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[Grendus]

I think a lot of you arguing that trading coins would be pointless are missing a vital fact: eventually, Toady will develop the supply/demand arc. When that happens, 20000 limestone mugs won't be worth the mule-power to haul them away. The point of coinage was not to create wealth - on the contrary, until recent times most coins were backed by the value of the metal they're made of (hence why most coins were cast with ridges along the edge to prevent people shaving the metal off and trying to pass the coins off as being worth more than they really were) which reduced the metals theoretical value since coins had no quality - the point was to facilitate trade by creating a universally demanded good. The traders may not be interested in more than a few dozen of your base quality basalt mugs, and there are few people who can afford those high quality, gold inlaid suits of platemail, but they'll always take your billion coins in exchange for goods.

THAT is what coins should be used for. Not for creating wealth, but for creating a vehicle with which to turn your wealth into an item that is independent of fluctuating markets. In theory, trading will eventually become something that takes real skill to become good at, not just setting the craftsdwarf's workshop to produce stone mugs. It's too easy to put the modern view of money as a representative symbol of value, very few cultures did this until just recently.

[Lord Dakoth]

THAT is what coins should be used for. Not for creating wealth, but for creating a vehicle with which to turn your wealth into an item that is independent of fluctuating markets.

Actually, money is not free of the influence of other markets. (Perhaps I misunderstand what you're trying to say?)

However, the idea behind currency of any kind is, as you said, creating a "universal" trade good.

Individual sets of currency do go through fluctuations in the real world economy. Hence why the USD is performing so miserably.

[RandomNumberGenerator]

Individual sets of currency do go through fluctuations in the real world economy. Hence why the USD is performing so miserably.

What does that have to do with anything in Dwarf Fortress? Regardless of the state of the economy, a silver coin would keep it's value not because it's a coin, but because it's made of silver.

[Arrkhal]

THAT is what coins should be used for. Not for creating wealth, but for creating a vehicle with which to turn your wealth into an item that is independent of fluctuating markets.

What does that have to do with anything in Dwarf Fortress? Regardless of the state of the economy, a silver coin would keep it's value not because it's a coin, but because it's made of silver.

Untrue.  Any currencies, including face value coins and 100% backed currencies, are just as vulnerable to supply and demand as anything else.  "Precious" metals are valuable, other than their utility, solely because they are rare.  If gold was as common as iron, it would be valuable only because it's incredibly malleable and very difficult to corrode.  (gold was also very easy to verify as real, since the only elements which are denser, other than platinum, were unknown in antiquity)

It is, in fact, the "global" supply which makes hard currency very stable, and that size of economy is the new concept.  A thousand years ago, travel was far more limited.  Thus, a giant influx of gold in one area would mean massive hyperinflation.  There have been several instances in history where countries, after winning a war, found themselves with literally more gold than they could possibly spent.  End result, gold was nearly worthless when buying locally produced goods, and its incredible export value meant that it couldn't be spent fast enough on imported goods.  Economic collapse was inevitable, each time.

Imagine what the USA's economy would do if American bread cost $100 per loaf, yet the USD was worth £100 abroad.  It would be insane.

[Plazek]

Yes but in the real world gold and silver etc. are rare. So as a result they do in fact keep their value.

I doubt what you say about areas with a lot of gold suffering economic collapse is true. Why would being unable to buy stuff fast enough cause economic collapse? Just buy stuff as you need it, see the thing is areas rich in natural resources tend to do better than other places. Not fail epically because of too much wealth. What are these instances in history anyway? I have studied economics and history and I have never heard anything like that.


PS - insane because impossible.

[Arrkhal]

Yes but in the real world gold and silver etc. are rare. So as a result they do in fact keep their value.

Once again, you're thinking in terms of the modern economy.  Precious metals are rare on a global scale.  If they're common on a local scale, they're still worth their value on the global market.  If you're limited to a local market, and can only buy what can be hauled in a wagon pulled by livestock, things become very different.

I doubt what you say about areas with a lot of gold suffering economic collapse is true. Why would being unable to buy stuff fast enough cause economic collapse? Just buy stuff as you need it, see the thing is areas rich in natural resources tend to do better than other places. Not fail epically because of too much wealth. What are these instances in history anyway? I have studied economics and history and I have never heard anything like that.

History + economics != historical economics.  Look up what the Spanish economy was like during the 16th and 17th centuries.  That would be the easiest, most well known, and most recent.

Yet again, you're thinking modern economics.  In the modern economy, a country can produce zero food and import all they need, as long as they export enough to not go too deep into debt.  Freight ships and aircraft can easily transport enough food and goods to keep an entire comfortable.

But in an economy with horse-drawn wagons and sail-powered ships, the mass transit of goods is far harder, and all the money in the world won't "create" food or goods out of thin air.  Industries must be built up first, and that requires time.  Bandits and highwaymen aren't going to be stupid, and they're going to be attacking every caravan that leaves the hyperinflated country.

Without freighters and cargo planes, only a very small percentage of a country's daily needs can be imported at rock bottom prices.  Thus the vast majority of goods must be farmed, crafted, and built locally.  And that means paying enormous amounts, because the currency is hyperinflated.  Once again, this is not a modern economy, you cannot merely go on the New York gold market, find a buyer in China, have him wire the money to your Swiss bank account, and ship the gold there by plane.  In a pre-modern economy, gold value is based partly on global rarity (what foreign traders who arrive once a year will give you for it), and mostly on local rarity (what the trader across the street who's there every day will give you for it).

If total gold in the world suddenly doubled tomorrow, the value of gold on the modern, global market would be half.  Likewise, if a single country in a pre-modern economy suddenly finds itself with twice as much gold, the value of gold in that country will be half, while it will still trade at full value with other countries.  But you cannot import an entire country worth of food on horseback, not even if you could fit an elephant cage on there.

So anyway, with too much gold and a hyperinflated currency, all locally produced goods cost more.  Meanwhile, gold is slowly trickling out of the economy due to theft and trade.  Do you think traders are going to go "oh, okay, the gold in the country was reduced by 5% over the last year, so we will reduce our prices by 5%."?  No!  They're going to stick with their hyperinflated prices, because they want money, and most people will have no clue how soon their total amount of gold will be back to normal due to buying imports.

So prices stay high, while the currency slowly deflates back to its former value due to trade.  Bread continues to cost $100, even when the USD again trades at 60p.  Once again, economic collapse.  It's inevitable, without a carefully controlled economy, or global trade on a massive scale.  Neither of which were present in pre-modern economies.

[Plazek]

Yea most of my economics was modern economics

I can see how what your saying could happen. Which is why it is the responsibility of the noble classes to hold onto all that excess wealth to keep the economy safe.

I should imagine such epic economic failure should be fairly unusual though probably in part because of the above reason and also because the infrastructure and industry you mentioned must be in place before gold is used as currency is there. Especially if the coutnry is powerful enough to aquire such untold riches.

Anyway, interesting.

[Arrkhal]

I can see how what your saying could happen. Which is why it is the responsibility of the noble classes to hold onto all that excess wealth to keep the economy safe.

And it's my responsibility to off them in creative ways, then take their riches!  I don't care if the value inflates, I just like shiny things.

I should imagine such epic economic failure should be fairly unusual though probably in part because of the above reason and also because the infrastructure and industry you mentioned must be in place before gold is used as currency is there. Especially if the coutnry is powerful enough to aquire such untold riches.

That, plus you actually can fit only 200 people worth of food on a wagon train.

[smokingwreckage]

See, here's the thing: I think the pre-economy economy is actually a very good representation of trade and economics at the level it portrays: trade between neighbouring regions, and a command economy within the sphere of direct influence of the monarch (effectively, the player). Rather than an abstract supply-and-demand arc, a system that assessed each region and assigned it a persistent higher or lower value for certain classes of good would be good. Each settlement could have a short list of "wants" and "supplies": they'd offer more in trade for what they "want", and carry more and cheaper of what they "supply". Everything else is roughly at parity. Coins could then simply be a good that some settlements "want" and others "supply".

Nobles could demand large quantities of coin be minted or obtained, these would go into their coffers and then stay there; no extraneous hauling.

To reflect the demands of skilled artisans, Legendary workers of any kind might demand better quality rooms and require actual furnishings!

[Quift]

@Plazek

one little fun thing about DF is that if we included money supply as so many take for granted you would have hyperinflation and a deppression in every single game. Wouldn't that be fun?

This sounds like a weird thing to say but is due to 2 things which are almost always true.

1, the fortress has from its foundation a breakneck speed economic development, which puches up the cost of labour visavi capital and (crap) goods.
2 a mature fort has massive unemployment and creates very valuable goods.

so first wages would soar and push up the price of the standard rock mugs crafted, and then at the same time you start to produce masterwork lavish meals, and masterfully ornamented gold chairs you run get hit by massive unemployment, which will depress the wages.

So great depression here we go.

[Grendus]

Part of the problem is the economy arc is highly unrealistic. Take Joe off the street, give him a rock and a chisel, and tell him to produce mugs. He isn't going to produce mugs that are worth 10x what the rock was worth, in fact, he'll probably destroy the rock and turn it into less-valuable gravel. Currently, every dwarf is assumed to have all the marketable skills to a level where he won't produce broken goods. Urist McPotashmaker can make serviceable, base quality armor (which, if made of steel, is still better than what the goblins have). In reality, Walter McDentist would probably burn himself if he tried to forge a breastplate, and would break his finger chiseling out a stone flute.

Dwarves should require much higher skill levels to produce even base quality goods. It should require at least proficient skill to produce base quality items 100% of the time, and masterworks should be truly rare, even rarer than they are now. Dwarves who fail at a crafting attempt should produce gravel, twisted metal, cloth scraps, sawdust, etc. which has to be hauled away in bags (though those may be useful eventually, gravel can be made into concrete irl, twisted metal can be melted down, cloth scraps can be used to patch clothing or stuff bedding, sawdust can be used to stuff bedding, etc).



And Dakoth, yea, I didn't phrase that right. The value of currency fluctuates, but there's always a demand for it. Even if billion is only half as valuable to the mountainhome as it is to your fort, the traders will accept the coins at whatever the current value to the traders is. Eventually they won't want all the crappy trade goods you've produced. If the mountainhome only wants 300 mugs, you can sell them 300 mugs before they won't want to carry any more of them. If you still want goods from the traders, you may opt to sell them coins made of whatever metal you think will bring you the most profit.

[bluea]

Ok.

Now I'm interested in seeing if we're better off escaping a depression by making a room -filled- with levers set on "pull, repeat", or in "lifting the restrictions" that are preventing the miners, planters, herbalists, woodcutters and everyone else that needs "permission" from doing their job.

[ScreamingDoom]

I'm waaaay late to this party, but there seems to be an additional value in currency that has only been loosely touched on in some posts.

That is, currency should become a "fill-in-the-cracks" trade good.

How many times have you had wanted to buy something, and had the wealth, but the caravan couldn't haul away the object because it's too damn heavy? It happens to me all the time. If currency was instead a system that didn't take any weight on a caravan, this could solve the problem. Rather than give him the specific good, you give him the currency that it's worth.

This basically acts like others were saying regarding an asset-backed system, except that rather than having some separate treasury that is periodically accounted by traders, it's everything at the trade depot. The complexity of having to account constantly for materials and so on would be eliminated, but currency itself would still have a real use in game.

What would stop people from just dumping currency and nothing else out there? Why, because eventually the caravans will return with fewer and fewer goods until they are actually empty -- they'll only have the currency you gave them earlier. And they won't ever have any more trade goods until you make good on your currency and buy back the money with real goods, so it nicely reflects faith in the currency.

The more currency you force on the traders, the less stuff you'll get next time around. Over use your currency and you'll choke off your own trade, but you can always correct it by offering up goods for the cash.

EDIT:
The big question to answer is when does a trader cut off the trading spout or how much currency is one willing to tolerate. It seems to me that this can be abstracted by taking some amount of the total value of the fortress (say, 10%) and multiplying that by the percent of profit the trade route produces.

In this way, you MUST make at least one profitable trade to the trader before he will even CONSIDER allowing you to use currency.

For example:
A fortress is started and has a total value of 10,000 dwarfbucks. 10% of that is 1,000. But the fortress has never made a profitable trade with this particular trader, therefore he will refuse any attempts at offering currency in exchange for goods. (1,000 x 0% = 0).

Another trader appears that HAS had some profitable trade with the fortress, enough that it accounts for 10% of the total route's profit. This trader is willing to accept coinage worth 100 in lieu of goods, though if you give him that much, he will return next time with a totally empty wagon, expecting to buy goods with the coin. In this way, you can slowly build up credit based on how profitable your trade has been in the past compared to the total route and how valuable your fortress is (we can just handwave an assumption that the trader looks at your grandiose fortress and can make a rough estimation of how much it is worth).

[Magua]

Currency isn't needed in the current system because there's already a de facto currency -- dwarfbucks.  A no modifier diorite scepter is worth 10 dwarfbucks.  I can trade that diorite scepter for anything else worth 10 dwarfbucks -- it doesn't matter if it's logs from the humans, seeds from the elves, or stones from the dwarves -- my diorite scepter is 10 dwarfbucks, and is equivalent to any other thing that is 10 dwarfbucks.  They are, for trading purposes, interchangeable[1]. 

In a true barter system, that diorite scepter would be worth more to some people and less to others.  The stones should be worth less to the elves, because they have no need or use for them.  If I'm trading with the humans, my plump helmet seeds shouldn't be worth much, because humans don't farm underground...but my diorite scepter could (in theory) be worth more. 

Currency, then, would weed out these fluctuations.  I see it as a management tool for the large economy -- you can afford to pay less attention to the demands and wants of the traders if you start dealing in currency, which means less micromanagement for you, if you choose to do it.

[1] Elves and their dislike of spiky things excluded.  Ditto with the liaison's requests.