Disclaimer: I'm no economy expert; anybody more knowledgeable should feel not only free but also encouraged to point out flagrant shortcomings within my analysis. And since I admitted my limited competence beforehand, please be polite while bashing me and my post.:P Thanks.
A little bit of terminology
In order to keep this discussion on the most general level, I'll stretch and broaden the meaning of some ordinary terms. First and foremost, I’ll call product anything with a commercial value, including raw materials, tools, manpower, services, training, places or intellectual work. The resources required by a product are anything needed to obtain said product; of course, a resource is itself a product. What it means to "obtain" a product and which resources are needed differs radically for different people.
For example, for WotC obtaining my D&D books involved monetary investments, market choices, game designers, editors, playtesters, book printing and so on; for me it involved accessing Amazon.com, paying for the books and taking them home from the postal office.
I'll also use availability instead of offer, meaning how hard or easy it is to obtain the product, which in turn falls back to the availability of all required resources and how difficult it is to combine them into the product; however, it can also be influenced by demand; in general, if demand is the main limiting factor, it means resources are plentiful; resources are scarce - and thus the main limiting factor - when not enough to meet the demand.
And now that I made myself clear, let's begin the discussion.
Magic and economy
At its basic, the value of a product is dictated by the interaction of availability and demand; whenever the same scarce resource is concurrently required by two or more products, product priority also factors in: products that are more profitable, more necessary or more reliable are privileged, at the expense of the others; in the case of demand the issue might be limited budget, but also limited time to dedicate to the product. Of course this isn't the end of the story: monopoly, market politics, government regulation and even cultural biases can artificially shift these factors.
Whenever one of these three factors (availability, demand and priority) changes, the value of the product also changes, which in turn can influence the other factors or other products: this can lead to vicious circles or domino effects. For example, industrial revolution increased the availability of many products which were, until that point, a luxury; the lowered price expanded the market to the lower classes, previously unable to afford it (a priority issue); this, in turn, increased demand, as long as the price was affordable: a requisite that could be met only by increasing the production even further.
When changes are slow, economy and society have the time to adapt, but a sudden, significant change can be a crippling strike - or a priceless opportunity for those that foresee it. While a local shift might ruin a single business or a single village, a broader change can lead a nation to bankruptcy; by the same token, the broader a positive change, the greater the benefit. Note, however, that while an unstable and fast changing market is a boon for individual speculators and opportunists (the lucky ones, anyway), it is usually negative for a nation as a whole. A typical example of fast changing economy can be found in periods of mass warfare: military supplies become top priorities, while workers are taken away from their job and conscripted as soldiers; even when the war ends, those who are dead or crippled cannot retake their jobs; for pre-industrial, agrarian societies, even a victorious war might be followed by famine, if too many peasants went missing from their farms for too long.
Negative repercussion is what inspired me to start this topic; let's take a look at the tipical D&D World: on one side, we have a pre-industrial society, usually at a medieval technological level - but it might go as far as the Renaissance or as back as the Stone Age; on the other side we have magic, which happily beats most conventional pre-industrial resources when it comes to convenience and efficiency. Just on top of my head, casting Wall of Iron is far more convenient than building a mining complex, extracting raw iron and then refining it; Create Food and Water is much better than farming, hunting and herding; a single casting of Prestidigitation used to flavor foodstuff makes many spices unnecessary; a permanent Wall of Fire , despite the initial investment, is a fuel-free heat source on the long run. And all this with spells geared toward adventuring; think what might be possible with spells specifically made for industry.
What happens when the superior resources constituted by magic and spellcasters are put into an otherwise medieval society? Well, it depends on its availability.
If magic is rare, it probably doesn't change much; granted, a spellcaster might radically alter the market on a local level, or the rich might enjoy magic-made commodities, but the big picture is still dominated by conventional technology. Magic is simply too scarce compared to mundane resources to play a significant role, though it can give an exceptional edge to a small elite. On the other end of the spectrum there are worlds with plentiful magic and spellcasters (at least low level ones). In such a world medieval technology simply cannot compete: magic will oust or augment conventional resources, resulting in a "weird tech" scenario with an industrial revolution based on magic. For example, the upcoming Eberron setting explores this possibility.
The big trouble is the middle ground, which is where many D&D worlds seem to fall into: a world where magic is enough to make a difference, but not enough to be a reliable and all encompassing substitute. Products obtained through magical resources will be far more competitive than their counterparts, but not enough to saturate the market; as a result, business employing or run by spellcasters will be much more successful than mundane ones, forcing marginal gains upon the latter, which might cause no end of social and political turmoil. These business might be targeted by anti-spellcasting "luddite" groups, for example, or copious amounts of laws might regulate spellcasting, in order to keep it in line; trade guilds would fight against each other trying to take the magic industry for themselves, or they would ally and make a call for magic regulation and protectionist policies; on the other side, increasingly worse job conditions might cause low-end workers to unionize far before the industrial age, mixing socialist and communist movements in an otherwise feudal set-up.
If magic is not strictly regulated, it puts great power in the hands of mage guilds and clerical orders; a single spellcaster constitutes a much more valuable resource than many non-spellcasting people put together, a resource whose availability is entirely at the whim of the spellcaster himself and which is difficult to replace, since it isn't plentiful enough; if he suddenly adds (or removes) his magical support, he can shatter the local economy: a coordinated effort from a widespread organization can economically threaten - and thus blackmail - both the government and the industrial base of a whole nation. This might lead to a situation where a single spellcasting cartel reached economical supremacy, or where several groups compete for power and influence, perhaps reaching a balance, and perhaps launching an all-out subterranean war against each others while investing in spell research to keep an edge over the competition. Looks familiar? Well, it reminds me the corporate dominated future of many sci-fi and cyberpunk settings, rather than a classical fantasy society. Weird, huh?
On the other end, severe cultural or legal impositions might prevent spellcasters from reaching such an end; to undermine ambitious individuals, spellcasters cannot belong to the ruling class, which in turn routinely puts factions of magic users against each other and sends assassins against troublesome individuals. A strong arcane vs. divine distrust is a likely way to keep both groups in check. However, magic can be subtle, allowing a determined individual to infiltrate the ruling class and make a coup from within; to avoid this, a few sanctioned spellcasters might be employed to prevent such a possibility, but they too would require supervision and the same pitting against each other. In the end is an unstable balance that threatens to explode at the slightest shift in power; in such a society intrigues, conspiracies and hidden politics would be at their peak. A balance shattering event might be any prolonged crisis - like a war or a catastrophe - which pushes conventional resources to their limits, forcing the ruling class to temporarily lift all restrictions to magic; once spellcasters gain prominence and show what magic can accomplish, however, it remains to be seen whether the rulers can truly regain control.
Magic and currency
Up to this point, the thread title had pretty much nothing to do with the contents, but now I'll discuss that specific topic. Money is a product itself; in many societies up to the Middle Age, especially when central government was weak, the value of a coin was mostly or entirely based on the availability of the material of the coin itself; in other words, the value of a gold piece is the value of its gold (plus possibly the cost of the minting process), unless it is backed up by a strong and influential government, which might enforce a greater value. However, both possibilities have great weaknesses, both enhanced by magic. If the value is that of the material, it is vulnerable to sudden changes in its availability; if it has a greater, government-backed value, it faces the risks of forgery.
Why magic enhances it? Well, as I already said magic can beat medieval technology; it does apply to collecting precious metals, too. Many spells can create coins (or their constituents) out of thin air, or obtain them from something else entirely - as a result, some of the most dangerous spells like Polymorph any Object have an awkward clause preventing them from producing anything of "great intrinsic value". Even then, spells like Disintegrate or Passwall make mining much cheaper, while powerful divinations can pinpoint the location of long lost treasures of the past; better not to mention trips to the gem self service... err, Elemental Plane of Earth (plus Quasielemental Plane of Minerals for Planescape fans). Outright forgery is also easier; glamours and trasmutations allow to quickly produce almost perfect fakes; instantaneous effects or Nystul's Magic Aura are proofed against detection; also, magical forgery would be an issue for any kind of paperwork, like contracts or letters of credit. The other side is when precious minerals are made rarer through wanton destruction; had he been a high level druid, Goldfinger would have discarded his nuclear bomb in favor of a much cheaper and safer Transmute Metal to Wood, followed by Wall of Fire; defuse that, Mr. Bond!
In short, spellcasters do not need to threaten the whole economy; all they need to do is to threaten currency, with repercussions on everything else. This leads to a further question: why would any D&D nation rely on a currency which might wildly inflate or deflate every time an high level caster wanders around? Wouldn't they search for a more reliable replacement?
One possibility is to introduce an unique magic inert material, one that cannot be created, transmuted, found or destroyed by magic: this would effectively protect currency from magic tampering; fake money would also be extremely easy to detect, as true coins would be the only cantrip-proof ones. A thorough analysis of this idea can be found in dantedarkstar's Orichalcum - antimagic metal thread, which was one source of inspiration for my thread and the source of this specific point; let's give credit where credit is due.
A nation might turn back to direct barter, but as already said spellcasters could as easily disrupt any product other than currency.
Another possibility, requiring both a strong government and magical aid, is to turn over to paper money, or its equivalents; in other words, the value of money would be entirely conventional - arbitrarily set by the government or the market - while its intrinsic value would be much lower (if it is greater, people begin to sell money for its intrinsic value instead, defeating the whole purpose). This opens the other can of worms: forgery. To make forgery unprofitable despite the low intrinsic value, fantastic equivalents of modern techniques spring to mind: coins or bills (or whatever) might be tiny magic items of low value but extremely complex making, whose production technique is a well guarded secret; maybe every bill sports the unmistakable and inimitable (if you don't own the single ultra-protected magic item that replicates it en masse for the Imperial Mint) arcane mark of the Imperial Bank Wizard-Director, or the symbol of the one true God of Trade. Note that the smallest values might still be constituted by ordinary coins made of cheap alloys.
As a side note, a magic intensive Eberron-like campaign might go further toward modernity and produce the equivalent or credit cards and digital money.
A heavily regulated society might require every monetary transaction to be registered in multiple copies at the local constabulary or trade office: details include the (confirmed) identities of those involved and the warranter; a specific section of the bureaucratic apparatus would be dedicated to the sole purpose of cross-reference these transactions in order to ferret out suspect sources. This model works best if currency is limited to large scale or luxury trade, while the bulk of the population still relies on barter for small trade; otherwise, without computers it would quickly become an accountant's nightmare.
A whole family of weird possibilities would be to remove physical currency entirely, in favor of an intangible medium:
Metaphysical currency: every person carries "spiritual tokens" within his/her soul, tokens which can be transferred to others through physical contact and the appropriate act of will; these tokens are either a gift of the Gods or the product of the classical long lost hyper-advanced civilization - in any case, they cannot be faked or reproduced by any known method, including powerful spells; when people die, their tokens are automatically dispersed among random people, but a special "death will" rite allows the bearer to designate specific heirs, instead.
Virtual currency: a mysterious race travels across the land; the Bankers - as many call them - single-mindedly pursue a single occupation: keeping track of everybody's credit; money doesn't exist, substituted by virtual accounts; every transaction happens in the presence of a Banker, who memorizes it and applies the corresponding changes to each one's account; sages speculate that they maintain perpetual telepathic contact with each other, since any account known to a Banker is also known by all the others; while big cities might have several Bankers, groups of small villages often share a single one, who visits each village in turn; sometimes an overconfident thief tries to assault a Banker or cohere him with magic: such people are never heard again, yet there are always more fools who didn't get the message. As an alternate, Bankers might be constructs or even dead crooks condemned in the afterlife to never cheat again for money.
Well, this seems long enough.
Opinions?(1) Do not forget the discrepancy of wealth in a pre-post-industrial world. Until recently, the mass majority of society was near penniless, living on substance farming and wage work. That you had Lords or the Land (or later the Robber Barons of the industrial age) did not greatly affect the dual economy. In other words, there was one economy running on things important to the common man (flour, coffee, cloth) and another on things important to the rich man (pre-Model-T cars or chariots, international travel, the stock market or horse racing, raising armies, building palaces or skyscrapers, etc).
That is why there are CP in the world. To a man who earns 1SP a day, the if the cost of bread goes from 1CP to 2CP, he notices. If an adventurer comes into town and buys 15,000GP worth of stuff, he does not notice, because he never sees a cent of it. Why? Because he has nothing and offers nothing as an individual that the adventurer cares about. Now the adventurer's shopping spree might have an inflative effect on the entire economy (especially if the adventurer is not just bringing 15,000 worth of treasure, but of Currency). That might make bread take that 1CP jump, but the commoner would never understand why. It is the folly of trickle down economics. Wealth's impact is in ratio to wealth's abundance. Apart from grossly abnormal circumstances, something that causes a 1CP piece of bread to jump to 2CP will cause a 300GP potion to jump to 600GP. The mass of the commoners just absorbs the excess wealth on the items that they need (like bread).
Thus, you adventures are not going to destroy an economy totally (though they might temporarily disrupt it). Economies are fluid...easily disturbed, but quickly evened out.
(2) Forgery. Magic has trouble with forgery for one reason: Detect Magic. Money in the campaign, be it paper or coin will likely be meticulously made in an entirely mundane process. Any attempt to tamper with it magically is detectable with DM and rejected by anyone with anything of enough worth to be of interest to the PCs (though they could probably get by if they are just buying that 2CP piece of bread). So, to forge money (paper or coin) requires ranks in the Forgery skill. It can be done, but as always, at risk.
(3) Magic. Magic cannot create gold efficiently. Any task that can be done fast (such as with the fabricate spell) can be done cheaper by the multitudes of peasants out there. If the Spell can create, say 1 item per use at seven uses a day for 49 per week, and it takes a mundane person a week to create one, you only need a 50 to 1 ratio of mundane workers to spellcaster. A ratio easily exceeded in most worlds. Yes, magic makes mining simpler and faster, but that only increases the amount of gold in the entire market faster, speeding inflation, increasing cost, reducing currency value, and does not increase actual national wealth (which is how the individual comes to have more). Again, if everyone can do it, then everyone will, and it will all balance out. If only a few can do it, then they might cause ripples, but because they are only a few, the mass will absorb it and it will again balance out.
Overall, good post.
These coins are officially minted to fit more than 50 in a pound, like 1000. Forged and altered (shaved, etc.) coins won't stack. If such were included in a world, how would it affect the economy, especially magic-enhanced coins?
-EE
If we start from the root of money use in a "European civilization," we find that the Greek used the weight value of silver (drachme in French). But the value of their money was completely stable and without inflation concept. Cost was only weight based.
Our 21-century brain introduced rarity and price variation. But in the real world, gold during low middle age became precious because it didn’t rust. In D&D a lot of metal look more precious (like adamantite, mithral). So why is gold the "value talon?" and who guarantees its value?
If we mix this with the magical world of D&D, things become more complex. (Look at Earthdawn rpg, they have a interesting point of view). Hopefully economy is saved by the background ...magic is rare, magician even more, magician making magical mining pick even more
. Priests have a god, they can’t do what they want with their power. That's why dwarves are so famous with forging and mining, and why the Pelor church gives food to people who need it.So it’s a rare thing when a spell caster can alter a global economy. But it’s easy to imagine a campaign based around a evil cleric cult who produce a lot of magical food for ruining all the peasant from a region.
As oaspar777777 said: money is rare only rich ppl, merchant, noble, players, use it like that.
a resource whose availability is entirely at the whim of the spellcaster himself
For the case of Sorcerers (whose power is very limited in scope), Bards (who IIRC, have little "practical" powers), and Wizards (the real threat here) you are correct. Druids, even though evil, lawful or chaotic, probably will not wish to engage the magical resources of nature into a venture many would find antithetical to nature. As for clerics, well, not many deities will stand for their agents to do something besides follow their doctrines--hardly any of which includes "get rich."
Wizards, however, are the real thing to worry about--but if one wishes to control Wizards, this is easily enough done--wizards are taught at Academies or by Guild members--if you aren't a Guild member yet you are a wizard (and there will be those exceptions), you don't show yourself using magic, out of fear of being hunted down by the Guild's bounty hunters. Any market in spellbook-grade paper, and similar quality ingredients would be closely kept tabs on, with appropriate security measures.
1. The inequity of wealth is so great, that the wealth of the common masses is irrelevant. Because:
a. Even first level casters have no means of competing with higher level casters.
b. In order to raise enough magical power to compete, they must adventure.
c. In order to adventure, they must expose themselves to vast hoards of treasure.
d. In order to spend time on the economic development of an otherwise provincial region, they must sacrifice their time adventuring (eg, time spent gathering power and wealth).
2. Demand by the masses is therefore (effectively) irrelevant, as they have neither the power nor the wealth to influence adventurers.
3. Demand by adventurers and magic users is the only driving factor of the relevant economy.
a. Magic items comprise the only market of material objects traded by this group.
4. Portable magic items become the main currency of this economy.
Which is pretty much the way it works anyway. A side note is that the clergy would again exceed the power of the arcane, as only they have the services needed to maintain the power level of adventurers (true rez) over time. In addition, only they have "free" access to the spells necessary to create the magic item currency, and thus have lower production costs. The ability of a cleric to survive better than a mage while adventuring would also lead to a greater number of clergy of high levels than arcane casters. But we all know that clerics are broken to begin with ;)
So, eventually, they switched to a different form of currency.
And a PC can't spend 15,000 GP anywhere they want too. Only a big city full of liked-pursed people can handle that amount of money. A place where a NPC only makes a silver piece a day simply won't be able to produce 15,000gp worth of goods.
Since gold is/was scarce, and hard to make artificially, it makes a strong tender. It’s a very stable element, so it doesn't rust or otherwise fade. Its weight is another factor. Very few common metals have the weight of gold. And, just by holding it in their hand, an experienced banker/shopkeep can tell if the coin was shaved, or has a lighter metal inside the gold wrapper.
and having a detect truth/lies/magic rune inscribed in their floor/walls couldn't cost that much.
But still, magic and economy makes for an interesting mix. Another example of this: In the Forgotten Realms portals seem to be a common occurrence. There are many high-level mages who can make new portals. Why bother with ships and caravans?
My adventures/adventurers usually have an abundance of magical items. They would rather giveup all their gold for one magical item. The value of the magical item is worth the price of the gold, thus if given a choice between gold and an item; they usually go not for the gold, but the magic.
So if a wizard floods the world with gold coin imitations, the currency market shifts to magical items. Here's why, they are harder to reproduce, they require xp to manufacture, thus a wizard will drain himself of levels before he can make hundreds of items. The common peasant should remain unaffected, because gold isn't something they have in ready quantities, they deal in copper, and silver. Gold reproduction would affect merchants and the rich. They might impose problems on the peasants, but most likely they would be able to hire out some one to create magical items for them, or have a few.
The world would revert to a barter system, but this time it would be based on magical items rather than cows. So noble A offers three +1 swords, and a +2 shield to Noble B for six +1 bows and 30 sheep. Or something like that.
But then as velvet mentioned the church has a resource that is invaluable to people, rez. So if you follow the guidelines for epic play where they mention using favors as currency this might solve some of the problem. A player will always want a rez, and the church will always want payments. Thus you have a place to start. The church can supply notes, saying that they will redeem the note for a favor worth 200 gp or the like. This can be simple notes, that have no magic on them. If a person tries to forge them with magic it leaves a magical residue. Before a cleric will perform the favor, he casts Detect magic on the money. If there is magic on it he won't cash in the favor. There easy as pie.
I guess that is why I can purchase an real Edward 1st penny in fair shape for about $7 U.S.A. And I will totally forget about that English king around 900 A.D. who took the right hand and other parts of minters and coiners for making short weight (or debase) coins.
Or the number of letters which list you need x number of this city coins to equal the cost of 240 London pennies.
Or Coin craft’s English and UK coins 1066 to Date book which list the various UK coins.
Oh, trial of Pyx for Royal Mint. I could go on if I had my books near at hand.
Like today, some bartering went on and some people took home in kind materials because ready liquid cash was not on hand.
A good rule to limit fabrication spells would be to say nothing of enchantable (master work) quality can be produced by them, short of a wish spell. A master craftsman is defined as one who has apprenticed for at least 4 years, been a journeyman for at least 2 years, and the guild masters have approved of the craftsmans work, thereby promoting the journeyman to master craftsman. If you want to enchant the fire place with a perment wall of fire you are still going to have to deal with the dwarven master stone mason.
Evil in this type of society would be characterized by slavery, forcing someone to spend their time without providing equitable compensation.
Ecomonies are hardy beasts in there own right. When people gathered togethor, usually around abundant water supplies like rivers, it became evident quite quickly that not all people are created equal, skill wise at least. Thus an economy is born. The most simplistic version of economic trade was the barter system. I have what you need and visa versa, straight swap with all parties happy.
With time and population growth it often become prohibitive to simply continue to barter for some items.
The all protecting Lord who lives on the hill now has 45 soldiers instead of 15. What was once a great deal for the egg farmer, his excess eggs for say 6 bushels of grain, now becomes all his eggs for more grain than he can possibly use. The LG Lord does not wish to see said farmer stiffed and must repay in an equivilant amount of return goods. The problem is, the farmer has no way of keeping the 40 bushels of grain in his limited if non-existant storage facilities. So the Lord devise another method of payment for the farmer. He is a smart guy afterall.
Credit perhaps, on simple notes that indicate the amount of goods traded over, say, a season. Notes that could be cashed in with the Lord in time of need. Now a new problem arises.
The poorly educated (stupid dirt farmers) keep poor paper work(credit notes) or lose the markers from the Lord so he has to do something else. His army is still growing exponentially and requires those goods at all costs but the LG Lord will not stiff his people, even the stupid ones.
Ok, now comes the use of coinage. I told he was smart.
It will have a value set by the Lord and bear his mark. He will commision the local metal smith for their production. The Lord now gives these to the farmers instead of simple notes and the farmers can trade them with him as they did with the notes before them.
Then finally one day farmer Joe goes to Baker Sue and says instead of my trading you eggs or grain for your bread, how much bread can I get for one of these coin things? Bingo! A new economy model is born by simple osmosis.
Since the farmers and bakers will likely never deal with anyone that possesses vast quantities(disposable assets) of these coins in trade they are not directly affected when an outside source, adventurers in this case, show up with lots. The Lord would have, or have in his employ those that would cater to the needs of what will come to be called, the Wealthy.
By taking the above system model and multpling it by 1000(towns and hamlets) and then have the trading of these coins happen between all those groups, instead of just internally to one group, and a global ecomony model is born.
In D&d terms life was harsh but basically simplistic in its model. Best to just keep it that way.
Another example would be rare gems and stones. They would be horded by the owners of the mines from which they came. Yup you guessed it, that smart fellow again, the Lord. His use for them would be more for adornment than currency. Until of course large exchanges of coins become prohibitive due to weight and then the sparkleys come into there own.
Thus a 500GP diamond would be of little useful value to the poor farmer. If he somehow got his hands on one he couldn't buy anything with it amongst his peers without paying the full amount of the single unit, one diamond. And one diamond would buy(in staright trade value) more chickens than exist in the whole river vallet region. It just doesn't work right for them.
It is true today with our most presious of stones, Diamonds. Anyone that can afford them can buy one. Try and get 1500 carats worth at wholesale? Good luck. The actual supply of world diamonds is massive but is vigorously controlled by a key few to keep the demand high and the price high as well. The same would probably hold true in D&D in relation to coinage.
I don't think the term Inflation was even in use in the old days was it?
After a few generations peasants would be relieved of harsh and repetitive labor and either they would have to become skilled or risk tempting his lord to have another skeleton added to his workforce. After another couple of generations, the ruler of the land (which may be an undead of the free willed kind by now) will have too many skeletons for his patch of land, so logically he would use his excess to wage war and get more land. Low level clerics could easily turn or destroy the invading force, but low level adventurers could kill all enemy clerics in advance. In the end, we see economy do changes the face of the world where we live, mix magic and economy and you might not get something pretty.