Q&A

What Should I Consider While Creating a Fictional Economy?

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What kind of things should I think about when creating fictional economies and currencies for my world?

-Shane

Hey Shane, thanks for writing in. Fictional economies are something I think about a lot, even though in most stories they fade into the background. They’re like calendars and sewer systems – incredibly important but also easy to take for granted. In most stories, you can use a simple system readers are comfortable with: precious metal coins for fantasy, credits for scifi, etc. However, if your story focuses more on the setting’s economy or you just want to make sure you have a realistic system under the hood, there are a few things to keep in mind.

First, consider what your setting uses for currency. In small communities, currency isn’t really needed. People can get by on a system of exchanged favors. In more connected worlds, currency becomes important because it’s too hard to remember all the people you might owe favors to, and vice versa. Contrary to popular belief, barter systems are not an intermediate stage between favors and currency. Barter is just too unwieldy to work on a large scale. What your setting will use as a currency can vary widely, but in general, a few things about it will always hold true:

  1. It needs to be fairly common but not too common. Rocks don’t work for currency because they’re everywhere, but neither does uranium because no one has any.
  2. It needs to be durable. If the money is always breaking, then it’s no good.
  3. It shouldn’t have any other uses. Iron makes a poor currency because people are always making horseshoes and swords out of it.
    • This rule has exceptions of course, like how merchants from different countries will sometimes use trade goods like tea as a currency, but that’s usually a stop-gap measure.
  4. It helps if the currency is pretty. This isn’t a requirement, but it is common.

Next, considered who makes your money and how the supply is limited. In order for currency to be taken seriously, whoever makes it has to be pretty powerful; otherwise, the currency is only worth what it’s made of. In order to have paper money, then the central authority must be powerful, indeed, and have at least some restraint in how much currency it creates. Otherwise, you get runaway inflation, which has happened several times throughout history.

For the economies as a whole, think about who has purchasing power and how much. Is your wealth shared among the populace, or do the rich have most of the cash? You can get more creative, too, if you’re ambitious. It’s not unheard of for pre-modern societies to have a class of merchants that handles all the commerce for the nobility, and the nobility maintain power even though the merchants have all the money.

It’s also important to think about how restricted your economy is. We’re used to an economy where anyone with money can buy all but a handful of banned items and services, but this isn’t always the case. Historically, it’s been common for the purchasing power to be limited to the elite. Feudal peasants were often banned from buying various things, but that’s only one way it could manifest. The Incan Empire practiced such a tight form of state control over the economy that most people would never buy or trade for anything in their entire lives.

Finally, consider what is scarce in your setting, because if something isn’t scarce, it probably isn’t going to cost much, if anything. If wizards or replicators can create food out of thin air with no cost, then food is probably either extremely cheap or free. Of course, people will sometimes try to impose artificial scarcity on things that aren’t scarce, like the way our society handles the sale of digital files, but that rarely lasts past the transition phase.

That’s barely scratching the surface, but it should be enough to get you started. A few other resources you might find helpful:

May your words flow freely,

Oren

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Comments

  1. SunlessNick

    Of course, people will sometimes try to impose artificial scarcity on things that aren’t scarce, like the way our society handles the sale of digital files

    A more tangible product that’s kept artificially scarce is diamonds.

    • Oren Ashkenazi

      That’s very true. Gotta convince people these shiny rocks are of ever increasing value.

      My favorite thing about diamonds is that the biggest threat to the industry isn’t new diamond mines or even artificial diamonds, it’s that people will start selling the diamonds they already have.

  2. Michael Campbell

    I rather like Proverbs 23:5 as it’s a reminder that money is valueless unless it’s underwritten by a strong criminal justice system*.
    The moment counterfeiting becomes “un-police-able”; money’s value drops to zero**.
    * Okay I probably should have said legal system, but I wanted to underline the fact that hurting people with monetary shenanigans is still hurting people. Much of what is going on in the Banking Royal Commission here, gets people saying; “Wait, if you do that in the street you go to gaol. But the banking bosses can’t bring themselves to say it was unethical !?!”
    **Unless the money has some intrinsic value (like gold in gold coins).

    The effect of government on currency was missed in the article.
    Money is a great tool because of its granularity. And that means you can make change. But it also means the government can take a cut.
    Making change is great as it liberates “the machinery of the economy through the application of a lubricate that has lower viscosity”.
    To explain the poetry, under barter if I have two surfboards and your have two TV sets, we can trade one of my surfboards for one of your TV sets but it requires an agreement that one surfboard is worth exactly one TV set. Under currency; if the TV set is worth $150 and the surfboard is worth $140 then you can buy a ham sandwich on your way down to the beach as well.

    Governments like taking a cut. So they encourage the use of their currency. They also encourage the use of money which is legally their possession* so that they can control its value**.
    * Ever noticed how it’s illegal to write your name on your money!?! It’s almost like it’s not your money but rather the legal property of the people whose name is already on the money.
    ** Ever heard of “floating the dollar” or even “quantitative easing!?!.

    • Cay Reet

      Gold actually has no intrinsic value – at least until you get to that point in the development of technology where you use gold in actual manufacturing. Gold in the coins only has a value because someone (the ruler, the government) says the coin has a specific value. Potatoes have an intrinsic value, gold does not (thank you very much for that lesson, Rincewind). On a deserted island, gold is worth nothing, because you can’t trade with anyone and you don’t get any use out of the gold. Potatoes, on the other hand, are still a good meal.

      As a matter of fact, most things used for coinage (except for the Aztec system of using cocoa beans and cotton blankets) have no worth of their own (like seashells and suchlike), they are only given worth by society. That’s why we have paper money these days (the Chinese started that a long time ago, because paper was easier to move than the big metal coins it replaced).

      It actually makes sense not to use objects that can be used for coinage – the risk of having to constantly make new currency because the old ones get used up is too high. Precious metals (gold/silver) had no use apart from jewellery and coinage, so they were used for it. They only have the worth humans have given them (by wanting to own them, not by any practical use).

      • Michael Campbell

        Well yes, I was meaning the value society bestows on the intrinsic value of the substance. Originally gold coins were worth precisely their weight in gold.

        The trouble started when shaving a little around the edges and yet keeping the stamped value clearly visible, was too much of a temptation.

        Ultimately money is an act of faith. Hence the ancient Greek word for “I believe” has come down to us as “credit”.

        You know, this whole conversation when into existentialism, real fast.

        • Cay Reet

          Currency is always an act of faith – of trusting the society that the currency, be it gold, shells, or cocoa beans, will still be considered worth something tomorrow. That is one reason why you usually use something which has no practical value for society.

      • Michael Campbell

        Also, at what point does ” actual manufacturing” begin?
        I presume you mean the use of gold in soldering of high end Hi-Fi components.

        However gold is more dense than lead, so if you really wanted to blow some guy away with lots of gunpowder in your flintlock pistol, a gold bullet would actually let you capitalise on the increased released energy.

        Even in the dim-dark* copper-age that preceded the bronze-age. The forging of gold required less heat** than the forging of iron or even the forging of bronze. So in that period of technology a golden sword was almost as practical as a copper sword.
        *I wonder if Grimdark was originally a typo.”
        **I suspect it’s the advent of bellows that makes the iron age possible.

        • Cay Reet

          The fact that gold requires less heat to be forged is precisely the problem with your flintlock idea – the gold bullet would be heated and deformed by the energy of the gunpowder explosion (transformed partially into heat by scraping along the barrel) and then no longer fly as reliably as a lead bullet. Silver has a similar problem, which is why you do not shoot pure silver bullets – you encase a lead bullet with silver or create a compound of silver and lead to shoot a werewolf. Gold can actually be dented by human strength alone (that’s the reason for ‘biting’ a coin to see if it’s real gold – a dent from the teeth means it’s a high percentage of gold).

          • Michael Campbell

            Can you list the; sensible heat, latent heat and melting point, of all three metals (lead, gold and silver) and the expected heat load of the overloaded flintlock pistol, to prove this point?

            I mean, lead has a pretty darn low melting point too.

            Also, you encase the lead bullet in silver because lead has a higher density than silver (11.3 grams per CC beats 10.5 grams per CC (oh and gold is 19.3 grams per CC BTW). You can capitalise on more of the released energy over the same run of barrel length if the slug’s total mass is closer to that of the designed slug you seem to be replacing.

          • Kenneth

            I’ve read that the idea that a real gold coin would have teeth-marks if bitten is a misconception. Genuine gold coins would have other metals added to make them hard enough for use as currency, so wouldn’t dent. Fake coins would probably be mostly soft lead, so they would mark.

      • Oren Ashkenazi

        Just for the record, gold wouldn’t make a particularly good bullet because it’s so soft. Increased deformation makes it deviate more from the straight line you want a bullet to take. The same thing happens whenever anyone gets clever and tries to make silver bullets.

        • Michael Campbell

          Has anyone got the respective young’s modulii of Lead & Gold handy?

        • Michael Campbell

          Gabbed a look at a website.
          It’s important to note that Young’s modulus of elasticity is in fact a measure of rigidity. That is, higher numbers are more rigid*.

          Lead:- 16.1 GPa
          Gold:- 78.5 GPa
          Silver:- 82.7 GPa

          (GPa being giga-pascals for those that don’t know.)

          So lead is much softer than Gold.

          *But then Thomas Edison had a 50% chance of being right and assumed that electrons travel from the positive end of a battery to the negative.
          And everybody knows about Mr Fahrenheit having a slight fever.

        • Michael Campbell

          In many ways, it’s the “squishiness” of lead that is the coupling of Young’s modulus with inertia (read the aforementioned density), that allows the rifled grooves in a rifle’s barrel to interact with the bullet.

          I suspect that means full-metal-jacket rounds are about as accurate as if they’d been fired by a smooth-bore weapon.
          But I’m just not enough of a grognard nor metallurgist to be able to research it for my RPGs.

          • El Suscriptor Justiciero

            A quick lookup says that most regular lead bullets are already copper-jacketed, and that rifling works fine with that. If what I’ve read is right, then in this aspect there is no real difference between FMJ, soft-point and hollow-point rounds because the tip of the bullet doesn’t really interact with the rifling.

          • Cay Reet

            Since the casing isn’t shot out of the gun (depending on the type, it’s either thrown out or removed by hand in a way), only the point of it, the actual bullet, is, only the bullet interacts with the barrel.

  3. Michael Campbell

    It’s amazing how talk can happen at cross purposes.
    The werewolf hunter, with his musket, out in the forest, puts a premium on projectile flight.
    The werewolf hunter in the crypts with a flintlock pistol in each hand, puts a premium on wound cavity.
    It’s easy to assume that everyone knew what you meant when you began to speak of the hypothetical werewolf hunter.

    Let’s talk about currency instead.

    I think it was Warren Buffet who said;-
    Price is what you pay.
    Value is what you get.

    But where does that put “Worth”?

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