This entry is part 1 in the series Economics In RPGs

This image combines a significantly-edited version of “money-1040010” by Richard Heinen and “gold-1013596” by Peggy und Marco Lachmann-Anke, both from Pixabay

I’ve been working on this article for several weeks now, on and off, and have come to the conclusion that it will be beneficial to the subject matter to break it into a series of related posts, dividing one concept from another.

It started out as an intention to simply explain “inflation” to RPG GMs and players, after seeing a huge amount of incorrect information on social media and through Quora, and that’s still going to be a major part of the content – I have a set of pretty pictures planned for when I get there. But that’s for a future part of the series.

This time around, I’m going to introduce the subject and then look at economics in one family of fantasy campaigns. I’ve touched on this a number of times in different contexts but never focused on it before.

This will join the many other articles on world-building that have been offered here through the years. These started way back when with

the Distilled Cultural Essence series

and A Quality Of Spirit – Big Questions in RPGs,

and run all the way through to the more recent (last week!)

A Tale Of Two Empires (and more)

— (the sections on Kingdoms inevitably becoming Empires through growth could almost be a primer for this article!)

There are far too many to list here individually; instead check out

the Campaign Creation page of the Blogdex,

especially the sections on

  • Divine Power, Religion, & Theology
  • Magic, Sorcery, & The Arcane
  • Money & Wealth
  • Cities & Architecture
  • Politics
  • Societies & Nations, and
  • Organizations.

Oh, and maybe the stuff on

  • Races,

too.

A disclaimer: I am not an economist and I’m not trying to turn anyone else into an economist. An awful lot of this content will be simplified, possibly even oversimplified. Bear that in mind as you read.

A second disclaimer: I’m Australian with a working understanding, however imperfect and incomplete, of how the US Economy works, and an even more marginal understanding of how the UK economy works (especially in the post-Brexit era). Most of my readers are from the US, and number two are Brits. Canadians and Australians fight over third place on pretty even terms, so those are the contexts in which what I write will be interpreted. And that means that the imperfection can become an issue.

Any commentary that I make comes from my personal perspective. That’s important to remember. Now, sometimes an outside perspective helps see something that’s not obvious to those who are enmeshed in a system, and sometimes it means that you aren’t as clued-in as you should be. So I’ll apologize in advance for any errors or offense.

I’ll repeat these disclaimers at the top of each part in this series. Right now, I’m expecting there to be three parts – but it might be more or it might be less.

An Economic Introduction

There are people out there who enjoy talking about, thinking about, even writing about, Economics. For most people, the subject is as boring as it’s possible for a subject to be. I want to start this article (and the subsequent ones) by acknowledging this and making it clear that I’m going to try not to be boring!

    In fantasy games: a prelude

    I’m going to preempt the intended structure of this series with this prelude, simply to stress that – for the most part – an economy should be completely invisible to the characters in a fantasy game.

    That’s not to say that individual adventures / challenges can’t arise from specific parts of the economy – they can. Protecting a shipment / caravan from bandits is an RPG staple, for example. There are others.

    The mechanisms of the economic engine may be buried beneath the surface most of the time, and discovered piecemeal, if at all, but in order to discover and utilize these opportunities, the GM should understand the parts of the iceberg that aren’t on show.

    When something happens that will affect the economy, the GM has some concept (from that understanding) of the impacts and how they will manifest to the PCs.

    There’s more on this subject to come, but that’s enough for now.

Economics is all about money, how much it is worth, where it comes from, and where it goes.

A fundamental model

Let’s start really simply. Imagine that you have a pile of 100 pennies that represents the wealth of the entire country at this specific moment in time – and that this is an entirely fictitious country, so it bears no resemblance to any reality.

    Workers & Bosses

    Every week, a person gets paid a penny by their boss, who also gets a penny for his troubles. So that’s two pennies out of the stack, leaving 98. In fact, let’s say there are 20 such bosses-and-workers pairings out there, so that’s 40 pennies out of the stack and 60 pennies left.

    Each worker spends virtually all of their money, one way or another, and stockpiles whatever little remains for future spending. He also pays taxes.

    Each boss spends some of their money, invests some of their money in the businesses of other bosses. He also pays taxes, at least in theory.

    The government employs another 20 workers and 10 bosses, paying each of them a penny every week.

    So that’s another 60 pennies, and the government is suddenly out of money.

    Money in

    What the government therefore needs is for the sum total of the money it is raising through taxes, and whatever else, to add up to 100 pennies a week, or more.

    It will get some of it from taxes on workers – maybe 1/4 of a penny each. With a total of 40 workers, that’s 10 pennies a week.

    It will get some of it in taxes from bosses – maybe 1/3 of a penny each. With a total of 30 bosses, that’s another 10 pennies each week.

    The investments of the bosses also earn taxes on the profits, AND grow the economy (in theory) by the amount of the investment plus more. If the bosses are investing half a penny each week, that adds up to maybe 60% of a penny each week. 30 bosses x 60% = 18 pennies a week.

    Every cent that workers or bosses spend goes to someone, who pays taxes on it, and who spends some or all of it, creating an economic daisy-chain with government taxes at every link in the chain. That’s 8/10ths of a penny from each worker, and maybe 1/5 from each boss. 8/10×40 + 1/5×30 = 32 + 6 = 38 pennies.

    Adding all that up, and you get 10+10+18+38 = 76 pennies.

    Necessary Growth

    That means that the government has to grow the economy by another 24 pennies every week just to stay afloat. It does that by spending money that it doesn’t have on things that it needs, in the expectation that these things will come back to it in taxes and economic growth. Like exploration for gold mines and oil wells. On top of that, all the mines and wells already found deliver a certain amount of wealth every week. So that 24 pennies is not too hard to find, especially in a fantasy world where lots of such things remain to be discovered.

    It’s fair to expect that 90% of the required amount will come from exploiting existing resources and that the real economic growth needed is therefore about 2.4% a week.

    Boom & Bust

    If growth is more than that 2.4%, then you have a boom, and it’s more likely that the investments made by others will prosper, and by a bigger amount, so the government takes in more money in taxes on the profits. And next week, the economy might be 105 pennies in size.

    If growth is less than the target – or worse yet, economic contraction – then the economy shrinks, there isn’t enough money to go around, so the bosses sack some of the workers (so that instead of 2 pennies in, one out, the business is paying 2 pennies in, 1/2 a penny out). So taxes go down from multiple revenue streams, and the economy is in recession. If a recession lasts for too long, it gets given a new name, because the effects begin to compound – it’s called a depression.

    To get out of a recession, the government can take one of two paths – it can spend less, and wait it out, or it can spend more in a bid to stimulate economic growth and push the numbers back up.

Basic Model: complete

This is an oversimplified but fundamentally correct economic model (there’s no allowance for corporate R&D, for example), and it applies – more or less – to every type of economy out there. I’d estimate this explanation to be at about a 6th-grade level, for whatever that’s worth.

Serfs and Peasants

With the foundation established, let’s talk about peasants and serfs. Back when I was starting as a D&D GM there was not enough recognition of the difference. Heck, even in the 2000s, there wasn’t really enough appreciation of the difference. But it’s fundamental to the economics of every D&D world out there.

That’s because D&D economics is usually mish-mash of aspects of both early medieval and later medieval cultures, with the GM / author unaware of the differences. It doesn’t help that they are both aspects of the one social system, feudalism.

A serf doesn’t own the land, has no say in what happens to it, and is simply a cog in the production process. Peasants have at least partial ownership and some say in what happens to the land. Serfs can’t even choose not to work; peasants can do so (with consequences, of course).

These are distinguishing features of the two different economic systems They are a long way from being the only differences, but at least they are characteristic.

Terminology

Having identified the existence of two different economic models, we come back to the problem of terminology, which I blame for a lot of the confusion in this subject matter. Too many of the labels that could be used apply equally well to both systems, or are so abstruse that people won’t recognize them. After much thought, I have decided to use the terms Absolute, and Limited, Monarchy to describe the two systems. You’ll see why, in just a moment.

The Economics of an Absolute Monarchy

The King owns everything, or – more properly – the crown or the throne owns everything, and the King of the moment simply controls it. He is responsible for the lives and welfare of everyone who works or lives on the land, and they all work for him, and at his direction.

Because the king can’t be everywhere at once, he appoints a peerage to manage things on his behalf. Since he gets most of his news and all of his military from the nobles within this peerage, such positions automatically confer power and authority.

Members of the peerage are responsible for paying whatever the land earns to the King, who gives each a budget to expend on the next period of production. But shipping wealth to the Crown and then getting some of it sent back is inefficient; it’s faster, safer, and far more convenient, for the noble to simply deduct from the revenues whatever amount he is entitled to and pass the rest on to the crown.

Corruption and Entitlement

It doesn’t take much of a shift of mindset on the part of those nobles to go from “I send the King everything but what I’m allowed to keep” to “I send the King everything he’s entitled to and keep the rest.” Most members of the peerage make that adjustment on day one of their reigns.

In theory, the Peerage is receiving their money from the throne in exchange for their loyalty to the throne and the ruler currently seated upon it. That loyalty is corroded by the shift in attitude, but not to point of destruction.

More commonly, the shift in attitude lets the Noble cut the allowances made for the serfs who work the land to the bone, increasing the amount that he or she gets to keep for their own purposes. Before that shift, any such excess simply increases the amount to be paid to the throne, so there is no incentive on the part of the peerage to stint.

Skilled Professions

Let’s talk Blacksmiths, as a typical example. Everything that the Smith has, from tools to forge to training to raw materials, is the King’s to dispense, though the administration is usually in the hands of the peerage. There’s just too much minutia involved in personally managing every detail for a ruler to do it all themselves, even with a trained staff to assist them.

Everything that the Blacksmith produces also belongs to the King. He hands it over to the Peer and in return, is entitled to food, and lodgings, and protection from raiders and criminals, and occasionally a pittance to spend on a luxury item. Again, in practice, he simply hands these goods over to whomever the peer directs – some of it will go to this village or that (horseshoes, for example); some will be claimed for use by the peer to outfit soldiers (some of whom may be called upon to fight on behalf of the crown, and usually led by the peer himself, for reasons that will become clear shortly), and some may go to the throne for direct use in outfitting a royal guard or supplementing the armament of less-prosperous domains that try to make up for the shortfall with enthusiastic support.

Distributed wealth

Of course, the same principle – easier, safer, and more convenient – applies at every step down the chain, so long as the person responsible is sufficiently numerate and responsible or can hire someone with those attributes. So Barons permit Counts to withhold ‘their share’ and simply pass on the rest. But there are limits – while this distributes wealth throughout the Kingdom to some extent, it never reaches the Peasants because they are never educated enough to handle any budget more rigorous than ‘how much do I have that I can spend?”

This provides an important security measure for the King. Since the bulk of his nominal wealth is secured and never in transit to anywhere, it can’t be stolen and can’t be destroyed or rendered inaccessible by natural disaster.

Furthermore, it creates an incentive for those Nobles occupying border estates to be vigilant and prepared for hostile acts by the neighbors. So, in theory, everybody winds from this practice.

Rewards For Service

Kings and higher Nobles will obviously value loyalty to themselves very highly, and other “Noble” attributes like bravery, or tactical acumen, just behind that one. It’s common for displays of such attributes to be rewarded with higher titles, more land, more power, and hence more wealth. These rewards are often taken from those who fail to display those attributes.

Court politics are the inevitable result. No matter what the ideals on which the Kingdom may have been founded, at the first hint of favoritism, envy and self-protection will ally to create politics and politics always creates opportunities for corruption and greed and malicious activity. Easing this transformation and lubricating it is the change in attitude mentioned earlier.

So, a sailor – probably a minor noble – discovers a new land that can be colonized by the King. Or a surveyor discovers a new mine, or whatever. Everything belongs to the King, and that includes this new discovery. So there is no incentive for expansion, and that inhibits economic growth.

The usual story is that the Crown issues a commission to fund the search for such resources, and rewards success with noble titles and more such commissions.

Economic Expansion

The discovery of new resources or more efficient technologies / crops, can only ever be a small part of the necessary economic expansion. There will be certain boom periods in which such new technologies make it possible to travel further than was possible before, in hopes of discovering and claiming new lands on behalf of the throne, but most of the time, that’s not possible, either. And such lands are rarely uninhabited, leading to colonialism and native uprisings and conquests (not always successful).

That leaves only two ways of fattening the national purse: trade and war.

Wars Of Conquest

Let’s tackle War first. This adds to the national treasury by taking someone else’s resources and making them your own – a simple enough equation. But it’s immediately complicated by the fact that the current owner will resist, and if he loses control of a territory, will try to take it back.

Preventing a loss as rapid as a possible conquest requires the expenditure of some of your resources in the form of an army. The more effective an enemy is, militarily, the larger the commitment and the cost, and the less profitable the conquest will be, because the value of the resources is a fixed number.

Ultimately, this model of military conquest is usually a losing proposition. That’s where religion enters the picture.

Religion

Religion provides a motivation to conquer, in the guise of “converting the heathens” or proactively defending against them coming to convert you. It can also employ a much slower but much cheaper method of conquering a territory – that’s “converting the heathens” again.

But it also sucks money out of the economy, because it gets used in adorning the temples and personages of the Faith.

These two factors rarely balance exactly, and noblemen attempting to buy their way into heaven by spending on basilica and religious statuary and the like frequently tips the balance against religion (from the perspective of the throne).

Tipping it back is the fact that dogma that supports the right of the peerage to rule over the serfs becomes indoctrination that persuades many of them to willing privation and support of military ventures against which they would otherwise revolt. It makes populations more pliable, and that permits wars that would otherwise be untenable – and which (if successful) just happen to bolster the national wealth by more than the (reduced) cost of the conquering.

Trade

Peace between nations is often purchased through the intermarriage of noble houses. A web of familial ‘connections’ provides avenues for diplomacy (when attempted conquest is impractical or too expensive) and thus opens the door to trade.

Trading is founded on the principle that resource X is worth more over there than it is here. Every manner of goods and resources is a potential trading commodity. If you can take something worth 1% of your national economy to you and sell it to someone else for 3% of your national economy, or its equivalent in goods, then you have grown your economy by 2% less the cost of transporting it.

Paper Money

As soon as anyone with an ounce of greed hears that summary, they start thinking about ways to reduce the cost of carriage. Transportation in bulk is good, but leaves you more vulnerable to bandits and pirates. But some commodities are valuable in and of themselves – what if you didn’t have to transport those commodities, but just keep them safe and sold the right to claim them?

The promissory note becomes the banknote, i.e. paper money, very quickly. Transporting a piece of paper is so much cheaper and easier than transporting the goods to which the they entitle the bearer that the development is almost inevitable.

The questions that then arise are all related to who has possession of the ‘hard currency’, what security they have protecting it, and to what extent are they really protected or liable should that security fail?

Government holdings tend to be the most secure, because they can spend as much as necessary on security. Commercial operations, theoretically liable, often have ways of evading responsibility should the worst happen – declaring bankruptcy, for example, or seeking a government bailout so as to prevent the damage to the economy that their failure will entail.

Service Fees and Interest

It’s a short step from paper money (promissory notes can be considered paper money of no fixed denomination) to having intermediaries who handle the minutia, and another short step from that to them charging a fee to compensate them for the associated labor and risk.

Some institutions will respond by bringing these services in-house. It’s usually not long after that happens before the concept of lending money to reputable and reliable clients for a fee gets introduced, and not much longer before that fee becomes a percentage of the amount of the loan.

Flat rates of interest on loans soon give way to some schema in which the degree of risk involved raises or lowers the interest rate itself. Note that in this society, such services are only going to be available to those with noble titles, and are often going to be underwritten by deeds to land.

Savings, more fees, and more interest

At the same time, the concept of someone holding your wealth securely on your behalf gives rise to ‘savings accounts’ – in which people deposit their wealth in an institution and no longer carry as great a risk of losing it.

Since the institution only needs to carry enough cash on hand to pay out their expected withdrawals before the next shipment of currency arrives, they can put the rest to work as loans and investments, and profit from the deal. They usually charge a fee to cover the costs involved in the transaction and security, so this is all gravy from their point of view.

As soon as competing institutions start chasing the same customers, though, one will attempt to sweeten their position by offering a share of the money that they will make from these loans and investments, which is obviously going to be proportional to the amount deposited – and so savings start to earn interest.

Because some loans will always go bad and not be repaid, the interest rate for savings accounts will always be less than the interest rate on loans.

Relating reality to our simple model

The entire pile of pennies, no matter where they are, belong to the King, and everybody works for the King, though some part of the stack are held by the peerage. They, in turn, may have some of their holdings in institutions.

Between the concepts of trade and conquest / colonization, there is more than enough capacity to achieve any reasonable level of growth in the economy.

Running Out Of Money

Until the invention of banks and bank loans, if a noble runs out of money, their only escape from trouble is to beg the throne for more. Since the throne has already dispensed an amount they consider to be reasonable, they won’t be easy to persuade.

A more enlightened monarch might relent in the face of temporary adverse circumstances, especially if they are relatively localized, a more authoritarian monarch might refuse outright or demand some quid-pro-quo.

It was not uncommon for nobles to intentionally run their budgets ‘lean’ so as to force their peerage to beg such rescues while holding onto greater liquidity, but this is a dangerous strategy, directly opposing the sense of entitlement and authority described earlier. Nobles are already plotting against each other (it’s called ‘politics’); it’s a very small step for them to start plotting against the throne, too. Very, very carefully.

Budgetary Restraint

If a nobleman has run out of money, he has to do what you or I do at such times – we cut the necessary expenditures to the minimum, then raid the luxuries budget, and – at some point – start living beyond our means in hopes that things will come good, one day.

Loans and Gifts

That’s where the various networks that surround the Noble become vital. If demonstrably pious, the Church may persuade another, more prosperous, Pious Noble to loan the destitute Nobleman (some of) what he needs. Or it might be a family connection (through intermarriage) that is the magic window. Or the commercial properties fostered in better times. Or revised terms of trade with someone else. Or – most likely – some combination of all of the above.

Consequences

In the meantime, there’s less money for the serfs, there’s less money for their supervisors, there’s less money being spent by the Noble on goods, and everyone is just that bit (or a lot) more destitute.

It’s not common, but it’s also not unheard of for a Noble Title to be vacated on the grounds of economic mismanagement. It’s far more common (but still rare) for one to be vacated on the grounds of corruption. It’s more common, still, for a title to be vacated or reassigned on grounds of treason – because then, as now, desperation creates opportunities for enemies.

That, of course, is the real concern of the Throne, and the real reason why loans or gifts in cases of undeserved hardship will often be granted – with some surety to prevent the peerage going to the well too frequently.

Even in this relatively primitive economy, you can see some of the trends and practices evolving that we take for granted in the modern era, but the evolution of economic model in our history took a turn before those trends really manifested themselves, going from an Absolute Monarchy to a Limited Monarchy, and in the process sewing the seeds of both the Pre-industrial and Steam-age economies.

In this part:

  1. Introduction
  2. General Concepts and A Model Economy
  3. The Economics of an Absolute Monarchy

Still to come:

  1. The Economics of Limited Monarchies
  2. In-Game Economics: Fantasy Games
  3. Pre-Industrial Economies
  4. Industrial Economies
  5. Modern Economies
  6. Inflation
  7. In-game Economics: Gaslight-era
  8. In-Game Economics: Pulp-era
  9. In-Game Economics: Modern
  10. In-Game Economics: Dystopian Futures
  11. In-Game Economics: Utopian Futures

At the moment, I expect 4 & 5 to be in Part 2, 6 and 7 to be in Part 3, and 8 & 9 will either be in part 4 or broken into parts 4 and 5. The rest will follow in one or two concluding parts. But all is fluid conjecture and we’ll see what actually happens when I put hands to the keyboard.

What’s completely undecided at the moment is whether or not to focus on this series exclusively or intermix it with articles on other subjects. Both approaches have their strengths and weaknesses. The decision will probably wait until I start to write next week’s article!

It may be noted that I don’t have any entry for “In-Game Economics: Steampunk”. There are two reasons for this: first, there will probably be a lot of overlap between that and the Gaslight-Era entry, and second, I’ve never run a steampunk campaign nor delved into the genre too deeply, and don’t feel qualified to write such a section. If anyone would like to contribute a ‘guest section’ on the subject, get in touch!



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