How much Gold should be minted every year?

Philip Stanley wrote:I don't even think that so-called economists understand economics!
That's probably why it's called "the dismal science"
There's a pretty readable book by Galbraith on the subject and history of economics, called "The Age of Uncertainity".
I read it from cover to cover, and I still don't understand it!
My feeling is that feeding the Silverlode gold and silver into the coinage will cause inflation (money chasing goods), but I'm just guessing.
Philip Stanley

I'm pretty sure the "dismal" part comes from so much of 19th century economics particularly coming to depressing conclusions.

It still does suffer from a lot of problems, such as nice, simple, elegant theoretical models that get applied to a very complex reality only with either being basically wrong as a result, too general to be too helpful, or both. Ecology and meteorology can run into that sort of thing too for similar reasons, but there's less demand to get detailed, specific predictions to base policy on with either of them - and less political pressure to cleave to models that serve particular interests there.

Tonto Silerheels wrote:SWM wrote:

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Over-simplifying bites me on the bum again. So I'll try to lay out what I'm thinking in more detail.
I agree entirely that what Charis needs is high production. They need continued innovation, high production, added value (from which they gain the funds to keep investing), and spare manpower for the Army and Navy.
Given the bottomless pits into which manpower can be sunk (e.g. there will be sites that could establish another Delthak Works, if the men can be found to commence it. The Army could always use another Brigade, at least until the open fighting is over; etc), the aggregate demand for labour across the Empire should easily be sufficient to use any able-bodied adult in some capacity.

In peacetime we generally figure that an unemployment rate of ~5% is the "natural" rate, due to things like gaps when people move jobs, the fact that some skills are scarce and others are plentiful, AND the fact that we think unemployment at that level is a reasonable price to pay for low inflation. Personally I would disagree, but that's the balance most governments and central banks seem to have struck.
However, Charis is not at peace, and is industrialising like crazy. It isn't like the 80s, with mines closing down and no new industries opening up - every time something like the cotton-silk gin comes along and frees up a load of labour, that's another tranche of people who will - perhaps after a short gap - be getting drawn into working in new industries and projects. Because people are crying out for labour. The Army could always use another brigade, and Delthak is growing like topsy - where are all the workers coming from? Some will be coming off the farms, some will be coming out of the jobs that are being overtaken by new industries.
(As an example from real history, most of the carriage-makers ended up making automobile bodies because they had relevant skills.)
The tightness of the labour supply in Charis is going to lead to wage increases bidding for the skilled labour, along with competition for the unskilled labour. Wage increases will tend to lead to inflation, even if the money supply is static: the velocity of money can increase, and people can also use IOUs and other makeshifts to deal with situations where they don't have the cashflow for all the deals they're doing.

So that's my assumption on how things will be working in Charis based on my recollection of the books. If I'm right, increasing the money supply will initially have an effect of displacing the assorted IOUs that have been used as stopgaps by people who don't have enough cash on hand, so it won't actually increase inflation; however if you keep minting past that point, you'll cause further inflation.
An IOU-based system has more friction than one based on cash, so minting enough coins to keep up with that inflation which is already happening is arguably an outright benefit, and certainly does no real harm.

In a less-Charis centred argument: yes I was arguing that in a simplified economy where we assume zero friction in employment change (i.e. if there is someone unemployed who has the skills you need, you can hire them instantly and at no cost beyond their wage, so no advertising, no recruiters, no interviewing &c), the only thing you would need in order to have zero unemployment is sufficient demand.
The add-on to that argument is that when friction does exist we can nonetheless approximate the zero-friction case by overheating the economy, one part of which is running with inflation of a few % per annum. Why is this the case? Because paying extra can overcome some of the friction; if demand is high, then labour is scarce, so employers are prepared to take less-qualified applicants and train them up, jobseekers find work quickly, people unhappy with their working conditions are prepared to jump ship (plenty of jobs out there) and so on.
All of this is conventional economics, and to the best of my knowledge it should still apply to a gold-backed economy, but I may have made mistakes because I am not actually an economist.

Agreed, Don. That's why the bonds I suggested are important. Investment in incremental production has a cost. If competition for funds is high enough, the competitor who can use that capital to produce with highest productivity will be willing to pay most for those funds.

The House of Ahrmahk sells bonds against future gold production for actual bullion. The interest rates at various maturities become the default risk free yield curve. Cayleb then lend out that gold to large banks and investors at slightly higher rates to reflect greater default risk. Since Cayleb owns that gold out right he needn't keep a reserve. He would keep one only to restrict the amounts he wishes to lend.

In this way interest rates will fluctuate up and down to limit too much money flowing into unwise areas that can cause disruptions and offer a fundamental incentive to increased productivity.

n7axw wrote:

Philip Stanley wrote:I don't even think that so-called economists understand economics!
That's probably why it's called "the dismal science"
There's a pretty readable book by Galbraith on the subject and history of economics, called "The Age of Uncertainity".
I read it from cover to cover, and I still don't understand it!
My feeling is that feeding the Silverlode gold and silver into the coinage will cause inflation (money chasing goods), but I'm just guessing.
Philip Stanley

The trick will be to keep the proper amount of money chasing the proper amount of goods. I think there is textev that with the introduction of arabic numbers, they are beginning to assemble the data to help them determine how to do that.

Don

Tonto Silerheels wrote:SWM wrote:

Ideal comes from the word "Idea". An ideal system (economic or physics or whatever) is a purely intellectual construction; it does not exist in reality. It is something you can model and describe and make predictions from because it is simplified and follows simple equations.

The closer the ideal system is to reality, the closer the predictions will be to what happens in a real system. When using an ideal system, it is important to know the limits of the model. For instance, the Ideal Gas Law does not account for intermolecular interactions. If those interactions are important in a particular real system, the model cannot be expected to make useful predictions. The Ideal Gas Law models most gasses quite well, but there are exceptions.

Perhaps so, but Incognitia doesn't appear to be using the phrase "ideal economy" in that sense. He doesn't propose a model having no inflation, no unemployment, productivity increases, and population increases and then make predictions from that model. He gives every indication, to me, at least, of meaning "optimum economy." I say that, both because he makes no predictions from his model, and because he describes actual unemployment as arising from "a variety of reasons." If you see Incognitia as having proposed a model, would you describe the predictions necessarily arising from it?

~Tonto

Go back to look at what incognitia actually wrote:

incognitia wrote:In an ideal economy there would be no inflation, no unemployment, and productivity and population increases would be the only way in which growth occurred.

In the real world, for a variety of reasons, at zero inflation there is always unemployment.

While incognitia may not have realized it, he was in fact comparing a simplified model to reality. In this case, his point was that the simplified model he mentioned was not adequate to predict reality. And that's why I explained what ideal means in the scientific sense. Incognitia was not talking about an optimized economy; he was talking about a simplified economic model. He explicitly said it was not reality.

Interesting idea about IOU's.

Based on what has been quoted of the Writ so far here and there, it would *seem* that IOU's - per se - would violate the "giving honest measure in a transaction" requirement.

An IOU is a *promise* to repay, but without any actual basis as to being able to. If there was collateral, it would be a secured *loan* - which up to now seems to be the only kind officially made in Safehold. And, if the borrower were not able to pay it back in the future, the lender keeping the collateral *would* constitute paying off the loan.

Based on the text up to now, the whole basic concept of an IOU seems to have started with Charis's invasion of Corisande; where Caleb's logistics folks gave out IOU's to folks whose property they "appropriated" for the war effort. It's noted there that that was new, not something people were used to. And it was predicated on the simple fact that there was no large stock of specie traveling with the army to *pay* for the appropriated items at the time of their appropriation.

The Church *seems* to have bought into this on it's side, at least in part, when it put up for auction it's properties in the "occupied territories"; but even there at least it has the argument that prior to the hostilities it at least owned them; so it's still *technically* a secured loan, since it's backed by collateral - even if the ultimate status of that collateral may end up being disputed.

OrlandoNative wrote:Interesting idea about IOU's.

Based on what has been quoted of the Writ so far here and there, it would *seem* that IOU's - per se - would violate the "giving honest measure in a transaction" requirement.

An IOU is a *promise* to repay, but without any actual basis as to being able to. If there was collateral, it would be a secured *loan* - which up to now seems to be the only kind officially made in Safehold. And, if the borrower were not able to pay it back in the future, the lender keeping the collateral *would* constitute paying off the loan.

Based on the text up to now, the whole basic concept of an IOU seems to have started with Charis's invasion of Corisande; where Caleb's logistics folks gave out IOU's to folks whose property they "appropriated" for the war effort. It's noted there that that was new, not something people were used to. And it was predicated on the simple fact that there was no large stock of specie traveling with the army to *pay* for the appropriated items at the time of their appropriation.

The Church *seems* to have bought into this on it's side, at least in part, when it put up for auction it's properties in the "occupied territories"; but even there at least it has the argument that prior to the hostilities it at least owned them; so it's still *technically* a secured loan, since it's backed by collateral - even if the ultimate status of that collateral may end up being disputed.

My take on that is that the farmers were well aware of the concept...and in practice found the payback nil historically.

jgnfld wrote:My take on that is that the farmers were well aware of the concept...and in practice found the payback nil historically.

Who expects the enemy to pay up on scraps of paper?

This sounds about right to me - look at the Peninsular War, for one example. Wellington had gold, and his foragers paid in cash for supplies; the French had paper scrip, or took their supplies by force.
Yes there's more to it than that in terms of determining which side the guerrileros attacked, of course - the French had invaded, whereas the British were invited in, among other things - but there really is no reason they couldn't have attacked supplies going to both sides.

jgnfld wrote:My take on that is that the farmers were well aware of the concept...and in practice found the payback nil historically.

If one is never intending to pay later, then why go to the trouble of writing up and giving out IOU's? Especially in a society where not everyone is literate? It's much easier to just take what you want to, and kill anyone who resists.