Economics 201

Economics Theory on Carsis 201

Theory and Reality

            The accepted theory holds that everything can have a value set in coins. However reality soon exposes a practical problem. There are not enough coins in existence. With in the local economy of a Barony (20x20 km area) we may find 5 large estates, 10 medium estates, 20 small estates; giving us a total agricultural market value of 2,739,000 coins. That is a lot of coins. Most regions do not have that many coins in circulation. How then does the economy function?

            First we need to consider that there are several types of coins. All theory is given in the lowest coinage value, the copper piece. There also exists the silver piece, worth 10 coppers, and the gold piece, worth 100 coppers. A simple progression of value, assuming the same weight for a coin is used.  

            Second it must be noted that all coins are not the same size / weight. Many places produce a double thickness silver piece worth 20 coppers, which are in common use and a small gold bar worth 5,000 coppers, which are quite rare.

            Returning to the market for an example:

A farmer has 100,000 lbs of potatoes for sale. According to basic fare trade theory, he would sell them in 20 lb basket for 1 coin each, earning 5,000 copper coins. That is a cumbersome amount of cash to carry around. He could be paid 500 silver coins or 50 gold coins. In reality he normally sells by the bushel, an 80 lb measure sold for 3 coins. Thus the potatoes would be sold as 1,250 bushels for 3,750 copper coins, or which would be paid in some combination of coinage.

            Direct trade is not dead:

Most likely some of the potatoes will be traded directly with craftsmen at the market for items they produce. Some will be sold to residents of the town for cash. Some will be traded with other farmers who offer different crops. Some will be sold to merchants, who transport the produce to the big cities. Some may also be sold to the less reputable “holders” merchants who are equipped to store produce until a later date when the demand drives up the price.

            Regarding the reputable merchants

            They make money if they buy in bulk at a local market, transport the produce to a city and sell it there. Their profits are fair because they add the value of transport to the produce. But the business is risky; accidents can destroy goods and bandits can run off with them. Typically a merchant will not simply trade in one commodity. He will acquire goods in the city from craftsmen, bring them to the small town market and offer them as part of the payment to the farmers for their produce. He usually acquires the goods on credit; a promises to deliver a certain amount of grain or other produce.

An element of barter occurs as the merchant enters the market. Although the documents of fair trade offer guide lines to what any product or service should be worth, nothing compels the farmer to accept an item he does not want as payment. So the merchant must make educated guesses about what will be desired.

            The reputation of the merchant is critical in two ways. First, he must be well known to the craftsmen as they are extending credit to him, offering goods now and accepting payment later. Second he must know and be known to the farmers, so he can guess what they want and avoid lengthy haggling. A merchant who provides a wanted service is a welcome sight.

            Regarding the disreputable merchants

            They are typically called holders or hoarders because they do not provide a noticeable value addition, such as transportation, to a product. They buy local crops at the end of harvest time, when the farmers want to be rid of their surplus and will sell by the bushel. They hold onto the produce until late spring, when most people, especially those in town, are running low on supplies. Then they sell at above fair prices.

            The service they provide is not a welcome one, but it can be useful. It is better to pay double the fair price than to go hungry. The claim made by these merchants is that they invested money to build storage houses and they know the best storage techniques, so they have put value into the produce just be keeping it safe. The risks they take are that rotten food can not be sold, also that robbers and rodents may diminish their supplies.  However logical these arguments are, holders seem to make money for doing nothing and thus are not very popular people.

            Back to the question of cash in the economy

            Many transactions are made item for item, based on the standard fair value of each item. For example; the local brewer may trade a gallon keg for a basket of produce. In this way he stocks up his kitchen by trading directly with the farmers. His coin profit comes from selling to the tavern, assuming he is not running the tavern himself. A similar pattern exists for other local craftsmen like the black smith and the miller. They provide goods or services in exchange for items. All transactions regulated by the guide lines of fair trade, so there is little actual bargaining or haggling involved.