One of the biggest topics of the last decade has been the economy. We’re finally climbing out of the hole the banks dug for us in 2008, and it’s been long enough that most people have taken notice. Employment, income, wages, and benefits are important. So are less obvious subjects like inflation, debt and credit, or mortgages. Even esoteric phrases like “quantitative easing” make the news.
The economy isn’t a modern invention, however. It’s always been there, mostly in the background. From the first trade of goods, from the first hiring of another person to perform a service, the economy has never truly gone away. If anything, it’s only becoming bigger, both in terms of absolute wealth—the average American is “richer” than any medieval king, by some measures, and today’s billionaires would make even Croesus jealous—and sheer scope.
How would magic affect this integral part of our civilization? The answer depends on the boundaries we set for that magic, as we shall see.
Scarcity
Our economy, whether past, present, or foreseeable future, is based on the concept of scarcity. For the vast majority of human history, it was only possible to have one of something. One specific piece of gold, one individual horse, one of a particular acre of land or anything else you can think of. You could have more than one “instance” of each type—a man could own twenty horses, for example—but each individual “thing” was unique. (Today, we can easily spot the friction caused when this notion of scarcity meets the reality of lossless digital copying, the lashing out by those who depend on that scarcity and see it slipping away.)
Some of those things were rarer than others. Gold isn’t very common; gems can be rarer still. Common goods were relatively cheap, while the rare stuff tended to be expensive. And that remains true today. Look at any “limited edition”. They might have nothing more than a little gold-colored trim or an extra logo, but they’ll command double the price, if not more.
Supply and demand
All that only applies to something people want. It’s a natural tendency for rare, desirable goods to climb in value, while those things that become increasingly common tend to also become increasingly worthless. This is the basis of supply and demand. If there’s more of something than is needed, then prices go down; if there’s a shortage relative to demand, then they go up.
Although it’s a fairly modern statement, the concept is a truism throughout history. It’s not just a fundamental idea of capitalism. It’s more a natural function of a “scarcity economy”. And you can apply it to just about anything, assuming all else is equal. A shortage of laborers (say, due to a plague) pushes wages higher, because demand outstrips supply. That’s one of the ultimate killers of feudalism in the Middle Ages, in fact. Its converse—a glut of supply—is the reason why gas prices have been so low in America the past year or so.
Interconnected
Another thing you have to understand about the economy is that it’s all connected. Today, that’s true more than ever; it’s the reason we can talk about globalism, whether we consider it a bringer of utopia or the cause of all the world’s ills. For less advanced societies, the connectivity merely shrinks in scale. There was, for example, no economic connection between Europe and the Americas until the fifteenth century, apart from whatever the Vikings were up to circa 1000. The Black Death had no effect on the economy of the Inca, nor did the collapse of the great Mayan cities cause a recession in Rome. Similarly, Australia was mostly cut off from the “global” economy until shortly before 1800.
Everything else, though, was intertwined. The Silk Road connected Europe and Asia. Arab traders visited Africa for centuries before the Portuguese showed up. Constantinople, later Istanbul, stayed alive because of its position as an economic hub. And like the “contagious” recessions of modern times, one bad event in an important place could reverberate through the known world. A bad crop, a blizzard blocking overland passes, protracted warfare…anything happening somewhere would be felt elsewhere. This was the case despite most people living a very localized lifestyle.
Making magic
In role-playing games, whether video games or the pen-and-paper type, some players make it their mission to break the economy. They find some loophole, such as an easily creatable magic item that sells for far more than its component cost, and the exploit that to make themselves filthy rich. It happens in real life, too, but government tends to be better at regulating such matters than any GM. (The connection between these two acts might make for an interesting study, come to think of it.)
We’re trying for something more general, though, so we don’t have to worry about something as fine-grained as the price of goods. Instead, we can look at the big picture of how an economy can function in the presence of magic. As it turns out, that is very dependent on the type of magic you have at your disposal.
First, let’s assume for a moment that wizards can create things out of thin air. Also, let’s say that it’s not too difficult to do, and it doesn’t require much in the way of training or raw materials. Five minutes of chanting and meditating, and voila! A sword falls at your feet! Something more complex might take more time, and living things can’t be created at all, but crafted goods are almost as easy as a Star Trek replicator.
Well, that destroys any economy based on scarcity. It’s the same problem media companies have with computers: if something can be copied ad infinitum, with no loss in quality, then its unit value quickly drops to zero. Replicating or creating magic, if it’s reasonably widespread, would be like giving everyone a free 3D printer, a full library of shape files, and an unlimited supply of feedstock. Except it’d be even better than that. Need a new sword/axe/carriage/house? Call up the local mage. No materials needed; you’re only paying for his time, the same as what would happen to books, music, and movies without licensing fees and DRM.
So that’s definitely a “broken” economy. Even a single user of such magic breaks things, as he can simply clone the most expensive or valuable items he knows, selling them whenever he needs the cash. Sure, their value will eventually start to drop—supply and demand in action—but he’ll be set for life long before he gets to that point.
It’s the economy, stupid
For our magical kingdom, let’s look at something more low-key. It doesn’t have creation magic. Instead, we have at our disposal a large amount of “automating” magic, as we’ve seen in previous parts. What effect would that have on the economy? Probably the same effect increasing automation has in our real world.
Until very recently, most work was done by hand, occasionally with help from machines that were powered by people, animals, or natural forces. The Industrial Revolution, though, changed all that. Now, thanks to the power of steam (and, later, electricity), machines could do more and more of the work, lightening the load for the actual workers. Fast-forward to today, where some studies claim as many as 40% of jobs can be done entirely automatically. (For labor, we’re actually getting fairly close to “post-scarcity” in many fields, and you can see the strain that’s beginning to cause.)
Magical force and power can easily replace steam and electricity in the above paragraph. The end result won’t change. Thus, as magic becomes more and more important in our fictional realm, its effects stretch to more and more areas of the economy. As discussed in the post about power, this is transforming the workforce. Unskilled labor is less necessary, which means it has a lower demand. Lower demand, without a corresponding decrease in supply, results in lower wages, fewer working hours, fewer jobs overall. We know how that turns out. The whole sordid story can be found in all sorts of novels set in Victorian England or Reconstruction America—Charles Dickens is a good start. Or you can look at modern examples like Detroit or Flint, Michigan, or any steel town of the Midwest.
There is an upside, though. After this initial shock, the economy will adjust. We see that today, as those displaced in their jobs by robots have begun branching out into new careers. Thus, it’s easy to imagine a magical society embracing the “gig economy” we’re seeing in Silicon Valley and other upscale regions, except they’d do it far earlier. You could even posit a planned socialist economy, if the magic works out.
But mages are human, too. They’re subject to need and greed the same as the rest of us. So they might instead become the billionaires of the world. Imagine, for instance, wizards as robber barons, hoarding their techno-magic to use as a lever to extract concessions from their rivals. Or they could simply sell their secrets to the highest bidder, creating something not much different from modern capitalism. If magic has a distinct military bent, then they could become the equivalent of defense contractors. The possibilities are endless. All you have to do is follow the chain of cause and effect.
The economy is huge. It’s probably beyond a single author to create something entirely realistic. But making something that passes the sniff test isn’t that hard. All you have to do is think about why things are the way they are, and how they would change based on the parameters you set. Oh, and you might want to find one of those munchkin-type players who likes to find loopholes; for the economic side, they’re more useful than any editor.