Some comments on the economics of the series

Jonathan_S wrote:

cthia wrote:The financial system in the Honorverse is both very modern and very archaic to our 21st-century eyes. It is modern in the sense that virtually all currencies are "abstract," based on something other than, say, precious metals, and very archaic in that there is no interstellar equivalent of instantly verifiable wire transfers or similar financial instruments. Everything has to be transported physically between star systems.

This results, among other things, in a two-tier financial system. Within a star system, transfers can be instantaneous or very close to it. Electronic delays are counted in minutes, not hours or days or weeks, and so there is very seldom a physical transfer of cash or cash equivalents. As a result, the mechanics of intra-system economies are “paperless,” with procedures which can easily extrapolated from our present-day experience.

Actually, just to nitpick, some intra-system monetary transfers could take over an hour. (Unless FTL-comm Hermes buoys are available)

Just using it as an example, the Blackbird yards around Uriel (Yeltsin VI) vary between 37.5 and 64.5 light minutes from Grayson (Yeltsin V), and some mining habitats could be further out than that.

Heck Sphinx and Manticore vary between 9.7 and 32.7 lightminutes from each other. (And don't forget that when furthest apart, so on opposite sides of the sun, you'll have to add a bit of extra distance as you'll have to relay the radio or laser signal; can't send it through the star)

Still, the majority of transactions are likely to be over much shorter distances than that; just around the inhabited planet and their orbits. Although there can be exceptions -- I'm sure a fair number of periodic monetary transfers had to happen between Manticore and its Junction, and that's 7 light-hours from the primary.

Anyway, end nitpick. (sorry about that - it doesn't change your main point)

Actually, the text you quoted from Cithia was actually him quoting me.

You're quite right that intrasystem transactions can take an hour or two. For that matter, if they're from a wormhole terminus, they can take several hours (the Basilisk Terminus, for example, is 10 LH from Medusa), but these are definitely the exception. In fact, most really long-range transactions would, indeed, be related to a terminus and the clusters of interstellar traffic. In those cases, we really aren't talking about intrasystem transfers, but rather at the final (or initiating) leg of intersystem transactions. The transfers from the outer-system nodes to the inner-system banking facilities are really just transfers between the same branch of the same institution --- bookkeeping, for all intents and purposes.

The main point, as you noted, is that electronic-transfer intrasystem banking in near real-time is practical, whereas the same cannot be said for interstellar transactions.

runsforcelery wrote:

Jonathan_S wrote:Actually, just to nitpick, some intra-system monetary transfers could take over an hour. (Unless FTL-comm Hermes buoys are available)

Just using it as an example, the Blackbird yards around Uriel (Yeltsin VI) vary between 37.5 and 64.5 light minutes from Grayson (Yeltsin V), and some mining habitats could be further out than that.

Heck Sphinx and Manticore vary between 9.7 and 32.7 lightminutes from each other. (And don't forget that when furthest apart, so on opposite sides of the sun, you'll have to add a bit of extra distance as you'll have to relay the radio or laser signal; can't send it through the star)

Still, the majority of transactions are likely to be over much shorter distances than that; just around the inhabited planet and their orbits. Although there can be exceptions -- I'm sure a fair number of periodic monetary transfers had to happen between Manticore and its Junction, and that's 7 light-hours from the primary.

Anyway, end nitpick. (sorry about that - it doesn't change your main point)

Actually, the text you quoted from Cithia was actually him quoting me.

You're quite right that intrasystem transactions can take an hour or two. For that matter, if they're from a wormhole terminus, they can take several hours (the Basilisk Terminus, for example, is 10 LH from Medusa), but these are definitely the exception. In fact, most really long-range transactions would, indeed, be related to a terminus and the clusters of interstellar traffic. In those cases, we really aren't talking about intrasystem transfers, but rather at the final (or initiating) leg of intersystem transactions. The transfers from the outer-system nodes to the inner-system banking facilities are really just transfers between the same branch of the same institution --- bookkeeping, for all intents and purposes.

The main point, as you noted, is that electronic-transfer intrasystem banking in near real-time is practical, whereas the same cannot be said for interstellar transactions.

Whoops, the dangers of deeply embedded quotes

Yes, I can see that a quite a lot of the money flowing through the terminus would be part of an intersystem transaction. If not directly, then things like purchasing fuel and supplies, repairs, or crews spending money at a junction station, which would all be at least associated with the intersystem commerce of their ship.

But there should still be some things like payroll for warehouse or astro-control workers that's not directly tied to any specific intersystem commerce or transaction. But I guess a lot of that is likely done directly with local bank branches out at the junction, and then they'd do the branch to branch bookkeeping you mentioned to sync everything up. I guess a minority of things like ordering items from planet side would fall outside that, and there would be a trickle of customer to merchant direct long distance transactions. But conceptually that's not significantly different than a faster version of mail-order.



I am now wondering what kind of restrictions banks might go with for people's accounts to mitigate risk of large withdrawals from two locations "simultaneously" (i.e. before transmission lag could let them reconcile their books).

On the one hand it's just one more way to accidentally, or deliberately, overdraw the account; on the other if you do that with a check the bank just refused to honor it and charges you a penalty. They can't exactly retroactively fail to honor your cash withdrawal. [G] I know it's something banks had to worry about before their branches were all electronically linked, just not sure how they handled it, or how it'd be handled in the future.

Jonathan_S wrote:On the one hand it's just one more way to accidentally, or deliberately, overdraw the account; on the other if you do that with a check the bank just refused to honor it and charges you a penalty. They can't exactly retroactively fail to honor your cash withdrawal. [G] I know it's something banks had to worry about before their branches were all electronically linked, just not sure how they handled it, or how it'd be handled in the future.

Look how international banking was handled before electronic communications. Letters of credit, exchange of goods and cash IIRC.

foreignpolicyhack wrote:Hello all, i've been a long time fan of the series (actually i've read most of the books that the author has written, along with many of his contemporaries in the genre such as Eric Flint etc) and i'm just wondering as to some of the economic details of the series.

I'm in foreign policy, but i've read the series since before i started my current role and its interesting to see the role that trade and economics play in the series. I can see clear distinctions that Manticore is akin to the former British Empire, whereby trade is the lifeblood of the economy and where the home country is always strapped for manpower.

But it's always bothered me something that major combatants (Manticore, Haven, Grayson etc) always seemed to have fantastic sources of capital to spend on the wars and the military.

To give a clearer description, we have;

(1) Grayson that seems to be struggling to lift itself out of what can only be described as a technologically challenged society and into a more modern age. At the beginning of the series, they struggled to defeat their arch-enemy, Masada and yet by the latest books, their economy is so developed that they've managed to produce the third largest fleet in the Grand Alliance. Does any readers want to comment on where they are possibly getting the money to fund the fleet given that they're a single system polity?

(2) Haven had been literally bankrupt for most of the series and yet seemed to be able to fund a larger fleet than Manticore. Where are they getting this money from? I think they're squeezing their own population dry for the funds (read dolists) but surely there's a limit to the amount of money that can be found in such a moribound and inefficient economy? Not to mention the vast amount of tax dodging and the vast funds internal policing takes that must be going on from the forcibly annexed planets in the Republic?

It seems that in the latest books, Haven is trying to reform its economy but at the same time further expanding its military to compete vis-a-vis Manticore...is the government literally printing money?

(3) Manticore seems to have an inexhaustible pool of reserves, which seems fantastic but it could be explained by control of the largest and probably most profitable wormhole junction in known space. The amount of taxation that can be levied on it and the associated industries probably play a part. As mentioned in the series, Manticoran merchants carry most of the trade within known space due mostly to the government's control of the Junction. (By the way wouldn't this mean that the junction is a major conduit between the core world and the "outer polities" where most trade goes to?)

The amount of wholesale destruction of fleets, infrastructure etc that goes on in the series seemed to me to be so wanton that huge sums must be needed to rebuild said infrastructure and fleets. Physical infrastructure in our current millennium is mostly the product of more a year's GDP, in fact it is more or less the sum of accumulated GDPs of the history of the nation.

So tldr; where is all the money coming from?

Some really interesting questions which actually not only have relevance in understanding what has happened but also what is probably going to happen (i.e. the fall of the Solarian League).

To begin with I suspect as in with all modern societies "money" isn't actually backed by any tangible thing such as gold or silver. It was discovered that "backing" the currency in this fashion restricted the money supply and therefor the potential growth and size of the economy by the amount of the supply of the "backing" material.

As such, "money" can be created simply by making more of it.

That of course has it's downside. While the money in circulation isn't exactly "backed" the money supply is. Essentially the value of any unit of "money" is the perceived value of the issuers total economy divided by the number of units. Hence printing more money doesn't create more "wealth", it just devalues the value of each unit of money. For those of you who haven't figured this out yet, this is called inflation.

Now, there is usually a short span of time between the increase in the money supply and the devaluation of the currency where there's more money and the value hasn't completely adjusted yet that governments in inflationary economies sometimes try to take advantage of but this can backfire if people perceive that this is going to happen and treat the currency as less valuable even before new currency is printed.

It can, however, create a situation where the Government agrees to pay X for a service, let's say the materials to build an SD and then after the price is set, they print more money and devalue the currency which means they end up paying far less in real value for whatever it is that they are buying than they would otherwise. Of course taking actions like this will force those working for the government to hyperinflate their bids to account for this in advance which of course simply drives the inflationary spiral.

Essentially, unless there is real value generated by the economy which supports the currency, just printing more may create a short term gain for some deep long term tragedies.

You can also try to directly control the economy, prices and production in what is called a Demand economy. Think the old USSR and you have a pretty good model of how that works. People work and live in increasingly distressed economic conditions where there is never enough or anything except for propaganda of how great things are. This is close to being an almost perfect model for the People's Republic of Haven.

You're other choice is to attempt to "borrow" funds which sort of allows you to recycle your money supply by having people buy bonds and give their money back to the government in return for future payments.

Chances are the Manticorian economy is based on a combination of rapid economic growth which increases the value of the money supply and successful borrowing, probably from all over known space (thereby using other nations money supplies to build your own).

Of course all this borrowing eventually has to be paid back but that's more of a future concern since actually redemption dates tend to be decades in the future so bonds issued at the beginning of the first Havenite War probably aren't going to come due yet for another few years.

One item I would like to point out in your question is that that vast majority of trade isn't going to occur between the outer worlds and the core of the League. Most of the valuable trade will take place between the worlds of the League's Core as well as the worlds of the Shell. The Manticorian Wormhole Junction is extremely important but it would be a huge mistake to assume that most of the League's trade moves through it from where it originates to where it's end destination is. However, even a modest fraction of that trade moving through the Junction represents an almost unheard of concentration of trade and wealth in a single place. This is by far the most important factor in the wealth of Manticore.

Greyson is one of those economies which almost defies explanation. As best as I can determine, what their success is being chalked up to is intense innovation and figuring out how to do just about everything more efficiently than anyone else. If you can figure out how to make things an enormously reduced costs that other people want then you can grab huge amounts of existing markets and this creates wealth which, if efficiently invested to make even more things more efficiently multiplies itself over time.

Somehow and for reasons I can't fully explain, the Greysons seem to have latched on to this form of wealth generation and used their relative proximity to the Junction and their alliance with Manticore to propel themselves to an economic position which most would find incredible. In this, they sort of resemble the United States in say, the Civil War Period of the rise from the Depression to World War II.

Anyway that's how I see it. Hope you found it useful.

[quote="Alizon
Somehow and for reasons I can't fully explain, the Greysons seem to have latched on to this form of wealth generation and used their relative proximity to the Junction and their alliance with Manticore to propel themselves to an economic position which most would find incredible. In this, they sort of resemble the United States in say, the Civil War Period of the rise from the Depression to World War II.
[/quote]

Reminds me more of a mix of Sweden's innovations in the arms market and China or India's use of surplus manpower.

Isolation, whether physical or political, tends to move things in one or another opposite direction. Either stagnation, because "it's ALWAYS been done this way", or innovation, because no one has told them it can't be done that way. (See Grayson Compensator)


Mix that with a population that has a sudden surplus of work-hours and an almost (C)catholic hatred of idleness, mixed with a frugality that would make a Puritan green with envy, and it's easy to see how they could boost their economy into the top tiers of the single system polities with just a little help from their friends.

Matt

Two points:

1. Regarding withdrawals from two locations 'simultaneously' by a depositor of a particular bank: Although I'm not certain that the Star Kingdom still uses physical money (coins, notes, holocubes etc.) wouldn't the withdrawer need to be physically present to make a physical withdrawal?

I can imagine a system where a business at a particular location (vendor, supplier, retail shop, merchant ship purser) will only accept electronic funds transfers from the local bank branches (e.g. MWJ Branch of Bank of Manticore, or Banco Madrid etc.)

So a depositor would have an account with the bank's central location (clearinghouse) and would then need to transfer funds to 'spending' or 'chequing' accounts at specific locations of the bank (e.g. Sphinx Branch, MWJ Branch, Medusa Branch).

Another interesting outcome is that because of nano-level manufacturing capability most of the items used as money in modern times would be a breeze to forge.

Money would either be in the form of certified letters of claim representing funds transfers over interstellar distances encrypted using one-time-pads (to stop the bearers from writing extra zeros on the cheque, for example). The recipient branch specified on the letter of claim would pay out (or transfer funds to) the first person to arrive bearing a copy with a particular serial number. This would be because it would be easy to duplicate these letters.

To verify the amount inside a certified letter, you would need to take it to a branch (transmitting a copy over any channel would be folly).

Unless the transactions take place between two parties with complete trust then a copy of a letter of claim cannot be transferred between parties (because of the duplication problem).

This would limit the scope of activity of an old fashioned free trading merchant ship, either they would have to operate within an area of operation where they have good credit with a particular bank and/or good reputation with trading partners. Or they would have to periodically return to the central clearinghouse system (as their operating capital would slowly become tied up in illiquid letters of claim). The other possibility is to barter with goods and/or precious elements.

Looking at this system it is clear that commercial advantage would lean extremely heavily in favour of large trading cartels and corporations that can integrate information over large areas and best arbitrage differences in values of goods and currencies. Furthermore larger more reputable traders such as Hauptmann Cartel or Jessyk Combine would be trusted with transactions that smaller 'fly-by-night' operators would not be.

Keep in mind that a perfectly honest and trustworthy merchant showing up in a system where he or she doesn't have a longstanding reputation and/or existing relationship with the bank(s) would only be able to sell and/or barter. Depending on the value of the product they might not even be trusted with haulage of third party goods. The Galaxy is a big place and fraud would be extremely difficult to recoup.

Banks would also need their own fleet of courier ships to shuttle all the One-time-pad (OTP) information out from their central clearinghouse and square up accounts and transactions with the interstellar branches.

A bank robbery would not involve stealing bags of gold coins, it would just require the robber to get a copy of some of the OTP information. As long as they have some basic knowledge of how transactions are written/formatted by that bank it would be the equivalent of stealing blank money orders - they would be able to write out their own letters of claim and take it to the central bank to get paid out. The degree of security on those banks would need to be as close to absolute as humanly and electronically possible. I imagine that the server where the OTP information is stored would by physically separated from the rest of the bank's network as well as the planetary nets etc. Output would be through one-way channels and full access only available in a room protected by mission-impossible style security - including a self destruct mechanism.

2. The PRH had serious economic problems.
Quoting from Ch.7 of Flag in Exile:
"Pierre couldn't have accomplished all he had without the rot spreading from the Legislaturalists' policies, yet the very thing which had made their overthrow possible also made it all but impossible to fundamentally change the system they'd spent two centuries building. They'd created a vast, permanently unemployed underclass, dependent upon the Republic's stupendous welfare machine for its very existence, and in so doing, they'd sown the seeds of their own destruction. No one could place two-thirds of a world's population on the Dole and keep them there forever without the entire system crashing . . . but how in hell did one get them off the Dole? "
with additional emphasis in bold.
Coupled with the inferior education standards of the PRH you can see why their military production output might be somewhat depressed. (Don't forget to factor in the inefficiencies of a command economy).

What really amazes me is Grayson. Their prewar workforce participation rate would have been around 15% of total population (25% are male, minus those who are too young or too old to work). Even accounting for the effect of women in homemaking, child raising (and education?) and possibly agriculture (working the family farm?) this is still a very small percentage when you consider the problems imposed by planetary conditions.

Even if you assume that one orbital farm would support 10,000 people, assuming 2/3rds of the food came from orbit and a population of 3 billion, that would require 200,000 orbital farms. I imagine something like that would show up in the night sky (or even daytime sky?) as a BELT.

Now there was even some mention of cattle in orbital farms. I imagine that those cattle would only be available to the extremely rich. This is because of the inefficiencies of raising cattle compared to the equivalent crop yield you could achieve using the same amount of 'land'.

source:
http://www.farmlandlp.com/2012/01/one-a ... -a-person/
Now assuming that year-round growing season and 24-hour sunlight both increase agricultural productivity twofold, this means that the space farm needs about 2500 acres of surface area (growing area) which is pressurised and sunlit (or lit with UV lamps internally such as a hydroponic system).
Plugging this back into the figures above this means that a population segment of 15,000 people (which may have around 2,250 working males - don't forget the low life expectancy) needs to support not only the regular planet-side economy but also a space farm of 2,500 acres growing surface AND the space transport to bring purified raw inputs up (water, air, fertilisers etc.) and food produce down.

Now you can scale the size of the orbital farms up and down if you wish, but the amount of surface area required still varies linearly with population.

Maybe this is doable, but now that I've run through the numbers this does stretch my suspension of disbelief. It certainly would not be possible at all without counter-grav technology.

But if the Graysons were able to keep this house of cards up before the Alliance then I imagine they could certainly build a modern space fleet in a couple of decades once they weren't working with both hands tied behind their backs. Don't forget a good number of their SD hulls were sold to them at scrap prices by the Highridge government.

Add in the trade saving Silesia and the broke Peeps. Perhaps the only money in trade now will come from the Andie's but even they willn't be able to keep the money rolling into Manticore.

Talbot, Silesia are going to cost money. The peeps will be building ships in offset towards reparations, but they are totally broke. As for the US Germany Japan economic example that is after 50 years of relative peace. And the USA has as much debt and ceiling raises, as it does GDP. Best to look at post WWII US Germany and Japan economic levels. Not so rosy.

The destruction of the Manty infrastructure is costing so much and with zero money coming from Sollie space and no one having money in Silesia, Talbot, or Haven, let alone how broke Manticore is or soon will be.

As for Grayson, that has also bothered me. If they can afford so much military naval power the panicking Sollies will be able to raise a 1000 Graysons.

Remember for the most part you only need to kick someone in the pants once or twice before they take notice. Add in a political house cleaning, an enemy going into hiding and economic fortunes so huge that Hauptman looks like Kevin O'Leary pretending to be rich when he barely has two pennies to rub together. Economically the GA is broke. The Manties superiority will only last as long as they can hold the money situation together. Before suddenly the house of cards comes tumbling down. Especially when the populace starts hurting and the enemy isn't the enemy, but that enemy just has to go into hiding while the house of cards falls into place.

Manticore might hold on, the peeps might rebel, Silesia may or may not evolve. Talbot will be happy to keep it together. While the SL falls apart. Think Silesia was bad? 15 Silesia's with Twice the Pirates twice the problems and all the, albeit corrupt, law enforcement disappearing. A shattered league is going to kill Manty trade now and into the future.

A smaller better stronger rich league with the 500-700 best worlds only is going to make it better. Tie up the GA in policing the 1000-1200 new Silesian confederacy pirate hot spots. Albeit Silesia will look and be remembered as being so much better than this cluster ....

Albeit Silesia now that is a cool name!

BobfromSydney wrote:Two points:


SNIP

What really amazes me is Grayson. Their prewar workforce participation rate would have been around 15% of total population (25% are male, minus those who are too young or too old to work). Even accounting for the effect of women in homemaking, child raising (and education?) and possibly agriculture (working the family farm?) this is still a very small percentage when you consider the problems imposed by planetary conditions.

Even if you assume that one orbital farm would support 10,000 people, assuming 2/3rds of the food came from orbit and a population of 3 billion, that would require 200,000 orbital farms. I imagine something like that would show up in the night sky (or even daytime sky?) as a BELT.

Now there was even some mention of cattle in orbital farms. I imagine that those cattle would only be available to the extremely rich. This is because of the inefficiencies of raising cattle compared to the equivalent crop yield you could achieve using the same amount of 'land'.

source:
http://www.farmlandlp.com/2012/01/one-a ... -a-person/
Now assuming that year-round growing season and 24-hour sunlight both increase agricultural productivity twofold, this means that the space farm needs about 2500 acres of surface area (growing area) which is pressurised and sunlit (or lit with UV lamps internally such as a hydroponic system).
Plugging this back into the figures above this means that a population segment of 15,000 people (which may have around 2,250 working males - don't forget the low life expectancy) needs to support not only the regular planet-side economy but also a space farm of 2,500 acres growing surface AND the space transport to bring purified raw inputs up (water, air, fertilisers etc.) and food produce down.

Now you can scale the size of the orbital farms up and down if you wish, but the amount of surface area required still varies linearly with population.

Maybe this is doable, but now that I've run through the numbers this does stretch my suspension of disbelief. It certainly would not be possible at all without counter-grav technology.

But if the Graysons were able to keep this house of cards up before the Alliance then I imagine they could certainly build a modern space fleet in a couple of decades once they weren't working with both hands tied behind their backs. Don't forget a good number of their SD hulls were sold to them at scrap prices by the Highridge government.

First, your labor force numbers are low. If you've been reading the short fiction and reading between the lines of the novels, you should have realized that the number of women officially in the work force even before the Manties came along was significantly lower than the number actually in the work force.

Second, I never said the orbital farms fed the entire planetary population. I said that they were more efficient in terms of production, that operating costs were far lower than for planetary farms (because there was no need to continually fight soil contamination), and that food from them was much safer (because there was no need to continually fight soil contamination). The majority of food production, by a very large margin, continued to be produced on the planetary surface. And, BTW, most of the cattle on the orbital farms were for dairy products, not meat. Orbital farm produced milk was indeed much more expensive than planetary produced milk, but it was also heavily subsidized in most steadings for the consumption of children.

Third, they had counter-grav technology by the time they started thinking about orbital farms as a food source for anything other than their space-based industrial and population habitats. Their CG wasn't as efficient as the tech later available to them courtesy of Manticore, but it certainly existed, or else they would have required grav-spin habitats aboard their warships, which they did not.

Fourth, the orbital farms were a relatively recent development, a desperate way to increase arable land (and so allow for a larger population) before Skydomes came along and made it possible to build planetary farms --- which suddenly became more efficient in terms of both production and operating expense than the orbital farms had been.

Once Grayson acquired access to modern Manty technology, especially in terms of industrial infrastructure, productivity per manhour went through the roof . . . literally. With additional women added to the open workforce, out of the sort of "gray" workforce in which they had labored without recognition, and productivity per manhour making a shift probably comparable to that seen on Earth between about 1880 and the year 2000 for the entire planetary population, rather than just the first world, the degree to which Grayson's economy expanded becomes, I think, quite understandable.

Of course, I'm only the guy who built the place, so I could be wrong, I suppose . . .

That makes a lot of sense.

Although given the degree of unofficial inclusion in the workforce of women you would think Graysons would not have such a 'double-sided' attitude regarding gender equality.

But maybe the clergy/leadership are somewhat divorced from awareness of this unofficial 'grey' workforce. This would mean that the social 'opinion leaders' would have lagged a bit behind what was actually happening.

What is really impressive though is the willingness of Graysons to accept a low standard of living (excepting Waffles, Baseball and Flowers) and high work hours.

BobfromSydney wrote:What is really impressive though is the willingness of Graysons to accept a low standard of living (excepting Waffles, Baseball and Flowers) and high work hours.

It's not that impressive. It's the perpetuation of their existing status. Convincing people to sacrifice what they already have is hard; convincing people to sacrifice what they could but don't already have is much easier.