I feel my initial assessment was too negative upon further reflection. In particular the areas of interest rates and exchange rates seem to me to be things that belong libraries. Not coincidentally, they are things that are nearly always absent from games and presented as black boxes when they are included.
The financial side of economies are usually missing from most simulations. Production we can intuitively understand or at least fudge. Finances not so much.
You can't really have a financial system in a vacuum. Inflation, interest rates and money supply are all things deeply related to production. An incomplete implementation of the supply and demand could be the reason for the black box model of the financial aspects.
When you think of what money actually is, you find that it is a proxy for value of resources collected, goods produced and services rendered. For instance, agriculture produces food, and that food is adding a certain value to the overall economy. When one eats the food, the value is consumed and needs to be replaced. When the consumption outstrips the production, you have a shortage of resources in the system. Money supply being the same, that means the same amount of money can now purchase less resources (too much money chasing too little goods) which is known as inflation. Or if the resources are the same but the money supply is increasing (printing money, gold mine, etc), then you have the same situation again.
The inflation rate dictates how much value your money will lose if it stays the same amount. If a corporation or individual is not growing their money at a rate equal to or greater than the inflation rate, they are essentially losing money. So let's say the inflation rate is 5% annual, and I as an entrepreneur come to your bank, asking for a loan of $100 at 4% interest rate. If you gave me that loan and I repaid you $104 after a year, the real value of that money in today's terms would be $98.80 and you would have made a net loss. Similarly, the entrepreneurs compare the pay-offs of their investments to the inflation rate and the interest rates to decide whether an investment (in opening a new factory, or mining operation, or trade post, etc) is worthwhile.
As you can see, the inflation rate and the interest rate are things only meaningful when they have the supply-demand system as a reference point. 96% inflation is not necessarily too high, if the average business venture can easily turn 500% return on investment. Whether it can have that kind of return or not is deeply rooted in the supply-demand dynamics of the market. Similarly, a business venture that gives a 10% return on initial investment is not necessarily a good one, if one could have 20% interest on their money risk-free in a bank's vault. Low demand for goods in the market would mean fewer enterprises and less return on investment, which would cause more people favoring to put their money in the bank, which would mean shrinking cash supply, which would mean deflation, which would mean dropping interest rates. Conversely, booming demand would mean more demand for cash (for purchasing the goods demanded, or for producing the goods), more people taking their money out of the bank and putting into a business, which would mean inflation and rising interest rates.
Does that make sense now that I'm thinking of the whole and not just the financial side? The production side, I believe, is the foundation of any economy.
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Topic: C# library for game economy? (Read 5955 times)