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Tag Archives: economics

Uncertainty and Value

29 Sunday Jan 2023

Posted by Oren Litwin in Economics, Politics for Worldbuilders

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economics, neoliberalism, talmud, worldbuilding, writing

In the middle of a discussion about the laws of damages, the Babylonian Talmud (Bava Kamma 7b) comments in passing that during that period (roughly 200-500 C.E.), the sale price of land in Israel varied considerably by time of year—by as much as half. This is a startling passage, and for our purposes it helps illuminate some key concepts in economics.

What could be the explanation for such dramatic differences in price? The rabbinic commentator Rashi understands this to mean that between planting and harvest, the expected value of the anticipated harvest was baked into the land’s sale price. By contrast, once the crop had been harvested, the land was reduced to itself, so to speak. So the sale price of the land would rise as we got closer to the harvest, and fall dramatically once the harvest was over.

This explanation has some difficulties. First of all, that would mean that the land itself was only valued at roughly its yield for a single year’s harvest—or even less, if there were multiple harvest seasons over the course of the year. Why would land be so cheap?

The later Tosafists also note that the talmudic passage doesn’t distinguish between farmland and housing. It’s possible that the passage assumed that we would know that it was discussing farmland; but if not, similar price dynamics would be at work in housing as in farmland, even though there is no crop to plant or harvest. So then what would cause the variation? The Tosafists tentatively suggest that demand for housing followed cyclical patterns, rising during the fall and falling at other times of the year. But that is just a way of restating the original question. What drove these patterns? And whatever the cause, why would the price swings be so dramatic?

I have no insight into why housing might exhibit seasonal patterns; but I think I can add a suggestion for why the price variation was so large. If we assume that the “intrinsic” value of the land was not small—and the Talmud makes clear in many places that land ownership was valued and valuable—there must be something at work that changed the expected value of land, meaning the expectation that the land’s owner would be able to benefit from owning the land.

“Expected value” is basically the value of a good, times the chance that you will gain the value. For example, if I say that I will give you a dollar, the expected value of the dollar is $1. But if I give you a dollar only if you win a coin flip, then the expected value of the dollar is only fifty cents. It’s the same dollar; but because you’re less likely to get it, it is worth less to you in advance, while you are still uncertain of the outcome. If Bob wanted to buy from you the chance to do the coin flip, he would only be willing to pay fifty cents, not a dollar. The uncertainty of the asset depresses its price.

And in fact, at the time of the Talmud, land ownership was very insecure. There are many references in the Talmud (for example, Gittin 58b) to people having their land stripped from them by “extortionists,” who apparently took advantage of the weak governmental authority of the occupying power to take people’s lands by force. This would have the effect of depressing land values, because the expected value of the land would be less than if landownership were secure. However, as you got closer to harvest, the likelihood that an extortionist would suddenly take your land before harvest became vanishingly small, increasing the expected value of the land and the harvest, for the moment.

This is related to the argument of Peruvian economist (and sometime politician) Hernando de Soto that informal communities without legal land tenure were poorer as a result (partly because their land or houses could not serve as collateral for secured loans). While that says nothing about whether poor people would actually benefit from getting legal title, instead of whatever informal arrangements they themselves developed in the meantime (in Peru, formalization of title did not lead to significant decreases in poverty, though it was useful in kneecapping the violent insurgency of the Sendero Luminoso), it does highlight the role of certainty and uncertainty in economic value.

So what can worldbuilders get out of this? Most importantly, the insight that changes in likelihood lead to changes in price. Uncertainty causes loss. Certainty is valuable, and people are willing to pay for it. (Which is why the insurance industry exists.) And with some thought, you can use this concept to drive some pretty interesting plot conflicts.

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

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Pirate Ships

20 Sunday Nov 2022

Posted by Oren Litwin in Economics, Politics for Worldbuilders, State Formation, Writing

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economics, pirate, politics, worldbuilding, writing

We briefly mentioned Peter Leeson’s work on the economics of pirate ships already; now, let’s take a closer look. (Because honestly, who doesn’t like pirate ships?)

In his study of pirate ships between 1682 and 1726, Leeson identified several remarkable features of how pirate ships were run, especially when compared to civilian merchant ships or naval vessels. While the latter vessels were run autocratically, with an all-powerful captain who could not be gainsaid, pirate ships were typically run along democratic lines:

  • they were governed by written articles of association, which had to be adopted unanimously;
  • they featured separation of powers between the captain, who controlled duty assignments and tactical authority, and a popularly elected quartermaster, who controlled the money and administered discipline—and the crews could replace either of these figures if they were abusing their power; and
  • crew members were typically paid in equal shares of the plunder (the captain and quartermaster typically got two shares), net of costs for repairing the ship or medical care and bonuses for the wounded.

Why? Leeson argues that pirate crews had to solve several problems in order to function well. First and most pressing was the risk that the captain could abuse his position. A frequent scourge of civilian ships was that the captain, nominally the omnipotent representative of the ship’s investor-owners back on shore, would exploit his power to harm the crew members, or enrich himself at the owners’ expense. This is an example of a principal-agent problem. (Indeed, many sailors turned to piracy in order to escape such exploitative captains.) But on a pirate ship, usually the sailors were the “owners” of the ship; and they would not tolerate a captain who would abuse them or divert “their” plunder.

Second, pirate crews were fairly large—the average pirate ship had some 80 crewmen (and some had many more, or even fleets of ships such as the expedition of Captain Morgan), as opposed to merchant ships which carried 13-17 men. (By contrast, naval ships often carried hundreds of sailors.)  With such large crews, it became harder to monitor individual sailors’ behavior. Yet harmony aboard ship needed to be maintained if the crews were to fight well. Disputes needed to be prevented, or resolved peacefully.

In response, pirate crews (which often shared ideas between them) soon developed a system of formal governance, with strong democratic features, well before any national governments adopted separation of powers or democratic voting. Ships’ crews drew up written articles of association (and so did pirate fleets, when several ships joined together for particular expeditions), which had to be approved unanimously. These articles laid down rules for the ship, and assigned different authorities to the captain, the quartermaster, and the other officers. They also specified how officers could be removed by popular vote.

The captain had total control over decisions during battle, and the assignment of ship’s duties. But he had no control over discipline, or over the plunder. That was the job of the quartermaster. Yet the quartermaster too was constrained; he was typically not allowed to store the plunder under lock and key, and many crews had a system of random searches to detect if a quartermaster (or any other crewman) was stealing plunder. Theft was punished severely, usually with marooning or execution.

Interestingly, Leeson finds that privateers—“legal” pirates whose activities were sanctioned by their governments—shared some of these features. They too paid out plunder in equal or nearly equal shares, and also used written constitutions. Leeson concludes that profit sharing and written constitutions must have been an efficient solution to the problem of keeping order among large crews, far from home.

But few privateers had the checks-and-balances system of captain and quartermaster, or democratic governance. (At least, not officially; Leeson doesn’t discuss how many privateers would engage in unsanctioned piracy on the side.) This was likely due to the need to enforce the authority of the ship’s government, just as merchant ships needed to enforce the authority of the absent owners. Pirates, lacking fealty to a distant authority, didn’t have this problem.

Leeson and other academics such as David Skarbek look at several other forms of organization, such as stateless societies in Africa, or prison gangs; and I hope to write more about these. But the basic takeaway for worldbuilders is that certain kinds of settings, like a pirate ship, present certain kinds of problems that the people have to solve. And the way that they solve those problems can make for fascinating 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 Wealth for Worldbuilders. No idea when it will be finished, but it should be fun!)

Moral Economies

02 Sunday Oct 2022

Posted by Oren Litwin in Economics, Politics, Politics for Worldbuilders

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economics, James C Scott, moral economy, politics, Taxation, worldbuilding, writing

If a sharecropper grows food on a landlord’s land, how are the profits split between them? How should they be split? And what is the effect of those moral expectations when things go wrong, and there’s not enough food to go around? (And how can we exploit such conflicts in our fiction?)

I’ve mentioned James C. Scott before, and will probably mention him many times to come. His early book The Moral Economy of the Peasant discussed this issue in detail, in the context of the peasant societies of Southeast Asia. In these societies, peasants could be roughly divided into three groups: those who had their own farmland, those who were impelled to sell their land to landlords and become sharecroppers, and those who were pushed out of even this position and were reduced to landless laborers.

Over time, more and more peasants lost their land and became sharecroppers, as the ups and downs of agricultural life caught farmers in dire straits and allowed those with surplus capital to benefit. But for our immediate purposes, the interesting action occurred with the sharecroppers. The “traditional” system was to sell your land to some magnate in your own village or a village nearby, who would take a large chunk of the harvest—say, 30 or 40%.

But in exchange for such a large share, the peasantry expected something in return. This magnate was more than your landlord; he was expected to be a patron as well, protecting the welfare of the sharecroppers when times were bad and harvests poor. Depending on how bad things got, landlords might be expected to reduce their share of the harvest, extend low-interest loans to the sharecroppers to tide them over, or even to open their storehouses and share out some of their accumulated grain.

That is, landlords were expected to insure the subsistence of the sharecroppers, and only their commitment to do that would justify their taking so much of the harvest in good times, and their claimed social position as landlord and patron. This is what Scott called the “moral economy of the peasant.”

Sometimes, landlords reneged on their social obligations and withheld food during bad times. Or worse, landlords actually increased their demands on the peasantry, in order to stabilize their own incomes at the expense of the peasants. (This was a particular hallmark of the colonial European regimes that took power in Southeast Asia in the late 1800s and early 1900s.) Doing so was hazardous, since starving peasants with nothing to lose would sometimes rise up and massacre the landlords, and seize what food they could find. They would feel justified in doing so: the landlords had violated the moral economy. They had broken the bargain.

But in the early 1900s, excessive demands on the peasantry in Southeast Asia became more and more common as two things changed in tandem:

  • local patrons were gradually replaced by absentee landlords who lived in the cities, away from the villages; and
  • regime security forces became stronger, and better able to repress peasant uprisings.

For more on what happened in that case, read Scott’s book. (And in writing this post, I came across the article that apparently inspired Scott, a nice discussion of food riots in 18th-century England, which the author argues were undergirded by a similar moral economy; summary here.) For our purposes, we should focus on the key question: in bad times, whose position is stabilized at whose expense? And what moral system or expectation is being upheld, or violated, in the process?

This shows up frequently in “modern” society. Insurance companies, for example, collect money from us every month based on the promise of making us whole if some catastrophe happens. If we suffer a loss but the insurance company denies the claim, we feel betrayed, as if we had been robbed. On the other hand, if (say) a massive hurricane sweeps through an area and wipes out all the housing, property insurers may face the prospect of bankruptcy and go running to the government for a bailout. The bailout, in turn, would ultimately be financed by taxpayers, so the justness of the bailout would partly depend on the how just the tax system is. And so on.

The government itself taxes us a great deal, but we only acquiesce if we think that the government is seeing to our wellbeing in return. In bad times, the government is supposed to protect us from harm, or at least cushion the blow. If it does not, then the government will have a hard time justifying its taxation. And taxpayers will feel a moral right to object and demand better, perhaps at gunpoint.

In general, we tend to have a moral expectation that the wealthy and the powerful protect the welfare of the poor, especially if the wealthy became so on the back of the poor. This is a moral economy, a set of expectations that are overlaid on “normal” economic relations and help to constrain them. (You can imagine other types of moral economy rather than the patron/client model. For example, what if rather than guaranteeing subsistence, the economy was “supposed” to guarantee opportunity? Or provide a pure meritocracy, in which the unmeritable deserve to suffer?)

Unfortunately, it often happens that the powerful elites stabilize their own position at the expense of the weak masses, as happened in Southeast Asia during the Great Depression. This causes great suffering or even starvation; and it can also sow the seeds of revolutionary violence, if the weak are able to rise up. In the very worst case, as Joseph Tainter teaches us, it can lead to entire societies collapsing: if elites make greater and greater demands on their societies even when times are bad, eventually the societies are unable to meet those demands and the society implodes. (What will arise in its place is a different question. Sometimes the answer is “nothing,” if the society wipes itself out via starvation and violence.)

To recap, in your worldbuilding, it is worth asking these questions:

  • What moral expectations do the weak have of the powerful, especially if the powerful become so on the back of the weak?
  • Whose income, wealth, or social station is being stabilized at the expense of whom?

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Addendum: The posts in this series are intended to go into books of my planned series Politics for Worldbuilders, the first book of which is already published. I had initially planned the second book to be Tyranny for Worldbuilders, which would discuss various techniques of state rule and how they are resisted. But as I’ve been writing out these posts, I realized that I was trying to mash too many concepts into the same book (state capacity, and authoritarianism, and political economy, to name a few), and they didn’t coexist nicely. So I’ve decided to split off the discussions of political economy into their own book, which will be the new Book Two in the series. At present, the plan is that this book will start with the concepts discussed in this post, and build on them with the other “Building the Economy” posts as well as other posts on political conflicts revolving around economics. I think that the book writing will go a lot faster now that I have a more focused plan.

Watch this space!

*******

(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 for Worldbuilders. No idea when it will be finished, but it should be fun!)

Building an Economy: Different Property Regimes

28 Sunday Aug 2022

Posted by Oren Litwin in Economics, Politics for Worldbuilders

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economics, Fantasy, political economy, worldbuilding, writing

Let’s say you’re worldbuilding a new setting, and you want to experiment with a different kind of property system than feudalism or bourgeois property. Presumably, you want a property system that leads to more humane results and better use of resources—or maybe you want a system that encourages waste and oppression, the better to foster story conflict! So what kinds of systems are out there, and under what circumstances do they tend to have good or bad results?

It turns out that different kinds of things work better under different kinds of property regimes, shockingly enough. In particular, economists tend to point to two features of a good: whether it is excludable, and whether it is rivalrous. “Excludable” means that you can keep people from using the good. For example, I can prevent you from driving my car; but I can’t prevent you from breathing the air (which is nonexcludable). “Rivalrous” means that if one person uses the good, another person cannot. For example, if I eat an apple, you can’t eat the same apple. But if I listen to a radio station, you can listen to the same radio station without interfering with me.

I can already see your eyes glazing over; so let’s give an illustration:

Archdruid Thorne strode into the shrine, his eyes briefly glancing at the throngs of worshippers forlornly waiting outside the sacred building. Commoners were not allowed inside the shrine, forbidden to benefit from the life-granting energies it generated. They could only make offerings of food and coins at the door, in the hopes that one of the druids would deign to bring out a Stone of Life, which would heal illnesses of all who stood near it (no matter how common)—for a brief time.

Even though the druids jealously guarded their powers, still the mere presence of the shrine benefited the region. The air was cleaner, the rain was gentler, and the animals in the area more fertile and easily captured. So the people might grumble about the druids’ arrogance, but not very loudly.

Thorne sniggered. Today was the day, the day when he could finally unseat High Druid Ferrus and seize the Ring of Command for himself. Only one finger might wear the Ring of Command, and now that finger would be Thorne’s.

So, in this model we end up with a good old 2×2 matrix:

  • A good that is rivalrous and excludable (like a gold bar, or a chocolate cake, or a sleeping bag, or a bottle of water) is called a private good.
  • A good that is nonrivalrous and nonexcludable (like clean air, or a radio station) is called a public good.
  • A good that is nonexcludable but still rivalrous (like water in a river, or fish in the ocean) is called a common-pool resource.
  • A good that is excludable but not rivalrous (like a website behind a password, or membership in a museum) is called a club good or toll good.

(This model is a blunt instrument, but it still helps us grapple with some important concepts.)

Entire books can be and have been written about each of these concepts. For now, let’s examine common-pool resources a bit more.

In 1968, biologist Garrett Hardin published a hugely influential article, “The Tragedy of the Commons.” In it, he presented a type of economic good called a commons, and argued that relying merely on private property regimes to regulate its use would result in disaster. In his example, several herdsmen share a meadow, the “commons,” to graze their animals. If grass is plentiful, each herdsman has an incentive to add more animals. But if everyone does this, eventually the grass will be overgrazed and the commons will be destroyed. Thus, concludes Hardin, in a situation where private actors have incentives to overuse a shared resource, only government regulation of the commons will preserve it for the future and ensure that people benefit from it optimally. (Specifically, he was arguing for government-enforced population controls—”Freedom to breed is intolerable,” as he put it. But the argument is more general.)

This article became a powerful justification for government regulation of all kinds, and particularly regulatory regimes controlling natural resources. In response, as the incompetence and hubris of many government regulatory schemes became apparent, free-market economists led a push for deregulation in favor of private property. The argument was that, as Milton Friedman stated, “Nobody spends somebody else’s money as carefully as he spends his own. Nobody uses somebody else’s resources as carefully as he uses his own. So if you want efficiency and effectiveness, if you want knowledge to be properly utilized, you have to do it through the means of private property.”

As true as this is, it is incomplete. Unfortunately, not all goods function well as private property. In practice, government schemes of privatization sometimes work well, but sometimes amount to expropriating a common good and granting it to some well-connected oligarch for pennies on the dollar. (Or kopeks on the ruble, to be precise.)

Sadly, it took until Nobel-Prize economist Elinor Ostrom’s 1990 book Governing the Commons before policymakers understood that there are more options when dealing with resources than just private property or government control. Ostrom clarified the idea of a common-pool resource, such as fish in a lake or water in a river, which can be accessed by many people, and depleted by use. She argued that common-pool resources were often managed more effectively by their own users, cooperating with each other, than by government bureaucrats who often had little understanding of what they were doing. (Governments can still play a role, by providing resources to the locals or enforcing their mutual contracts, for example.)

I’ve not seen much fiction that featured communities of people stewarding a common-pool resource, but it’s a fertile area for stories. The management of a common-pool resource is perfect for generating story conflict. Will the users moderate their use enough to keep the common pool viable? Will some people try to cheat, and extract more resources than they are allowed to? Will the users face a sudden problem like a drought or poachers or the failure of the Standing Stones of Wisdom, and will they be able to converge on the right response? Might the local government try to seize control of the common pool, believing in its arrogance that it could do a better job of managing it than the users—or perhaps simply to extract taxes?

One more idea to chew on, just because I personally like it. In The Cathedral and the Bazaar, a book about open-source software development. To explain why many programmers work on open-source software for free and release such software for anyone to use, Eric S. Raymond discussed the concept of a bazaar good. Briefly, there is a relatively small class of public goods with the property that their creators gain enough utility from creating them that they would do it without needing to sell the good—and the goods also also become more valuable to the public as more people create them. Obviously, writing certain kinds of software is the most common example.

I’ve often mused that government subsidies might be redesigned to create new classes of quasi-bazaar goods, and achieve more efficient results. I’m not sure how, but fiction is a good place to noodle over such things.

******

(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: Capital

12 Thursday May 2022

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

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capitalism, economics, Fantasy, worldbuilding, writing

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?

*******

(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 Oren Litwin in Economics, Politics, Politics for Worldbuilders

≈ 2 Comments

Tags

economics, Fantasy, Jane Jacobs, prosperity, worldbuilding, writing

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.

*****

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.)

******

(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 Oren Litwin in Economics, History, Politics, Politics for Worldbuilders, State Formation, Writing

≈ 4 Comments

Tags

ecology, economics, Fantasy, government, politics, worldbuilding, writing

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.

******

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.

*****

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!)

The Power of Guiding Metaphors

19 Saturday Dec 2015

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

≈ 1 Comment

Tags

economics, freedom, government, ideology, industrial revolution, metaphor, politics, World War II, writing

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.

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