Micro-Economies: Simulations, Permutations and Automations

In many ways, simulationist micronational economics is much like simulationist micronationalist political systems. They tend towards a standard model (developed Western nation), but across the sector there is a great variety and diversity. They often start based on an idealised version and over time they are pragmatically adjusted to better suit micronational realities (particularly when the leaders realise their micronation will never have the 20+ citizens needed to make the idealised model work). Moreover, micronations which are innovative in one area are often innovative in the other. This paper sets out to chart some of the diversity of economic systems and thought over the last decade and a half of the Micras sector, and draw out the underlying principles. Limitations of length and experience prevent covering the full gamut of micronations and economies, but it is hoped the underlying principles will be applicable even to micronations and systems not considered here.

Styles of Micro-Economies

To begin, let us first consider some of the different styles of micronational economies. It should be stressed that these styles are not mutually exclusive. While some clearly would not work together, many can and have been combined in various permutations.

In-Sim/In-Character

A micronational economy can be made up of companies which exist primarily or entirely in-simulation/in-character. In this respect, the economy becomes another area of cultural development – just like explaining social customs or history. Businesses are developed, can be effected by in-sim policy, and can even undergo quite elaborate projects. They can also then be referred to within stories, recwars and other literature developed within a nation, all without any currency changing hands between any actual micronationalists. A good example of such an economy was the nation of Ashkenatza.

Simulated

A related concept attempts to directly simulate an in-sim economy. These can range from proposing a government budget each month detailing government spending in different areas, through to complex formulas (which may take into account global events, government policy settings and other factors). Simulated economies tend to place a high value on being ‘realistic’ and often base their numbers off macronational countries such as the US or the UK. Where the simulation is handled through complex formulas, it tends to be reliant on a single individual to maintain, collapsing when that individual loses interest or leaves the hobby for a time. Again, these elements are done without any currency changing hands between any actual micronationalists or micronational governments, even though discussion may happen as if they are, causing a point of confusion for outsiders. For example, a government agreeing to allocate 20 billion to buy new tanks to an in-sim arms manufacturing company – though this is agreed, and the company may deliver a ‘product’ (normally a picture and write-up on the tanks), the 20 billion is entirely in simulation and has no real affect on anything. The Empire of the Alexandrians is an example of a nation who proposed government budgets etc. A non-economic analogue of this is the FMF, which simulates football (soccer) matches using FIFA simulators.

Simulated-Demand

It is a widely recognised fact (Alexander: 2002, the Wise: 2008a) that, left to their own devices, micronational economies do not produce enough private demand to sustain economic activity at the micronationalist level. One solution to this is to create a system which artificially simulates demand – for example, people have to pay monthly fees to represent expenditure on housing, food, etc. Businesses often have to pay fees to register also. Such systems tend to be characterised by complicated and detailed legislation. In principle, structuring the system so that people need to earn money to continue will motivate people to earn money. In practice, it tends to drive people to non-participation (more on this below). Popular in the mid-noughties, this system has made a recent revival with the Gotzborg economy.

Resource-Based

The MCS has a resource map and this can be incorporated into economic systems. Perhaps the longest lasting of these was the MITO trade system which at its height had over 15 nations involved. Lesser known systems include an effort by the Duchy of Kildare in Shireroth to define a whole system of economic development out of it and a resource-based stock exchange developed by Normark. Two problems faced by this approach are the limited availability of resources to small nations/land plots, and the vast variety of resources available on the MCS resource map (MITO overcame this by classifying them into larger groups and making resources within each group interchangeable).

Government-Based

Few economies set out to be government-based, but many functionally find that their main transactions all involve the government. At one end, citizens are paid for performing jobs within the government, and at the other end the government taxes the citizens. Government payment to citizens can range from a regular payment to ministers (see Gotzborg, above) to paying a ‘bounty’ to citizens for any significant development, cultural or otherwise, a practice long held in Shireroth. The problem often encountered in such systems (identified as early as Locke (2002)) is that government outlay far exceeds government revenue, because a citizen’s only income is from government spending, and this cannot all be taxed back every period or that would defeat the purpose. This either leads to a government running out of money to function or (if their system permits it) needing to print more money, which may lead to inflation.

Financial

Sometimes micronational economies centre around a particular financial institution, normally a stock exchange. Since stock exchanges in real life function because thousands of people are trading on it daily, miconational economies have to come up with some method to simulate this. This can lead to known equations through which it is easy to ‘game the system’ and make massive amounts of money (see Alexander (2002) and related discussion). More recently, the development of the Small Commonwealth Exchange (SCX), which automates this process and functions on a separate currency to the rest of the Single Currency – Unified Economy (SCUE), has fuelled renewed interest in this area.

Forum-Based

Like in the real world, economic development is closely linked to technological development – new technologies enable new ways of doing economic transactions, which in turn changes the way economies function. In micronationalism, one major technology has been the Shop Mod on phpBB forums. Forum-based economic systems tend to be characterised by earning money via posting, and an inbuilt bank from which deposits earn ‘interest’ out of thin air. Such economies tend to find problems with inflation, as the money supply increases as rapidly as posting does. Novatainia and Craitland both had forum-based economies in earlier incarnations, though the long lag between the release of phpBB3 and the release of a functioning shop mod meant this economic system went out of fashion.

Real/Service-Based

A real/service-based economic system is one based around real services performed by actual micronationalists. Common examples include creating graphics, developing military orbats or providing programming services, though in principle almost any service is possible. Many systems which involve individual micronationalists holding currency are real/service-based economies. This is one of the simplest economic systems (as few if any rules are needed for it, though rules can be inserted on top) but also one of the hardest to implement successfully, as few micronationalists find their skills easily marketable. For a large list of possible services (and the implication of running such a business in an in-sim/in character economy), see the Wise (2010).

Added Value – War/Votes

A common problem observed in micronational economies, particularly those attempting a real/service-based system, is that the currency is not valuable to citizens because there is very little that can be done with it. One solution to this is to make the currency valuable by tying it to another area of the micronational simulation. Shireroth, under Kaiser Hasan I, instituted a vote-based economy where each citizen’s currency determined the strength of their vote in the Landsraad. Toketi set up a war-based economy, CITRA, where a citizen’s currency partly determined their military strength, and the remainder was determined by land-holding (see the Wise (2008b) for related discussion). Both of these systems worked well for a time, but the problem was found that this made currency too valuable – everyone wanted it for votes/war and nobody wanted to use it as a currency to purchase goods/services.

National vs Linked

A final discussion is whether the economy, whatever system it is, is purely national or whether it is practically linked to other micronations’ economies. This is easiest when both economies are of the same/similar types; but when currency held by micronationalists is involved (as opposed to an in-sim economy), some method of transferring this between nations is needed. A famous example of this was the ICEO, who regulated currency exchange between Apollo sector micronations based on a set formula. A more recent solution is the Single Currency – Unified Economy, better known as the SCUE, in which all member nations have a shared currency (in-sim, they have a 1:1 exchange rate between currencies) and bank, and so any citizen in any SCUE nation can buy a good in any other SCUE nation using SCUE currency.

This is not an exhaustive list, but it does provide a good overview of various economic systems instituted within Micras sector micronations over the last fifteen years. Again, these are not mutually exclusive systems, and the synergies between some should be obvious. However, each also has its flaws/weaknesses, some common to most, and it is to this our discussion now turns.

Principles of Micro-Economics

From this study of micronational economies some general principles emerge applicable to many, if not all, micro-economy endeavours. Few if any of these are new; this paper merely combines them all into one place and, where possible, considers the implications of their interactions.

The first and most important principle for micronational economics, for any system except a purely in-sim one, is this: micronational supply and demand do not function as they do in the real world. In the real world, people have unlimited wants and only limited resources to fulfil them with. In a micronational economy, micronationalists tend to have limited wants (‘unlimited’ wants are usually beyond the scope of an economy to grant) and effectively unlimited resources. Any product/good that is sold has a single cost – the cost of the original creation, the time it takes to describe it, make the graphics etc. – and zero marginal cost to produce any further units of it. Moreover, in the absence of a complicated ruleset, the only limit is imagination (or what other people will allow one to do). If someone wants to sell airships, all they have to do is describe an airship company; in the real world, each new airship would require resources, staff etc., but micronationally, once the basic design is there, there is no limit to what can be sold – the limit is the number of buyers (see the Wise (2008a)).

If we look further into supply and demand, we find added complications. To borrow an example from the Wise (2008a), real world, supply/demand curves are often drawn like this:

andreas1

At a high price people will demand very little, while at the same price suppliers are willing to supply a great deal. When the price is low, suppliers will only supply a small amount, but there is a great deal of demand. The equilibrium point is where the supply and demand curves cross – here there is exactly enough supply to meet demand at that price. In the absence of constraining factors, the price should adjust until supply and demand are in equilibrium.

In a micronational economy, by contrast, the demand and supply curves look more like this:

andreas2

Supply starts at a constant price, with one producer. Price almost never moves in a micronational economy, unless a large number of goods are sold, in which case another producer may enter the market or the original producer raise their price. Note in particular that this price will be charged even if the business never sells anything at this price. Demand, meanwhile, starts at a certain quantity, and increases very slowly as price decreases – indicating the couple micronationalists who actually want the good. Soon though, demand will be satiated and no matter the price (except perhaps a price of zero) no further goods of that type will be sold.

In summary, there are very few goods micronationalists want/need and so very limited demand for any product, whereas supply is effectively infinite after the initial design is created.

The situation is somewhat different if we consider services, such as creating an image, designing a website etc., where there is a time cost associated each time the service is supplied. Demand for these approaches far closer to real world levels, but now the problem is price. If someone who can supply the service doesn’t want to, they will charge a very high price before being willing to actually perform the service, a price few if any are willing to pay. Alexander (2002) makes the argument that as micronationalism is a hobby, most people willing to do these services are actually willing to do them for free; the problem comes when we convince them they should only do it for pay – the result is a fair lower willingness to do it. Economists examining similar phenomena in the real world have found that many people are happy to donate blood; but offering a token payment for donating blood perversely leads to less blood being donated, and of a lower quality. Some who donated due to charitable impulses cease to do so anymore, and the people attracted by the token payment are those more desperate for money who are more likely to have contaminating substances in their blood. The same principle may well be at work for micronational services. Overall, then, merely giving people currency and the ability to create businesses or offer services for pay does not normally result in a functioning micronational economy, because demand and supply do not behave the same as in the real world.

Our next principle to consider is the principle of localised optimisation, also known as Vandersluij’s Law. This principle states that where an element or system functions to varying degrees of efficiency across the micronational world, the most efficiently working elements or systems will be those that have evolved locally over a reasonable period of time. Put another way, the most efficient system for any given micronation will be one that has evolved locally. There are a number of corollaries to this, explored in the Wise (2009), but its main application to micronational economics is that economic ideas that are successful macronationally, or even in other micronations, are unlikely to translate directly into a micronation’s economy unless similar elements/systems exist there. In particular, unless a system is inherently international, it’s unlikely to be able to work successfully across multiple micronations without local modification.

With this in mind, an international economy, if successfully implemented, remains one of the greatest avenues for a long-term functioning micronational economy. This is because most micronations have only a few active citizens, which is (without careful planning), not enough to sustain any sort of economy centred on interactions between actual micronationalists; but an international economy could more easily bring the number of individuals to a viable amount. There are successful international organisations that standardise elements of micronational existence across a number of nations – most notable is of course the Micronational Cartographical Society (MCS), who administer the Micras map. The Fédération Micraise de Sport, which offers a number of international sporting competitions, and the Anunia recwar charter, which standardises the rules for international recwarring, are also clear examples. At the present time, a number of micronations have a shared currency in the SCUE which facilitates the development of a larger market for goods and services between nations, and the SCUE has become the de facto economic ‘thing to join’; however, the SCUE quite deliberately eschews any attempts to tell micronations how to run their economy, and unfortunately many ‘member’ states initially sign up, give out currency to their citizens, and then do nothing. This does provide a potential base for a more organised economic system across countries, however, were the will to be there.

Moving then to the matter of governments, we note that government budgets tend to end up in one of two ways – unsustainable overspending, or rampant inflation. Particularly where citizens start with little or no currency, if they rely on income from the government to make money, then the government soon runs out of money and either needs to tax it straight back from the citizenry or print more money. One nation which avoided either fate and managed a balanced budget for a while was Shireroth, during the days of the vote-based economy. Citizens had an initial distribution of currency, and further currency was paid out in the form of ‘bounties’ for citizens doing nifty things. Once the government had spent 10,000 on bounties, they then taxed each of the four duchies 2,500 each, making that money back. The important thing was that each duchy could decide by themselves how to pay for it amongst their citizenry (normally 3-5 people per duchy). As there was an ongoing emphasis on allocating new citizens to keep duchy populations roughly even, this meant that over time, those citizens with the most money were those that did the most nifty things (and in turn, as this was a vote based economy, they got the most say). This shows that the two extremes of government budgets can be avoided if thought through, given the right political institutions (in this case, duchies with roughly even populations).

There is, however, an underlying assumption here that inflation is a bad thing micronationally. While there have been clear cases where governments have massively inflated prices by releasing a disproportionately large amount of currency into circulation all at once, in general the level of economic transactions between micronationalists are low and it is possible that manageable increases in the amount of currency in circulation would not lead to prices rising. It must of course be remembered that inflation is not a problem that magically occurs when the amount of currency in circulation increases – it requires people to actually increase their prices and the market to still be willing to pay them. Micronationally, it is unclear how much prices would realistically change due to small to medium sized increases in the amount of currency in circulation. As an example, say the amount of currency in circulation already was 100,000 and every two months the government printed a further 10,000 and introduced it over two months in the form of bounties, ministerial wages etc. Effectively, this taxes cash holdings (as they are now a smaller share of the overall currency in circulation), and so no tax would be needed. In particular, if that economy was still functioning actively after ten months (at which point the amount of currency in circulation would have increased by 50%), that would be a very long lasting economy by micronational standards. To this author’s knowledge, this idea was once considered in Gralus (by Bayen Praygulin) but has never been implemented. In summary then, governments need to be aware of the dangers of over-spending or over-minting, but these can be avoided with some planning.

We then consider two matters that relate to the economic system more generally. First, the historical dichotomy between a laissez-faire approach and detailed economic systems. Micronational economies tend to either have detailed rules and structure, or a laissez-faire approach is taken, on the principle that if people are given money (and some government wages), they will just start making shops and selling goods/services. Historically, both of these approaches have flaws – detailed systems tend to be tedious/too complicated for most people beyond their creator, resulting in few people engaging with the economy; while the laissez-faire approach does not provide enough structure to operate within, so few people have much idea what to do, resulting in few people engaging with the economy. Instead, an ideal balance is more likely to be somewhere in the middle – enough structure is imposed to set up the rules of the game, but there is enough freedom and interesting options within it that the game is fun to play. And, as with games, it’s important that the players understand the rules and want to play. Having a large proportion of your citizenry on board with the idea of an economy, and understanding how it works and their role within it, is likely to be far more important than the particular rules and structure of the economic system.

Related to this is the observation that you shouldn’t mix levels. Some things are in-sim/in-character, and should best be handled at that level. Some things are to do with real micronationalists and are best handled at that level. Micronational economies sometimes mix the two – for example requiring real micronationalists to pay currency to buy an in-sim car, to be able to drive around in-sim. That works in a detailed roleplaying scenario where each person represents a single character; but when people tend to represent broader units (like a state/territory) it breaks down. One can have an in-sim economy where transactions are handled in-sim with in-sim currency; and one can have a real economy where real micronationalists do real services for one enough for actual micronational currency. Both work, and both can be run concurrently, but mixing the levels (paying actual micronational currency for in-sim benefits) tends to just get weird.

A final consideration is how much of an economy can be helpfully automated. While there is a large time investment in coding up an automated system, once done, it can function with limited human involvement, which, importantly, means that it can normally survive without requiring an active micronationalist maintaining it. By contrast, any system which needs someone to crunch numbers every month or the like is far more prone to collapse when the key number-cruncher leaves or loses interest. A recent example of this is the Small Commonwealth Exchange (SCX). While it could potentially be put to more use with a real person checking on the micronational companies involved and adjusting their prices to reflect their development, as was originally planned, it is still fully functional without that. It is even possible to give different micronations access to modify companies on their national exchange, without needing the original programmer to do all of that. Likewise, for a simulated economy, a program to handle most/all elements of the simulation has considerable advantages over an actual person having to do the calculations each month or the like.

Questions Worth Asking

The above section explained a number of different principles of micronational economics, helpful to inform any prospective economic designers. We close with three good questions to ask of your economic plan before implementing, inspired by the above discussion:

Is it fun?
Remember that micronationalism is a hobby and people do it voluntarily. Your economy should be fun to participate in, not something tedious or overly complicated – that’s an almost guaranteed way to lose people. Forget trying to make an economy that functions similarly to the real world – you can’t. Instead, try to make a system that can function with the people and structures you’ve got, and that people want to participate in.

Will it last past a month?
It’s easy to drum up interest and get people enthusiastically involved for a month or two. That’s also about how long it takes for a government to run out of money without levelling taxes. Run the hypothetical scenario – in a month’s time, will people still have things to do? Will there still be goods/services left worth purchasing? Will the government budget be sustainable? Historically, most micronational economies last a month or two, and, with forethought, that would have been obvious from the outset given the system proposed. Think ahead and plan a system that can be sustained long term.

Will it collapse if one key person leaves?
So many micronational economic systems start because one person has ‘a really good idea’, and plans out a whole system that either only they entirely understand, or requires regular upkeep/maintenance. That’s great while that person is around, but sooner or later everyone leaves the hobby, or at least tires/has less time to do things. It’s alright if your system relies on people doing regular upkeep, but make sure that it’s not the same one person who is the only one who can do it – train others up and get them involved, otherwise when that person leaves, so does any hope of your economy continuing.

Acknowledgements

The author would like to acknowledge the good people of Gralus and Shireroth, who put up with his various economic ‘bright ideas’ and provided helpful discussion over a number of years – those experiences made much of this article possible. Any errors or flawed assessments remain my own.

Micro-Economies: Simulations, Permutations and Automations