Economic concepts¶
Our economy has a past, which is present today in maturing payment commitments, and a future, which is present today in debts that are being created.
—Hyman Minsky
Trade¶
As the exchange of goods grows in frequency and scale, it moves out of the traditional social context and starts to resemble commercial trade.
Modern trade involves numerous parties, and goods of significant monetary value. A trusted intermediary becomes necessary to act as guarantor of character, and to coordinate the exchange of goods.
Banking¶
As trade expands, there is simply not enough hard currency available to settle every account. To rapidly increase the supply of coin is to risk widespread loss of trust in its value.
Hence the need for banks. They keep track of the debits and credits of their clients. Payment can be arranged without exchanging currency.
The bank removes the risk of dealing with people you don’t know. It is they who become the nexus; and they ultimately who benefit from connection.
Debt¶
Banks have an ingenious way of solving the problem of a scarce money supply; they invite borrowing and then invent out of nowhere the sum to lend.
The new money exists only in a ledger, but for so long as trade goes through the bank it can be used just like the real thing. The only trouble is that the debt has to be paid back with interest, so the more people get into debt the more competition there is going to be for the future money supply. Which is only to be created by more borrowing.
Market indicators¶
In Turberfield, the indices we call prices, or exchange rates are emergent characteristics of a simulation. There is no such thing as the optimal price for something; it is simply one of many which all parties will settle for.
If one man accepts £80 to settle a £100 debt (better now than later; better this than nothing at all) then that is evidence of deflation, but on a very singular and local level. The gross aggregate of these measures can only be accurately determined after a great many samples have been taken.
Social relationships¶
Since ancient times, people have cemented social networks with the exchange of gifts. Long before there was money, gift-giving provided a means of distributing wealth.
Exchange of goods¶
Giving is a two-way process. It has implications for the recipient beyond simply transfering ownership of material. Often, a gift can confer an obligation which exceeds any reasonable valuation of the physical item.
Giving brings intangible benefits to the giver. In cases where the recipient cannot reciprocate, it can be an act to emphasise social hierarchy.
So from the very beginning, economics is entwined with interpersonal politics and power relations. Turberfield acknowledges this. It provides a framework for social simulations of personal relationships and reputations.
Credit, character, and connection¶
For most of human history, in business the exchange of goods relied on the perception of reputation, or character.
If someone has sufficient faith in your character, he will extend to you credit, that is, he will let you have goods in advance of payment. For so long as the counterparty trusts you to return and do business again, he will maintain your credit account, just as he in turn has lines of credit with others.
At the first hint that you might terminate the relationship, he will take steps to reduce his risk, or to coerce you to return under a more binding arrangement.
In traditional exchange, the balance of a credit account could be settled in kind (like eggs or wine) or in coin of gold or silver. Settling the account would usually require a personal visit, cementing the social relationship and giving an opportunity for new business by connection.