Was looking up how to start an economy for the story I'm making and saw this on Reddit, decide to share it!
David Montgomery on Reddit
Everything about your economy will flow from one basic principle:Â everyone has to eat.
Food is the most basic need, and people will either produce it themselves or produce something else they can exchange for food. (That "something else" could be "soldiers who go and take other people's food by force," by the way.) In most medieval economies, food production is sufficiently inefficient that a majority of the population will be directly engaged in food production. More advanced technology, organization or magic could change this, freeing up more people to do other economic activities â but it's important to know the rules before you break them, and medieval levels of technology will likely lead to widespread subsistence farming.
That said, if the land is decently fertile, farmers will produce more food than they can eat themselves. This food will either be sold (for currency or goods) or confiscated in taxes, tribute, etc., or both. This creates two questions to answer: A) who is acquiring the surplus food from the peasants, and B) how did they get the means to get the peasants to give them this food?
Answers to A could be a nearby city, a far-away city (much of Rome's food supply was shipped across the sea from Egypt, Sicily or other areas), a temple, an established local lord, tribute-demanding warlords or bandits, a powerful wizard, wasteland nomads, etc.
Answers to B divide basically into force and wealth. If it's force (and most farmers will be forced to pay taxes to someone), that raises interesting military and political questions for your world. Do these force-wielders rely solely on exploiting farmers to eat, or do they produce food of their own and rely on raiding to supplement their diet? (They could also raid for treasure and then sell that treasure to buy food.) Those people forcibly extracting food, whether local nobles collecting taxes, temples overawing the people into making offerings or marauding invaders plundering the countryside, will then either eat it themselves or sell it to someone with wealth. So what kind of wealth are people creating that they are exchanging for food? The answer could be anything â what do the people looking to sell their food want? It could be other types of food, precious metals, useful metals, craft goods, arms, military protection, magical resources, divine favor, ships, whatever.
Now you're spiraling upward and outward from your base farmers. Asking yourself more questions will help flesh out your world: Who are these people who have enough disposable resources that they are trading it for food? Why are they importing food instead of producing it themselves? Why do the food-sellars want what they're selling? How dependent on this imported food are they?
There's a lot of ways to create disposable wealth that can be traded for food. Making goods higher up the resource tree from food can be one of them: furniture, swords, alcohol, magic crystals, etc. So can mining, logging, or other resource extraction. Another way to get wealth can be trade: some goods cost a lot more in one place than another, and the person who carries those goods from point A to point B can make a lot of money. Medieval merchant republics and fair towns were centers of this.
Again, as long as food production is inefficient (as it was in the middle ages), these people who are not directly engaged in food production will be a distinct minority. So big cities should be relatively rare without explicit mechanisms set up to get enough food imported to feed all these non-farmers. It can be done â look at Rome, again, or Constantinople later on â but it takes concerted and sustained effort to extract the narrow food surplus from a wide region and to secure the trade lanes to transport it safely to the city.
Don't assume that you have to base your economy on impoverished medieval Europe, though. Regions elsewhere in the world, and both immediately before and after the medieval period in Europe, saw more productive economies with highly specialized divisions of labor.
Farming sucks, and sometimes REALLY sucks. Most farmers, given the chance, would rather do something else. So why aren't they given the chance? Is it necessity or tradition that keeps them on the farm, or are they bound to the land as serfs or slaves?
There are political/military implications if your merchant city-state or underground dwarven kingdom require regular food imports in order to survive â what happens if the food imports get cut off?
How does magic play a role? My advice â not the only way to go about this â is to figure out your normal state of affairs, then add your magic to the picture and figure out how that would change things.
If food production is more efficient, then it takes fewer workers to produce the same amount of food, or the same amount of workers can produce way more food. The former enables more of the population to become craftsmen, priests, bureaucrats, etc. The latter produces more exports for the farmers or their oppressors, and thus potentially more wealth to support craftsmen, priests, bureaucrats, etc. â or more luxuries for the upper crust.
A nobility or other economic elite that manages to extract a large share of the surplus for themselves will then be able to spend that money on things they don't need. This will likely create a sub-economy around satisfying the needs of the wealthy â servants, jewelers, luxury craftsmen, diviners, mercenaries, etc. Whatever the people with surplus money or food want, someone will likely emerge to provide it.
More productive farming will produce more resources. How are those resources distributed? Are they all confiscated by a tiny elite who build sumptuous palaces while their serfs toil in squalor? Or does a supplementary economy build up with crafts, workshops, trade, etc., that enriches everyone?
If food production is less efficient than normal, then things get really interesting. This will likely mean the land can't support all the people who live on it, forcing some people off the land to become soldiers, bandits, priests, wanderers, immigrants, poachers or whatever. Life will likely not go well for anyone in this scenario. You can also have a situation where the land can't support everyone living on it if taxes or extortion become too high, not letting the peasants keep enough food to feed everyone.
Even if people can NORMALLY produce enough food to sustain themselves and exchange a surplus for goods or services, there will likely be periodic famines that upset everything.
Don't underestimate the importance of peace and stability for your economy. If there's a central government or alliance ensuring peace, then profitable long-distance trade becomes more possible. Farmers get more options for exporting their food and can perhaps secure a better price for it. People who don't want to produce food are more likely to be able to find something else to do. Stable governments also produce coinage, as u/GeraldVanHeer emphasized. Stable coinage makes commerce more fluid, since anyone can exchange a coin for anything instead of requiring someone to have a good you want to barter for, and generally promotes accelerating wealth.
Another political implication: the less economic surplus you have, the less ability societies will have to construct great works.
There are a lot of good books that get at what economies were like in historical periods. Barbara Tuchman's "A Distant Mirror" is a good overall look at 14th Century Europe. One book I found particularly helpful is the second half of "The Fall of Rome and the End of Civilization" by Bryan Ward-Perkins. The back half of that book is a look at how the economy of western Europe changed when the Roman Empire collapsed under successive Germanic invasions, setting the stage for the Dark Ages and then the medieval era. This uses data from archaeology to show both what a high-productivity ancient economy looked like under Rome, and what a devastated low-productivity economy looked like after Roman authority collapsed
