Trade theory question

Hi all, what's your thoughts about how trade is implemented in the game?

My assumption is that if Russia invested in Siberian fur trade and opened up trade missions in say Europe then that would replicate exporting Russian furs to Europe. Is this assumption, in your opinion, correct or should Russia invest in furs in Europe to sell Russian furs there?

I would then assume if Russia wanted to invest in importing Scottish whiskey for example then Russia would invest in Maritime Europe whisky trade and open trade missions in Russian towns or does it not work that way for making these goods available?

I realise Scotland could invest in whisky Maritime Europe trade and open trade missions in Russia as a way to get whisky into Russia if my first assumption is correct

Not planning to invest in whisky as obviously the Romanov Imperial vodka brand is superior to anything Lord Melville might toast with

You will probably find many different opinions about trade - plenty of topics devoted to this on the forums have generated ideas, but curiously players are less willing to inform us how effective they are when implemented.

I think your original assumption was correct.  You invest in Siberian fur trade (or even in creating habitats/breeding animals for fur) which counts as a domestic trade investment.  Then if you want to export the surplus you would instruct your trade missions (in whichever country they are) to market Siberian furs.

If you want to increase imports of a particular product then again I would use your trade missions based in (for example) Scotland and instruct them to either buy what you want locally up to a specified limit, or just issue a general order to buy Whisky through Scottish trade missions located in Russia.  It isn't easy to make an investment 'trading' whisky, though, when you aren't either the producer or end consumer.  I did try this in one game and the returns were very low, probably because merchants are smarter than rulers when it comes to making returns in specific trading products.

A supplementary point you might like to consider is whether returns from trading specific products are greater than returns from trading unspecified (general) products.  I don't have an answer to this.  I tend to invest in 'general' products unless players specifically request otherwise, leaving the detail up to merchants who know the local supply/demand situation better than I do.  Others either push the products they think they have a competitive advantage at producing or that they think they have a monopoly in.  I suppose it also comes down to whether state investments help an industry or simply replace smaller scale production with larger scale production.  I don't think it can always be assumed that big is better, nor that how trade develops is unrelated to tax returns.  To give just one historic example, in Scotland much of the domestic economy was based around small scale crofting, with home-based production of wools/tartans.  This kept much of the wealth generated in the Highlands and allowed more people to live on the land.  But with rising demand for wool, people were driven off the land to make room for sheep; production was concentrated in mills and factories and the wealth moved there - the cottage industries disappeared.  Clearly this did have an impact on the earnings (and tax revenues) from the Highlands, and even today the effects are felt.  From a productivity viewpoint, it made sense to concentrate on mills and 'invest' in large scale textile manufacture, but while a few industrialists grew wealthy, the general population struggled.  I would be surprised if there was not a similar mechanism in the game applied to economies concentrated on specific products at the expense of 'general' trade.

My instinct is that general products are safer because if you base your economy on (for example) whisky, then that investment is very vulnerable to either extra taxes from countries producing other alcohol-based products, or even Islamic nations (who don't drink) subsidizing competitor products and driving down your returns.  'General' products cannot be targeted in the same way, and pirates/corsairs and other undesirables find it almost as frustrating to capture ships full of 'general' goods as they do fish.

Of course Russia may be of such a size that none of this is likely to have a big impact, but I would personally be uncomfortable risking my economy on a handful of named products without being very sure how to counter any negative side-effects.

Marshal Bombast wrote:Hi all, what's your thoughts about how trade is implemented in the game?

My assumption is that if Russia invested in Siberian fur trade and opened up trade missions in say Europe then that would replicate exporting Russian furs to Europe.  Is this assumption, in your opinion, correct or should Russia invest in furs in Europe to sell Russian furs there?

I would then assume if Russia wanted to invest in importing Scottish whiskey for example then Russia would invest in Maritime Europe whisky trade and open trade missions in Russian towns or does it not work that way for making these goods available?  

I realise Scotland could invest in whisky Maritime Europe trade and open trade missions in Russia as a way to get whisky into Russia if my first assumption is correct

Not planning to invest in whisky as obviously the Romanov Imperial vodka brand is superior to anything Lord Melville might toast with

I may be wrong but I was under the impression that trade missions helped your trade in the particular region in which they were located.

So a Russian Trade mission in say London or Edinburgh would have no effect and just be a waste of funds if you made no investments in the maritime region and all your investments in Eastern Europe or Far East (is Siberia East Europe or Far East in game?).

So if you want to replicate Russian Fur exports think you should have investments in Siberia to represent the trapping and collection of the furs for your home market. Then if you want to export some of your furs you need further investments/trade missions in the areas to which you wish to trade your furs.

I would also seek to make matching trade investments to show what Russian merchants are bringing back ie Tea from China. Or Wine and Woollen cloth from the Maritime regions.

Tend to agree with Papa Clementi that difference between "General Goods" and "Specific" trade in terms of actual returns is probably minor and in terms of income is not really worth worrying about. So players can either take view that their Noble character is above such matters and he has stewards and merchant dealing with such things.

Or if they are interested in such things taxes and transit fees on Russian furs going across Swedish territory to the Baltic or down to Constantinople and out into the Levant can end up setting Russian foreign policy.

Papa Clementi would no doubt say that G7 Spain is a extreme example of this type of position being basically a trade company with a Monarchy attached which sometimes recalls it is Catholic. But basically offer it good trade terms for its Tobacco, Sugar, Wine etc and its friendly. But put 50% tax on its Tobacco or 250% duty on its Sherry and it can get really hostile.

Stuart Bailey wrote:I may be wrong but I was under the impression that trade missions helped your trade in the particular region in which they were located.

So a Russian Trade mission in say London or Edinburgh would have no effect and just be a waste of funds if you made no investments in the maritime region and all your investments in Eastern Europe or Far East (is Siberia East Europe or Far East in game?).

So if you want to replicate Russian Fur exports think you should have investments in Siberia to represent the trapping and collection of the furs for your home market.  Then if you want to export some of your furs you need further investments/trade missions in the areas to which you wish to trade your furs.

Trade missions in foreign countries are primarily to help your exports and as Stuart says they work best if you have an investment in that trade area (or a market is open to you).  Doesn't always work, of course, if for example your trade mission is battling against hostile diplomacy, war, or the actions of competitors.  But I do think it is wrong to view trade as simply being about exports since trade is about building up contacts/relationships, a two-way operation, so the staff of a trade mission can be given orders to facilitate imports if there is something specific that you are keen to buy.  Whether they are as successful at this as generating exports is another matter, but in principle I don't see why a Russian trade mission in Scotland could not make contacts with whisky merchants and arrange whisky imports into Russia, or on a small scale that the staff at the trade mission would not send the Tsar a few bottles of whisky in thanks for his support!

Stuart Bailey wrote:I would also seek to make matching trade investments to show what Russian merchants are bringing back ie Tea from China.  Or Wine and Woollen cloth from the Maritime regions.

Tend to agree with Papa Clementi that difference between "General Goods" and "Specific" trade in terms of actual returns is probably minor and in terms of income is not really worth worrying about.  So players can either take view that their Noble character is above such matters and he has stewards and merchant dealing with such things.

Or if they are interested in such things taxes and transit fees on Russian furs going across Swedish territory to the Baltic or down to Constantinople and out into the Levant can end up setting Russian foreign policy.

I think (but might be wrong) that in the days of the old economic report, finding out which products others traded (or which were the top products traded in a particular trade area) was much easier.  Now it is certainly more difficult.  So although making matching trade investments to give 2-way cargos for your ships is the ideal, in practice that level of direction may be difficult.

It does link in to how each player views trade.  Do you only export your surplus, or specialise?  And if you are serving a booming export market (EH10) while your own domestic market is struggling (EH3), then your merchants are unlikely to find sufficient demand for goods to bring back to their home market to sell at a profit, so they may make profits on exports, but lose money on imports.  It  may be that it would be more profitable for them to charter their ship to carry 3rd party cargo to a 3rd country and deliver it on the way back home?  Merchants know this, but players generally won't, so leaving it to merchants may generate higher profits.

Thanks Stuart and Papa for your helpful insights.

Have either of you got the most recent supplement Court Circular? I'm pondering how the Wealth of Nations research would affect your world view or whether you'd ignore them and let your merchants generate the wealth as they know best still applies?

Marshal Bombast wrote:Thanks Stuart and Papa for your helpful insights.  

Have either of you got the most recent supplement Court Circular? I'm pondering how the Wealth of Nations research would affect your world view or whether you'd ignore them and let your merchants generate the wealth as they know best still applies?

Have not yet got the new supplement .......but will add it to the collection. Might even give some fine upstanding French Sailors a clue as to why they never seem to capture any high value cargo.

Marshal Bombast wrote:Thanks Stuart and Papa for your helpful insights.  

Have either of you got the most recent supplement Court Circular? I'm pondering how the Wealth of Nations research would affect your world view or whether you'd ignore them and let your merchants generate the wealth as they know best still applies?

I have 'Court Circular', which despite (thankfully) being much shorter than The Miscellany, does contain some rather interesting twists which make it well worth studying.

Does 'Wealth of Nations' research 'affect my world view' or change my appreciation of trade ... probably not, for reasons detailed below.

I think 'Wealth of Nations' research as per the rules is more of a general summary of moving 'economics' into the 19th century, than sticking closely to Adam Smith.  Trying to understand how this fits in with the way economies work (in the game) without 'Wealth of Nations' research is trickier.  I should stress that this explanation is based on my own opinions developed over the years and is not intended to be a complete treatment of the question which is as interesting as it is complicated:  

1. It is important to remember that economics didn't really exist as a discipline until much later than 1700.  Adam Smith thought of himself not as an economist, but as a philosopher, associate of Hume, and before he turned his attention to trade theory, he wrote a moralistic tract typical of protestants of his time and tradition.  Combine these influences and WoN can almost be seen as the kind of self-justification protestants produce from time to time, containing largely incomprehensible drivel which is misunderstood by those who try to read it.

2. WoN was written partly as a rebuttal of Colbert who was Louis XIV's treasury minister.  It is probable that it was Colbert's ideas on economics that are the dominant pre-WoN research breakthrough ideas in LGDR.  Colbert was above all practical, and although he did recognise the economic value of Huguenots he did remain Catholic.  Colbert's primary function was to find the money to pay for Louis' wars, and he did this very successfully within the prevailing philosophies of the French State.  It is significant that France has always been a rich country, whereas Scotland has always been a poor country.  The French view (which really achieved its form under Louis) was that all the wealth of the country belongs to the state, and individuals are then allowed to keep whatever scraps they earn after the state has been satisfied.  Contrast this with the view in Scotland/England etc, that individuals are entitled to keep as much of their income as they can and that the state can only collect taxes from the people under certain conditions (not least of which is the principle of consent, by 1700 through Parliament).  I appreciate that this is a simplification, but it does show a fundamental philosophical difference and a difference of purpose which ultimately were given form by Colbert and Smith.

3. Now the controversial bit ... trade theory (I don't really like using the word 'economics' at this time) was a branch of government; trade was valued because of its ability to be taxed, not for any positive benefit in itself (such as employment, the increase in wages, general benefits to societies, etc).  Economics developed from the history of taxation, which in turn depended on rulers and their ministers pushing the boundaries of what some earlier ruler had done in an 'emergency'.  It was a top-down approach which brings its own difficulties.

4. The economy Colbert was taxing was in a sense more primitive - he promoted policies which supported a centralised state, so built roads, canals, concentrated on indirect rather than direct taxes, and helped develop fledgling industries.  Within France he tried to create what we would now call a 'single market', with minimal taxes, but protected that 'single market' with higher tariffs.  Why?  Because his primary purpose was to take a cut from trade within France, so sought to increase the quantity and frequency of domestic trade, only exporting a surplus.  He did not try to change the behaviour of merchants or model how trade happens.

5. Smith did, and that is either a strength or a weakness of his approach depending on your view.  Smith was writing a century after Colbert and WoN was published just before the French Revolution; economies had changed.  Influenced by Hume, Smith asserted that people act rationally; his model of supply and demand is based on this frankly incorrect view of human behaviour.  As we have seen during this pandemic, with very few exceptions business owners do not simply liquidate their companies without being forced into it - they are determined to remain in business even though there is temporarily excess capacity within that particular industry; they value the teams they have built around them and feel some responsibility towards their employees.  Human motivations and consequent behaviour is driven by far more than cold logic and self-interest.  Smith was unable (or more likely unwilling) to appreciate that his model was less than perfect, so in typically 'enlightenment' style proposed that anything that distorted the mathematical perfection of his model or caused it to function as he did not expect it to, should be eliminated.  So tariffs should be reduced and he attacked collusion (by labour or employers), monopolies, etc.  Some of the suggestions for reform may well be correct, but the reasoning behind them is not.  The ideas gained credence during the Napoleonic wars and were seen to 'work' because the Royal Navy kept British trade flowing globally whilst Napoleon imposed a version of Colbert's ideas on conquered French territories across Europe.  Did this make Smith right?  I suggest not, but it did make his ideas the basis of a new economic orthodoxy which inspired many others to make similar mistakes and when combined with his reductionist protestant view of people as machines, the economy came to be viewed as a machine which could be optimised mathematically and would give certain outputs if the right instructions were provided.


You can probably tell by now that I don't like Smith or WoN.  I can't go as far as to say it was a dead end, but it is one of those books that did far more damage than good.  The first proper economist, in my view, was Ricardo (a generation later than Smith) whose major contribution was the theory of specialisation and relative advantage which is included in the 'WoN' research breakthrough.  It was Ricardo who gave a much more robust treatment of both economics and investment theory, from different foundations (possibly because he was the son of a Jewish stockbroker and had learned from an early age how supply and demand really work and what drove them through practical experience rather than falling into Smith's trap of asserting an idealised model and trying to use it to describe something to make moral points).  This practical experience gave him the starting point of looking at how and why individual merchants do business, then building up his understanding to look at economies as a whole (from the perspective of how to help individual merchants to build up better businesses), so can be described as a bottom-up approach.  He also asked 'what generates trade' rather than 'what generates tax', so although Smith is credited for coining some of the phrases/language associated with economics, it was Ricardo rather than Smith who really created economics in this the early period.  I have much more time for Ricardo than I do Smith.

Of course there are problems with Ricardo - all economic theories can be considered no more than 'work in progress', which more often than not are commissioned or encouraged by governments who then use them to inflict their ideas on their unfortunate citizens.  Top-down economics tends to be inseparable from politics (a point forcibly made by Pope Francis in his new (and somewhat controversial) Encyclical 'Fratelli Tutti', published a few days ago, explosively critical of certain trends and attitudes relevant to the US election).   It is relevant to the current discussion because the more economic models have been proved to be either incomplete, irrelevant or to have failed (often through poor political interpretation of those models/theories), the more governments seek to take more radical control of their economies, claiming 'the market' has failed, rejecting Smith and Ricardo, and returning to ideas based on Colbert.   What Catholic Social Teaching (in the more recent post-war developments, and reflected in 'Fratelli Tutti') has not fully appreciated is that states are themselves economic monopolies, possessing as they do a monopoly of taxation powers within their borders, enforced through force, and are part of the 'problem'.  To be fair Pope Francis devotes far more time to the political side than economic theory, but by insisting that governments need to be part of the 'solution', he risks falling into a similar (idealistic) trap to Smith in expecting governments to suddenly adopt solutions which are no more evident to the church than they are to governments of all political persuasions.  Neither the Gospels, nor Christian Tradition, can be considered a treatise on economics or a book of instructions to show nations how they can raise money through taxes to pay for war.  To draw out any such message concerning economics within the literary confines and style of a Papal Encyclical is more likely to confuse than illuminate given the economy of Judea 2000 years ago is incomparable to the complex global economy we have today.  It is also inevitable that passages will be quoted out of context and used by politicians to support whatever economic ideology they are slaves to while trying to gain the 'catholic' vote.

Smith and Ricardo both denounced monopolies (and their near equivalents), for slightly different reasons, and saw the accumulation of private capital to be a necessary counterweight to the monopoly power of states.  Ricardian bottom-up economics inevitably therefore favours the 'free market', individual choice and lower taxes.  They would recognise that the solution to the problems caused by national monopolies cannot be to create a single international monopoly, and they would be horrified by the latest economically illiterate garbage promoted under the label 'modern monetary theory' which amount to a complete rejection of the purpose of trade (as understood 1600-2008).  If the state need not raise any money from taxation because it can simply print all the money it needs to pay its bills, then the value of money to an individual is diminished to the point where economic activity becomes meaningless.  The citizen is obliged to undertake pointless tasks to be paid in tally tokens only redeemable by the government which issues them.  It goes way beyond the financial attrition of zero (or negative) interest rates, or the debasement of currency, to be an attempt to deny the value of trade.  Whether it would ever succeed if tried without also creating a black market based on barter or alternative currencies, is unclear.  It is striking that in economies that have collapsed (through currency debasement, enemy occupation, etc), trade still continues in some form whether governments permit it or not - the difference between legal and illegal trade is merely a matter of law.  It is the oldest rule in business that where there is a customer, someone will supply their need.  It may not be a fashionable view, but the overwhelming evidence is that some variant of Ricardian bottom-up 'free market' economics more accurately allows more people to satisfy more of their needs than any other economic system yet devised.

The extent to which any of this is reflected in LGDR, I don't know.  Perhaps some adventurous player will follow Douglas Adams' solution in Hitchhiker's Guide and introduce the leaf as a currency? Would we see an inflation problem develop and would the player start burning down forests to bring supply and demand back into equilibrium?  I can think of a few who are crazy enough to try it.

Speaking as player of yea Olde tree lover and mad goat hater of old Madrid town in G7 can I just say that I object to any mention of tree burning! Just in case it gives people idea's.

Ok so its going to take 20-40 years for a Olive tree to get to maturity and 40 to 60 for Oaks and most wood used in ship building or furniture making so the hundreds of thousands of pounds spent on planting tree's is only another form of poor relief.  

But I like the idea of planting tree's for the kids.........basically it gives an impression of the Hapsburg family digging in for the long run.  Spanish succession crisis......what Spanish succession crisis?!

Actually while Spain in G7 is a free trader (for political reasons) it does have an ultra protective policy towards its Cinchona tree's and will not trade them.

Turning back to Trade theory I think Colbertism (sometime known as Mercantilism) and the Free Trade Theories often linked with Adam Smith as the opposite ends of the spectrum:

- In Colberts thinking all trade has winners and losers so you should only really encourage trade which is going to be of guaranteed benefit to your country.  This would basically be internal manufacturing, trade with your own colonies and if you really must have trade with foreign parts it should be aimed at bringing in raw materials you can not produce yourself and which you can then export at a profit after adding value.  Typically a nation's manufacturing base and home market is protected with high tarrifs and rivals made less of of threat in other markets by military or political means.

I found sinking the whole of the Venetian merchant fleet in the port of Venice, prior to burning Venice to the ground and sewing the ground with Salt was a really effective way to divert the Levant Trade into the hands of those spiffing chaps in ACME (The Athens Corporation of Manufacturers and Exporters) while some people have even hinted at the Hon East India Company in scabble is a bit that way as well.

- While free trade theory in contrast views all trade as "good" with healthy competition meaning the most effecient producers in every given product come out on top resulting in the most effecient use of resources and greater wealth/good for all.

Think its fair to say that free trade does produce greater wealth, but question if it result's in greater wealth or "good" for all?  Or just some?  Since clearly greater effeciency in textile production was not good for hand loom weavers.  While even trade in which seemingly both sides "wi" can have side effects such as the spread of small pox amongst Indian tribes in North America following the fur trade or the loss of Crofts in the Highlands and Serf freedoms in Eastern Europe as landlords switched land to more profitable sheep farming and large scale grain production for export.

But getting away from the question of is trade a general good and something to be encouraged, or is it a risk which needs to be watched.  As a rule of thumb players should consider the following when adopting a trade policy for their position:

- Free trade favours very effecient traders and producers into this catagory........in 1700 I would put UDP, England, some of the Italian and Western German states, China, Japan and India into this group.

- For your home Industry to get maximium benefit from the protection of high tarrifs you really need to have a large home market and have no real need to import very much.  France, Austria, Prussia and the Ottomans would seem to benefit most from offering protection and help to their own not very effecient producers and keeping others out.

- The other question is how much of your government revenue comes from taxation of foreigners?  If you are Denmark pocketing sound tolls, a Western German state pocketing tax on Rhine river traffic or Sweden pocketing 10-15% of mostly Russian and Polish trade due to control of Riga etc the last thing you want is "free" trade.  

Finally for most positions politics tends to trump economic/trade considerations.  Thus you may wish to protect and nuture your fragile home production  but in you want good relations with the English and the Dutch you are going to have to allow at least elements of free trade.  While in the Baltic in G10 the Swedes have given up their tolls on Russian trade in order to keep the Czar sweet while they are otherwise occupied.  Meanwhile Danish sound tolls are under close consideration by both "free trade" powers like England and "mercantile" powers like France.  Thoough it probably should be noted that Lord G view of free trade tends to mean free trade for English merchants rather than free trade for everyone.

Spain in G7 was another power which might well have gone (or stayed) mercantile but through upon its markets including colonial ones for out and out political reasons.  The poor textile industry of Saville etc was left to sink or swim in the tide of free trade because Madrid needed to buy political support for the Spanish succession and Spanish Industry always struggled to supply the colonies so by making sure the American colonies get well supplied with anyone who showed up it kept them happy as well.

In theory you make much more money keeping all your raw cotton and tobacco etc to process yourself but another theory is that if say merchants from Austria, Genoa, Rumelia, Sweden etc all sail off to the America's and buy raw tobacco to process at home they make most of the profit say 40 - 60.  But the trick here is volume 4 X 40 = 160 better than every one elses 60 or even 100 if you keep all the trade.

To a degree this question of max profit from small high value cargo's v baulk trades reflects the development of many trades in the hundred years up to the French Revolution.  In the 1680's both tea and sugar were high status imports sold only to the well off.  By the 1780's they had become staples of certainly the English Diet and the HEIC was well on its way to being the greatest economic power (by percentage of world trade) that the world has ever seen.

My own view is one economic approach is not better than the other in game.  The important thing is to have a logical economic plan for your position can stick to it!  Basically merchants and economic health seem to like stability in taxes, governments and policy, as Papa Clementi is fond of saying they probably know better than governments.  But clearly stability and knowing what to base their plans on helps both merchants and manufactureing.

Stuart Bailey wrote:Speaking as player of yea Olde tree lover and mad goat hater of old Madrid town in G7 can I just say that I object to any mention of tree burning! Just in case it gives people idea's.

As we both know, Stuart, there was once one player who decided that he would 'develop' islands in the Caribbean by paying for 'forest clearance', thereby removing local sources of timber not just for cooking, but also ship repairs.  Whether the thinking was that he would import timber from Canada instead and therefore switch from Colbert to Ricardo overnight is unknown, as is whether the land gained was able to expand sugar or grain production.  It may have been a spectacular success, but somehow I doubt it.

Trees are rather useful in hot climates to provide shade and landmarks for buried treasure.

Had to smile a little bit this morning when Attenborough was quoted by the BBC: "Speaking personally and frankly, Sir David explained, "We are going to have to live more economically than we do. And we can do that and, I believe we will do it more happily, not less happily. And that the excesses the capitalist system has brought us, have got to be curbed somehow.  That doesn't mean to say that capitalism is dead and I'm not an economist and I don't know. But I believe the nations of the world, ordinary people worldwide, are beginning to realise that greed does not actually lead to joy."  The piece was presented as yet another denunciation of capitalism, despite the key admission that "He is not an economist and he doesn't know!"  Environmentalism has always been more to do with politics than the environment, since if its proponents had backed the technologies available decades ago the planet would be much cleaner today, and 'environmentalists' would have to target another ideology they didn't like. They should really be seen as heirs of the 19th century professional revolutionaries/anarchists who went around Europe trying to bring down governments.

Stuart Bailey wrote:Turning back to Trade theory I think Colbertism (sometime known as Mercantilism) and the Free Trade Theories often linked with Adam Smith as the opposite ends of the spectrum ...

Not really the point I was making, which was that Mercantilism vs Free Trade were the results of asking different questions from different viewpoints and with different purposes.  They also examined different types of economies in different time periods.  One should not be seen as a development of the other since both may work within certain conditions.

Looked at in this sense Stuart and I are actually not that far apart.

Free trade certainly benefits the stronger and larger producers more, but all traders value security of supply.  It is an inherent choice whether that security of supply is best served through giving preferential terms to your own colonies or whether you form political arrangements with friendly foreign governments and rely on trade bonds to form an integrated multinational trade block.  In the LGDR period security of supply was primarily gained through conquest rather than co-operation, and this remained the case for 200 years.  Even England (which to an extent used its naval power to protect merchant shipping and thereby make free trade a more viable option) continued to prefer to obtain most of her resources through her own colonies.  So the 2 sets of ideas can co-exist.

Stuart Bailey wrote:Think its fair to say that free trade does produce greater wealth, but question if it results in greater wealth or "good" for all?  Or just some?  Since clearly greater efficiency in textile production was not good for hand loom weavers.  While even trade in which seemingly both sides "win" can have side effects such as the spread of small pox among Indian tribes in North America following the fur trade or the loss of Crofts in the Highlands and Serf freedoms in Eastern Europe as landlords switched land to more profitable sheep farming and large scale grain production for export.

But getting away from the question of is trade a general good and something to be encouraged, or is it a risk which needs to be watched.  As a rule of thumb players should consider the following when adopting a trade policy for their position:

- Free trade favours very efficient traders and producers into this category........in 1700 I would put UDP, England, some of the Italian and Western German states, China, Japan and India into this group.

- For your home Industry to get maximium benefit from the protection of high tariffs you really need to have a large home market and have no real need to import very much.  France, Austria, Prussia and the Ottomans would seem to benefit most from offering protection and help to their own not very efficient producers and keeping others out.

I think the efficiency point in 1700 is marginal and only really became important a century later.  The labour content in manufacturing remained very high with no significant labour shortages driving technological change until much later.  The adoption of machinery allowed greater output, but the critical driver in the success of English trade was our ability to go out and develop markets for our goods whereas many other countries just didn't realise the importance of this.  If the overall market can be rapidly expanded then even inefficient producers will benefit.

Stuart Bailey wrote:- The other question is how much of your government revenue comes from taxation of foreigners?  If you are Denmark pocketing sound tolls, a Western German state pocketing tax on Rhine river traffic or Sweden pocketing 10-15% of mostly Russian and Polish trade due to control of Riga etc the last thing you want is "free" trade.  

If anyone can figure out what the 'foreigners' tax figure actually means then they are doing better than I am.  There doesn't seem to be very much consistency across all the different countries I've looked at.  It might related to transit tariffs, but some clarification in the rules on this point would be appreciated.

Stuart Bailey wrote:Finally for most positions politics tends to trump economic/trade considerations.  Thus you may wish to protect and nurture your fragile home production  but in you want good relations with the English and the Dutch you are going to have to allow at least elements of free trade.  While in the Baltic in G10 the Swedes have given up their tolls on Russian trade in order to keep the Czar sweet while they are otherwise occupied.  Meanwhile Danish sound tolls are under close consideration by both "free trade" powers like England and "mercantile" powers like France.  Though it probably should be noted that Lord G view of free trade tends to mean free trade for English merchants rather than free trade for everyone.

Spain in G7 was another power which might well have gone (or stayed) mercantile but through upon its markets including colonial ones for out and out political reasons.  The poor textile industry of Saville etc was left to sink or swim in the tide of free trade because Madrid needed to buy political support for the Spanish succession and Spanish Industry always struggled to supply the colonies so by making sure the American colonies get well supplied with anyone who showed up it kept them happy as well.

In theory you make much more money keeping all your raw cotton and tobacco etc to process yourself but another theory is that if say merchants from Austria, Genoa, Rumelia, Sweden etc all sail off to the America's and buy raw tobacco to process at home they make most of the profit say 40 - 60.  But the trick here is volume 4 X 40 = 160 better than every one else's 60 or even 100 if you keep all the trade.

To a degree this question of max profit from small high value cargo's v bulk trades reflects the development of many trades in the hundred years up to the French Revolution.  In the 1680's both tea and sugar were high status imports sold only to the well off.  By the 1780's they had become staples of certainly the English Diet and the HEIC was well on its way to being the greatest economic power (by percentage of world trade) that the world has ever seen.

My own view is one economic approach is not better than the other in game.  The important thing is to have a logical economic plan for your position can stick to it!  Basically merchants and economic health seem to like stability in taxes, governments and policy, as Papa Clementi is fond of saying they probably know better than governments.  But clearly stability and knowing what to base their plans on helps both merchants and manufacturing.

I do think you have to look at the nature of your economy and either:
1. adopt a trade policy which will fit with the structure of that economy; or
2. change the economy to fit the trade/political policy you decide to adopt.   

So for a plantation-based economy heavy on raw materials, you might do well supplying those raw materials to other countries rather than focusing on higher end finished goods.  But if you do that then you will also have to invest heavily in slaves/infrastructure.  It would be pointless Venice trying to set up a sugar-growing operation in the Caribbean to compete against Spain, but it may make sense for Venice to invest in sugar refining and produce rum which she could store in her own bottles and thereby stimulate her own glass industry.

One of the first things I do when I take on a new position is to look at which bits support each of these choices.  It is generally easier to go for option1, which may mean colonies which do not fit are sold or traded for those which are a better fit.  Not every position has that level of flexibility, but then that is partly down to the reason individuals choose positions and their own game objectives.

Trying to replicate England's trade dominance in the 1800s by adopting similar policies may be possible, but would take an awfully long time and I don't think the economic models used in the game are sophisticated enough to give players that level of detailed control.  So yes, although it is an interesting debating topic, I would be inclined to leave most things to merchants rather than agonise over the minutiae of which precise blend of tea is favoured in Siberia.

In reply to the question "which brand of tea is favoured in Siberia?" - The answer is any since after the add Yaks butter and Vodka to give it a bit of a kick you can not taste the actual tea.

In scrabble however your true gentleman only drinks Assam or English breakfast in the Morning and Darjeeling in the Afternoon. None tea drinkers are not true gentlemen and their opinion does not count.......by order of Lord Derby.

As a supplementary question to this topic, I wonder whether players have experimented with extreme tax rates and what the impact on their economies was?

This table is based on a standard 1M population country and what I think is a normal starting £/head. The proportion of population across classes seems to be fairly constant as does the starting tax rates:

   Rate  Population £/head Tax
Nobles 5%     50000       £100         £250,000
Church 5%   100000         £20         £100,000
Commoners 10%   850000          £1          £85,000
Foreigners 10%

The 'foreigners' tax seems to start at 10%, but the amount is variable so I haven't included it.  But if Stuart is right about it being a 'transit' tax and that it should be encouraged, logically foreigners tax should be set to zero to build it up.

Most players automatically want to cut taxes on nobles, but if taxes on nobles and church were increased to 10%, then this would nearly double overall tax receipts.

I just wondered whether players have experimented by driving up tax rates on nobles to 20%, 30%, even 40%?

This might sound like a stupid thing to do, but remember 'nobles' tax is the tax on land (it just happens that nobles own most of the land).  So if the idea is to stimulate manufacturing and trade, it might make sense to increase taxes on 'land'.  Farmers should still plant crops even at high tax rates because this is still bringing revenue in, otherwise they are stuck with an unproductive asset.

Running an economy at extreme tax rates and investing the surplus in trade/factories might be a way to rapidly build up trade (and increase the earnings of commoners)?

Or looked at the other way, if you are trying to build up a trading position, then reducing tax on nobles to 0% may actually impede that objective by encouraging investment in land?

This is pure speculation and I'm not advocating such large changes since it would no doubt cause rather a lot of disruption and upset nobles; I'm just curious how far other players have departed from the 'normal' tax rates?

After the liberation of Hungary and the Austria in G2 applied 50% tax rate on the Roman Catholic Church (5% for Unitarian Church's which followed Catholic ritual but broke with the Pope, Orthodox, Protestants, and Mosques......nothing like a subtle hint) also applied the same 50% rate on Shia Orders and other fanatic religious types who did not like my character in Anatolia and other places.

Think Richard just ignored this so much "fluff" and propaganda. It certainly did not gather in lots of money or have much influence at all since I still had to drag adopted daughter out of a nunnery by her hair to get her to marry the Prussian. How the hell had that nunnery being paying that much tax for so long?!

In case anyone is thinking my character was very anti-clerical all I can say is that they started it! And my character got on great with own brand of Islam, the Greek Orthodox Church and the Chief Rabbi.

Ref the tax on foreigners this is only a "transit" tax in some places....for example the tolls levied by Sweden and Denmark on trade crossing their lands or waters, River tolls on the Rhine which seem to so en-rich some positions and historically the tax on caravans and other trade across Persia, Syria and Eqypt. Think to gain maximium advantage you want to tax this trade as high as possible but not to such a level as to made trade look for other routes.

Thus your load of Russian Sable looking to find an expensive home on the ladies of Wertern Europe and the Wine and Tobacco going to Holy Mother Russia to pay for it can go:

a) Via the Baltic and pay Swedes and perhaps Danish sound tolls
b) Via the Black Sea and pay Ottoman taxes
c) Via the White Sea and round the North Cape.

Clearly from a tax point of view option c) is best but its only open for five months of the year and its other costs are horridly plus you have a high chance of sinking in some Artic Storm or hitting a ice burg. So if taxation is not too bad its probably a) or b) depending on the market.

But if one route has much higher taxes or a war then trade and transit/taxes are going to drift the other way. Classic historical example was the Mamlukes of Egypt getting so gready (mostly to fund war and arms race with Ottomans) that it helped to make the longer route round Africa found by Portugal the preferred route and the development of ships suitable for this route.

In other places tax on foreigners is basically customs duties, sales taxes plus port and harbour fee's paid by foreign merchants bringing goods to your land for sale and sometimes excise duty on goods being shipped out of the country.

In theory low taxes on foreigners will increase the amount of trade and the supply of goods in your markets. Which is good for consumers such as your Nobles and even your Government. But the heavy foreign competition may be bad for your own producers esp if they are paying a higher rate of tax that their foreign rivals. The classic historically example of this was the Byzantine Empire when it bought Venetian Naval support with such generous terms that it effectively lost its carrying trade and merchant fleet to Venice.

Since customs duties were such a traditional way to raise ready cash and most Governments were only interested in revenue to pay for the court and next war and sometimes keeping the commons happy by making sure they had enough supplies most Governments were not that interested in protection of their own industries and merchants by use of High taxes. The exception being UDP, England and France which all developed policies to favour their own merchants and industries such as the Navigation acts, colonial monoploies and Colbert Custom's barriers intended to protect new French Industries by keeping rivals out of their home market.

Not sure about really high levels of tax as a way of gathering cash...........thing it may be very counter productive. But if a player is make a major effort with say the tectile industry may be worth while trying a very high tax on foreign textiles perhaps combined with really low one on raw wool or cotton if you do not produce enough to feed your new factories.

Stuart Bailey wrote:After the liberation of Hungary and the Austria in G2 applied 50% tax rate on the Roman Catholic Church (5% for Unitarian Church's which followed Catholic ritual but broke with the Pope, Orthodox, Protestants, and Mosques......nothing like a subtle hint) also applied the same 50% rate on Shia Orders and other fanatic religious types who did not like my character in Anatolia and other places.

Think Richard just ignored this so much "fluff" and propaganda.  It certainly did not gather in lots of money or have much influence at all since I still had to drag adopted daughter out of a nunnery by her hair to get her to marry the Prussian.  How the hell had that nunnery being paying that much tax for so long?!

In case anyone is thinking my character was very anti-clerical all I can say is that they started it!  And my character got on great with own brand of Islam, the Greek Orthodox Church and the Chief Rabbi.

How the church fits into the game economy is another mystery which I have yet to solve.  It gets some income from land (so is like nobles), some from charitable collections (akin to government taxes), some from investment returns (so is like merchants).  Taxing the church could therefore affect each of these aspects, but with the added sting that any reduction in church income will necessarily reduce either economic growth or charitable acts.

It might seem odd for me to admit I really don't understand how taxing the church works given I am probably the one player who (playing the church) should know.  I haven't messed around changing tax rates in the Papal States, but noticed that bizarrely the Papal States does tax the church.  This would seem to be an obvious tax to abolish - is there any point in taxing oneself?  Unless is it to restrict the number of nobles passing on their land to the church to avoid tax?

Stuart Bailey wrote:Ref the tax on foreigners this is only a "transit" tax in some places....for example the tolls levied by Sweden and Denmark on trade crossing their lands or waters, River tolls on the Rhine which seem to so en-rich some positions and historically the tax on caravans and other trade across Persia, Syria and Eqypt.  Think to gain maximum advantage you want to tax this trade as high as possible but not to such a level as to made trade look for other routes.

Thus your load of Russian Sable looking to find an expensive home on the ladies of Western Europe and the Wine and Tobacco going to Holy Mother Russia to pay for it can go:

a) Via the Baltic and pay Swedes and perhaps Danish sound tolls
b) Via the Black Sea and pay Ottoman taxes
c) Via the White Sea and round the North Cape.

Clearly from a tax point of view option c) is best but its only open for five months of the year and its other costs are horridly plus you have a high chance of sinking in some Artic Storm or hitting a ice burg.  So if taxation is not too bad its probably a) or b) depending on the market.

But if one route has much higher taxes or a war then trade and transit/taxes are going to drift the other way.  Classic historical example was the Mamlukes of Egypt getting so greedy (mostly to fund war and arms race with Ottomans) that it helped to make the longer route round Africa found by Portugal the preferred route and the development of ships suitable for this route.

In other places tax on foreigners is basically customs duties, sales taxes plus port and harbour fee's paid by foreign merchants bringing goods to your land for sale and sometimes excise duty on goods being shipped out of the country.

The other danger with transit taxes is that if you raise taxes high then there is a greater incentive for navies to station patrols in those waters so you are simply not able to collect those taxes.

What is the difference (to merchants) between piracy and the predations of a foreign government?   I suggest very little, although merchants may well prefer the amateur efforts of government (which can be circumvented by smuggling), to the more professional efforts of dedicated pirates who may well be able to be bribed to attack competing ships?

The other difficulty we have with 'foreigners tax' is working out just who is a 'foreigner'.  G7 England's foreign tax take dropped heavily after the Americas lease, which implies that despite English merchants still trading with Americas at 0%, colonial trade is included in 'foreign'.  Don't know why, but unless I've joined the wrong dots up, there is more to 'foreign' tax than I realise.

At the same time I did crack down on HWIC siphoning off my trade, and made a serious effort to eliminate smuggling by more efficient customs collection.  So it is possible that this worked in my favour, otherwise the drop would have been even worse.  In the 1713-14 figures foreigners tax is slightly higher, though of course these figures do not include the effect of restoring trade with UDP and the end of the war, so I expect the 1715 figures to be substantially better.  This also suggests that Stuart's transit taxes off Gibraltar are not very effective.

Stuart Bailey wrote:In theory low taxes on foreigners will increase the amount of trade and the supply of goods in your markets.  Which is good for consumers such as your Nobles and even your Government.  But the heavy foreign competition may be bad for your own producers esp if they are paying a higher rate of tax that their foreign rivals.  The classic historically example of this was the Byzantine Empire when it bought Venetian Naval support with such generous terms that it effectively lost its carrying trade and merchant fleet to Venice.

Since customs duties were such a traditional way to raise ready cash and most Governments were only interested in revenue to pay for the court and next war and sometimes keeping the commons happy by making sure they had enough supplies most Governments were not that interested in protection of their own industries and merchants by use of High taxes.  The exception being UDP, England and France which all developed policies to favour their own merchants and industries such as the Navigation acts, colonial monopolies and Colbert Custom's barriers intended to protect new French Industries by keeping rivals out of their home market.

Where tax rates are in the normal range of 5-10% I don't think the difference is enough to really change things.  If you start pushing taxes up to 40-50% then you are likely to make it uneconomic for certain trade to happen and then it will become a problem.

Navigation Acts can have multiple purposes - not so much to protect domestic merchants, but to ensure there was a ready-trained supply of seafarers who could then be co-opted into the Navy in time of war.  In a similar way France supported agriculture so it had a steady supply of men/horses for her armies.

Stuart Bailey wrote:Not sure about really high levels of tax as a way of gathering cash...........thing it may be very counter productive.  But if a player is make a major effort with say the textile industry may be worth while trying a very high tax on foreign textiles perhaps combined with really low one on raw wool or cotton if you do not produce enough to feed your new factories.  

You might be slightly missing the reason for the observation - I was not suggesting high taxes to gather more cash in for the state, but to encourage a move away from farming to industry through the use of high taxes on land (nobles).  Historically the Corn Laws acted as a subsidy which gave farmers a guaranteed high return, an incentive to keep land in production (which required more people, so would be the equivalent of hoarding labour) and a disincentive to sell land.  When they were abolished the price of grain fell so many smaller farmers went bust, land was sold or turned over to higher margin sheep/cattle; in a sense it forced farmers to specialise away from labour-intensive grain production which accelerated the growth of towns as people left the land and the capital released found its way into manufacturing.  So I mused that if (as a player) you have lots of research developments to underpin textile factories (etc), and really want to industrialize rapidly, then it might make sense to run a tax/economic policy which supports it by increasing taxes on land while lowering them on industry.  Of course you would have other problems to deal with, but it does seem to be an anomaly that players are almost scared to put up taxes on nobles, when at the same time they are trying to encourage R&D which benefits industry.  The WoN/Smith/Ricardo trade specialisation ideas more readily apply to manufactures than agriculture, manufactures being less perishable, more easily transported, and with fewer substitutes.  Any revenue loss to the state as agriculture shrinks should be more than replaced by the growth in industry and revenue from trade.

One innovation could be to add a category of 'merchants' or 'industry' to 'nobles', 'church', 'commoners' in the tax returns, to give players more of a guide to how their decisions help or hinder the parts of the economy they want to help.  I have always though it odd to base tax on social class when 'income' tax itself was invented in England as a temporary measure to pay for the Napoleonic Wars, so is somewhat out of period.  All previous attempts to tax income rather than wealth or indirect taxes on essential products (like salt), to the best of my knowledge, were met with rather violent resistance.  In a sense this is rather odd because it is far more logical to tax earnings (when individuals have the cash to pay the tax) rather than capital (which may result in assets having to be sold or borrowed against to pay the tax).  It may be a coincidence, but when income tax rates increased, so did inflation, since it created an incentive for higher wages to pay the taxes which fed through into price rises.  Does this make income tax a thoroughly bad idea - I guess that depends on your viewpoint.  HMRC's default position is that all taxes are good (for them), and get so upset when a taxpayer's income drops that they deem this to be deliberate tax avoidance.  At some point they will invent a CO2 tax on breathing to 'pay' for cleaning up the environment.  Very hard to avoid it, but I guess some entrepreneur will smuggle in bottled air or we will be able to get around the tax by wearing some gadget to collect the air we breathe out.  Now we are all getting used to wearing face masks anyway, it is but another small step ...