European Economic History and its Theoretical Implementation in EU

[Keynes]

This is part history, part EU-relevant posting.

Basically, I was thinking about how the economic model in EU could be altered to better resemble actual European economic history. It wasn't that hard until I started to think past the 16th century. I'd be interested in hearing ideas and inputs. Here are my current thoughts.

16th Century: Basically this time period is one featuring:

1. Population growth as part on the continuing recovery from the demographic crisis of the Black Death.
2. Growing pan-European and international trade, and
3. Inflation

At this point pretty much the whole world is on a commodity money standard and thus price levels are essentially determined by the crude quantity theory. Thus the influx of gold from the Americans results in significant inflation in Spain, which is transmitted to the rest of the world by the trade-specie flow and the Spanish habit and throwing gold around to recruit troops and mecenaries all over Europe and bribe foreign leaders (think Charles Quint's HRE election). Drain of specie to the East in this period was insufficient to significantly reduce inflation.

As I see it this could be modelled in the EU context along the following lines:

1. Technology is determined exogenously (i.e. based on historical schedules) and nations must spend to convert existing forces. There is no monthly income flow.
2. Yearly taxes are a function of current national income and adjustable tax rates. Increasing tax rates have negative impacts on stability, manpower availability, revolt risk and war exhaustion.
3. National income increases mainly as a result of population growth
4. Monarchs military ratings now give bonuses to the cost of converting obsolete forces.
5. Monarchs admin ratings now affect the level of population growth.
6. Inflation works as follows: spending domestic tax income does not increase inflation since it merely redistributes the existing money supply. Output of gold mines goes into a special "gold account" which may be horded and spent. Spending from the gold account results in an inflationary effect taking effect in 1 or 2 months time. "Neighbor effects" as used in current EU simulate the spread of inflation to other nations. Inflation effects of monetary expansion could be done tracking an actual money supply figure.
7. The size of possible domestic loans should be restricted for this period; internal borrowing was not easily done on a significant scale. Domestic loans should not have an inflationary effect as there is no change in the money supply.
8. Foreign loans increase domestic money supply and thus inflation. However, repayment of interest and principal will have a deflationary effect.
9. At a certain infrastructure level, a country should get access to a "mint monopoly" The country can use this to double his or her current treasury one per year, with an inflation consequence similar to gold inflow. Debasement events however lower stability and increase revolt risk to a degree equivalent to the amount of money debased. Conversely, the mint can revalue by spending a certain amount of money to directly reduce inflation. This sh/give a stability bonus.
10. I would also increase military maintenance costs for mobilized forces, even inside the home country.

The one factor this system would not model is the effect of differential inflation rates on trade. Historically, high relative price levels in Spain made its domestic manufacuring expensive and hence un-competitive on world markets, leading to the stagnation of Spanish trade. This could perhaps be modeled by "kludge" solutions such as appropriately setting EUII-style domestic policy sliders for Spain and perhaps by lowering slightly the admin ratings of Spanish monarchs.

Unfortunately, while this system models the 16th century European economy well it breaks down around 1620s. I will get into this in the following post to avoid mega-sized postings.

 

[Keynes]

17th century problem

The crisis of the 17th century presents problems for the revised EU economy model as described in my initial posting.

Basically the 17th century is characterized by the following economic situation:

1. Stagnant population growth.
2. Poorer weather and thus lower harvests (somewhat controversial)
3. Deflation as European mines are depleted and the gold and silver flow of the Americas is increasingly diverted to pay for expensive imports from India and China which generally refuse to accept Western goods in exchnage.
4. Nominal wage rigidity probably resulting from the guild system and general conservatism. In combination with monetary deflation, this means real wage increases.
5. Stagnant or declining national income resulting from factors 1, 2 and 4.

It is in this context that mercantalism arose. Countries couldn't directly affect population growth or the weather. But they did pay a lot of attention to the negative effect of deflation on economic activity. It was understood that deflation could only be reversed by expanding the money supply (fiscalism was not a viable option in pre-industrial europe). In the presence of a pure commodity money standard and no central banking, however, the money supply could only be increased (and deflation offset) if the inflow of precious metals into the country was greater than the outflow. Hence the obssessive focus on specie flow and the balance of trade.

The problem is that I can't figure out how to model this period economically in the context of an EU-type game while also modeling the 16th century.

Specifically, to do the 17th century properly would require revamping the entire trade model to include the notion of balances of trade for each country with an accompanying flow of precious metals. This could account for the drain of specie to China and India and simulate the fierce battle for markets among the European states. The problem is that I can't figure out how to do this in a way that:
1. Doesn't simply reduce the inflation built up in the 16th century without negatively impacting national income (as is the case historically), and
2. Is managable from a game system/AI/programming perspective. I.e. developing a sophisticated commodity trade model and then calculating the balances of trade of each country against each other country seems beyond current capabilities.

Things get even more complex when you get beyond around 1750 with the introduction of triangle trade, central banking, imperialism and other factors which reversed the deflation of the 17th century and helped usher in the era of laissez faire.

Again, I am interested in any ideas/thoughts.

Thanks in advance.

 

[unmerged(3236)]

It is hard to model this in the game, probobly impossible to change betveen the two as they events wich creates these effects can be changed by players (except the waether)

 

[unmerged(2833)]

Yes, yes, yes, tax rates!!! I mean, is this that hard to imagine how better would be EU with adjustable tax rates? And it's probably quite easy to do (or was, in development process) And easy to design. Easy, did i said that? And good? Ok...(and don't tell me about war taxes. It's completly other thing)

1. Technology is determined exogenously (i.e. based on historical schedules) and nations must spend to convert existing forces. There is no monthly income flow.
---you mean like it was in RL? Not possible, really. Game differ too much from history. Event tech groups can be sometimes irrational...
3. National income increases mainly as a result of population growth
---Well, there would have to be actual population figure in the game. But yes, income was mainly function of population. Mainly.
5. Monarchs admin ratings now affect the level of population growth.
---Eh, uh. Reall? I can't think of reason
7. The size of possible domestic loans should be restricted for this period; internal borrowing was not easily done on a significant scale. Domestic loans should not have an inflationary effect as there is no change in the money supply.
---Hell, yes. I hate when one-province country borrows 1000d...
6. Inflation works as follows: spending domestic tax income does not increase inflation since it merely redistributes the existing money supply. Output of gold mines goes into a special "gold account" which may be horded and spent. Spending from the gold account results in an inflationary effect taking effect in 1 or 2 months time. "Neighbor effects" as used in current EU simulate the spread of inflation to other nations. Inflation effects of monetary expansion could be done tracking an actual money supply figure.
---Inflation in EU is something entirely different than in RL. And RL inlation shouldn't bother us at all. It was times of gold currency, and inflation was much different than it is now-it really didn't affect national treasuries. Much more important was minting "worse" coins.

Well...

 

[unmerged(2833)]

On a other though, i must say getting money to treasury from budget is sort of tax

 

[Keynes]

Thanks for your response.

Some more thoughts . . .

Tech: I don't think there were huge disparities in technology across much of Europe in this period. Certainly tech wasn't a function of public investment, it was more a function of having certain educated groups (like Dutch in 17th c). "Land tech" as described in the game isn't really technology as such but rather tactical innovations by people like Gustavus and Frederick II. Once they did their thing everyone copied their innovations within a few years.

Admin ratings: I don't mean to suggest that the monrachs actually increase the populations themselves (this would be very hard for the poor Queens!) The idea is that if the realm is in good order, death rates decline, people feel more confident and birth rate increases, and rural depopulation is suppressed.

Inflation: This is the one thing I really disagree on. Inflation devastated early modern Spain; it rendered much productive commerce and activity uneconomic, devastated trade. Spain never recovered economically until after Franco. Even in the north, inflation eventually harmed traditional industry and negatively affected the real value of the Treasury. In contrast the post-1640 deflation harmed commerce and ruined commercial debtors throughout Europe.

Allowing countries to control the mint (allowing debasements and revluations of the currency) along the lines you suggested could help fill in the complete inflation picture.

The key point is that inflation should not result from spending sums you just raised from the population in taxes. There is no way this would happen.

Trade: I still think there's something weird about covering the "Age of Mercantalism" with an economic model that ignores the balance of trade.

 

[w_mullender]

I think one factor is not taken into account: Armies and battles.
I think the raising and maintenance of armies contributed very much to inflation as those armies consisted of mercenaries. Most army raisers used loans to pay them and thus increasing inflation.

I also think that the abscence of large scale wars in the second part of the 17th century contributed very much to agticulture. To take Holland as an example from 1630 onwards the agricultural production steadily increased despite the weather and despite some invasions by Louis 14.

 

[w_mullender]

BtW very good analysis!!

 

[Keynes]

Originally posted by w_mullender
I think one factor is not taken into account: Armies and battles.
I think the raising and maintenance of armies contributed very much to inflation as those armies consisted of mercenaries. Most army raisers used loans to pay them and thus increasing inflation.

This is absolutely correct, it could be modeled by providing that gold simply kept idle in Treasury is non-inflationary; also perhaps certain spending on infrastructure such as port facilities could have a non-inflationary impact.

I also think that the abscence of large scale wars in the second part of the 17th century contributed very much to agticulture. To take Holland as an example from 1630 onwards the agricultural production steadily increased despite the weather and despite some invasions by Louis 14.

True for Holland, but France suffered agricultural decline in the late 17th century and stagnant population. Renewed persecution of Protestants didn't help this . . .

 

[w_mullender]

Originally posted by Keynes

True for Holland, but France suffered agricultural decline in the late 17th century and stagnant population. Renewed persecution of Protestants didn't help this . . .

But isn't the decline not mostly caused by the type of government (some sort of middle aged serfs system, although with rents etc.).

 

[Heretic]

Nom de plume

Keynes,

all this is very classic economice, but more importantly, did you select your name purely to support these posts?
It certainly adds an air of authority.

very interseting ideas, would be nice to plug the trade/tech models more closely into the 'state of teh nation' although quite likey over-optimistiv in terms of the level of reprogramming required from paradox.

Heretic

 

[unmerged(2833)]

Yeah, Keynes name is quite appropriate. Though i think Friedman would be better

Ok, sersiously. So what is your point about technology, i don't understand it?

But about inflation. Again, back then there were no inflation as we know it today. Simple as it is, supply of coins is relatively stable, and even famous Spanish inflation was very small compared to today's.

Moreover, inflation shouldn't be decreasing budget income. And because there is no national economy modeled in the game, results on it are, well, neglectable. What we have is some sort of increased costs, which in fact is quite good for some things(like effectively lower income)-but not for inflation, it's very different from that. And it's mostly here for game-balance.

RL gold influx inflation was quite other thing. I;m not sure how it affected economy, except the fact that land rents become effectively lower.

And about demographics, i don't think that it was possible to influence pop growth at all. It's very hard to do even today. Sure, some state encouraged internal colonization, and other inventions (like public sponsored sewage) would affect it, but not much.

General point is: Economic model of the game is very simplified. If it will be reworked in EU III (i hope), it would need to be completly new one.

 

[Keynes]

Originally posted by Maur13
Yeah, Keynes name is quite appropriate. Though i think Friedman would be better

Touche. But even JM Keynes admitted that the crude quantity theory operated much as advertised during the early modern period.

And no, the moniker is no accident. I am slightly more interested in the econ aspects than pure military.

Ok, sersiously. So what is your point about technology, i don't understand it?

Basically that the idea that you raise your tech levels by investing central government funds is all wrong because no such connection ever existed. Governments didn't run vast research labs in the 16th century. Tech growth isn't really something a monarch could control aside from adopting a more "open" attitude toward the West (eg Russia under Peter) or talented heretics (eg Holland)

But about inflation. Again, back then there were no inflation as we know it today. Simple as it is, supply of coins is relatively stable, and even famous Spanish inflation was very small compared to today's.

Well some historians argue this but I don't think the record supports it. There was a discernable increase in money supply and a increase an inflation during this period in pretty much all West Europe. And comparison with a modern industrial economy is off b/c modern economies have much higher trend growth rates and thus require steady increases in money supply just to avoid deflation (and yes that is from Friedman )

Moreover, inflation shouldn't be decreasing budget income.

Agreed; it might even increase it somewhat in nominal terms. But prices should increase just as they do in current version of game.

RL gold influx inflation was quite other thing. I;m not sure how it affected economy, except the fact that land rents become effectively lower.

The quantity theory provides the theoretical framework. In terms of thinking about the transmission process; consider the King of Spain spending tons of new Spanish Gold to buy mercenaries, who then start wildly their spending their money in taverns in the like, the tavern owners buy more meat and luxury goods and so on. Given a relatively low elasticity of supply (pretty much a given at this time), it wouldn't take to long for prices to rise in response to higher demand.

And about demographics, i don't think that it was possible to influence pop growth at all.

True. But good admin could influence factors tend to decrease population like outmigration and plague. The idea in game terms is to provide some role for monarchs with good admin ratings by allowing them to slowly increase national economic growth through pop.

You are all probably right that this doesn't all lend itself to easy game implementation, but some of it does and maybe the folks at Paradox can think of more clever ways of implementing these ideas in future products than I can.

 

[unmerged(2833)]

Originally posted by Keynes

Basically that the idea that you raise your tech levels by investing central government funds is all wrong because no such connection ever existed. Governments didn't run vast research labs in the 16th century. Tech growth isn't really something a monarch could control aside from adopting a more "open" attitude toward the West (eg Russia under Peter) or talented heretics (eg Holland)

Yup, you're right. I cannot agree more

Well some historians argue this but I don't think the record supports it. There was a discernable increase in money supply and a increase an inflation during this period in pretty much all West Europe. And comparison with a modern industrial economy is off b/c modern economies have much higher trend growth rates and thus require steady increases in money supply just to avoid deflation (and yes that is from Friedman )

Well, i think Spanish inflation was nothing compared to the total inflation in most countries in past 100 years. But well, with two world wars it's not that surprising...
Anyway, comparation to modern economy should be very cautios. Though perhaps Spanish inflation bears serious resemblance to modern day inflation indeed. But again, it's something which can't really be controlled by government. It's just any country that conquers America gold mines would get it's industry crippled by high costs.

Agreed; it might even increase it somewhat in nominal terms. But prices should increase just as they do in current version of game.

Well, the problem in current game is that it just decreases income(or, to be more precise, increases prices only, while budget stays the same), nothing more (including tech research, but it's function of income mainly)

The quantity theory provides the theoretical framework. In terms of thinking about the transmission process; consider the King of Spain spending tons of new Spanish Gold to buy mercenaries, who then start wildly their spending their money in taverns in the like, the tavern owners buy more meat and luxury goods and so on. Given a relatively low elasticity of supply (pretty much a given at this time), it wouldn't take to long for prices to rise in response to higher demand.

Ah, so rising prices, so inflation. Pretty obvious, but what would be the other effects? Except the another obvious fact of high domestic costs, and high purchasing power? Like when today currency is too strong?

True. But good admin could influence factors tend to decrease population like outmigration and plague. The idea in game terms is to provide some role for monarchs with good admin ratings by allowing them to slowly increase national economic growth through pop.

You are all probably right that this doesn't all lend itself to easy game implementation, but some of it does and maybe the folks at Paradox can think of more clever ways of implementing these ideas in future products than I can.

True again, as i mentioned state-sponsored sewer systems as plague prevention, or some action when local famine appears, or plage. Good administration skill of monarch would definitely affect government performance. But the bigger problem is that there is NO popultaion value in the game... which i hope will be one of the things included in EU III, though my hopes aren't high.
And emmigration would be also affected by religious tolernace back then, if we're speaking of the game.

 

[Keynes]

Currency

Until 19th century, money is a pure commodity standard, either silver, gold or both (dual circulation or bimetallism). But as Maur13 observed, control over the metallic content of coinage was a critical part of early modern economic policy. In fact, it was probably the main one for most countries as tax collection was usually farmed out to contractors.

If the game actually modelled money supply, it would be relatively easy to model currency debasement and revaluation, taking into account Gresham's law (bad money drives out the good) which suggests that debasement may have a higher than expected effect on future inflation.

 

[Dark Knight]

Originally posted by Keynes
Basically that the idea that you raise your tech levels by investing central government funds is all wrong because no such connection ever existed. Governments didn't run vast research labs in the 16th century. Tech growth isn't really something a monarch could control aside from adopting a more "open" attitude toward the West (eg Russia under Peter) or talented heretics (eg Holland)

The technology level of countries in the game really represents the application of existing technology and resources to the military, navy, government infrastructure, and trade. Although the inclusion of trade is questionable, the other three make sense. Also note that a higher innovative setting of the domestic slider now aids in technological progress.

 

[unmerged(6303)]

Originally posted by Keynes
[/B]

1. Technology is determined exogenously (i.e. based on historical schedules) and nations must spend to convert existing forces. There is no monthly income flow.
2. Yearly taxes are a function of current national income and adjustable tax rates. Increasing tax rates have negative impacts on stability, manpower availability, revolt risk and war exhaustion.
3. National income increases mainly as a result of population growth
4. Monarchs military ratings now give bonuses to the cost of converting obsolete forces.
5. Monarchs admin ratings now affect the level of population growth.
6. Inflation works as follows: spending domestic tax income does not increase inflation since it merely redistributes the existing money supply. Output of gold mines goes into a special "gold account" which may be horded and spent. Spending from the gold account results in an inflationary effect taking effect in 1 or 2 months time. "Neighbor effects" as used in current EU simulate the spread of inflation to other nations. Inflation effects of monetary expansion could be done tracking an actual money supply figure.
7. The size of possible domestic loans should be restricted for this period; internal borrowing was not easily done on a significant scale. Domestic loans should not have an inflationary effect as there is no change in the money supply.
8. Foreign loans increase domestic money supply and thus inflation. However, repayment of interest and principal will have a deflationary effect.
9. At a certain infrastructure level, a country should get access to a "mint monopoly" The country can use this to double his or her current treasury one per year, with an inflation consequence similar to gold inflow. Debasement events however lower stability and increase revolt risk to a degree equivalent to the amount of money debased. Conversely, the mint can revalue by spending a certain amount of money to directly reduce inflation. This sh/give a stability bonus.
10. I would also increase military maintenance costs for mobilized forces, even inside the home country.

[/B]

Thank you for some very interesting and informative posts.

However, I may have missed the point, but aren't these things already there in EU? Some of them don't seem to be planned for, but arise out of the way I play the game; others are mentioned in the manual or the FAQs, but don't quite work in practise. I get the impression that the programmers were thinking the same way as you, at least for this period.

1) I'm sure I read in a FAQ or something that this is how techs are meant to work, and that the date in the csv files is when the most advanced country should have a tech. And I avoid monthly income (because of inflation)
2) As someone wrote, what is the national income? Also, did medieval countries ever set, or in particular lower, a percentage tax rate in a way that isn't modelled by the province improvements and stability&corruption effects in EU?
3,4,5) Population isn't modelled, infrastructure tech and stability are. These are the things that will cause population growth in real life. In EU they directly increase income, and they are affected by monarch abilities (although in a useless way for large countries. But it seems to be what the designers intended)
6-9) The way the income sliders work at the moment is that if you want more money, you can get it, at the cost of inflation. Often a small country has to do this to pay off a loan. Is this roughly the effect you are after? (Except that you can't get deflation)

 

[Keynes]

Re: Re: European Economic History and its Theoretical Implementation in EU

Originally posted by Pishtaco

Also, did medieval countries ever set, or in particular lower, a percentage tax rate in a way that isn't modelled by the province improvements and stability&corruption effects in EU?

Some countries had higher tax burdens than other: e.g. Castile vs. Aragon. This gave rise to a certain trade off between central government war making power and the overall commercial wellbeing of the country. I don't think this is explicitly modeled now; its one change that would actually be easy to add. Although the institution of tax farmers would make true historical realism more difficult

3,4,5) Population isn't modelled, infrastructure tech and stability are. These are the things that will cause population growth in real life. In EU they directly increase income, and they are affected by monarch abilities (although in a useless way for large countries. But it seems to be what the designers intended)

This is a pretty good point, although I don't care much for the ambiguous notion of "infrastructure technology". It just seems to me that population is a really important factor in early modern history and deserves to be modeled directly.

6-9) The way the income sliders work at the moment is that if you want more money, you can get it, at the cost of inflation. Often a small country has to do this to pay off a loan. Is this roughly the effect you are after? (Except that you can't get deflation) c

But the problem is that the money you are getting from the sliders is money you've raised from your own citizens in taxes. So spending these funds really shouldn't have an inflationary effect.

As a game mechanic, though, I admit it works if you're willing to ignore the strict historical reality. So I don't have a fundamental objection to EU as a strategy game. (its the best Ive played )

Perhaps what Im really suggesting is a somewhat different game with a greater emphasis on a more sophisticated trade/monetary/economic model. At least this would be more attractive to me personally than the "EU + 3D tactical battle option" that also seems to be quite popular (but which IMO has already been done too much).

 

[Heretic]

Hmm

Keynes,
all this is indeed very closely argued, and I don't see a problem with the whole.
Are you suggesting that by implementing a more realistic model of the economy, you would hope to produce a better simulation of the process of controlling the development of the state over time?
I support the idea that the game is not solely a military game, and that these other factors should be important.

It does begin to make one wonder about what the aim of the game is then.. The VP system supports realisation of narrow military or diplomatic targets, but if we introduce a better ecoenomic model, one might then be able to introdues goals like...
"monopolise trade in china in amsterdam within the next 5 years"
or
"introduce law courts to reduce popular resentment of the barons"

so that the other, non -military parts of the game also become goal driven..

Heretic

 

[Keynes]

Re: Hmm

Originally posted by Heretic
It does begin to make one wonder about what the aim of the game is then.. The VP system supports realisation of narrow military or diplomatic targets, but if we introduce a better ecoenomic model, one might then be able to introdues goals like...
"monopolise trade in china in amsterdam within the next 5 years"
or
"introduce law courts to reduce popular resentment of the barons"

so that the other, non -military parts of the game also become goal driven..
Heretic

I think its OK that the VP system focuses on diplomatic/military achievement b/c that is what most of the monarchs of the period cared about. Its just that the ability to achieve those goals was very much contingent on a strong financial and economic base, one of the reasons why France eventually triumphed over Spain and why England became so strong in the 18th century.

So there's no need for specific financial or trade VP triggers as long as the game's military model prevents the deployment of large armies in the absence of strong finances (which it kind of does in EU but not as much as it should IMO) and the diplomatic model takes into account the importance of bribes, etc. (which EU handles pretty well already)