With apologies to Adam Smith
Micronational economics is very complex. It differs from macronational economics in the following way: the purpose of macroeconomics (please forgive the pun) is to do something - namely, allocate resources and provide wealth to people. The purpose of microeconomics is in general merely to exist and to provide another dimension to a simulation. Thus it is very different from the former, and requires different economic theories and practices.
I will divide microeconomics into four different categories which can be be mixed and matched to form different kinds of economies: capitalist vs. socialist, real vs. fictional, goods-based vs. finance-based, and restricted vs. inflationary. Each one will be examined in depth and its good and bad points revealed. We shall first start by exploring goods-based, which is most similar to the economies of most macronations, including the United States.
The dictionary defines economics as the social science dealing with the distribution of goods and services. In micronations, there are no goods, which is a problem. The other problem is that in direct opposition to the macroworld, in which people generally dislike doing work and will only do it for pay, in the microworld people love what they do and are happy to work for free. Indeed, many people will actually pay money to promote a service of theirs, such as a website or a program, which is sort of a bizarre parallel image to real economics. Furthermore, because people view micronations as a hobby and as something that ought to be pleasurable, they are unwilling to do something they don't want to do for money.
Thus, what usually happens in a micronational economy is that people are doing things they would do for free but are convinced (often against their will) to charge money for them. This hurts both parties involved. The "buyer" has a harder time getting his service, and the "seller", whose goal is usually to spread his service as far as possible rather than to make money, is equally frustrated.
Another problem that leads into this is the problem of value. A dollar was originally valuable because it was backed by precious metal with intrinsic value - the so called gold standard. Today, it is valuable because the United States says it's valuable, and we can blow people up who don't do what we say - the so-called uranium standard. Micronations never have the second option available to them, and although the first is available, there are many reasons why it is not practical. First, while "serious" nations of the caliber of Molossia may be willing to invest the money to buy precious metals, less serious nations, such as Tymaria, may not be. Second, if someone wanted value, they would almost certainly be able to earn it more easily in the macroworld than in the microworld. Third, there are major problems with transfering the metal. Fourth, the services in micronations are not always the sort that one would give real money for. Certain nations have tried gold standards, or more creative standards linking money to a real resource, and while they have not been total failures as in the economy collapses, usually what happens is that the gold is merely ignored.
Here we have the problem with microeconomics. We have people who would rather be doing something else being forced to sell a product they would rather give away for money that they would just as soon not have. And the buyer is buying something he could probably get for free or get for better quality on a macronational market, with money that he probably does not have. No wonder microeconomies tend to falter so quickly.
But not all economics is based on goods and services. Some is based on finance, which I will use as a catch-all term for anything that doesn't involve anything that actually benefits anyone so directly as, say, giving them a new car or better health, but rather manipulating money in such a way that you gain more of it. The stock market is an example of this, as is banking, futures, et cetera.
A financial system has been more successful than most other types in micronations. The problem is that finance is fueled by goods and services. In macroeconomics, the only reason the stock market exists is because companies that eventually do produce a good create their stocks, and banking only exists because companies that produce goods (or normal people who want to buy goods) need money. Some nations (notably the Flying Islands of Jasonia and Confederation of Hau'oli 'Ena) have tried to create financial systems that do not depend on goods. These change the value of stocks based on things like how many people buy them and how often. Unfortunately, because of generally low activity and simple formulae, it is incredibly easy to fix such a system. If the value of a stock goes up every time you buy it, then you need only buy a stock, buy some more, buy yet some more, and then sell it all at once to make a killing. Other formulae are more complex but still lead to the same conclusion, which is why the few people who bother to wade through such a system (Tony Au comes to mind) make amounts of money that can reach up to many times the treasuries of the nations they are in. Also, these formulae tend to generate money from nowhere. In reality, a stock doesn't directly go up because more people are buying it, it goes because someone's willing to pay more when you sell it.
The capitalism vs. socialism spectrum has not been fully explored. Usually this is not an economic choice but a political one. A Communism based micronation like the Free Republic will proclaim that it has a Communist economy and then do things exactly the same way as everyone else. I would differentiate Communism vs. Capitalism a bit differently in microeconomics than in macroeconomics.
Capitalism can be thought of as free markets without government interference. If I want to sell...say....land, I have to find an actual person who is willing to buy it. This can be a problem, because very few things in microeconomies are worth buying, at least at the beginning. Likewise, if I want to buy land, I have to find someone willing to sell it. This decreases activity, since the person might not want to sell their land, and then what? Besides, people don't tend to set up businesses very well in micronations. Or rather, they set them up well enough, but don't maintain them very well. If I want to exchange Tymarian Tymarks for Babkhan rials in a capitalist system, and I have the Tymarks, I have to find someone in the currency business who's got rials. In macroeconomics, this would be a currency company. In microeconomics, there are pretty much no currency companies, and usually actual Babkhans with actual Rials have better things to do with their time than sell them.
Socialism can be thought of as the government taking care of most of the economy and creating a climate favoring transactions. This is usually extremely useful. If you want to sell land, a stock, or anything, just sell it to the government and take the money. This is additionally significant because at the beginning of an economy the government usually owns everything. Take land. This commodity will probably be approportioned based on a government-sponsored map and originally owned by the government that "created" it. The government always needs to have the main treasury of money for obvious reasons, making it a very large player. And since micronational money is rather useless, the political clout of government means that it's likely to totally overpower any companies that may form, no matter how rich they are.
Now let us discuss real and fictional economies. Real economies are usually service-based. They may sell things like making websites or graphics, writing important documents, or expertise in certain areas. One interesting service is a stock brokerage. Newspapers are also extremely popular. It is not unheard of for people who are good with hacking to hire out their service as a mercenary. But as a whole, real micronational services are extremely limited.
Fictional economies may have services, but they also have goods. For example, a nation's military might order a construction company to build them a battleship. The construction company would purchase iron from an iron mine, maybe some electronics from an...electronics store?...and then assemble it into a battleship and sell it to the military at a price greater than what it paid for the raw materials. On the surface, this seems like a perfect solution to all microeconomic problems. It's fun, it can give people useful stuff, it encourages participation, and it doesn't take significant amounts of work. However, in practice, it tends to get bogged down in very strict and complex rules. For example, take the act of buying iron from an iron mine. First we need to know who can set up an iron mine. Can I say "I hereby declare I have an iron mine?" or do I need to purchase land to put it on? Can I just buy any old land, or do I have to have reason to believe there's actual iron there? Can I build the mine out of air or do I need to buy wood and possibly some iron that's already been produced? Can I do this in an instant or do I need to wait a certain number of days to simulate construction time? Do I produce a certain number of units of iron each day? Where do I store them? How do I transport them to Battleships, Inc.? Can I sell it for any price I wish? Do I have any competitors? When all of these factors are legislated up, the result tends to be a long, scary ten-page document with rules and numbers, and our hypothetical iron miner will take one look at it, give up, and return to joining the military or the foreign affairs people or something. Besides, each country has a set of rules, and it is very rare for a country to have more than three people participating in economics. If you have three people - say, an iron miner, a woodcutter, and a ferryboat captain...well...how much can you do with iron, wood, and a ferry? And if the iron miner actually needs for people to *work* in their iron mines, then things get even worse.
The final question is: restricted vs. inflationary. If a country prints, say, $10000, then they have a number of important problems and decisions. The first is that the government, paying salaries as it is, is generally going to lose money. It will not have any source of money except to resort to taxation. Taxation restricts an economy, because if you're spending hours of your time to get money you don't really want just to help your country, and then that country takes the money away from you, you're going to be pretty annoyed. Not to mention that the government, at a certain point, unless money starts changing hands, is going to have to tax people at the same rate they pay salaries, which is a bit worthless and self-defeating.
But inflationary policy is even worse. We've all seen this...a country prints $10000, and then when they get tired of it, they print out another $10000, and then $10000000000 just for good measure. Where this becomes very problematic is in currency exchange. Let's say that the # is worth 2$. If the country that owns the $ is inflationary and the country that owns the # is not, and there are only, say, 10000# in circulation, then the country that owns the $ can print 100000$ and thus get five times as rich as the # country without doing a thing. In other words, as long as there is a single inflationary country in the entire microworld, no restrictive country is safe unless there are extremely stringent currency exchange calculations. Not to mention that inflation generally annoys people, dwindles savings, and other such. There is absolutely no incentive to work hard and be creative for many hours if the next day the government prints off thirty times as much as you just made for no apparent reason and distributes it out to everyone.
Now I have gone over the continua, and I would like to address two other problems. The first is banking. This is very, very, tedious. An individual (the banker) has to go through all of the economic laws and apply them on a reasonable basis. That is, each week (or so) he must deduct an amount from the government account and pay it as salaries. Then he must go through interest and distribute that out. Then he must look around for every single transaction and transfer the appropriate monies from one account to the other. When people may own four or five different types of currency and perhaps some fictional iron to boot, keeping track of all these accounts gets VERY tedious. This is fine if you have someone like dStryker who thrives on tedium and who apparently has nothing better to do with his life than compute exchange rates day after day after day after monotonous weary day, but for the rest of the world, it can present a problem. The other problem I wish to address is currency exchange. This was solved for a while by the ICEO, but the ICEO was not without its problems. First was that its formulae were relatively arbitrary. If a country expanded its military, its value might go up. If a large country fell, then three or four other countries that had never even heard of it might have their currency fluctuate as a result. Finally, this was a socialist fictional system - no one was actually buying this currency. It could be compared to a magic machine in which you put one currency into one end and another currency came out the other. If someone like $ one week, then the entire currency supply of the micronational world might end up in $. It also suffered from the standard problems plaguing formula-based finance economies.
All right, you have now all heard my problems. This is my proposed solution. I suggest a socialist, goods-based, fictional, restricted economy, centered around the MCS Map. Banking will be computerized, and currency exchange will be done on a value-unit system.
To explain what I mean: each country has certain land on the MCS Map, and in this land are certain resources. For example, in Lyrica one can find uranium, wine, timber, and paper. Thus, Lyricans can theoretically set up timber, wine, uranium and paper companies to trade on the world market (or, if they wanted to instead sell, for example, oil, of which they have none, they can contract with Babkha, which does have some, and can set up a multinational corporation. I suggest that use of resources be based on good faith. Thus, if Shireroth wanted to create a nuclear arsenal, instead of simply saying "Poof!" and having it, they would in good faith because they are dedicated to the economy approach the Lyricans for uranium (although Shireroth also has uranium of its own, so this would not technically be necessary in this example) and bargain for some. Maybe they would start a trade agreement in which they sold silver to Lyrica, or maybe they would spend some Tymarks on it, or maybe they would give Lyrica a political concession. Why would they do this? Mainly boasting rights. Shireroth can then go and say that their words are backed by nuclear weapons, and because people in good faith wish to support the economic system, they would humor them. Quantity will not be bothered with...that is, the Lyricans need not say "We will give you 50 kilograms of uranium for 3000 ounces of silver"...it will be a qualitative system.
Banking being done by computer is not such a far-fetched idea as it sounds. This has already been done, and, on a limited basis, was quite successful. In the days of Old Audentior, a citizen calling himself LightEning (who later become dolphin bartender Ari Rahikkala) set up a website based around a PERL script that did all transactions automatically. Each person had a passworded bank account and could, by entering their password, transfer it to anyone they wished. Since I suspect Ari still has the script lying around, and since we certainly have numerous more than competetent programmers, I don't think this will be too great an obstacle.
What do I mean by value-unit currency? Well, each country is given a certain number of value units by a global economic board - say 100000. The country can print as much or as little currency as they want, but they nevertheless keep the same number of value units. Let us say Attera prints 20000 Atterbruuks and Treesia coins 100000 gold pieces. In this case, each Atterbruuk is 5 value units and each gold piece is one value unit. Value units rather than currency are exchanged - a Treesian gives an Atteran five gold pieces, and the Atteran has an Atterbruuk. This also makes things easy if a company decides to change its currency's worth. Perhaps Attera prints 30000 more Atterbruuks. Then the exchange rate goes to 2 gold pieces. What could be easier?
Let me give a final example of how this works. Let us say that Interland gains a new stretch of territory and wants to build a great new city there. They decide that the appropriate resources are marble, wood, silver (they want some fancy cathedrals) and some sort of food (to feed the citizens and builders). Interland itself contains both wood and cattle (cattle fitting the category of food). However, although Interland citizen Daniel Dreesbach owns Hannover Cattle Ranches, there is no wood company. Thus, the government announces they will pay a subsidy of 500 Tymarks to anyone who sets up such a company, and some Babkhans are attracted by the deal. Because Tymaria and Babkha have a free trade treaty, the Interlands accept this and the Babkhans set up International Timber Yards and give first choice of the finest quality lumber to the Interlanders. The entire eastern hemisphere is somewhat devoid of stone, so they look to the Machiavellians, who have abundant marble, for help. The Machiavellians want something in exchange, so (being good Tymarian patriots) they ask that Interland renounce its claims to indpendence before they give them the marble. Interland agrees. Now they just need that silver - luckily, there's silver only a few miles beyond Interland's borders in Attera. So they ask the Atterans, and the Atterans say they want 500 Atterbruuks for the right to use it. Interland only has Tymarks, but luckily, since Tymaria printed twice as much currency as Attera with the same number of Value Units we know there's a 1--2 Tymark/Atterbruuk exchange rate. Interland pays Attera 1000 Tymarks and they're all set. They build their city, and it's officially recognized and placed on the MCS Map, and Bobbesian Airlines agrees to fly into its airport, and Interland is viewed as just a bit more powerful, and everyone's happy.
This is, of course, just an example. I doubt things will go this smoothly. And I have left out certain things which may or may not be necessary, like a Global Economic Council to run the thing, and of course the not-particularly-minor step of getting sovereign nations to agree to this. Not to mention I'm proposing a huge economic revolution in a summit which wasn't meant for that and to which, technically, I was not invited. But even if my idea is rejected I hope you use the insights which I feel I have made into microeconomics to conduct this summit better and try and get a system working that can increase the depth of micronationalism for all of us.
