Micronational Economics – Pieces

[Andreas the Wise]

Micronational Economics – Pieces

The following paper is intended to show various possible “pieces” of micronational economies.  The major headings show each type of piece, and the minor headings the pieces that can be picked to fill that type.  There may exist others, some pieces are incompatible with others of different types, and, of course, not all pieces need to be filled.

Introduction
New micronations, unless they are very rapidly drawn into the existing world, tend to develop in isolation from other micronations for a few months.  Things such as the MCS 3 month rule are partly responsible for this.  As a result, new micronations tend to develop their own ways of doing things without reference to established norms, and when incorporated into the micronational world later, resist changing what they know works for something which other people say works.  I know this from experience - that's exactly how Novatainia's reasonably succesful post based economy developed.  I saw MX2, saw it seemed far too much bother now we'd got our cash mod working, and ignored it.  I'd say its still true I reject old things ... I've just now had enough of a hand in developing the three economic systems mentioned below I consider them "new" even though they're now old enough to be old.  Anyway, this paper is intended to help new micronationalists who happen to find it, and to help old micronationalists trying to restart an economy.  It gives only a minimum of advise, and a majority of "pick and mix" options intended to give you some idea of what can be used and what's worked before, rather than having to build your economy from scratch like I did.  Also note - trading isn't covered here because its more than catered for by MITO.

Base/Value of Currency[/u]
Post Based: An economy where the value of currency is linked to posting, and further money may be earned by posting.  Post based economies can be fixed (i.e. you earn x per post) or variable (i.e. you earn an amount per post based on certain factors like its length).
Major Example: Novatainia’s old economy.
Vote Based: An economy where the currency is linked to voting in some national body, and earning further money increases the weighting of your vote.  There may be certain cases where money does not count to any vote, or where some citizens can vote and others can’t (but their money still counts towards someone else’s vote).
Major Example: Shireroth or Babkha.
War Based: An economy where the currency is linked to the strength of the army one is able to raise.  Generally losing troops does not lose one currency – it merely means later one can raise more troops.
Major Example: Toketi
Currency Based: An economy where the micronational government agrees to buy or sell its currency at a set value of real world currency.  Though various nations say their money is worth x of a real world currency, they will rarely actually be willing to exchange real world currency for micronational currency.
Valueless: Any economy where the currency is not linked to anything else and has value only in the sense of what can be purchased with it.  Every other ‘valued’ currency also has the value of what can be purchased with the currency, but intends to increase the value beyond this by linking it to something else.
Major Example: Most micronational economies, actually.
Notes:The purpose of having currency based on something other than merely what can be purchased with it is to increase the transactions, either by making people more willing to purchase or by making people more interested in earning.  A post based economy encourages activity and, as the currency is easier to earn than a valueless currency, encourages people to spend more of it as they have more.  Both vote and war based economies make their currency very valuable to their citizens and thus encourage their citizens to work harder to create goods to sell (and thus earn more currency).  The effectiveness of these provisions depends on the nature of the citizens involved – a vote based economy will not help in a nation with a weak or unrepresentative legislature; and a war based economy will not help in a nation where the citizens are not interested in war (and also requires a system whereby citizens can easily initiate wars).

Closed/Open[/u]
Closed Economy: A closed economy has a set amount of money in circulation, and new currency cannot enter the economy (or if it does, is rapidly removed from the government account).  Any currency type can be closed – where it allows extra money to enter (eg giving new citizens a starting amount, or paying citizens automatically for each post they make) an equal amount of money must be removed from the government account, thus keeping the amount of money in circulation constant.
Open: An open economy changes (generally increases) the amount of money in circulation as events dictate.  Any currency type can be open (eg giving new citizens a starting amount that is not funded from the government account, creating funds to pay for each post made, or transferring money from another economy by deleting it on one forum/bank and creating it on the other forum/bank).
Advantages: An open economy has the advantage that it is simpler.  Taxation need not be the only source of government revenue, a massive population increase is easily adjusted to, and foreign exchange can be done simply by deleting money on one forum/bank and creating it on the other.  A closed economy has the advantage it is more credible and economically sound.  It is credible in that governments cannot introduce large amounts of money into circulation on a whim (nor can general population increase do so) and so, especially with fixed exchange rates, a nation can’t suddenly become excessively richer than their trading partners.  It is more economically sound in that inflation due to monetary growth does not occur (although empirical examples suggest the effect of this in micronational economies is minimal).

Taxation
Wealth: A tax levied on the monetary holdings of individuals at a point in time.  Can be flat (i.e. a single % rate) or progressive (i.e. higher % for larger amounts of money).
Income: A tax levied on the income of individuals over a period of time.  Can be flat or progressive.
GST: A tax levied on any good or service sold, normally as a percentage of the price.
Finance Exemption: A GST applying to all goods or services sold except for financial ones (eg Gambling, Share transactions etc) – instead applying the GST tax rate to profits from Financial services.
Per Region: A tax levied on the leader of each region within a nation, leaving the leader free to raise the money to cover it himself.
Per Capita: A flat tax levied on every citizen of a specific amount, regardless of wealth.
Comparisons: Taxes are helpful to raise government revenue, but must be carefully examined to ensure they do not stifle private enterprise or defeat the purpose of the economic system.  A wealth tax wouldn’t be used in a War or Vote based economy, for example, because the accumulation of money is an important feature of the economy.  But in any other economy, a progressive wealth tax encourages spending as it penalises the hoarding of money.  Income taxes generally take more effort to regulate and are pointless if the only income payer is the government.  GST will only raise significant revenue if there are a large number of transactions occurring.  Finance exemptions are a good idea if you have a GST.  Per Region taxes work best where regions have some sort of economic allegiance to their ruler (eg they support him in war, or he votes for them).  Per Capita taxes are the simplest but may be difficult to apply to very low income earners.

Other Ways To Raise Government Capital
Property: The government sells property in each town.  An individual who has bought property is allowed to create a thread for their house, business, or other thing on the property.  Can produce considerable proceeds:
Inflation: If the economy is closed, the government can merely print more money and tax via inflation.
Licensing: The government allows certain industries to operate only after they have purchased a license (eg Lawyers, Orbat writers etc).  They may also need to qualify.
Patents/Copyright: The government artificially restricts the amount of goods of a particular type that may be produced, or restricts the number of producers, for a fee to the copyright/patent holder.
Military Workaround: In a non-war based economy, the government creates an official war system whereby citizens have to purchase the right to command an army, and pay more to command larger amounts.
Voting Workaround: In a non-voting based economy, the government creates a market for votes whereby citizens can purchase a unit of voting power.  After the initial float, these units can then be purchased from other citizens to change the balance of power.
Subforum Rent: Companies or organisations may have a subforum of their own in exchange for a regular rent.
Other Admin Fees: The admin charges fees (going to the government) for tasks such as adding smileys or styles.
Notes: Property is only of use (but has been highly successful) where citizens are willing to RP, and aren’t already the leaders of a particular region for them to develop.  Inflation is frowned upon internationally.  Licensing can only be used where there is already an interest in that industry, otherwise it is a barrier to that industry starting.  Patents/Copyrights are useful where citizens fear others will start a shop almost exactly like them.  The work-arounds require, as the original, that citizens have an interest in war/voting.  Subforums require forum software that can support them, as does Admin Fees (depending on the services rendered).

Banking and Interest
Automated: An electronic bank which automatically pays interest to account holders by “creating” the money for the interest.  Only suitable in open economies.
Closed: Any bank which pays interest from other monetary holdings (eg share floats) and doesn’t create money.
Investment: A bank in a Voting or War based economy which uses its funds for voting/war purposes, or lends out considerable amounts of these for one off votes/wars.
Comparisons: An automated bank should be differentiated from a phpbank – it is automated by merit of automatically creating interest out of nowhere.  Such a bank can only be run by the government, where as a closed bank can be run by private citizens (and can compete with other closed banks).  All banks can loan (if citizens are interested) but investment bank specifically loan not for the use of funds but for the power the funds entail, and may “loan” temporarily while retaining overall control of the funds.

Stock Exchange[/u]
Standard: A stock exchange where citizens may trade companies existing in the nation.  Stocks may or may not pay dividends based on company profits.
Simulated: A stock exchange with simulated companies and using some sort of program or formula to change the prices of stocks at regular intervals and thus simulate the real world exchange.  May or may not pay dividends based on money raised from the initial float.
Practical Investment: A stock exchange where stocks are floated because the funds from the stocks go to the owner of the company to help run the company (usually only for Financial companies which require large starting capital).  May or may not pay dividends based on company profits.
Resource Based: A stock exchange with simulated companies linked the MITO trading resources of the nation.  Through the use of a formula involving the amount of resources consumed/traded dividends are paid from the initial float.
Comparisons: All stock exchanges suffer from the problem that there are only a small number of people trading (compared the millions on real world stock exchanges).  A standard stock exchange often suffers from ‘imaginary’ stocks where company stocks are 100% owned by the creator of the company and thus serve no purpose.  A simulated stock exchange attempts to overcome the basic problem by changing the prices arbitrarily – but this can be hard to achieve objectively.  Practical Investment obviously only applies to select types of companies.  A resource based stock exchange avoids the arbitrary price changes of a simulated one, but encourages more real trading by ensuring the regular payment of dividends based on an objective formula, and paid from the money originally raised by selling the stocks.  Very rarely do companies ever reach the level where more than one person has a direct say in its running via the amount of stocks they own.

Exchange Rates[/u]
Equivalent Currency: Either where two nations have a united currency (and thus exchange is 1:1) or between currencies of the same type.  In this case, arbitrary exchange rates may be easily calculated – eg in a Post Based economy, if one nation earns 10 per post and another 1 per post, the exchange rate is 10:1.
Flat: An agreed exchange rate where any amount of money may be deleted in one nation and created in another at that rate.
Flat but Closed: An agreed exchange rate where governments initially exchange a large amount of currency with each other and then will trade that to citizens at an agreed flat rate (ensuring no currency is created or deleted).
Market Exchange Rates: No single exchange rate exists but each exchange is negotiated with a middleman who holds (or has an interest in holding) both currency types and will trade them with the person wanting the other currency.
Complicated Formula: A flat exchange rate that is worked out based on a formula taking into account: the relative development of the economies; relative purchasing power and/or the relative size of the economy (i.e. amount of currency in circulation).
Trade Credits: Ignoring any currency exchange and merely handling international transactions by having the governments exchange MITO Trade Credits.
Comparisons: Equivalent currency exchanges are the easiest to work out but generally require Open economies (as does Flat).  Flat but closed exchange retains this simplicity for closed economies.  Market Exchange rates are the most economically progressive type (as it thus creates another private industry) but relies on rich dual citizens.  Where there aren’t such people, governments can exchange funds but do it on a case by case basis.  Complicated formulas are hard to agree on.  Trade Credits are generally only suitable for large government purposes, not for individual transactions.

Actual Stuff to Spend On[/u]
Selling Votes: Those who hold voting power (whether by virtue of wealth in currency, holding workarounds, or just having seats in vote making bodies) can sell their vote on particular issues.  If they impose a higher price when they strongly object to an issue, this evens itself out as they can pay more to others to vote the way they want for other issues.
Orbats: Preparing orders of battle for individual citizens for a fee.
Weapons: Designing and selling weapons or items for use in war.  More effective where citizens cannot just create their own units out of nothing (or where weapon designs are really good).
Loot: For the rich – selling highly expensive and otherwise pointless items to that people may gloat on them.  More effective where the item in question is really loot stolen from somewhere else.
Images: Designing and producing images for a fee.  One of the most common micronational industries.
Media: Designing and producing media such as videos, radio shows etc.
Story-writing: Writing backstory, legends or other prose for a fee.
Legal Services: Looking up laws, as well as providing legal representation in trials.
Accounting: Where complicated tax laws exist, doing accounting for businesses.
Resources: Instituting some sort of internal resource trading system, and buying/selling resources.
Houses: Where property can be purchased from the government, allowing private industry to design and sell the buildings placed upon this property.
RP Use Items: The large range of items that have use only for micronations which roleplay big events (eg buying a submarine to do underwater archaeology, buying a gun to go hunting etc)
Gambling: Working out forum based gambling options.  Can also allow betting on sporting events or predictions.
Vehicles: Selling cars, trains, boats or other vehicles, whether for RP purposes or not.
University: Running training programs which give qualifications at the end, and charging a fee for entry.  Only useful where there is already interest in universities, or where the qualifications are required to do other things in micronations.
And many more ...: The imagination of private industry is the only limit, really.  Economies based entirely on fictional goods CAN work – consider trading gold in WOW, or items in Neopets.  However, people are far more likely to buy goods the more “real” they are/seem – where they have practical uses within the micronational world.  For more info, see my other economic essays.