Where does the money come from

I'll second this question. If I had to guess, I suspect there is probably not more than a million pounds floating around at the beginning of the game, but by 1860 it is easy for a great power to have several million pounds. Who prints the money? Or does the world market not work like I think it does?

Its faith. As in "full faith and credit". Shhhhhhhhhhhhh.., Don't tell anyone, but the entire framework of the monetary system is based upon your belief in the value colored strips of paper.

JEC
ALD

Originally posted by Hero
Its faith. As in "full faith and credit". Shhhhhhhhhhhhh.., Don't tell anyone, but the entire framework of the monetary system is based upon your belief in the value colored strips of paper.

JEC
ALD

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That may be true in RL, but in Victoria they are on the "gold" standard - the pound. Pounds cannot be produced, farmed, mined or manufactured, so where do they come from?

Taxation. As population grows, tax revenues increase.

Originally posted by SavvyPlayer
Taxation. As population grows, tax revenues increase.

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Where do the pops get money from? I thought they got it selling stuff on the world market, then you got a share of that as your tax.

Again, if its sold on the world market, its paid by other pops in other countries (or not) who sell their own goods - but why does the money supply keep increasing? Who prints more?

As a side note, how do countries manage to run trade surpluses year after year on a gold standard? Where is the "automatic equilibrating mechanism"?

Most countries usually start with some gold.. and spend it by building factories and paying for POP conversions, etc. The POP conversion money would go directly into the world market, but where does the money for building factories go? Not to the world market.. so there must be an abstract pool of it. This would presumable include money spent on railroads, eduction, research.. this money doesn't turn up anywhere else to my knowledge.

Also, money is based on wealth.. so as wealth increases you'd expect there to be more money printed wouldn't you? I mean at the dawn of mankind there was no money.. now there's billions of it.. so is printing money so bad?

When an economy becomes more powerful, in both real life and game, the value of the dollar increases. You can get more product for the same coin. A point is reached when if the government produces more money, everyone (in general) gets paid more and the value of the coin drops a bit. In this game a lot of the money is paper towards the later part of the 19th century. It no longer made sense to carry around solid pieces of gold or silver. This is a very rudimentary description of economic expansion, but basically the more powerful the economy gets, the more instances of "The Pound" you have. They make more because they can.

We do know that gold was historically mined and put into circulation throughout the period covered in the game. Perhaps this is modeled in the game at the taxpayer level using an abstract formula. This is a fascinating question...

Originally posted by IEX Totalview
Where do the pops get money from? I thought they got it selling stuff on the world market, then you got a share of that as your tax.

Again, if its sold on the world market, its paid by other pops in other countries (or not) who sell their own goods - but why does the money supply keep increasing? Who prints more?

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Capitalists get the money from the world market as far as factory goods go, Aristocrats get the money from RGO. Other Pops get paid by the aristocrats and capitalists. Your country gets money from taxing the all these groups. So the more your pops produce and sell on the world market and in your own country the more money you will bring in through taxes.

This is how I understand the economic model in the game. All commodities are sold to the world market, even if there are no buyers for this commodity. When there are no buyers for a given commodity on world market, this increases the amount of money in the game. For example you can sell all of your grain, even though there is very large surplus of it.

Gamewise, all the money is produced indirectly by factories and RGOs. The more factories and RGOs (and the more efficient they are) the more goods get produced - either from nothing as in the RGOs, or from goods of lesser value as in the factories. And all the goods can always be sold on the WM for money. There seems to be no cap on demand and no limit to the pool of money available to the WM, so the money essentially comes into being right there.

Originally posted by firemind
This is how I understand the economic model in the game. All commodities are sold to the world market, even if there are no buyers for this commodity. When there are no buyers for a given commodity on world market, this increases the amount of money in the game. For example you can sell all of your grain, even though there is very large surplus of it.

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Originally posted by treedom
Gamewise, all the money is produced indirectly by factories and RGOs. The more factories and RGOs (and the more efficient they are) the more goods get produced - either from nothing as in the RGOs, or from goods of lesser value as in the factories. And all the goods can always be sold on the WM for money. There seems to be no cap on demand and no limit to the pool of money available to the WM, so the money essentially comes into being right there.

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Ok, that makes a lot of sense. So essentially the WM "prints the money". Let me see if I understand this:

Lets say its 01-01-1836 and the total money in circulation is 1,000,000 pounds. The only activity on day one is for me to sell 300 artillery @ 250 each. Since no one wants to buy them, the WM buys them for a total of 75,000 punds. Day 2, assuming no other activity on day one, there is now $1,075,000 floating around in the world. Do I understand that correctly?

Assuming I do, is supply and demand still tied in anywhere? For example, if I go on a oil using spree, and buy all available, will the price of oil rise? Or is it entirely abstracted with no supply/demand componant, but rather fixed prices and amounts available?

Assuming I do, is supply and demand still tied in anywhere? For example, if I go on a oil using spree, and buy all available, will the price of oil rise? Or is it entirely abstracted with no supply/demand componant, but rather fixed prices and amounts available?

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I noticed that when I had a load of factories producing wine.. the price seemed to drop. Also when trying to buy glass in large quantities the price seemed to rise, but I've not studied it in detail.

I also read a post by someone who was making artillery by the bucket load. In the end they took them off the market cause the price dropped too far.

So it seems supply and demand is built in. I hope it is. Would make for a far more interesting game.

Originally posted by Stas
When an economy becomes more powerful, in both real life and game, the value of the dollar increases. You can get more product for the same coin. A point is reached when if the government produces more money, everyone (in general) gets paid more and the value of the coin drops a bit. In this game a lot of the money is paper towards the later part of the 19th century. It no longer made sense to carry around solid pieces of gold or silver. This is a very rudimentary description of economic expansion, but basically the more powerful the economy gets, the more instances of "The Pound" you have. They make more because they can.

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In the gold standard the relative value of currencies cannot evolve much because they are all convertible into a certain and fixed amount of gold. If a Sterling pound is convertible into 4.87 times more gold than a dollar is, then the parity cannot move too far away from £1 = $4.87, otherwise it becomes profitable to just ship gold from one country to the other and convert it there. To simplify, it cost about $0.02 to ship 1/4 oz gold from the US to the UK, including insurance. So during the existance of the gold standard, parity couldn't stray away from £1=$4.85-4.89 for long periods of time. And historically, the exchange rate before 1914 didn't actually evolve much.

Now, let's say the US is importing more goods from Britain than it is exporting there. As was shown by Sir David Hume in 1752 (but he said it better), this means a net outflow of money from the country, and thus of gold. This in turn means a lesser supply of money, and hence a lower level of costs and prices. So: (1) British goods suddenly become more expensive for the Americans, and hence imports diminish; (2) US products are more easily exported, since they are less expensive to the outisde world. Inversely, because Britain exports more than it imports, its monetary supply increases, and with it its prices and costs level, so: (3) its exports to the US drop and (4) British citizens buy more American goods, because they are cheaper to them now.

So all in all, the automatic equilibrating mechanism tends to re-equilibrate the trade balances of both countries until a new level of relative prices is attained that does not require the shipment of large quantities of gold. This equilibrium is stable and does not require tariffs or any other form of state intervention. But this is because IRL the levels of prices are directly tied to the supply of money (i.e. gold) in a country. If this does not happen in-game, then the money has to come from somewhere... I doubt any gold mining activity would suffice to explain all the extra money...

Simply put the money comes from the whole Capitalist system of economic growth.

In order for their to only be a finite amount of wealth (say the original 1,000,000) one would have to subscribe the the mercantilist theory. This would mean that in order for your country to gain in wealth you would have to take it from someone else. Modern capitalism proves this is not the case and that wealth can be increased and yes supply and demand are key factors.

Originally posted by Tom423
Simply put the money comes from the whole Capitalist system of economic growth.

In order for their to only be a finite amount of wealth (say the original 1,000,000) one would have to subscribe the the mercantilist theory. This would mean that in order for your country to gain in wealth you would have to take it from someone else. Modern capitalism proves this is not the case and that wealth can be increased and yes supply and demand are key factors.

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You are confusing economic growth with monetary expansion. The world economy can grow, as more pops work, factories become more efficient and new lands are colonized. The total goods produced worldwide will rise. However, since the entire world has the same currency (pounds) the total number of pounds will never increase, no matter how many goods are produced, unless someone prints them.

It seems the WM does the printing, by paying pounds for excess goods.

Infinite Money, Where it Likely Comes From, and how to fix it

I've been taking a fairly hard look at the Victoria economic model, largely because I think in the current incarnation, it's pretty thoroughly broken. Late in the game, especially, all the power are awash in cash, money they can't possibly dream of spending, nomatter what they do. Which, in turn, leads to ludicrous armies and other absurdities.

This led me to look at the overall money supply in game, which I think may reveal the source of the problem.

I toyed with two possible economic models, trying to figure out which one the game was using, and came to the conclusion that only one can be right.

Model A: Fixed Money Supply

Under this model, there's a fixed amount of physical cash in the game. It starts out spread out amongst the population and then rattles around among them as they buy/sell things.

If this model were in place, you'd expect to see a number of things, notably:

1) Acute deflation. As the number of good in game increased, and the money supply stayed constant, a given quantity of cash would have to purchase a larger quantity of goods in order to keep the two in balance.

2) Acute Cash Shortages. If the government took a cut out of every transaction (which it does, it's called taxes), and the government didn't always spend all its cash (which it doesn't later in the game), then proportionately more and more of the world's cash would end up in government coffers, leaving none behind for the population to use.

We don't see either of these though, which leads me to the inevitable conclusion that Victoria runs on a flexible money supply.

Model B: Flexible Money Supply

Under this model, the abolute amount of cash in circulation varies. Ideally, a central bank tries to match money supply growth to productivity growth to keep the two in balance, but that's a very sophisticated post WW II concept. Back in the Victorian era, they just kind of guessed, and they weren't always right.

This model is pretty obviously what Victoria is using, but the question then emerges as to where the extra cash is coming from?

The conclusion I've reached is that the extra cash is created by RGO sales on the world market which, I suspect, is not truly a world market, but rather an infinitely rich middleman. To see why I think it's not a true market, we have to look at two scenarios.

Scenario I: World Market is a true market

Under this scenario, whenever a Farmer sells $100 worth of wheat, some other collection of buys across the globe, cough up a total of $100 to pay for it. This seems not only plausible, but obvious, but it leads to two consequences we don't see in victoria.

1) Everyone will go broke within about four transactions. Since government is taking a chunk out of every sale, a total of $100 will have been *paid* for the wheat, but only, say $40 will have been received (60% marginal tax rate). Within a few transactions, all the money in the system will disappear into government coffers. POPs, with no cash at all, will then be unable to purchase anything, leading to a total economic collapse.

2) The World Market Couldn't hold inventories. Under this system, somebody has to buy the wheat before the producer gets paid. The world market though, will *buy* wheat, whether or not it has a final customer available, which means the market itself is coughing up the cash to pay the producer.

Scenario II: The World Market as Mr. Moneybags

Under this scenario, the world market isn't a market at all. It buys anything that is offered to it, paying out by *creating* money out of the ether. It has no obligation to match buyers to sellers, or, in fact, to *sell* anything. It will merrily buy a billion tons of wheat, knowing full well that the world cannot possibly use that much, thus injecting huge amounts of money into the system, money that will never come back out again.

Under this scenario, so long as a nation's exports exceed her imports, she'll run a net cash surplus. Given that Victoria as a whole is *very* resource rich, most every nation is a net exporter (a physical impossibility in the real world), everybody gets very, very rich towards the end of the game.

In short, blame it one world market.

Now, how does one go about fixing this?

Option A: Band Aids. Lots, and Lots of band aids.

Basically, you cut the production rate of RGOs across the board and or gimp their price. This will reduce the rate at which the money supply grows, but it won't eliminate it.

Edit:

Another pretty good band-aid would be to limit the inventory capacity of the world market to, say, 1000 of each good. If it already had a thousand of something, it wouldn't buy any more. This would prevent the eggregious resource dumping that makes everybody so rich right now.

Option B: Overhaul the market.

Treat the world market as a true market. Give it an annual budget equal to : World Money Supply (Current) * World Population Growth Rate (previous year).

Let is spend that money on those goods for which it has the highest demand first, then work its way down the list. It gets money back when it sells things. If it never makes it down the list to a commodity, like wheat, for which there is no demand, *GOOD*. It's called overproduction, and it should lead to a production crash.

If it runs out of money, it can't buy anything else until either it sells off some resources, *or* the year ends and the money supply kicks up a smidge.

EDIT:

The game also includes a variety of cash sinks (wasteage), such as your crime fighting budget, the cost to change social services, and your education budget. Money spent in these fashions doesn't flow back to any specific POP, or even re-enter the economy. It simply vanishes.

To make a fixed money system work, you have to plug the cash sinks as well as the cash wells, which means we have to deal with these costs. Fortunately, it's easily handled. All one need do is take any money that is spent on wasteage costs and "credit" it towards the world market where it will re-enter the world economy. Alternately, you can just randomly distribute it amongst your own internal POPS. Either way, cash spent in such a fasion can't be allowed to leave the system.

This will have a variety of effects.

1) The money supply won't explode. This is prima facia a good thing.

2) Late in the game, agricultural nations will have a horrible time making money (China), but early in the game they should do quite a bit better.

3) Players can no longer get rich dumping ludicrous quantities of exports on the world market. My 1910 Germany was exporting 4,000 some units and importing about 30. That simply wouldn't fly anymore under this model unless some other nation were importing 4,000 and exporting 30.

4) The world would rapidly degenerate into a class of rich net exporters, and poor net importers.

5) The world money supply would rapidly flow towards the industrialized nations.

All of these, in my mind, are good things, because they represent what actually happened during this time period.

See this thread for a discussion of who prints the money:

http://forum.paradoxplaza.com/forum/showthread.php?s=&threadid=116058

Seems it is the world market.