Proposal Discussion Economy - limited credits

[Space_Killer69]

Manual control of the economy cannot and will not work. The economy is too complex. The unintended consequences of actions take to influence the economy will dwarf the intended consequences.

But it's not an economy, there's only one part of the equation demand. There are no true supply chains, no (million) average Joe's waking up and thinking today I'm going to have a cup of Tea, rather than a mug of coffee. To think, Hmm today I'll buy my Cobra in Pink not blue as that's so last year.

No body deciding to mine copper ore as more people have decided that it's time to rewire the dodgy left indicator on their Sidewinders.

In short, it's not a true economy, or market, just a simulacrum. A front end representation with some algorithms beavering away in the background, working between set parameters. A less than rudimentary supply chain Refining to Industrial .......

So again, what benefit do FD gain by tying their hands and giving up control of the means of digital exchange and putting in place a fixed one.

 

[Space_Killer69]

We have no player owned production, no player to player trade. The only thing players can hoard as a resource is money.

You don't solve the issue of players hoarding a resource by increasing it's scarcity. You increase the mechanisms by which they can spend it.

 

[Atinus]

I think in the real world the idea that there is a fixed amount of money, i don't believe that is true any more.

It's never been true. Even during the gold standard days, we were still mining and finding new gold. The monetary supply has generally been increasing over history.

 

[Toebs]

We have no player owned production, no player to player trade. The only thing players can hoard as a resource is money.

I've heard mixed things about this.

What's actually present now in the game?

Be clear though this doesn't solve all problems. If we have the printing of money, where NPC prices do not change over time, then NPC prices in real terms are dropping over time, and will become ridiculously cheap. This will unbalance the game.

 

[Bromley86]

It only unbalances the game if the old-money types want to buy basic pulse lasers. If they want military beams, then they have to cough up a lot. Balance restored without penalising new players.

EDIT: This post in the thread on corvettes got me thinking. Perhaps the answer to fantastically rich groups of players is to allow them to buy these corvettes but not allow them any insurance. That way, you lose your ship, you lose a load of cash. Doubt you'll find a bigger money sink than that.

 

[Space_Killer69]

I've heard mixed things about this.

What's actually present now in the game?

Be clear though this doesn't solve all problems. If we have the printing of money, where NPC prices do not change over time, then NPC prices in real terms are dropping over time, and will become ridiculously cheap. This will unbalance the game.

None of it does, and I fully agree that markets are a wonderful invention in the real world.

Here we have an exploration/combat/trading game. Player production/hoarding of assets was not looked upon well I believe as FD have a fairly developed view of where they want the game to go, and it wasn't sitting behind a desk, plugging numbers into an excel spreadsheet figuring out whether to build nuts or washers today. It was about getting behind the stick and heading out into the big bad black.

I still say, intuitively you don't try to control the money going into the system, that way lies pain. Manage the money going out - Rich players a problem, Anaconda repair bills just increased across the board. Still a problem - look here's a new set of gold lame furry dice you can buy, only 60million credits, but they're exclusive honest. There's always a way to part people from money.

 

[Atinus]

Aren't you asking for inflation? Because as time goes by players will generate wealth (mining, cargo sales at profit). Therefore, to maintain this notional target amount of total wealth FD have to reduce the value of players' credits.

That means a pulse laser on release will cost more credits to buy a year later. That means new players either have to grind for longer than those on release or are encouraged to either spend real money for credits. Doesn't sound good.

I, for one, think there should be inflation, but it need not destroy purchasing power.

Provided, interest is earned for credits whilst logged off. Such that if your inflation rate is set at 2% annualized, then when you're logged off, your credits will earn 2% annualized. Starter player positions would similarly earn 2% annualized. Equipment costs would increase 2% annualized (I would suggest making the equipment cost index be the equivalent of the Consumer Price Index and also what you base the interest rate off of.)

That's just a hypothetical example. In practice what I would do is take off the minimum and maximum price thresholds for commodities that are currently being used. The prices for whatever the equipment for the ships, and the ships themselves, are made out of from the list of commodities would have a direct impact on the prices of equipment. This would create your measured inflation rate, and thus set up your interest rate.

Overall, the monetary supply *should* be increasing. The usual mechanism for that in modern economies has been the addition of debt. And perhaps there will be a role for debt later in the game. Frontier has hinted that might happen.

Back in the design discussion, I made similar suggestions. I didn't know how difficult it would be to implement or if it was even practical or if it would even work in a simulation, but here it was:

If buying something does not affect the supply, or if the ability to buy something is not limited by an available supply, then the price discovery mechanism will not work properly. For every buyer there has to be a willing seller. If nobody's buying at the price you want to sell at, then a sale should not happen. The seller should have to lower his or her price to meet demand if he or she wants to complete the sale.

That was always one thing that bugged me about original Elite. Say I was carrying 35 T of computers into an agricultural system where the price was 101.5 CR. When I got there, there were simply no computers available for purchase they were selling so hot. But as the seller, I had no way of increasing the price. Who knows, maybe I could have gotten 150 CR for those computers.

So, if we're dealing with open markets, prices in principle should be constantly in flux. Commodities trading in real life is very volatile, and is very sensitive to market pressures as well as monetary fluctuations. Today, when central banks engage in quantitative easing, investors will hedge on weak currency by buying commodities.

That means prices are affected not only by supply and demand of the goods traded, but also the supply and demand of money itself. An additional dimension that affects pricing is access to credit. Can you borrow money to buy stuff? The more access to credit there is (i.e. the lower the lending standards), the more money is available for consumers, traders, etc. to buy stuff.

In fact, how much people borrow has a tremendous impact on overall consumption. It's the primary mechanism by which new money is created. This is a chart I produced at work that shows the percent increase of credit outstanding in the U.S. (that is, all debts public and private) versus percent increases and decreases of the Gross Domestic Product based on U.S. government data that you can see here in Excel. What I did was plot data back through 1945, calculated percent increases and decreases, and then started looking for relationships.

What it shows is that whenever there is a credit contraction or even a credit slowdown, consumption (i.e. GDP) slows down or even contracts. This too has an impact on prices. Less consumption means lower demand, and therefore lower prices. When credit is really moving fast, as in the U.S. housing bubble, prices then tend to go to the moon. In the case of economic bubbles, those tend to be driven by monetary and financial policies, in particular, credit policy.

Inflation also tends to have an impact on credit allocation, inasmuch as high inflation usually leads to higher interest rates. This is done to take more money out of the system and lower prices. It also creates a disincentive to borrow money at higher rates. See here, inflation tends to lead to higher interest rates, and eventually, higher interest rates tends to drive down inflation:

So, for the purposes of the game, I'd suggest that the following elements lead to price discovery on a system-by-system basis: 1) supply and demand of goods (let sellers set a price and see if there are buyers at those prices); 2) credit availability (which the more there is the higher prices can go, and leads to higher consumption); 3) economic growth (i.e. how much consumption is taking place which demonstrates demand); 4) inflation; 5) interest rates; and 6) balance of trade between systems.

I think done in a simplistic way, the economic information determining prices can be pretty realistic, and whatever formula is used can be based on real data from economic history. Price discovery therefore can become very realistic, predictable in some capacity based on certain data points, and traders can time their sales to make more money. Or they could be caught in an unforeseen recession that makes their six-month old information obsolete when they arrive and forced to book a big loss on their trade just so they could afford fuel and missiles.

 

[Darkfyre99]

Is it? is ED tracking the bank balance of each NPC, where NPC pirates accrue credits for successful captures of NPC merchants, and where PC kills of NPC pirates gives what is likely a tiny fraction of their bank balance to the PC? has this been done in the game?

There's a huge realism problem here - why would defeating a pirate in combat suddenly give the local government access to that pirates financial reserves?

It doesn't.

The Bank of Zaonce and the Pilot's Federation are the ones responsible for all that, especially among local governments. The Pilot's Federation is the one responsible for keeping track of all the bounties in the galaxy, and the Bank of Zaonce is the one that'll be holding your debt if you can't afford to pay the deductible of your insurance AND all the liens against your ship(s) throughout Human Space.

Who rules the galaxy? The Three Superpowers? Or the ones that control the wealth and information of the Galaxy?

 

[Toebs]

It only unbalances the game if the old-money types want to buy basic pulse lasers. If they want military beams, then they have to cough up a lot. Balance restored without penalising new players.

If a player buys a good, such as a pulse laser or a military laser, wealth has not been destroyed; it has only been exchanged. The currency has gone to the NPC (and presumably disappeared), but now the player owns a laser.

NPCs are currency sinks, but not wealth sinks; and if we are now talking in terms of using currency generation and currency sinks to prevent inflation, we see if generation exceeds sinking, we have deflation of NPC prices, if they are equal the game is fine (but this is impossible, too complex), if generation is less than sinking, in the end we run out of currency.

Money sinks cannot solve the money printing problem.

By comparison, a solution is *not* to print money.

 

[Toebs]

Provided, interest is earned for credits whilst logged off. Such that if your inflation rate is set at 2% annualized, then when you're logged off, your credits will earn 2% annualized.

It seems a more complicated solution.

We can avoid printing money, which solves the problem, or we can print money but then we must also have an interest rate which exactly matches the rate at which we print money.

The former is simpler. Moreover, an interest rate alone does not solve inflation. All price have to be adjusted by inflation - e.g. NPC buy and sell prices - not merely savings.

Moreover, we see in China for example the rate of savings interest is far below the rate of inflation (1% vs about 8%).

 

[Pyros]

I, for one, think there should be inflation, but it need not destroy purchasing power.

Provided, interest is earned for credits whilst logged off. Such that if your inflation rate is set at 2% annualized, then when you're logged off, your credits will earn 2% annualized. Starter player positions would similarly earn 2% annualized. Equipment costs would increase 2% annualized (I would suggest making the equipment cost index be the equivalent of the Consumer Price Index and also what you base the interest rate off of.)

That's just a hypothetical example. In practice what I would do is take off the minimum and maximum price thresholds for commodities that are currently being used. The prices for whatever the equipment for the ships, and the ships themselves, are made out of from the list of commodities would have a direct impact on the prices of equipment. This would create your measured inflation rate, and thus set up your interest rate.

Overall, the monetary supply *should* be increasing. The usual mechanism for that in modern economies has been the addition of debt. And perhaps there will be a role for debt later in the game. Frontier has hinted that might happen.

Back in the design discussion, I made similar suggestions. I didn't know how difficult it would be to implement or if it was even practical or if it would even work in a simulation, but here it was:

Interesting idea, but IMO a needless complication.

When I say "we are the 1%" I mean it. Within the gameworld, the player base represents but a minute part of the population - so the added monetary influx created for them (to make them rich) wouldn't impact on the inflation (as a poor example, earth has quite a few billionaires - and not really much of inflation).

Another issue is what to have in game to keep it interesting to quite wealthy (ingame) players. As referred, FD can do a lot of things in order to have them part with their money. From supporting political campaigns in exchange of prestige to tax and other accretion costs.

In fact, the cardinal economic rules for ED are simple (to state):

• Make trading interesting, feasible and logical
• Have ongoing costs that are bearable by the lowly player, but not irrelevant
• Make all activities similarly lucrative timewise, but not overly so
• Create money sinks for the rich player to entertain itself

Note: the last one, while optional, is welcome

 

[Space_Killer69]

So you control the input of money. That means you cannot target those with wealth, you can only target the whole economy. And any measure will automatically hit the poorest newcomer harder.

fuel doubling to 40 credits is a hell of a lot more painful if you only have 100 credits.

Still you've artificially created a single object that is now a finite resource. Great lets have some scarcity. I honestly believe as there's no other way of storing wealth the only mechanism and sensible thing to do is to hold onto the money. Less money in circulation means the money you have in the bank is "worth" more. Now you've rewarded those who don't spend it.

You've created a mechanism designed to reward a cautious, hold on to your cash, don't take risk type approach. Once you lose what you have it's going to be twice as hard to get it back.

Let the game generate cash, concentrate on taking that cash out of circulation.

 

[Atinus]

We can avoid printing money, which solves the problem...

But it also creates a problem, which is that although the supply of money ought to be increasing, it isn't. And as a result prices, which over time in certain areas, ought be to increasing, aren't.

What you get there, in principle, will be flat prices on markets, and a very static economy. Which, to me at least, makes those markets far less interesting and dynamic. Which, in turn, will disincentivize trading.

or we can print money but then we must also have an interest rate which exactly matches the rate at which we print money.

The former is simpler. Moreover, an interest rate alone does not solve inflation. All price have to be adjusted by inflation - e.g. NPC buy and sell prices - not merely savings.

Moreover, we see in China for example the rate of savings interest is far below the rate of inflation (1% vs about 8%).

True but the Bank of Zaonce can dish out interest rates at whatever rate it chooses. If you introduce debt and money borrowing, then the interest rates will start to make sense vis a vis current levels of inflation.

I want to see the markets come to life, but for the life of me, with min/max price floors/ceilings, and zero inflation even though the monetary supply ought to be increasing, I can't see how that will be possible.

 

[Atinus]

In fact, the cardinal economic rules for ED are simple (to state):
[*]Make trading interesting, feasible and logical

But how do we do that without business cycles? That is, upturns, downturns, price booms, price busts? What's interesting about flattening prices (but no price collapse) for overtraded goods, and maximum prices (yet no boom) for undertraded goods?

 

[Toebs]

But it also creates a problem, which is that although the supply of money ought to be increasing, it isn't. And as a result prices, which over time in certain areas, ought be to increasing, aren't.

I don't mean completely - I only mean to avoid gratitious money printing (bounties not backed by tax, etc). This leads us into monetry theory. Do we increase fiat currency by a fixed rate per time period? or can we do better in a fully simulated environment? could we increase all prices (and all debt, and all savings) by the rate of inflation, e.g. the current amount of currency vs the amount we began with.

Actually, maybe the right way to go is not to use a fiat currency.

 

[Pyros]

But how do we do that without business cycles? That is, upturns, downturns, price booms, price busts? What's interesting about flattening prices (but no price collapse) for overtraded goods, and maximum prices (yet no boom) for undertraded goods?

OFC you can - and should have - those types of trends and events (boom, bust, price hikes and collapse). Ideally the player could have some impact in creating those effects (e.g. a planet under blockade would be a great opportunity to sell weapons and food for a trader that manages to run the blockade). What I mean by interesting is eventful, feasible means that on average (including operational costs and loss of goods and ships to pirate) you make money. Logical means that prices should fallow natural changes in supply and demand (the blockade scenario is an example).

Trick is while some trade goes bad, other improves (in the same place or elsewhere). The savvy trader will follow the opportunity.

 

[Atinus]

I don't mean completely - I only mean to avoid gratitious money printing (bounties not backed by tax, etc).

Fair enough. I'm not a fan of gratuitous money printing either. That said, I want to see some fluctuations and volatility in markets. That will make them more interesting and fun to trade in my opinion.

This leads us into monetry theory. Do we increase fiat currency by a fixed rate per time period? or can we do better in a fully simulated environment? could we increase all prices (and all debt, and all savings) by the rate of inflation, e.g. the current amount of currency vs the amount we began with.

What I proposed back in the design discussion was using a debt-based formula. Debts tend to be greater than savings almost always. In advanced economies that ratio tends to be much higher. That is because banks do not operate on 100% reserves. Never have.

In a fiat system, borrowing tends to increase the money supply. Paying it off reduces it. Since debts are greater than incomes, too, debts tend to grow faster than they are paid off. Since what we're dealing with is a galactic economy run on fiat, I say let's roll with it, and let it function as economies do on fiat.

A simple formula for the purposes of the game for determining the rate of increase of the monetary supply might be: How much money was lent minus how much was paid off plus bounties that are paid out. Players can be used as the proxy to determine the overall rate.

But that data on its own is merely an indicator of other things going on. It does not, on its own, determine the rate of inflation.

So, I say, let players buying and selling commodities at their chosen prices (I'm willing to buy at versus you're willing to sell at, bid/ask system), competing with an AI trading algorithm (which may have the slight effect of smoothing prices out a little), determine prices.

Undertraded goods prices collapse at production ends, and prices skyrocket at consumption ends. Overtraded goods prices rise at production ends, and collapse at consumption ends.

Equipment prices are determined by the basket of commodities that are actually used to create the ships and weapons and other stuff. The average price increases here is your measured rate of inflation, which the Bank of Zaonce kindly sets as the rate of interest earned for credits whilst logged off and for starter ships.

Over time, what should happen is you'll see price volatility. Markets will be more susceptible to supply shocks, and to demand spikes. The economy will growth for most of the time, but there could be a periodic recession. But that's fine, creative destruction and all, creates buying opportunities. Wash, rinse, repeat.

I don't see it as needless complication, I just really want to see the markets come to life. The game's still being designed, this is how I think it could be done using real market dynamics, so I'll continue advocating for it.

 

[RobFisher]

Apologies for being off topic.

deflation (prices falling over time) is an involuntary transfer of wealth from those who have borrowed to those who have saved.

Any involuntary transfer is unethical.

If the deflation comes about as a result of a central bank removing money from the money supply, then I agree with you.

However, if there is a fixed supply of money, prices will tend to fall as a result of economic growth. This is "secular deflation", and there is no actor transferring anything, so no-one to be unethical.

It does mean you can save money and expect to be able to buy more with it in future. But that transaction in the future will still be voluntary.

Loans will still happen because there will be people willing to take some risk to get better returns.

 

[Atinus]

What I mean by interesting is eventful, feasible means that on average (including operational costs and loss of goods and ships to pirate) you make money. Logical means that prices should fallow natural changes in supply and demand (the blockade scenario is an example).

Well, I agree with all of that.

I just think it will not be logical with min/max price floors/ceilings.

Taking your blockade example, because of the price controls, it will only have so much of an effect. The high tech world should starve, yet the price of food can only go so high with the maximum prices.

Yes, the current build makes money, but with price flattening at the bottom and the top, not as much as you could be making. There's also zero risk in current trading except for losing your pay load to pirates. There's got to be more to it than that! Right now, there's a guaranteed, if modest, return on every trade run even on runs that should have collapsed due to oversaturation.

 

[RobFisher]

I think NPCs are cardboard cutouts, not real economic actors. NPCs basically act as money printing machines, no?

That's one way to look at it.

I explained my position in detail in the other thread so I won't make you respond to it all again here.

I'll just say that I agree with the entirety of this Pyros post:

When I say "we are the 1%" I mean it. Within the gameworld, the player base represents but a minute part of the population

...and I think it is enough for my needs if the game does not go beyond Space_killer69's description:

In short, it's not a true economy, or market, just a simulacrum.

Edit: in fact, this model allows something that would not be possible in a game with a real economy: *every* player has the chance to be a hero, or a famous billionaire, or the king of a planet, and if they are, it is still plausible, because there are millions of NPCs to play the role of the little, insignificant people.

In a game with a real economy, some poor human has to play that role.