Inflation - an alternative design?

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In real life, inflation affects all prices in an economy, not just those of goods and other purchases. For instance, inflation "increases" the price of labour (wages) as well. This in turn increases the amount of taxes collected, and we can therefore conclude that inflation makes both incomes and expenses grow. In EU2, only expenses grow. This is a problem that must be dealt with, preferably through the application of this nice solution (see below) that I've thought of.

Another problem might be that diplomatic gifts "get through" to the recipient unaffected by the inflation, which means that a country could put the "to treasury" meter all the way to the right and then give away the resulting river of gold to a second country, which would become incredibly rich without suffering the effects of inflation. In real life, inflation depreciates the currency value and makes the home currency worth less in terms of other currencies (i.e. the "real value", or "purchasing power", should remain unchanged when exchanging money from one currency to another).



THE SOLUTION

• The "To Treasury" slider becomes completely independent of the other sliders (i.e. the number of sliders sharing the "100% of one slider" mechanism is decreased from 6 to 5). The "To Treasury" slider now represents only the printing of more money and therefore works pretty much the same as now, except that it can be set to any value between 0 and 100% without affecting any of the other meters. Putting the slider further to the right increases income and inflation, as usual. The reason for this change is that the printing of money should hardly be considered something that would decrease the amount of money that could be spent on budget items (loans, maintenance and investment). The numbers of the meter would need to be tweaked, though; the recommended yearly inflation increase maximum (related to money printing) would be 10%, rather than the current 1%.
• Instead of adding to a "price index" that stays fixed at a high level even when pursuing a low-inflation policy, the effects of inflation should be more tied to what inflation actually does in reality: decrease the value of saved money and hurt stability & growth. Firstly, the value of the treasury should decrease to [100/(100+inflation)]% of the current value once a year has passed; for the monthly effect, simply calculate the 12th root (is that good or naughty English?) for the yearly value. A yearly inflation rate of 10% would thus reduce the treasury to 90.9% of its former value on a yearly basis and 99.2% on a monthly basis. Secondly, having a high inflation rate promotes consumption over saving of money, thus lowering investment rates and leading to a slower economic growth. Additionally, high inflation rates can be considered bad for stability (thanks to decaying wealth of the people and greater uncertainty about the future, and the fact that rapid inflation makes people use other forms of "currency", such as chickens and eggs, and thus deteriorate the level of the economy's development). Because of that, higher inflation rates should also give a negative modifier to stability development - and if the negative modifier outweighs the positive ones, stability should be able to drop as well...

"To treasury" should be replaced with a more accurate description if this system is used (small chance, but I've got to try, right?).

This change, coupled with stuff like provinces being plundered staying that way for a longer time (many many years), much slower manpower regeneration (boost the reliance upon mercenaries until the country's development allows a more modern-style army) and the war exhaustion depending on how many provinces are looted and how much war taxation you've collected, could really make for a better experience when it comes to funding and fighting wars. Paying for a major war should be a costly business requiring some financial decisions by the player, and the effects of fighting one should leave lasting effects on the economy (especially if it is on your own soil). I think that all of the above could (and should) be implemented in the current EU2 engine.

Edit - had to rephrase the original praise (hopefully I won't be called 'immature' now )
I know that I am not worthy, very small indeed when compared to the awe-inspiring glory and greatness of Paradox and Johan the Great Prophet, but I still hope that this humble wish will be taken into consideration by He who is Most Enlightened.
(even though I have not built a shrine - yet...)

 

[unmerged(9191)]

nice work

 

[Lucius Sulla]

Ugh... come on... those last sentences really were not dign of the rest of your post. Which has really impressed me. Certainly you have researched into this. I still think some points could be discussed... but I am not really an economist, and I don't have good economic knowledge, so I will prefer to stand apart while people who could support or debate your point do so.

From my not informed point of view, your proposal sounds just right.

About your rant about Johan, I have to disagree... I still have to find ANY game company that pays so much attention to their costumers. And I frankly don't consider myself a 'Johan-worshipper' for saying. If your points are valid (although I don't have enough knowledge to confirm that, but the feeling you are indeed right and this is a better approach) I am sure the paradox guys will pay attention.

And even if you are right, there might be the unfortunate chance they can't do anything about it, the way the game is already built... programming is not the same as building ideas, good as they might be, and this might need too much effort redoing the code.

 

[unmerged(12740)]

this is an interesting suggestion, a few questions:

does this model assume that neighboring country's inflation levels are not tied to your inflation? if so, cld a high inflation level in one country produce deflation in a neighboring country w/ a low inflation level as people in the former country begin to adopt the currency of the latter country.

also, is it historical? i really just don't know how many countries in europe in this period used paper currency. i know that for a time china did, but it was a rather miserable experience for them. i think most countries coined gold/silver. if they are using an actual commodity like gold/silver i think that the current inflation model is probably more realistic than the one you present, since that seems to be based on paper currency models, which simply don't apply.

ot: in sweden is it still possible to get copies of records by ebba grun (no idea how to spell)? impossible here in the u.s. & i want their records.

note: in english "naughty" is a moral term -- your english however was "correct" & not "incorrect" or even "awkward". always surprised at how well skandinavians write/speak english. (better than most native speakers of english.)

 

[unmerged(10355)]

What the game calls "inflation" has nothing at all to do with inflation. It's better described as a "penalty for using exploits".

 

[unmerged(12740)]

i disagree -- it does seem to model the inflation events spain got when they grabbed all that gold from america.

 

[unmerged(5822)]

Originally posted by Lucius Sulla
About your rant about Johan, I have to disagree...

It's not a rant, it's me trying to find my place in the cosmos, relative to Paradox.
(i.e. a praise rather than a rant)

 

[unmerged(5822)]

Originally posted by tpc
does this model assume that neighboring country's inflation levels are not tied to your inflation? if so, cld a high inflation level in one country produce deflation in a neighboring country w/ a low inflation level as people in the former country begin to adopt the currency of the latter country.

also, is it historical? i really just don't know how many countries in europe in this period used paper currency. i know that for a time china did, but it was a rather miserable experience for them. i think most countries coined gold/silver. if they are using an actual commodity like gold/silver i think that the current inflation model is probably more realistic than the one you present, since that seems to be based on paper currency models, which simply don't apply.

ot: in sweden is it still possible to get copies of records by ebba grun (no idea how to spell)? impossible here in the u.s. & i want their records.

note: in english "naughty" is a moral term -- your english however was "correct" & not "incorrect" or even "awkward". always surprised at how well skandinavians write/speak english. (better than most native speakers of english.)

The model is rather simplistic and assumes that the scenario described can't happen. I think it could be added in as a feature, but it would require lots of addition calculations and would probably slow down the game a bit while not offering any clear benefit worth the slow-down (the effects would be somewhat marginal, I imagine).

It may also, as you suggest, be wrong to use the model I presented, since it is based on modern inflation theory rather than research on medieval economy. The basic principles of inflation should still apply though, with or without paper in the economy; increasing the money supply reduces the value of each currency unit (for simplicity's sake I've also assumed that money supply would automatically follow the gross domestic product development; in real life, a money supply increase slower/smaller than the gdp growth would cause deflation).

I think it's still possible to get Ebba Grön stuff, but I don't know where... I'm not too much of a music fan, I guess...

And I picked "naughty" over "bad" on purpose, since I assumed that "12th root" could be unnecessarily obscure to the reader.

 

[unmerged(5822)]

Some additional points:
* gold would still increase the inflation rate (dunno if it should stop increasing inflation once the economy as a whole grows big enough)
* I'm not sure what to do with the governors (they would lose their inflation-decreasing ability; the simple way out would be a tax increase, since that would give an effect pretty close to decreased inflation)

 

[IEX Totalview]

Disagree completely.

The current inflation system doesn't model inflation in the modern sense at all; it simply serves as a price index that reflects accrued corruption & devaluation that drags your overall economy. It is simple, somewhat historical and properly punishes players for the two main "inflation drivers" in that period; gold mines and increasing the coinage.

Besides you don't "spend" money on research; it's automatic. Trade investment doesn't represent check's the government of Portugal is writing, rather it represents natural trade advances that acrue from both public and private efforts, and is abstracted from the overall kingdom income and the amount of effort you want to direct to that area. You can only "spend" the money you coin and census taxes.

Plus allowing the player to achieve up to 10% inflation is too high. Even a 2% cap would be too much IMO.

 

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I'm not even sure modern economic concepts are pertinent to model pre-XVIIIth century economy. Before script and paper went into widespread use, money was also a good in itself. In all the economic models I know of, money is just an indicator of the perceived current and future relative value of goods and services. If money suddenly becomes a tradable good in itself, the models can't work.

 

[Lucius Sulla]

About money being a good in itself. Well, ok, the governments did not use paper money... they could not just print more.

What they in fact did was minting coins with a lesser quantity of precious metal, degrading the alloy with other less valuable or no-valuable metals, achieving a very similar effect to 'printing more paper'. And it was a fairly common practice.


PD: As an example, I think the Spanish gold doublon coin that was supposed to be 100% gold, by 1687 I think it was only gold in 1/10, 1/7 maximum... now THAT is inflation

 

[unmerged(5822)]

Originally posted by IEX Totalview
Plus allowing the player to achieve up to 10% inflation is too high. Even a 2% cap would be too much IMO.

Why so?

 

[unmerged(7034)]

Originally posted by Lucius Sulla

...About your rant about Johan, I have to disagree... I still have to find ANY game company that pays so much attention to their costumers. And I frankly don't consider myself a 'Johan-worshipper' for saying. If your points are valid ...

Yes, those guys sure dress well for computer geeks, don't they?
And what are you talking about, "points"? You meant pants, didn't you?

 

[Lucius Sulla]

Originally posted by Michaelis
Yes, those guys sure dress well for computer geeks, don't they?
And what are you talking about, "points"? You meant pants, didn't you?

It must be my bad English, but I must say I don't understand what you are trying to say or possibly joke about (not even sure even of that)...

 

[unmerged(5822)]

Originally posted by Lucius Sulla


It must be my bad English, but I must say I don't understand what you are trying to say or possibly joke about (not even sure even of that)...

Worry not; I didn't understand him either...

 

[Varyar]

It's a good idea, but I hope that it will not make it into EUII. Why?

If economy starts to act totally realistic, then wars have to be remodelled as well. Historically, an army of 10000 men could be considered huge, but early in-game such a small army can hardly beat rebels(assuming it's infantry).

And IMHO, if your suggestion was implemented into the game without some serious additional changes, the game would become much more boring History and realism is important but not at the expense of gameplay.

 

[unmerged(5822)]

I don't see how it would become less fun...

 

[Castellon]

Originally posted by Lucius Sulla


It must be my bad English, but I must say I don't understand what you are trying to say or possibly joke about (not even sure even of that)...

He is joking about you using "costumers" rather than "customers"

 

[unmerged(12740)]

i still think that onslaught has some pretty stong points.

the fundamentally strange thing about paradox's financial model is that all money to the treasury is considered newly coined. why? after all, the money comes from tax receipts & the thing that will drive inflation is an increase in money supply.

now, perhaps it's too complicated for the game engine as it stands, but, still, wouldn't it make sense to have an idea of what your overall tax receipts for the year are going to be & then budget some of this money for research, etc., & some money just goes to your coffers. (money that goes to your coffers does not effectively increase the money supply -- only the money that gets spent does -- so that money should not effect inflation, as opposed to the current calculus.)

on top of that, a monarch can decide to print money for whatever reason. i imagine one would only print money if you need it to spend on things -- given that the idea of deflation was probably not understood back then -- & then when that money enters the general supply in the form of investments in tech, fortresses, armies, etc. you have inflation. but i could see a situation where a monarch would simply decide to mint coins in order to fill his coffers for a future contest of power or what have you.

the other major source of inflation was loot. soldiers could come home from adventures wildly rich & soldiers have a reputation for spending. this was especially the case of aristocrats who, as generals, really brought back huge amounts of goods home w/ them as a part of their spoils. a change in the current plundering model could make war very painful & w/ a change in the inflation model -- where after a suiccessful conclusion to a war inflation goes up -- there would be some balance. (moreover, plundered provinces should reduce the population which, of course, wld drive up costs b/c labor would become more scarce. that's what happened after the black death after all.)

in the 15th century an army of 10,000 was huge, but by the 16th century monarchs were often fielding armies larger than 100,000 men & sometimes up to around 300,000. anyways, w/ a change in looting effects the engine would not need rebels so much to model the costs of making war.

EDIT: the fundamental point here is that it was the spending of money, not the hoarding of it, that caused inflation which is the diametric opposite of how the game handles inflation now.