Worldbuilding an economy: trade, money and scarcity

An economy for a story is four decisions: what people pay with, who makes it, who is allowed to buy what, and what is scarce. In most novels a simple system that readers already understand is enough, such as coins of precious metal in fantasy or credits in science fiction. Build more only when the plot turns on money, trade or hunger, and when you do, check that your magic and your markets do not contradict each other.

Economy is one of four layers of a society, with worldbuilding religion, worldbuilding politics and government and worldbuilding culture. For the overall question of how much to build, see worldbuilding for novelists.

How much economy does your story need?

A Mythcreants editor, answering a reader's question about fictional economies and currencies, says economies are like calendars and sewer systems: incredibly important and easy to take for granted. In most stories, they say, you can use a simple system readers are comfortable with. If your story focuses on the setting's economy, or you want a realistic system under the hood, there are a few things to keep in mind.

What money does

Wikipedia defines money as any item or verifiable record generally accepted as payment for goods and services and repayment of debts. Its main functions are medium of exchange, unit of account and store of value. As a medium of exchange it avoids what Wikipedia calls the inefficiency of barter, where one party may not have or make the item the other wants.

That function gives you a way to explain money inside your world: what problem does it solve for these people? In a small community, Mythcreants says, currency is not really needed, because people can get by on a system of exchanged favours. In a more connected world there are too many people to remember who owes whom, so currency becomes important.

Sources disagree on one point. Mythcreants says that, contrary to popular belief, barter is not an intermediate stage between favours and currency, because it is too unwieldy at scale. Wikipedia says barter is considered one of the earliest systems of economic exchange, used before money was invented, and that it reappears in times of monetary crisis, such as hyperinflation. If your plot is set in a collapse, barter is plausible. If it is set in a stable city, you probably want money.

What makes a currency believable

The Mythcreants editor lists properties a currency needs:

• Fairly common but not too common. Rocks are everywhere, and uranium is nowhere.
• Durable. Money that keeps breaking is no good.
• No other uses. Iron makes a poor currency because people turn it into horseshoes and swords. There are exceptions, such as tea as a stop-gap between merchants of different countries.
• Pretty, which is not required but is common.

Wikipedia gives real examples of how this has gone. Many cultures used commodity money. The Mesopotamian shekel was a unit of weight, relying on the mass of about 160 grains of barley, and societies in the Americas, Asia, Africa and Australia used shell money, often cowry shells. Gold and silver merchants issued receipts for deposits, and those receipts eventually passed as money. Paper money was first used in China during the Song dynasty, where banknotes called jiaozi evolved from promissory notes and were used alongside coins. Most modern money, Wikipedia adds, is fiat money, whose value comes from social convention and a government's declaration.

Who makes the money

For currency to be taken seriously, whoever makes it has to be pretty powerful, otherwise it is worth only what it is made of, Mythcreants says. Paper money needs a strong central authority with some restraint about how much it prints, or you get runaway inflation, which has happened several times in history. So when you invent a currency, you also invent its issuer: a king, a guild of merchants, a temple, a bank. That ties the economy to politics.

Who can buy what

The same editor says to think about who has purchasing power and how much. Is wealth shared, or do the rich hold most of the cash? Pre-modern societies sometimes had a merchant class that handled commerce for the nobility while the nobility kept power. And consider how restricted the economy is. We are used to anyone with money being able to buy nearly anything, but historically purchasing power was often limited to the elite. Feudal peasants were often banned from buying various things, and the Incan Empire exercised such tight state control that most people never bought or traded for anything in their lives.

The way an economy distributes resources also shapes culture. A Mythcreants article on realistic cultures asks you to consider work roles (family position or market value), the distribution of resources (to winners, to the productive or to the needy) and the primary goods and services. A farming society treats the extended family as the main economic unit, while in an industrial one it is the individual. Worldbuilding culture goes further.

What is scarce

If something is not scarce, it probably is not going to cost much. The editor's example: if wizards or replicators can create food from nothing at no cost, food is likely extremely cheap or free. People sometimes impose artificial scarcity on things that are not scarce, like the sale of digital files, but it rarely lasts. This is the question that connects your magic system to the economy. Whatever magic makes cheap, someone has to pay for something else instead. How to create a magic system covers costs and limits.

Writer's Digest's Greta Kelly makes a related point about resources that cause conflict: people have fought over water, oil and iron for ages, so why would magic not be another natural resource to exploit? In her novel, who has magic and who wants it is a central conflict.

Four mistakes to avoid

Mythcreants' article on fictional economies that do not make sense gives four cautionary tales:

1. A strong currency treated as worthless. In The Phantom Menace, a parts dealer on Tatooine rejects Republic credits as no good out there. The author argues it should work the other way: currency from a strong, stable state is worth more in poorer places, and money changers always exist.
2. A currency with no issuer. In the Fallout games, bottle caps work as currency in one region because merchants there were powerful enough to get others to use them. The article says they would not work in a distant region with no central authority, because a currency needs intrinsic value or a powerful authority behind it, and bottle caps become worthless once someone learns to make a metal press.
3. Two societies with no trade. In the Harry Potter books, magic and non-magic people live side by side, yet there is almost no exchange of goods. The article says that in a rational world there would be cross-society trade, with black markets even if it were forbidden.
4. Post-scarcity that acts scarce. In Star Trek the Federation is often described as post-scarcity, with replicators and no money, and yet refugees near its border live in poverty and are grateful for blankets.

The pattern: each is a rule the world sets for itself and then breaks. Readers, the article says, realise something is not right even when they cannot name it.

A small example

Say your story has a river town where every boat must pay a toll at the weir. Who built the weir, and who collects? Suppose the town council does, in silver stamped with the weir's mark. That makes the council the issuer, so a rival town's silver is worth less, and a smuggler has a reason to pay in goods. Four questions, and you have a currency, an issuer, a restricted market and a crime. You can stop there until a scene needs more.

Frequently asked questions

Do I need an economy for my fantasy novel?

Every world has one, but most stories only need a simple coin system. Mythcreants says to use a system readers are comfortable with unless the setting's economy is central.

How do I create a currency?

Choose something fairly common but not too common, durable and with no other use, then decide who makes it and why people trust it.

Is barter realistic?

Sources differ. Wikipedia says barter is among the earliest exchange systems and returns in monetary crises. Mythcreants says it is too unwieldy to work at large scale and is not a stage between favours and money.

How does magic affect an economy?

If magic makes something easy to produce, that thing will probably be cheap or free. Think about what remains scarce.

What are the most common economy mistakes in fiction?

Mythcreants lists treating strong currency as worthless, currencies with no issuer, no trade between neighbouring societies and post-scarcity worlds that act scarce.

Where Musael fits

A writer who has thought about what things cost writes scenes where the stakes can be felt. In Musael's world and characters codex, a currency, a guild or a trade route can each be an entry, linked to the people and places it touches. Continuity checks let you pin a rule you set, for example what a loaf of bread costs, and catch a draft that quietly changes it.

Sources

• Mythcreants, "What Should I Consider While Creating a Fictional Economy?": mythcreants.com
• Mythcreants, "Four Fictional Economies That Don't Make Sense": mythcreants.com
• Mythcreants, "Creating Realistic Cultures": mythcreants.com
• Wikipedia, "Money": en.wikipedia.org
• Wikipedia, "Barter": en.wikipedia.org
• Greta Kelly, "When Cultures Collide: 3 Ways to Create Tension in Worldbuilding in a Novel", Writer's Digest: writersdigest.com