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Fantasy Economics
Every RPG has its price lists that determine how much it will cost to buy everything from an aardvark to a zither and in most cases these prices can be considered the norm, but why are they set at such levels and what causes these prices to change? This article looks at the economics of a fantasy world using the real world as its base and examines how the actions of characters can affect prices and disrupt the balance of supply and demand in entire nations.
Real World Economics
Prices in the real world are determined by a broad range of factors of which the first and most fundamental is the principle of supply and demand. In an economy, supply and demand are interdependent, which is to say that over a period of time supply and demand will, under free market conditions, tend to move towards equilibrium. Put simply, if a large demand exists then entrepreneurs will attempt to increase supply to fulfil that demand, and if there is excess supply then entrepreneurs will change production or go out of business, thus reducing supply until it is equal to demand. This situation is subject to caveats too numerous to list here, but in general this principle holds true.
The next factor in determining price is scarcity, the rareness of the thing which is being supplied or demanded. Most people in the world demand gold and you can walk into any jewellers and purchase it there and then, so supply and demand are in apparent equilibrium. Most people in the world also demand bread and you can walk into any bakery and purchase it then and there, so, again, supply and demand are in apparent equilibrium. However, gold and bread do not have the same price and this is because gold is scarcer than bread; there is much less gold in the world than there is bread. It is also much harder to obtain gold for sale – it must be mined or panned for – than it is to obtain bread. As before this is subject to several caveats, but it generally holds true that things which are scarcer or require more effort to obtain will be more expensive to procure than things which are abundant or easily obtained.
So, for our purposes here, we can say that price is a function of the supply of a thing, the demand for a thing and the scarcity of a thing. When supply of a thing is higher than demand the price will fall – but the extent of that fall will be limited by the scarcity; no matter how low the demand for gold it could never be as cheap as bread as it takes too much effort to gather; it simply would not be sold. Whereas when demand for a thing is high and supply is low then the price will increase until the number of people who demand and can afford the thing is equal to the amount of thing available. Both of these are only in the short term because, as explained previously, over time supply and demand tend towards equilibrium – suppliers will either enter or leave the market thus redressing the supply problem. More complete details about the nature of the price mechanism and of supply and demand can be found in any basic economics textbook and in online educational resources.
Trade
In most traditional RPGs the players and their characters will be asked to perform the basic “guard the caravan” function many times. Their job is to ensure that goods are not stolen en route from point A to point B. Let us take the example of Rath, a young fighter, who has signed-up to guard a caravan taking apples from Atown to their destination in Bee City. There is very little action on the road and it turns out that Rath’s fighting skills were not really required to guard a caravan of apples, but while accompanying it he had a chance to think. In Atown, where the caravan originated, Rath was able to buy an apple for a single copper piece. When Rath arrives in Bee City, the destination of the apples, he purchases another for the same price, only one copper piece. Rath realises that if the prices are the same in both places then the merchant who owns the caravan cannot possibly make a profit, in fact since Rath’s fee was five silver pieces a day the merchant is seriously out of pocket. Rath has just discovered that he is living in a fictional world with no depth or realism and is understandably quite upset.
And most RPGs are run in exactly the same way; they ignore the reason for and the effects of trade. Trade brings goods from a place where they are abundant to a place where they are rare – and while apples may seem a spurious example they are not. Apples grow on trees and trees are found in the countryside. The medieval city was not filled with leafy avenues or orchards, so the apples which were grown in the countryside had to be brought to the city to be sold. It follows logically that bringing the apples to the city would have cost something – rent or purchase of a cart, food for the animal pulling it, wages of the driver, tolls, taxes and possibly even bribes or protection money once in the city, as well as storage of the apples prior to sale – and this would be in addition to the base cost of producing the apples in the first place. The result of this is simple, that apples are more expensive in the city than in the countryside.
Geography
Both local and regional geography have an effect on prices. In the example above we looked at the apple, but the example holds true across a wide range of produce. Cities in general do not produce anything, they do not grow anything and they do not mine anything. All of the food a city requires must be brought in from outside the city, increasing the cost. Cities are, however, centres of manufacturing. In the countryside you would be able to find a blacksmith who could make nails or shoe a horse in every second village, but a sword smith or an armourer, a glassblower or a papermaker would be unheard of. In rural areas there is not enough demand to justify a specialist tradesman, so such individuals operate in urban centres and export their wares to the country as required. What this means is that manufactured goods are more expensive in the countryside than in the city.
This argument extends across all goods. Wood is cheaper in a heavily forested region, while fine wooden furniture would be cheaper in a city. Fish are cheaper on the coast, while meat is cheaper inland. Iron and coal are cheaper in a mining region. Furthermore there may be some things which are much cheaper in one region than in any other and these are called trade goods. Silk, spices, wine, olives, citrus fruits, gemstones, oil and furs are excellent examples of trade goods which are produced in a specific area due to climatic conditions or geographic abnormalities which are impossible or prohibitively difficult to recreate elsewhere. These trade goods are grown or harvested largely for export purposes and fetch high prices in regions where they cannot be produced.
Seasonality
In addition to the issues of general scarcity and geographic scarcity which influence price is the issue of seasonality. In the modern world we are very used to shopping in supermarkets which offer an almost seasonless choice, but in less sophisticated times, no matter how much money you were willing to spend, no matter how powerful you were, it would be impossible to obtain something as simple as an apple in England in February. This is the case with fantasy worlds also; there will be times of the year when things are in season, and thus abundant, and times when they are out of season and simply unobtainable. A smart DM can turn that into a massive obstacle for a party – what if usually common spell ingredients are out of season, will the party wizard have to wait six months before he can cast his favourite spell again? Even if things are in season elsewhere, the area to which they can reasonably be distributed is much smaller than today because of the problem of transportation. Trade along coastlines was extremely important because most roads – aside from those constructed by the mercantile Roman Empire of the real world – were nothing more than dirt tracks which were difficult terrain in even the best weather. Effective land travel with a caravan of goods is no better than walking pace, meaning that goods travel at about 20 miles a day in good weather, half that in bad and in extreme conditions like heavy rain or snow roads would be completely impassable. Perishable goods such as bananas might make it to port, but in poor weather conditions they would be unlikely to penetrate more than 50 miles inland before they rotted. For more information on how people in ancient times tried to preserve their food for long periods see this website’s Raelism section.
Price Realism
While it is desirable to have a price list which is appropriate to each region in your game, it is not practical to decide on what each individual price should be in each region. Instead identify the trade goods of that region, if any, and identify which type of region it is; coastal, plain, forest, countryside, mountainous, desert, arctic, jungle, or city and use the table below to determine the effect upon prices.
|
Terrain Type |
Effect on Prices |
|
Coastal |
Fish * 0.5 – Fish products * 0.5 |
|
Plain |
Meat * 0.5 – Leather and animal products * 0.75 |
|
Forest |
Wood * 0.25 – Fur * 0.75 – Simple wood products * 0.75 |
|
Countryside |
Vegetables and fruit * 0.5 – Farm crops (wheat, corn, beans, etc.) * 0.5 – Vegetable, fruit or farm crop products * 0.75 |
|
Mountainous |
Mineral * 0.5 – Common metals * 0.5 – Precious metals (excluding those used in currency) * 0.9 – Gemstones * 0.95 – Common metal and non-manufactured mineral products * 0.75 |
|
Desert |
All goods except trade goods * 1.5 – Water and all non-alcoholic drinks * 10 – Poison * 0.1 |
|
Arctic |
All goods except trade goods * 1.5 – Fuel * 3 – Fur * 0.5 |
|
Jungle |
All goods except trade goods * 1.5 – Water and all non-alcoholic drinks * 2 – Poison * 0.25 – Wood * 0.75 |
|
City |
All imported goods * 1.1 – All manufactured goods * 0.9 |
|
Trade Goods |
Specific trade goods are 50% standard price, increasing by 10% every 20 miles beyond the edge of the region. |
A region can be no larger than a city to as large as a country or small group of countries depending on the needs of the individual DM and the appropriateness of differentiation. A DM should certainly decide on what type of region the character’s base of operations is, and probably decide on the regions surrounding it too. It is possible for a region to be more than one of the above, in which case it will benefit from the most advantageous effect on prices. So a dwarf city built in the mountains would have the discounted manufactured goods and the discounted minerals and metals. Possible combinations are anything with the coast, anything with the city except the countryside, anything with arctic except the jungle and anything with mountainous except the plain – though mountainous countryside is usually man-made terracing. If a region’s trade goods are also affected by the terrain type then use the more favourable of the two – a desert whose trade good was poison would sell it at 10% of it’s normal cost rather than 50%, while a city that exported glassware would sell it at 50% and not 90%.
Changing the Balance
In the real world it is almost impossible for a single individual to effect an economy because all the economies of the world are linked, and even when it can be done it requires billions of dollars of financial reserves to achieve. Even locally it is difficult to disrupt an economy: if today someone buys up all the beans in supermarket then the price of beans does not go up tomorrow, more supplies are simply delivered overnight. But in a period where supplies were much more limited and people were poorer it was easier for the disruption to be made. Generally speaking the balance is altered by changing either the amount of money in an economy or the amount of goods available for sale and the next few sections discusses just that. In all cases it should be presumed that the economy was in equilibrium prior to changes being made.
Changing the Amount of Money - Removing
The amount of money in a system determines how many things it can purchase; if there is a reduction in the amount of money around then the number of goods bought decreases while if there is an increase the number of goods bought increases. The most obvious way of removing large amounts of money from a fantasy economy is through taxation. If the players are feudal lords or powerful gangsters then they will be able to impose taxes, but in most campaigns taxes will be imposed by the King or other ruler of the land. In the real world taxes were not based on income until the time of Henry VIII (he of the six wives fame), prior to Henry’s reign taxation methods were generally crude and irregular. It was only when Henry decided that he would have a standing army and navy – previous armies had been gathered through the feudal system or conscripted on the basis of need – that he needed to know how much tax he could gather. In a fantasy campaign it is highly unlikely that taxes based on income will exist simply due to the difficulty of determining income, but in the event that the King needs more money everyone will be subject to a poll tax – a set amount that everyone in the country must pay.
Reducing the amount of money means firstly that prices will fall as supply will be exceeding demand. It is important to note that demand is only important in this case if it is backed-up by spending power; while the people may want four loaves of bread a week (industrial and pre-industrial diets were bread based) if they can only afford three then the demand is considered to be for three. The reason prices fall is because, rather than go out of business in the short term, suppliers will reduce the amount of profit they receive. If there is still excess supply after prices have fallen then suppliers will begin to go out of business. This will create an increased amount of labour – people available for work – which in turn means that employers can pay less wages, which further decreases the amount of money in an economy and so on. This is called an economic depression, when spending falls, production rates fall and as a result employment rates fall. A depression is more indicative of an urban based population – where large numbers of people don’t make anything but are mercantile classes – but can affect even rural populations as most farmers do not produce everything they need to survive, but must trade for it.
In a depression in a fantasy world it would be the mercantile classes – what we would call the middle class – who would be hardest hit. The poor are already destitute in many cases and as has been implied, there is an economic floor through which an economy cannot pass as it would mean nothing would be produced. The rich, traditionally, were not merchants, but were landowners and as such much of their fortune was secure and rich people would be able to benefit from a depression through cheap labour. In some cases the rich would have to tighten their belts, but when the depression was over they would still be rich. The mercantile classes however had their entire wealth tied up in goods, so a fluctuation in prices could ruin a merchant who might easily have debts or markers owed to other merchants or members of the nobility who would collect the second they sensed economic difficulty.
Money can also be removed from an economy in another very simple way – theft! If a band of brigands – or even the players – ride into town and make off with all the cash then the effect will be the same as if taxation had occurred, though in a smaller area. The effect of the theft can be amplified if a city or urban centre is looted as more money is stolen.
Changing the Amount of Money - Increasing
Just as monarchs and governments extract money through taxation they also spend it. Government spending in a fantasy realm is usually on one of two things – the military or civic constructions. Military spending is on wages for an army, obviously, but may potentially, depending on how the army is recruited, be on armour, weapons, horses and supplies. All of these things are supplied in the same way that normal people acquire them, through tradesmen and merchants and this spending eventually filters down in tradesmen’s wages throughout the whole economy thus making everyone that little bit richer. Civic constructions include city walls, castles, roads and docks and much the same effect on the economy is felt – transport improvements are discussed in more detail later.
Player characters, and heroes in general, are famed for ability to return from adventures carrying large sacks of diamonds. In fact the most common and radical impact that a player can have on an economy is through the spending of their hard-won loot. The wealth accumulated in a dragon’s lair could easily exceed the wealth of an entire town or region, though probably not a city, which might be resident to several retired PCs or NPCs.
When considering increasing the amount of money in an economy the problem is not the amount itself, but the speed at which the increase is made; a gold rush can be devastating for the local economy with prices skyrocketing. If the increase is made slowly – a government plan to build a new road might cost 10,000 gold pieces but take ten years to complete – then the economy will have time to adjust to the extra money and the result will be economic growth, an increase in production and people in the region will become slightly richer. If the increase is made quickly – Rath decides to buy every head of cattle within a hundred miles, spending 10,000 gold pieces in only a month – then the result will be inflation. Inflation happens when you have too much money and too few goods to buy with it, the result is that the money you are using to make the purchases reduces in value as prices are increased to bring demand back in line with supply. Large spending over a short period is dangerous for everyone in an economy, yet there seem to be few consequences of players being big spenders.
Consider, aside from the inflationary concerns, that Rath becomes a lord through defeating a dragon or rescuing a princess or some long service to a king. Rath has huge amounts of money which, according to his level and his accomplishments, has not been unfairly introduced into the game. Rath wants to build Sea Castle on the banks of the River Dee, an ambitious and impressive plan, and hire a large army to expand his territory into the goblin-held lands to the north so his first act is to employ all the skilled stonemasons and armourers that he can find. The effect of this is that nearby Bee City finds that all its most skilled masons and armourers have left to work at Sea Castle. Now all stonemasonry in Bee City is performed by less skilled masons, resulting in more stones being broken or miss-cut and all armour made in the city is made by apprentices or blacksmiths with more general skills, resulting in more breakages and longer time required to make each suit. The net effect is that virtually overnight the cost of stone buildings and armour in Bee City has increased dramatically while the craftsmanship has decreased. This may not seem like Rath’s problem at the moment, but he does have a huge herd of cattle which he now cannot sell at the expected prices in the city as so much money is being spent on buildings and armour.
Rath, who had until recently believed himself to be in a fictional world with no depth, is shocked to learn that his actions have social consequences. He dismisses half the stonemasons and half the armourers that night and hires apprentices to work with the ones he retains, the result of this action is still an increase in costs in Bee City, but much less than before and for a shorter period as replacements are trained more quickly. And yes, Rath’s castle will now take an extra year to complete, but he will be able to make up for the cost by selling his cattle at nearly full price in the short term and full price in the longer term, plus he wont have ticked off the king, who just happens to live in Bee City and needed some work done on the palace. Clever old Rath!
Changing the Amount of Goods
Changing the number of goods available for sale effects the price, more goods mean lower prices, fewer goods mean higher prices generally speaking. This should be clear from previous discussions, but because the price mechanism operates in this way it can be manipulated. Controlling the supply of a good is what merchants dream of being able to do, because by controlling the supply they can control the price. If a person has in their possession the only ten flawless fire opals in the world, they do not release them all at once, or even hint that more than one exists; what they do is release one at a time slowly over a number of years. By restricting supply in this way price is kept at a premium. The same can be said of coffee, as an example. The mercantile classes of Bee City love to drink coffee, but it is brought in by a treacherous sea route which only a few ships can traverse and so it is very expensive. Captain Rath – a distant relation of Lord Rath – finds a new sea route and can bring back the beans much more safely. Captain Rath can then afford to sell these coffee beans more cheaply so now the poor can drink coffee as well. The mercantile classes, disgusted that the poor are drinking coffee, switch to a new drink, meaning that both demand for and the price of coffee have slumped, making the coffee run much less profitable.
Now there is a war brewing and the king declares a tax. The poor can no longer afford to drink coffee, the mercantile classes no longer want to drink coffee, and for Captain Rath things look bleak. However, the war is with the nearby trading Empire of Ee. The Ee Empire produces the finest brandy in the world and it is in great demand by everyone in Bee City, but the war means that trade in the brandy is forbidden. Captain Rath sees an opportunity and begins to smuggle small amounts of Ee brandy into Bee City, making himself a fortune. Captain Rath realises that if he had kept the safer sea route a secret in the first place he would have been able to drive his competitors out of business and dominate the coffee trade – the lesson is that a controlled supply with a high price is often more profitable and more sustainable than a bulk supply at a low price.
The previous examples demonstrated how a controllable supply could lead to better profits for the seller, but this is obviously disadvantageous to the buyer who would, in general, prefer to pay as little as possible. Goods with a controllable supply are better for the seller, but goods which have many suppliers are better for the buyer as this means the price is as low as possible. Yet there is still a profit to be made from these goods, and this profit is achieved through improvements in productivity.
Productivity
Productivity is how much yield is received from the resources invested in production. So if the yield is wheat, the resources might be the field, the seeds, the scythe and the reaper at least and possibly, depending on the process used, the oxen and plough and anything used to assist irrigation as well as more exotic things like magic. It follows that resources are applied to production to increase yield and the more yield generated through the least number of resources the higher the productivity.
Lord Rath has his huge herd of cattle and is one of two suppliers of beef and hide to the kingdom. Each supplier sells the same amount of beef at the same price and uses the same resources to produce it. Supply and demand are in equilibrium, so all the beef produced is sold. Rath’s war with the goblins has gone well and he has expanded his lands northwards, but now needs to raise more money to build fortifications to defend his new holdings. To raise the money Rath needs to sell more cattle, but he knows that he cannot since supply and demand are equal. Rath does not have the power to influence demand and he cannot change his competitor’s supply. By now Rath is a savvy operator and he realises that if he were able to produce his beef more cheaply he would be able to sell it for less, while still making the same profit. The goblin lands Rath has conquered are much more lush and green, so by moving his cattle north they become fatter faster, with no extra effort from him. Rath then sells his beef for 10% less than his competitor. The result of this is that people buy all the beef that Rath sells first and then buy the remainder of what they want from Rath’s competitor, leaving the competitor with excess beef unsold. Rath’s money problems have been solved, but unless his competitor is able to lower his prices too then Rath can continue to sell increased amounts of beef and make greater profits every year, as well as giving cheaper beef to the people.
This increase in productivity benefits not only Rath, but all the people who buy beef. Indirectly it also benefits suppliers of all other products; because the people now have more money to spend they will buy other products. The increase in total spending in the economy will be low, so there will be little or no extra inflation as a result. Increases in productivity benefit everyone in an economy and everyone who trades with that economy – except of course Rath’s competitor, but Rath can live with that.
Transport Infrastructure
The roads and waterways of a nation are like the arteries, capillaries and veins of a living body. Without access to that infrastructure parts of the nation will wither and die and with good reason. Road and water links make transportation easier; trade goods can be taken from a place and supplies brought to a place more cheaply when there are good transportation links. As discussed earlier, if a location does not have adequate trade links it is possible that some products will never reach it, such as bananas.
Rath has become a very powerful man in the kingdom and has sufficient reserves to link the corners of his fiefdom together. Over a period of time, wary of inflation, Rath constructs a road linking Sea Castle to Bee City, then he bridges the river Dee for the first time and builds further road links to the many villages and first he has established in the former goblin lands. Because of these roads Rath can bring his cattle to market faster: because of the bridge Rath loses no cattle on crossing the river Dee. Roads have increased the productivity of Rath’s fiefdom and the net effect will be that his people will become wealthier and happier and, if he needs to, Rath will be able to tax them more.
Conclusion
The aim of Fantasy Economics was to show the interconnectedness of the economy with the game world. Every village, town or city that people visit doesn’t have to have identical prices, merchants no longer have to carry goods pointlessly from one location to another, and players with a mercantile bent can run successful businesses rather than just having income generated through random dice rolls. Most importantly though, this article provides the DM with a guide to understanding how a player’s financial actions impact upon the game and how NPC actions and the environment may reduce or restrict what a player’s coin can buy.
Addendum
For further information on how to calculate the effects on inflation or deflation by either adding or removing money from a system then follow this link to the forum where this topic was discussed.
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