inflation

[daidojisan]

I have a few questions about inflation

In Marecone's AAR southern inflation seems to start at 25%, if you look at the inserted graph you can see that around june 1861 inflation was actually somewhere between 12 and 14 %. where does the 25% come from ?

Much of the south's economic problems derived from their self imposed cotton embargo, it put plantation owners in debt thereby preventing the population from buying bonds and it contributed towards inflation.

Now from what i understand in the campaign the south does not start with this embargo in place. Is this reflected in the ingame economy with regard to the south's direct money income from cities, the amounts of money derived from bonds and taxes etc? also, without the embargo the south's ability to limit inflation would have been enhanced, is this reflected ingame? or are all these values based on the historic numbers (with the embargo in place).

If the north for diplomatic reasons decides not to "activate" the blockade, will this then have any effect on the southern economy?

Finally, aside from the obvious purchase of war materials through blockade runners ,will the export of cotton (without the embargo in place) in any way enhance the southern economy either by bonus money collected through blockade runners or an increased income through cities?

Thanks

[Pocus]

Thank you for your graphic, I think we can tweak the numbers a bit more. But we won't give a 400% inflation rate in mid 63 to the CSA, has we went with a kind of normalization in money: You don't get more money when you activate an option, even in the inflation is thru the roof, on the other hand the inflation is far below the historical level. Overall the desired effect is still achieved, as the more you print money, the more costly your units are. We would have needed a complex underlying economical system to handle correctly the historical inflation level and this was not the aim of the game.

Cotton embargo is deemed to be inactive at the start of the game, so your production already factor what your can send to Europe (reduced by the blockade %). If you declare embargo, you lose money, on the other hand you have some chance to successfully apply a pressure to Great Britain (and a chance to infuriate them greatly!).

If the Union don't do the blockade, then the confederates produce at 100%, so they are better blocks the harbors to reduce their output.

[daidojisan]

But we won't give a 400% inflation rate in mid 63 to the CSA

Hi Pocus, the graph was only intended to illustrate that 25% starting inflation was a bit high in my opinion , how inflation progresses throughout the rest of the game should naturally be based on the decisions of the player and not on the historic inflation rates.

[General Quarters]

The graph's numbers look unrealistically precise. Inflation rate is a highly inferential concept, and normally takes a good deal of surveying to come up with a reasoanble estimate. The people who put this graph together knew this, and that is why they let the reader know that it is based on the price of gold, the exact numbers for which are available. This chart seems to assume a direct relationship between the price of gold and the rate of inflation. I am not an economist, so I don't know, but I would doubt that it is that direct a relationship. While the economy these days might move a half percentage point, the price of gold is going up and down by 20 or 30 percent or more. My hunch is that, because of the volatility of the price of gold, this chart might be overstating the inflation, which would provide another reason it is right for the game not to have inflation rates in the hundreds of percents.

[Spharv2]

That 25% inflation is not in turn one, I believe by the time he shows that screen, it's turn three already. I know for a fact that the CS doesn't start out with 25% inflation. Can't remember offhand where exactly it does start, but it's not that high.

[James D Burns]

The graph's numbers look unrealistically precise. Inflation rate is a highly inferential concept, and normally takes a good deal of surveying to come up with a reasoanble estimate. The people who put this graph together knew this, and that is why they let the reader know that it is based on the price of gold, the exact numbers for which are available. This chart seems to assume a direct relationship between the price of gold and the rate of inflation. I am not an economist, so I don't know, but I would doubt that it is that direct a relationship. While the economy these days might move a half percentage point, the price of gold is going up and down by 20 or 30 percent or more. My hunch is that, because of the volatility of the price of gold, this chart might be overstating the inflation, which would provide another reason it is right for the game not to have inflation rates in the hundreds of percents.

You have to remember that money was tied directly to gold or silver in the past. You could go to your local bank and demand gold for the currency notes you held and the bank would have to give you a certain weight in gold for you money.

So using the price of gold is far more accurate than you are assuming. Today money isn't backed by anything other than faith in the economy the currency belongs to and gold and silver are just another commodity.

Here’s a few links:

http://en.wikipedia.org/wiki/Gold_standard

http://economics.about.com/cs/money/a/gold_standard.htm

http://tx.essortment.com/goldstandards_rgvh.htm

Jim

[nemethand]

Is it also possible to somehow push inflation down?

[General Quarters]

Thanks, Mr Burns, I had forgotten about the gold standard. But, if a dollar can be cashed for gold, it is hard to see how much inflation is possible. A $100 bill is always going to be worth $100 in gold, and the price is gold is not going to be dependent on the value of Confederate currency.

Maybe I am misunderstanding the chart's note about the price of gold. Maybe it really means, in effect, how many confederate dollars it would take to purchase a set amount of gold. But that interpretation also seems to imply the absence of a gold standard. If the rebel government would give you $100 worth of gold for $100 note, then why would anybody give $200 rebel dollars for $100 worth of gold?

I am missing something here?

[Le Ricain]

Thanks, Mr Burns, I had forgotten about the gold standard. But, if a dollar can be cashed for gold, it is hard to see how much inflation is possible. A $100 bill is always going to be worth $100 in gold, and the price is gold is not going to be dependent on the value of Confederate currency.

Maybe I am misunderstanding the chart's note about the price of gold. Maybe it really means, in effect, how many confederate dollars it would take to purchase a set amount of gold. But that interpretation also seems to imply the absence of a gold standard. If the rebel government would give you $100 worth of gold for $100 note, then why would anybody give $200 rebel dollars for $100 worth of gold?

I am missing something here?

The trick was that Confederate notes could only be converted to gold six months after a Confederate victory.

Another problem for the South was the flood of counterfeit bills, most of which were produced by a single Philadelphia printer. The joke at the time was that you could tell a counterfeit bill from a real one by the fact that the bogus bill was of a higher quality print than the government bills.

[Pocus]

Is it also possible to somehow push inflation down?

Yes, there is a self correcting slow mechanism. Each turn a dice is rolled, if under the current inflation, then the inflation is reduced by 1 (so if you have 30% inflation, you have 30% chances of having it go down to 29).

[James D Burns]

Thanks, Mr Burns, I had forgotten about the gold standard. But, if a dollar can be cashed for gold, it is hard to see how much inflation is possible. A $100 bill is always going to be worth $100 in gold, and the price is gold is not going to be dependent on the value of Confederate currency.

Yes the price of gold was exactly what set the value of Confederate currency, so tracking gold prices is a good way to visualize the inflation. If (a big if) the above inflation chart is based on the standard value of gold used in international trade.

So for example $100 rebel dollars might buy (by buy I mean exchanged at a confederate bank for) 1 ounce of gold in 1861, but that same $100 dollars might have only bought about 2/5ths of an ounce in 1863 (136% inflation). Of course I’m just making up these numbers but you get the picture. There was an international standard for gold and I assume that chart was based on that standard.

Maybe I am misunderstanding the chart's note about the price of gold. Maybe it really means, in effect, how many confederate dollars it would take to purchase a set amount of gold. But that interpretation also seems to imply the absence of a gold standard. If the rebel government would give you $100 worth of gold for $100 note, then why would anybody give $200 rebel dollars for $100 worth of gold?

I am missing something here?

Because the weight of the gold you could get with your $100 dollars decreased as the currencies inflation rate grew. All nations’ currencies were based on this international standard.

Many governments tried to fiddle with this system to try and keep the values of their currencies up, but in the end they were always tied to the amount of gold held in their national treasuries and the amount of their currency in circulation.

In times of war one of the first things to go was any surplus gold (gold not tied to currency currently in circulation) in a nations gold reserve. After that credit was almost impossible to get from other nations and inflation started to rise as governments printed more money to buy needed war material.

All money was tied to the nation’s on-hand gold so as more bills were printed the amount of gold they could be exchanged for had to decrease by default. And that gold’s actual value (your ability to sell it or borrow against it) was set by the international markets.

Jim

[Jonathan Palfrey]

Cotton embargo is deemed to be inactive at the start of the game ...

At one time I thought this would be a reasonable thing to do in a game, correcting with the aid of hindsight an obvious strategical mistake made by the Confederacy. But I read in Battle Cry of Freedom that the cotton embargo was not Confederate government policy: it was spontaneous action by the population (or at least the cotton-owning population), encouraged by newspapers.

Simply turning it off therefore looks rather less plausible. Would your Confederate government force people to export cotton against their own wishes?

[Pocus]

Exact, just checked my french version and you are right... Problem is that for now we can't penalize a player if he don't choose an option. But we can give him a reward (or a penalty) by choosing one. So in essence we will tweak the numbers, as this is true that this was by popular request that the Embargo was set.

You will then still lose money in doing so, but now you will gain victory points and Nationale Morale, as the people want you to do that. Good remark!

[Le Ricain]

Exact, just checked my french version and you are right... Problem is that for now we can't penalize a player if he don't choose an option. But we can give him a reward (or a penalty) by choosing one. So in essence we will tweak the numbers, as this is true that this was by popular request that the Embargo was set.

You will then still lose money in doing so, but now you will gain victory points and Nationale Morale, as the people want you to do that. Good remark!

An excellent idea. It is true that the Confederate Congress never authorised the embargo of cotton as the Confederacy did not want to be seen as engaging in diplomatic blackmail. Also, the 1860 crop was a record one creating a large surplus. European textile mills had large stocks of cotton on hand regardless of any embargo.

With regards to Confederate inflation, some scholars have stated the the CSA would have been better served had they based their currency on cotton rather than gold.

[Jonathan Palfrey]

Would your Confederate government force people to export cotton against their own wishes?

Thinking about it again, I doubt that the government would have needed to resort to force to turn off the cotton embargo; if it had some elementary skill in manipulating public opinion, and the will to do so.

Persuading people to make a profit is not usually hard. A slogan such as "Your Country Wants You... To Get Rich!" might have proved successful.

[daidojisan]

Cotton embargo is deemed to be inactive at the start of the game.

Can you turn these options of again ? say that you want to embargo cotton at one point to put diplomatic pressure on europe, and later lift the embargo because you want to increase your money production (or because europe declared war on the union and you no longer need diplomatic pressure ).

[Pocus]

yes, all the political options but the Emancipation of Slaves or Levying of Blacks (for the South) are reversable, in fact they last 6 months and you have to choose if you trigger them again (thus paying the cost again) or stop them.