Readercon, Part 3 - Economic Systems Past, Present, and Future

[rinue]

Part 1
Part 2

What were the responsibilities of a medieval serf, and did they result in an efficient use of land? Could the EU or African Union provide a blueprint for a federation of planets? Romie Stott will offer an overview of economic systems past, present, and theoretical, touching on gold standards, mercantilism, oligopolies, usury laws, non-Soviet communism, competitive advantage, and how tax policy can motivate altruistic behavior or create a black market. If you've ever wondered why diamonds cost more than water and whether that would change with replicators, this is the place for you.

This was my solo talk, and the reason I was invited to Readercon. I wish I'd had more than an hour (which was really 50 minutes); I covered ground as fast as I could. It would take pages and pages to summarize what I said; the outline alone (which I've posted below) ran to 4 pages.

I could summarize the entire talk like so:

Currency is an emergent property of sufficiently complex human society, and if your techno-utopian future does not include currency, you have predicted wrong. (Hard SF analogy: It is possible to write about a non-spherical planet. Are we going to find one that is naturally occurring or that will last long? No.) When there is a stable society but not a reliable currency (for instance a cooperative culture but not a stable government), you get variations of feudalism, which protects what exists but is a kind of stasis.

Once you get a stable currency again (or for the first time), technological advances and free movement of labor become possible, and society moves out of feudalism to a market economy. There is no future next step past market economy, only varying levels of market freedom and market efficiency. There are distortions and levers you can play with (with various real-world examples), but obliterating money just gets you neo-feudalism (even if you call it something clever like a "gift economy" or "prestige economy" or "communism"). Even with replicators and eternal life, there is such a thing as opportunity cost. However, there are situations in which money does not matter or is not useful, including subcultures within the dominant culture (such as families and inter-office relationships).

Of course, it's the specific examples that are interesting and give you story hooks - hence my my four-page outline below.

I didn't say this specifically in the talk, but these are the two popular misconceptions I'd like to clear up about economics as a field.

1. Economics as technology

Economics is a science - essentially a sub-field of anthropology which focuses on public transactions (sales of land, labor relations, voting systems, etc.) In other words, economics is an attempt to explain what is already happening. It can be predictive, in the same way geologists can warn you an earthquake is coming or oil is more likely to be found in one area than another area. Along these lines, when we talk about economic advances, we're not talking about inventing anything, any more than advances in astronomy invent new stars; we're talking about getting better at seeing and explaining what was there in the first place.

What I'm getting at is, economics is not a technology - it's not something that lets us do more things than we could do without economics, and we're not going to invent a "new" economics that will replace our "outdated" current economy. As a science, economics simply describes. It's not really about should, not in a moral sense. It tells you what people in your area are paying factory workers, and why, not what you ought to pay factory workers, or even whether you care about making money beyond what it takes to keep the doors open.

2. Economics as applied to individual behavior

As such, economics is about groups and averages, not individuals. There are ways you can apply economic thinking to your life - you might, for instance, decide it's worth spending an extra $100 to fly home a day early because you'd save that much on the cost of a hotel and eating out. You might conversely decide it's worth an extra $100 to fly home a day later, because being away from home that extra day relaxes you as much as spending $200 for a therapy session. But these are also decisions you could make without thinking of them in economic terms, just by thinking "hey, what do I really want."

Don't get me wrong: economics is hardly useless. If you want to know whether raising DUI penalties or closing bars earlier is going to cut down on drunk driving, or how much money you're going to make if you install toll booths on a bridge (which is going to make a certain number of people stop using the bridge), you do an economic analysis. But economics is not going to tell you that your neighbor is going to be one of those individuals who is really annoyed about the toll bridge and will want to talk to you about it every day, and will successfully run against you in the next election by promising to cut property taxes since now we're paying for things with the toll bridge. Economics can tell you that a bank could succeed at a given location, not whether your bank will succeed.

In other words, economics does not tell you how to win at money or solve the world's problems. It tells you: given these preconditions, if you change these things, these other things will (or won't) shift in this direction by about this much. And if you don't change things at all, the future will tend to look like this. When it comes to the future, at least at present, economists won't be able to give you a clear timescale. Pretty much every economist knew for 10 years that the housing market was a bubble and a collapse was imminent, but in the meantime a lot of people made a lot of money out of the rise in prices. Ballpark, I'd say we've gotten good at guessing big things within about 5 years of when they happen. If we try to get too precise or too broad or too far out, we run into the same kinds of problems as meteorologists.

Economists themselves are to blame for largely to blame for these misconceptions. We like to make ourselves sound like cool all-powerful rock stars who can hack the planet and give you the keys to an easy life and simple tricks to cut down on belly fat. What we do is cool and can cut down on human misery in a wide range of areas. Or it can be used as an excuse to act totally horrible to other people. Like just about anything.

On to the outline. Which obviously simplifies quite a bit for expediency, as did the talk.


A. INTRO: MONEY: Let's start with the basics - talk about money (which is a kind of technology and a kind of infrastructure)

1. What money (currency) does (in contrast to barter):

a. store of wealth (buy and sell at different times)
b. portable, easily transferred
c. lets you buy from someone who doesn't need what you're selling (cuts out

middlemen - potentially many middlemen)

d. basically formalized IOU system with agreed rules

i. fiat system vs. gold standard (ways to control for inflation)
ii. trust money will equal similar/predictable amount later

2. Systems that work without money:

a. common feature of SF utopias BUT in real world. . .
b. Rigid hierarchies

i. can't say no; no need to negotiate
ii. for instance, slavery vs. "could you use some overtime"

c. small, local, unified goals, frequent interactions (family, farm collective)
d. bit of both (Starfleet, academia)
e. money still usually necessary in interactions with people outside of system
f. basically, what we call civilization depends on money

i. or points, or records of contribution, or "shore leave," or jewels
ii. some kind of widely agreed bankable and transferrable unit of value

g. because:

i. even if you imagine infinite resources
ii. time is finite
iii. and there are opportunity costs
iv. unless maybe everyone can be multiple places at once, time travel, and is immortal

3. Systems in which money does not work

a. unique objects/objects of indefinable value

i. priceless (fate of planet/colony)

b. total societal breakdown

i. no one believes in future; stored value meaningless
ii. yes even gold, which we value out of tradition, basically
iii. currency crisis (hyperinflation of fiat currency, counterfeiting)

c. In theory these are temporary

i. could last a long time
ii. eventually, an economic system reasserts
iii. wealth/power accrue somewhere, due to the fact of inequality
(see Vonnegut's short story "Harrison Bergeron")
iv. people look for framework in which to cooperate/trade
v. because comparative advantage, which we'll get to later

B. THE PAST: for our purposes, Feudalism

1. What it is:

a. The default Fantasy economic/political system
b. Dominant in Europe from around 800-1600
c. can also be applied to Shogun Japan, some of Ancient Egypt
d. stuff we associate with it:

i. lords and ladies
ii. vassals and serfs
iii. villages and castles

e. Closest thing to feudalism in the contemporary US is probably drug gangs

i. vassal-like hierarchies
ii. "protection money" from businesses
iii. although gang ownership of turf is illegitimate rather than state-recognized

2. in economic terms:

a. lifelong and hereditary contract between renter and landlord
b. differs from slavery in that the contract binds lord as well as serf
c. lord provides military protection
d. serf obligated to spend some percentage of time laboring in service of lord

i. usually to provide him with food/income (most serfs are farmers)
ii. typically takes the form of working in the lord's fields at set times of year

e. serf has his own land which he may use as he sees fit

i. usually to subsistence farm
ii. may have other means of making income

- may or may not be taxed by lord

iii. and may sell his crops at market (serf's crops belong to serf)

3. Serfs are not soldiers

a. they're not trained
b. the whole deal with the lord is that he will provide the soldiers
c. and the lord really needs serfs to keep farming, or he and his soldiers will starve
d. so who are the soldiers?

i. freemen (who own land outright)
ii. vassals (lesser lords)
iii. knights
iv. basically, specialty types of indentured servants

- Unlike serfs, do not have land; get paid

4. Serfs are not property (not slaves)

a. not bought, sold, or traded
b. not told who they can and can't marry

5. Serfs are not typically that affected by taxes

a. may or may not have much use for currency
b. the Robin Hood situation of high taxes to finance wars?

i. Really hitting lords/vassals, not serfs
ii. lords could presumably ask serfs for more labor, but you have to feed them
iii. taxes also hitting the clergy

6. Perhaps from this you are getting the sense that not everyone was a lord or serf. Correct.
7. Actual serfs do not show up much in Fantasy because:

a. they can't really move around much - bound to the land
b. farmers with limited time to do things other than farming

- during the winter, could do some ranging
- just need to get back in time for harvest/feudal obligations
- but mostly didn't

C. Why did Feudalism end?

1. You'll notice money didn't show up much in my discussion of lord/serf relationships
2. During the middle ages, a lot of political instability

a. which means no consistent currency
b. different kings minting different coins, saying they're worth different amounts
c. banking mostly outlawed - usury laws rooted in Christianity

3. Without widely accepted currency:

a. hard to travel
b. hard to save
c. almost impossible to trade geographically distant things, including land

4. Feudalism is pretty good way of managing a mostly barter economy

a. lord gets labor
b. serf gets land

5. But not as necessary once you have:

a stable government (secure political dynasty, constitutional protections)
b. and/or stable banks (thanks to religious shift)

6. Economic advantages of free movement of labor:

a. perspective of landlord:

i. with serfs, you aren't in control of how much labor you have
ii. constrained by how many kids previous generation had
iii. you only have so much land to rent out
iv. the more serfs/farmers you have renting from you. . .
v. the less land you have left over to be your farmland…
vi. so you need less labor
vii. and maybe you'd rather not be paid with food
viii. maybe you want to build a factory
ix. and then close it 10 years later when that fad is over

b. perspective of renter:

i. as employee, I can take whatever job pays me better
ii. if I'm really good at making shoes, I can travel to sell them beyond my village
iii. if my house gets too small for my family, I can move
iv. if I don't care about farming, I can rent bad farmland for cheap
v. if I am really passionate about farming, I'm not stuck on bad farmland
vi. I can specialize ("added value")
vii. I can manage opportunity cost
viii. don't have to leave my own farm at harvest time every year to harvest somebody else's stuff

7. I said we'd come back to comparative advantage

a. producing something at lower opportunity cost than anyone else
b. even if I'm the best farmer (absolute advantage)…
c. if I'm also the best at dying cloth….
d. Heinlein-style self sufficiency limits broader economy

8. So you get people buying their way out of feudal contracts

a. moving to cities
b. incorporating towns
c. paying rent with money
d. paying for military protection with taxes (aka money)

9. Feudalism could/does come back when you have relatively stable societies but relatively unstable governments, or if you eliminate currency.

D. THE PRESENT AND FUTURE: free, command, mixed
Current economies' govt expenditure relative to GDP

1. US around 30%
2. Sweden around 50%
3. Cuba around 80%
4. when you get to extremes, something screwy distorting data

a. Bahamas 15% - tax haven
b. Iraq 90%- war destroyed private sector, massive military spending inflated govt

5. Note that degree of economic planning doesn't necessarily imply communism

a. warlord/royalty

E. MODERN CAPITALISM

1. Typically defined as synonymous with free-market economies, but actually mixed:

a. relatively free movement of labor
b. relatively free exchange of relatively stable currency
c. ability to buy and sell land, services, just about anything
d. which means it's pretty efficient

i. things tend to get made that people want
ii. sold at prices they are willing to pay
iii. that other people are willing to sell them for

2. Why not totally free?
3. First of all, countries have governments, which must at bare minimum:

a. ensure stable currency
b. provide some sense of safety (military, police)
c. otherwise I'm going right back to feudalism
d. and this means they have to be paid something, which means taxes

i. so the price of something isn't exactly buyer/seller

4. Countries have borders

a. which means un-free labor movement
b. Mercantilism

- essentially hoarding
- subset: bullionism
- assumes finite resources (technology denying)

c. protection of local/pet industries

5. Coersion (monopolies, oligopolies)

a. rule of three (coke, pepsi, RC cola - two majors one cut price version)
b. market makers (McDonald's)
c. essentially nongovernmental command economy

6. Taxes/Regulation/Externalities

a. black markets/smuggling
b. compensate for external bads (externalities)
c. free rider issue (fireworks and fire departments)

7. Imperfect information/speculation

F. MARXISM

1. Says modern capitalism is not free market, but corporate feudalism
2. Command economy
3. Asimov's psychohistory
4. limits of planning/tragedy of commons

a. railroad spikes to hang pictures because no drywall nails produced (East Germany. Talk about more broadly if time.)
b. tampons and maxi pads never produced (Slavenka Drakulic, Yugoslavia)
c. pollution of industrial sites
d. inefficient (feudal-like) farming practices?

G. THE FUTURE

- Could the EU or African Union provide a blueprint for a federation of planets?
- aliens contact us as market and/or trade partner (can contact self-interestedly but not imperially, a la Perry to Japan)
- why diamonds cost more than water and whether that would change with replicators
- inferior goods and steampunk