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I was reading this question and some of the answers got me thinking. If we have a magic-based society, where for all intents and purposes every being can use magic, and the magic a being can use is limited by a combination of factors that boils down to 'total amount of magic needed' and/or 'effort required to make the magic happen'. I'm not entirely sure if those two aren't the same thing for the purposes of this question, though. Anyways, your average wizard would be able to use their day's limit of magic for create/imbue magical tokens, and we'll say everyone has agreed 10 tokens/day is a good balance between portability and amount of effort. These tokens could be used as magical batteries or as currency. I figure that if a person was hired for 10 tokens/day, they would be expected to put forth the same amount of effort, magical or otherwise, that it took that standard wizard to create the 10 tokens. Is this a feasible method of payment?

In addition, say we have two wizards, A and B. Wizard A is young and can only create 9 tokens/day. Wizard B is older and stronger and can create 11 tokens/day (we'll say he trained his mind in order to reduce the effort it took him to use magic). Wizard A is not likely to be employed by a 10 token job unless they can combine both physical and magical effort to meet that 10 token limit. Wizard B can easily complete the 10 token job, albeit with only a small magical supply left over. Does the fact that physical effort can supplement magical effort invalidate the 10 token/day currency?

Would the fact that the currency is based primarily off magical effort mean some beings could just sit at home, creating 'money', not actually being a part of the social workforce, and is this a bad thing for such an economy?

Lastly, since I have such a vague idea of how economy actually works, what flaws might this system have?

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  • $\begingroup$ If the MP potions/batteries (aka tokens) can be verified or have some measure against forgery, they will easily have intrinsic value for their MP boost. $\endgroup$ – March Ho Mar 1 '15 at 20:23
  • $\begingroup$ I don't understand what you mean. Do the tokens have some intrinsic value, or are they just "tokens"? What can they be used for? $\endgroup$ – Tim B Mar 1 '15 at 20:54
  • $\begingroup$ I can't see why one of these "magic tokens" would work any differently to the current equivalent (a dollar bill). Even if they do have "intrinsic" magical powers, they're still the same as money in that they can be earned, stored, transferred to others, etc. Having either gives you additional power, so you can do things you wouldn't otherwise be able to do - it makes no difference whether that's because you get that additional power directly from the "power storage device", or by paying "tokens" to others who will in return use their powers for your benefit. $\endgroup$ – FumbleFingers Mar 1 '15 at 21:29
  • $\begingroup$ The title suggests some form of slavery. "I want that ring!" "That will be 5 wizards, my good sir" "All right, I can give you one necromancer, two elemental wizards and two healers". $\endgroup$ – Darth Hunterix Mar 1 '15 at 23:31
  • $\begingroup$ @TimB The tokens would effectively be stored magic. A "tenth-wizard" token would have the equivalent stored magic of one-tenth of a wizard's magical output for a day. They represent, and are, magical effort. $\endgroup$ – FinAndTonic Mar 1 '15 at 23:49
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As a general rule, setting a defined value for money tends to struggle later. It usually works better to let the market sort it out. So it wouldn't be ten tokens per day is what everyone agrees per se. As such, I'm unconvinced that ten tokens would count the same for both physical and magical labor.

The value of a magical token in physical labor would be based on whether it is easier to do some tasks magically or physically. If all tasks are easier to do magically (i.e. one wizard day is more productive than one physical day), then the currency value would fluctuate until they came into balance. Perhaps one token would equal a day's wages for physical work. Or it might equal a week's wages. It all depends on how common magic is.

If you don't allow magical and physical labor to fluctuate against each other, you're likely to have two problems. One, the labor that should be more valuable but isn't will be reluctant to work for others. Why trade for less than your worth? Two, black markets will arise that trade labor at closer to their actual worth.

The only way that you can get magical and physical labor into rough equivalence would be for everyone to be wizards. Then each person would be choosing either magical or physical labor. In that setup, magical and physical labor would naturally tend to equivalence as being out of balance would favor one over the other. Short of that, magical labor is almost certainly going to be more valuable. Otherwise, no one would do magic.

If the tokens are magical batteries, then there is some loss from having people maintain a supply of tokens rather than just using the magic for whatever. This would be no worse though than the more common system of people digging holes in the ground just to get materials to make money. Yes, it would be better with paper money, but who'd trust that? Eventually they'll make the switch as banking improves, but the magical tokens are no worse than any other commodity money.

In fact, they're better than some, as it's much more direct to switch a wizard's magical output from general magic work to currency production than it is to have someone open a new mine. The magical switch will work regardless. Opening a new mine means finding the right place to dig, which is non-trivial. Mining tends to follow boom and bust cycles. Find a new mine. Production is great: boom. An older mine's vein runs out: bust. During booms, people have plenty of money to look for new mines, which multiplies the boom. During busts, they cut back on looking for new mines, which reinforces the bust.

It's also worth noting that the money supply would be more stable than with most commodity money. You wouldn't get the same sudden gluts of money as used to occur when new mines were found or gold was stolen from someone else (think of the Spanish with the Aztecs and Incas). Inflation would be more self-regulating. If money drops in value, then wizards would switch to magical work. Or if money increases (deflation), then wizards would switch from other work to producing currency.

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  • $\begingroup$ Your 2nd to last paragraph, I'm afraid I'm having trouble trying to figure it out, specifically "it's much more direct to switch a wizard from magic to currency..." Switch what? $\endgroup$ – FinAndTonic Mar 2 '15 at 2:20
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This actually sounds like the cacao bean economies of the Incans. Cacao (growable by farmers, not wizards) was used as currency. You could also use it to brew chocolate, though the beans were so valuable that only the nobles could afford to literally drink their money.

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  • $\begingroup$ From my quick Googling of Inca Economy, it seems that it was more of a sort of "do work, get food" economy than anything that used a currency. $\endgroup$ – FinAndTonic Mar 2 '15 at 5:08
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As an economist, I find your proposal fascinating. Basically you're replacing currency with magical energy as a fiat, somewhat related to how modern fiat currency is calibrated to represent GDP rather than an arbitrarily chosen basket of goods (gold or silver backed). The issue is that it turns every wizard into a money issuer. Since this money is an important consumable, you avoid weirdness with major inflationary pressure. A clever magician who can find a way to use tokens more efficiently (so they need only eight instead of ten, say) would quickly become insanely wealthy. Additionally, there would be the aspect if the token exchange. In the example you offered, there would, essentially, be a waste of ten tokens - no one hiring the young 9 token wizard and the 11 token elder left with one useless token. If you decouple the production of tokens from their distribution you would create a much more efficient system (as well as encourage production among those who might not be able to offer many tokens).

Basically, you need a centralized bundling market to give everyone a place to buy and sell tokens in bulk without needing to deal with individuals -the token stock market. You could easily provide such a service at a profit by charging fractional tokens to buyers and sellers in the market as an exchange/facilitation fee. Since no one needs to sell a specific number if tokens, everyone is encouraged to engage in maximum production and would avoid losses due to market inefficiencies.

Bottom line: you're taking about a barter economy. That works. Our current monetary system is a fiat of exactly that: what people produce in the economy. Already people are in isolated jobs generating economic wealth, so this would be no different. This would work, and it's fascinating to think about...

Thanks for the cool question!

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  • $\begingroup$ I was somewhat afraid of the "insanely wealthy" aspect. Regarding the decoupling of production, would making it so only "minted" tokens created by a certified wizard do anything to address this? $\endgroup$ – FinAndTonic Mar 2 '15 at 2:26
  • $\begingroup$ @FinAndTonic Every economic system is subject to disparities. Most of them are due to unequal distribution of wealth. Your system is so diverse, it's almost like a crypto-currency - anyone can technically do it, but some will bring more power to bear. But this creates a technological (or magical) race for efficiency, and society as a whole benefits. If people need a certain amount of tokens to perform action x, then they won't buy from someone with fewer tokens to provide. Certification won't help, but the exchange will. $\endgroup$ – Isaac Kotlicky Mar 2 '15 at 2:31
  • $\begingroup$ I just quickly looked over Wikipedia's page on fiat money; I have learned something new today. I'm not entirely sure that's the correct term for what I had in mind, though, as the token actually is a percentage of a person's energy. I think that's defined as a commodity- it's like paying in apples, right? $\endgroup$ – FinAndTonic Mar 2 '15 at 5:33
  • $\begingroup$ @finandtonic Correct, which is a barter system. This token system sort of crosses the streams on that one. A non wizard can purchase and use tokens to represent an equivalent amount of non magical work. That makes it a fiat. $\endgroup$ – Isaac Kotlicky Mar 2 '15 at 12:35

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