared feasting and the like, but not in the sense of a shared nationality. Even being in the same language group doesn’t necessarily create the conditions of collective action as a group. Finally, and unsurprisingly, strong political leadership does not exist in these societies.

By contrast, once the concept of extended families takes root, once people feel loyalty to a group as such, once strong political leadership welds people into larger units of action, then war and feud are usually on the menu. The group as such has social reality and can suffer injury when its members are harmed. Moreover, your neighbors are viewed through the same lens (often with reason), so that if one member of a neighboring tribe kills your compatriot, the entire tribe is blamed.

(This is not always, or even usually, irrational. Indeed, collective punishment can sometimes be the only way to avoid a situation where outsiders commit violence against you with impunity.)

But war does sometimes exist even in unsegmented societies. How does it start, even in the absence of group identities? That gets us to the second driver of war: the perception that all members of another group pose threats to you as an individual. For example, the unsegmented Slave Indians who once lived near the Great Slave Lake in Canada, were so called because they were frequently attacked by the Cree Indians, who killed the males and took the women and children as slaves. Despite this, astonishingly, there is no record that the Slaves ever engaged in retaliatory raiding against the Cree or developed the concept of warfare as such. But other unsegmented societies facing persistent violence, such as the Andaman islanders, did develop a concept of war in response even in the absence of strong group identities of their own.

Sometimes, such a perception of threat can arise even without previous violence. If two communities live nearby, and suddenly there is a drought so that there isn’t enough food for both, and there’s nowhere else to move to, the communities are suddenly locked into a battle to the death (through no fault of either side). Kelly argues that this was part of what happened in the Andaman case—war developed as a concept when some groups were squeezed into too small a space, and were forced to compete for food.

(Incidentally, the concept of war-as-threat-perception was a big part of my PhD dissertation, for any of you with a few weeks to kill and a craving for boredom…)

******

(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 fourth book in this series, working title War for Worldbuilders. No idea when it will be finished, but it should be fun!)

Inflation and Deflation, a Quick Primer

02 Sunday Apr 2023

Posted by in Credit, Economics, Politics for Worldbuilders, Writing

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I can’t remember off the top of my head reading much fiction that used conflicts arising from inflation or deflation, but as Neal Stephenson demonstrated in his System of the World books, you can actually generate some pretty cool plot conflicts that way. But many people lack a good understanding of what inflation or deflation really is and how it comes about, and I suspect authors are similar. So let’s dive in.

(We’re going to focus on the political/inequality effects of inflation and deflation, rather than purely economic. So I’ll be skipping discussion of inflationary spirals, for instance.)

One tricky bit is that when we speak of “inflation,” we might be talking about at least three separate phenomena:

  • Price levels are rising because people are actually getting richer and are spending more money on things, somewhat faster than production can increase in response (which we will call “wealth-driven inflation”).
  • Price levels are rising because real wealth is staying the same, but a bunch of new money is sloshing around the economy due to borrowing or other forms of money creation, leading to artificial demand not backed by real increases in wealth and consequent distortions in wealth distribution (“monetary inflation” or “bubbles”).
  • Price levels are rising because it is literally getting more expensive to make anything, so price increases coincide with destruction of wealth and real increases in poverty (“stagflation”).

Similarly, “deflation” could mean a few different things:

  • Gentle price declines due to increasing technological or organizational efficiency over time.
  • Sudden price crashes due to the collapse of a speculative or demand bubble.
  • Ruinous price declines because nobody has any money left to buy things with (i.e. persistent economic depression).

Generally, a healthy economy ought to see alternations of wealth-driven inflation and gentle efficiency-led deflation, so that new production and innovation are encouraged and then make people’s lives better. Unfortunately, “prodigals and projectors” (as Adam Smith referred to reckless overborrowers) tend to leverage themselves to the hilt whenever possible; and at the same time, governments often try to magic money out of thin air in order to pay for their programs, without paying as much attention to creating real wealth.

On the flip side, even mild deflation becomes terrifying to the Powers That Be as more and more of the economy depends on free-flowing debt on the one hand, and massive investments in fixed capital that need to be repaid over long periods of time on the other. Both debtors and owners of fixed capital would be crippled by price declines that lead to declining profits, since they would no longer be able to pay their debts or obligations generally. (The same applies to the government itself, which relies on tax revenue funded by economic activity and generally has rigid obligations.) Thus, governments have tended to favor mild inflation instead of allowing gentle oscillations between inflation and deflation; the Federal Reserve, for example, has an explicit target of 2% inflation.

As a result, governments often promote increases in the money supply, promising that it would be a cure for all that ails us. Instead, it tends to fuel violent booms and busts, of the type that we are well familiar with today.

Monetary Inflation

Note that an increase in the money supply doesn’t magically spread across the entire population instantly. It starts when one corner of the economy suddenly earns a lot of new money—perhaps from striking gold in the hills, perhaps from exporting oil and sowing the seeds of Dutch Disease, perhaps by selling bonds to the Federal Reserve (paid for with dollars hot from the metaphorical printing press). That first sector then spends the money in other sectors, like luxury cars and real estate for example, and bids up the prices there; and eventually the tide of new money washes across the economy in general. But the initial “nouveau riche” sector was able to spend money at almost the original prices, while successive groups had to pay higher and higher prices for goods, while the very last people to be “enriched” by the new money end up suffering from inflation well before they actually “benefit” from it.

(The foregoing was a very brief summary of a point made by the brilliant Henry Hazlitt in his 1946 book Economics in One Lesson, in Chapter 22—starting at page 148 in this free edition in the paragraph beginning “[a]n increased quantity of money comes into existence,” though properly the discussion begins on page 145. Every person who has any opinions at all about economics ought to read this book, more than once.)

Note also that if prices increase in this way (due to increased buying pressure), by definition this will hurt the poorer segments more, simply because they don’t have the purchasing power to keep up. This is especially true with food. If luxury autos double in price, a poor family won’t care; but if eggs and milk double in price, suddenly the poor face a serious threat to their well-being. The net effect is that high inflation harms the poor more than those better off, tilting the relative balance towards the rich (though even the rich might not actually be better off, in real terms).

Some people say that inflation is good for the poor, because it would tend to increase their wages; but that’s rarely correct. First off, if the poor are net borrowers, they simply pay higher interest rates on new borrowing. Even existing debt, if it is variable-rate, becomes more expensive. People with a lot of existing fixed-rate debt do benefit, but such people are rarely poor. Second, even if nominal business profits are rising from higher prices, that doesn’t automatically translate into higher wages. If there is a lot of competition for jobs, from other workers or from technological improvements, then employers need not pay any extra or could even reduce wages. (Arguably, this has been the story of the last forty years.) Only if the labor market is tight, and employers desperately need to keep their employees happy, will wages tend to rise along with revenues.

Stagflation

Prices could also increase due to real increases in the cost of production or sale. This is easiest to see when fuel and electricity prices go up. Energy is an input into almost everything in the economy, so even if total wealth stays the same, producers will have to raise their prices or go bankrupt. This means that fewer people will afford to buy what they used to; most people will have to cut back. In other words, the rise in prices simply means that society has gotten poorer, because it is harder to make things.

Energy is not the only input that could cause this effect. Increased regulation, difficulties in transportation or supply-chain management, higher wages, higher salaries for executives, or increases in crime and property destruction can also impose costs on companies, often forcing prices higher. (Some of these costs might come with benefits, while others might be pure waste, but that is a different discussion.)

Deflation

As we noted, mild deflation is usually healthy—if prices are declining because the economy is getting more efficient at making things, that’s another way of saying that people are getting richer because they can buy more things. However, prices can also decline as part of the hangover from a speculative bubble. We can see this in the stock market when prices suddenly collapse after a long bull market. But it happens in the real economy, too. For example, one major cause of the Great Depression was that lots of manufacturers built new factories in the middle and late 1920s, each of them overestimating the total market demand for their goods and underestimating the amount of competition that would be online by the time their own factories were finished. As a result, the market was soon flooded with manufactured goods, and most of the manufacturers went bankrupt.

(A famously influential book on booms and busts was written by eminent economist Irving Fisher during the depths of the Great Depression. He also summarized the book in this article, which is quite a useful read. Fisher’s book was a major inspiration to John Maynard Keynes in the development of Keynes’s general economic theory.)

In a deflation due to a shortage of money, and a consequent excess of production, people sometimes rediscover that money is only one way to pay for things. People might resort to barter. Communities might create alternate payment methods such as local currencies or scrip. If you are lucky enough to find a supplier willing to extend credit, you can receive inputs now and pay for them once you have sold your goods. These means are usually inefficient compared to money, however, which is why they tend to disappear when the economy recovers.

If a deflationary episode persists for too long, it might lead to a deflationary spiral—people fear that prices will continue to drop, and therefore buying anything today is a surefire way to lose money. So people hoard their money instead, causing producers to lose their buyers and go bankrupt (especially if they have to meet payroll or mortgage payments). If it goes for too long, a deflationary spiral can permanently cripple the economy and reduce economic output.

Not everyone suffers in a deflationary spiral, however. Prices for everything become cheap—especially investment assets such as troubled businesses, stocks and bonds, or land, as their owners face financial ruin and need to sell quickly at any terms available. And if you have money in the bank, a deflationary spiral can be a fantastic opportunity to buy up assets and make a massive profit once prices normalize (assuming that they do!). (For example, if you had perfectly timed the stock market bottom midway through 1933 during the Great Depression and bought into the S&P 500, you would have nearly tripled your money by 1936.) As the saying goes, during deflation, “cash is king.”

A Takeaway?

All of the above being so, it would be easy to imagine that evil oligarchs might deliberately engineer a sequence of booms and busts in the economy, so they could buy assets cheaply during crises and then sell them to overexcited investors during the good times, gradually concentrating much of the world’s wealth into their desiccated, claw-like hands. The extent to which this happens in real life is, shall we say, unclear. But it would be a fantastic fictional plot, wouldn’t it?

And in any case, you can use the concepts here to impel several kinds of plots. For example, the biblical Book of Ruth is kicked off when Naomi’s family leaves Israel to escape an economic depression.

*****

(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 Wealth [Commerce?] for Worldbuilders. No idea when it will be finished, but it should be fun!)