Economic cycles were one of defining features of Victorian age and beyond with broad repercussions for politics and international relations (to give just the obvious example, both nazism and US Dem party new deal are children of the Great Depression). I was thinking how they can be modeled.
For this I’m assuming a rather closed monetary system (with money supply limited by precious metal mining) and an investment pool linked to pops savings but not identical to it.
The way I’d see it is to track the total cumulative amount pops have contributed over time to the investment pool as capital employed. Dividing total expected yearly dividends by the capital employed will give you return on capital employed (ROCE), which in turn will determine what share of their accumulated savings pops contribute to the investment pool. I would also make it possible to withdraw part of their savings from the pool, and even to let the pool going into negative, which should give negative modifiers to buildings simulating financial distress.
The way it would work is the following:
At first you have plenty of land, deposits and labor available (in subsistence farms and unemployed), aristocrats and state employees have large unfulfilled demands for consumer goods and capital is your major constraint for growth. The first buildings you construct turn in healthy profits, pops contribute their savings into investment pool and the economy grows exponentially. Than you start hitting other limitations - land, raw materials, infrastructure, qualified labor force. The ROCE falls and pops start to withdraw their savings. As they do so the investment pool dries up or turns negative. The reduced investment affect cyclical industries like construction, machinery, steel and other materials. They lay off workers and it drives down demand for consumer goods as well. As unemployed pops and capis deprived of their dividends should be able to draw upon savings to maintain basic standard of living, the demand will stabilize over time with basic needs industries (like food) less affected by the crisis. At the same time contraption of the investment pool will drive capital employed down and the ROCE will recover. Meanwhile technology hopefully will present new investment opportunities and the cycle will repeat itself. The unemployment and negative investment pool in recession phase should of course generate social and political issues, leading to government crises and social upheavals.
The development of financial systems through society tech can create credit expansion modeled as a multiplier for the money pops contribute to or withdraw from the pool. This would give player more capital to develop economy, but concurrently will make cycles more pronounced
The ROCE mechanic would allow to simulate price of capital that can also be used for state borrowing mechanic and international financial market.
The player would have a range of options to deal with cycles:
Stimulating demand through public construction projects, armament programs or social welfare
Taxation changes
Subsidizing failing industries
Infusing treasury funds into investment pool to prevent financial distress (which shouldn’t count in capital employed)
Opening up new markets for goods and capital and as sources for raw materials
Removing the barriers to growth through infrastructure investments, professional education, immigration and such
Generating new investment opportunities through timely teching
The player of course can simply limit the new construction in the first phase of the cycle, limiting the growth in the short run, but keeping ROCE stable and thus smoothing the cycle avoiding the negatives of the recession, but this option should be limited to planned economies and maybe state capitalism, and so I’d be very much in favor of keeping a significant portion of investment activity outside of direct player control.
I think this or similar mechanic if implemented and explained well in the UI will give a lot for the player experience and gameplay choices.
For this I’m assuming a rather closed monetary system (with money supply limited by precious metal mining) and an investment pool linked to pops savings but not identical to it.
The way I’d see it is to track the total cumulative amount pops have contributed over time to the investment pool as capital employed. Dividing total expected yearly dividends by the capital employed will give you return on capital employed (ROCE), which in turn will determine what share of their accumulated savings pops contribute to the investment pool. I would also make it possible to withdraw part of their savings from the pool, and even to let the pool going into negative, which should give negative modifiers to buildings simulating financial distress.
The way it would work is the following:
At first you have plenty of land, deposits and labor available (in subsistence farms and unemployed), aristocrats and state employees have large unfulfilled demands for consumer goods and capital is your major constraint for growth. The first buildings you construct turn in healthy profits, pops contribute their savings into investment pool and the economy grows exponentially. Than you start hitting other limitations - land, raw materials, infrastructure, qualified labor force. The ROCE falls and pops start to withdraw their savings. As they do so the investment pool dries up or turns negative. The reduced investment affect cyclical industries like construction, machinery, steel and other materials. They lay off workers and it drives down demand for consumer goods as well. As unemployed pops and capis deprived of their dividends should be able to draw upon savings to maintain basic standard of living, the demand will stabilize over time with basic needs industries (like food) less affected by the crisis. At the same time contraption of the investment pool will drive capital employed down and the ROCE will recover. Meanwhile technology hopefully will present new investment opportunities and the cycle will repeat itself. The unemployment and negative investment pool in recession phase should of course generate social and political issues, leading to government crises and social upheavals.
The development of financial systems through society tech can create credit expansion modeled as a multiplier for the money pops contribute to or withdraw from the pool. This would give player more capital to develop economy, but concurrently will make cycles more pronounced
The ROCE mechanic would allow to simulate price of capital that can also be used for state borrowing mechanic and international financial market.
The player would have a range of options to deal with cycles:
Stimulating demand through public construction projects, armament programs or social welfare
Taxation changes
Subsidizing failing industries
Infusing treasury funds into investment pool to prevent financial distress (which shouldn’t count in capital employed)
Opening up new markets for goods and capital and as sources for raw materials
Removing the barriers to growth through infrastructure investments, professional education, immigration and such
Generating new investment opportunities through timely teching
The player of course can simply limit the new construction in the first phase of the cycle, limiting the growth in the short run, but keeping ROCE stable and thus smoothing the cycle avoiding the negatives of the recession, but this option should be limited to planned economies and maybe state capitalism, and so I’d be very much in favor of keeping a significant portion of investment activity outside of direct player control.
I think this or similar mechanic if implemented and explained well in the UI will give a lot for the player experience and gameplay choices.
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