Ok so here's the thing, how is the the value of a coin and the value of items you buy with it decided?

After production is enough to fill the needs of the population, item to item trade comes to an end and the need for a unit of measure and trade grows. How do we decide the value of the items we have to sell be it swords, castles, slaves etc. and the value of the coin we trade them with?

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    $\begingroup$ There are entire economic theories on how the value of money is determined. Why are you asking this on wroldbuilding? $\endgroup$
    – L.Dutch
    Apr 15 at 7:56
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    $\begingroup$ How establishing price of castle is diferent from establishing price of a nail or a candom or a candy. wispers invisible hand hand invisible of market market U negotiate the price, and in different times different societies it may go like that as well - hey neighbor u such a nice guy, u have such a nice castle, I buy it for 1 dollar or else 'll kill u and and everyone in the castle. After sligh disagreement and some amount of polemics and 10thousand dead, u essencially bought it for 2 dollars, by paying that amount of money to your army guys. There is no resistance to a cheaper price. $\endgroup$
    – MolbOrg
    Apr 15 at 9:05
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    $\begingroup$ For a very long time, and certainly during those times when one could buy slaves, coins were nothing more than than small standardized pieces of merchandise. For example, one U.S. dollar used to be defined as 24.056 grams of pure silver (later redefined as 1.505 grams of pure gold). How much or how little could a coin buy depended on the relative value of the coind as merchandise against some other merchandise. That's all. $\endgroup$
    – AlexP
    Apr 15 at 9:15
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    $\begingroup$ VTC: too many undefined variables and general case is too broad. I guess one of few constructive ways to spin that question is bringing actual historical data about such sales prices and reasons, how they were negotiated. History.se may be helpfull, if OP asks about historical data in this regard. $\endgroup$
    – MolbOrg
    Apr 15 at 9:25
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    $\begingroup$ @dubious it's both a real world question for an economics SE (which actually exists) & essentially (very) low level 'homework' the OP can't be bothered to do themselves // the downvotes are well deserved & it should in fact be closed.as 'belonging to another site' {community specific reasons). $\endgroup$
    – Pelinore
    Apr 15 at 11:23

The value of currency and items is the result of complex interactions of internal, external and political factors. Assuming a free market, the value of goods is determined by the supply and demand of the goods, the raw materials it takes to make them and any costs that the manufacturer incurs. This is all topped off with additional costs for profit at every stage. In a controlled plan economy, it can be whatever symbolic number the government decides.

Consider the following points when deciding what an item costs:

  1. How easy and expensive is it to source the raw material (leather, metal etc.)?
  2. How labour intensive is the manufacture process?
  3. What does the time of the worker cost (what costs, like rent and food, do they have themselves?)
  4. How many people are actually after your product?
  5. How many others sell the product and at what cost?
  6. How much can you add to the price for profit so that customers are still willing to buy your product?

Currency is really another type of item for sale. Its value is determined with respect to other purchasable items. These are the goods and services of the internal market as well as currencies of external markets.

You can also think of currency as a contract with the state. Consider:

  1. Is there a limited supply of the currency (minting unlimited coins eventually reduces value to nothing)?
  2. What is the stability of the government issuing the currency?
  3. How good or bad is the track record of the government in honouring loans it has taken?
  4. How easy is it to forge the currency?
  5. How varied/useful/desirable are the goods and services offered in the market that the currency belongs to?

There are many more factors that determine value and several competing schools of thought in attributing the weight of each factor to the final outcome.

  • $\begingroup$ Thanks a lot, this was really informative. $\endgroup$
    – I_Burn
    Apr 15 at 8:52
  • $\begingroup$ Yep, supply & demand // legally 'fixing' prices of one or more commodities just transfers their supply & demand properties to the currency in question, do it with too many commodities & get the balance wrong & the currency will tend to break down, meaning people will start ignoring or bypassing it & revert to barter using other commodities in place of the currency as their medium of exchange. $\endgroup$
    – Pelinore
    Apr 15 at 9:21
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    $\begingroup$ And for reasons @Pelinore mentioned prices in planed economy aren't just arbitrary defined, in contrary to what cap guys tell you it was quite scientific process which did consider multiple factors labor hour, capital costs, operational costs, wear and tear, transportation and supply chain expenses etc - u know, quite regular stuff. Absent part is interest, 9000 profit. Weak part, which people usually reffer, was weak response to variety of demands, not that prices were set in a nonsensical way. $\endgroup$
    – MolbOrg
    Apr 15 at 9:42

Sort through all of the gobbledegook and verbiage of economists, and the thing that finally shakes out is that the value of a coin, and the product it 'buys', is entirely arbitrary. It is always, in the end, determined by the buyer and the seller at the time of the transaction. Sales are, after all, nothing but a barter system. Sellers try to get as much for their wares as they can, and buyers try to pay as little as possible. Each transaction 'value' is determined at the time of the transaction.

However, over many, many transactions, a 'pattern' or 'expectation' develops. The seller expects to get a certain compensation, and the buyer expects to pay a certain compensation, for a certain amount of product. If the buyer does not get the expected product at the expected compensation, the buyer either goes without, tries to find another seller, or raises their expectation. Likewise, if the seller does not get the expected compensation, the seller either does not sell the product, lowers their expectation, or tries to find another buyer.

Profit and cost usually have no bearing on the compensation offered and accepted. Profit is an artifact of the bartering process. If the compensation paid is higher than the costs, then there is a profit. If the compensation paid is lower than the cost to produce, there is a loss. But the compensation paid is ALWAYS a result of the barter process, not of costs. Every seller tries to get the maximum compensation, irrespective of the cost to produce the product. Selling at a loss is not always a bad thing, as it generates new revenue that can be used to produce a product that is more profitable.

What differs from economy to economy is how 'free' the buyer and seller are to negotiate. In some economies, the compensation is arbitrarily decided by some governing body. The pre-determined compensation can be valued according to many, many different criteria, but usually it comes down to a value determined by popularity. That is, does the person or government institution want to be more popular with the buyers, or the sellers? And that decision is based on which of the two has the power to keep the person or government in control. Inevitably, however, there will be buyers and sellers who negotiate 'behind the scenes'. This is known as the 'black market'.

The value of a 'coin', or currency, is determined by how much 'stuff' it can buy. A currency that can buy a lot of stuff, has a high value. A currency that can not buy much stuff, has a low value.

Usually, in a modern economy, 'coinage' is broken down into 'denominations' (pennies, quarters, dollars). These divisions are entirely arbitrary, but they usually involve some sort of equivalent value proportionate to the breakdown. That is, one hundred pennies always makes a dollar. But this is not absolute. 'Making change' is still a barter system. Sometimes, a buyer will pay a dollar for three quarters, if the buyer needs a quarter badly enough.

  • $\begingroup$ "Sort through all of the gobbledegook and verbiage of economists, and the thing that finally shakes out is that" it all comes down to supply & demand // some economic theories are simply there to try & simplify all the fiddly little calculations of supply & demand for each & every commodity into a few , simple , easy to follow macro rules, some of them may exist for the express purpose of obfuscating reality to lie to you // but "entirely arbitrary" it is most definitely not, not if you don't want your currency to collapse. $\endgroup$
    – Pelinore
    Apr 15 at 11:49
  • $\begingroup$ @Pelinore Every transaction is always arbitrary. Any buyer can decide to offer any amount for any product. And any seller can decide to ask any price for any product. Whether the transaction is completed or not, all depends on the arbitrary mutual decision of both the buyer and the seller. The 'legalities' of the transaction are all a part of the arbitrary decision making process - a choice is made for every transaction. An 'economy' is a completely arbitrary concept. $\endgroup$ Apr 15 at 11:50
  • $\begingroup$ "a choice is made for every transaction" and that choice is always when averaged out over enough people rationale & not in fact arbitrary at all [-] $\endgroup$
    – Pelinore
    Apr 15 at 11:55
  • $\begingroup$ @Pelinore Every time you make a purchase, it is arbitrary. That is the entire basis of Keynesian economics, and economic theory of supply and demand in general. That is why they call if a 'free market economy'. 'Free' as in 'arbitrary' - done by choice. $\endgroup$ Apr 16 at 18:49
  • $\begingroup$ Wrong again, the prices the market arrives at for different commodities are demonstrably not 'arbitrary'' // I think you may have battened onto the use of the word in some adjacent context then applied it to this one speciously, maybe not deliberately // you need links if you want me to believe Keynes said something this ludicrous about prices & meant it the way you say // but remember that he died in 1946 & words change, sometimes subtly & sometimes less so. $\endgroup$
    – Pelinore
    Apr 16 at 21:08

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