I know what comparative advantage is in the real world and how it can take place within, for example, a currency union. However we are not discussing the real world. We are discussing the Vicky II economy and any hypothetical changed version of that economy.
sry , didn't want to offend anyone here :unsure:
To Eichenthal
Yes, but comparitive advantage with a single currency doesn't work if your factories can supply the entire world market- it just means they focus on what your country is best at first, before hitting the other good.
indeed, without local markets and no transport costs, the one nation producing a good cheapest would (and currently does to as certain extend) produce the lions share and free of charge beam their product even to the most desolate, far distant place on the planet.
With local markets and thus bilateral trade and transportation costs, this is not really an issue.
(If it costs quite a deal of transportation costs and potentially multipe tariff charges for transaction coutries, a remote artisan POP in remote Mongolia should be aple to compete to western mechanical production to a certain extend even if production costs differ a lot.)
Add decreasing economics of scale and the entire thing shoud be quite stable, incouraging trade to a certain extend while still supporting local production in small amounts.
Um, assymetric profits are already in the game. Surely you noticed that the differences in input and output costs, not to mention the quantities needed mean that not all industries are equally profitable.
I missed your mention of currency multiplier. I'm not sure that would work though- wouldn't it just mean the country with the cheapest currency becomes the workshop of the world?
No, a country would have it's currency depreciate until some factory or other became profitable for profit and the trade gap closed. At that point it's currency would stop depreciating. The factories wouldn't all become profitable at the same time (asymmetric profits) so currency depreciation wouldn't let you get ahead in everything. If for some reason you did get ahead in everything, your trade deficit would have been reversed so your currency would start appreciating until you start having industries become unprofitable.
I still don't quite get why some model of national currencies would be needed. IMHO, exchange rate changes are only necessary IF there actually are multiple currencies. Would be quite happy abount an explanation.
I see what you mean and it could potentially work. My immediate concern was that there would be a ladder of most to least profitable goods and countries would cluster, but that autocorrects as it becomes saturated and countries move to them next one causing boom and bust cycles. Unless you use government stockpiles to attempt to equalize imports and exports, but it would be insanely expensive and only work buying raw materials.
Other problems I see.... since the currency is devaluing imports become more expensive which may screw over the factories and/or populance. While it woulld be historically accurate for aristocrats to continue importing goods, worsening the balance of trade and killing Latin American industrialization, it wouldn't be fun. Or an anarcho-liberal revolt in the US, taking over the grain districts, spiking the price of food which increases import costs for poor countries and since food is a giffen good, the value of their own exports drops, rapidly screwing them over and causing planet wide famine.
I think subsistence farming would have to be modeled in game in order to avoid things like that from occuring.
make foreign occupation only decrease, but not totally stop local production?
The other issues should be no troblem with adequate transportation costs....