Join the new world

Let's start with a 30,000 foot level overview of how eRep's economy works.

There are a large number of laborer/consumers, and a relatively small number of enterprises. Each day, a laborer may exchange his "work" (which if not used has no value) for money, by selling it to an enterprise. The enterprise turns this "work" into "product", which can then be sold for money, ideally at a profit (otherwise the enterprise fails). These products are then bought by laborer/consumers, and consumed at some point in the future (except for a few narrow exceptions such as houses which are non-consumable).

The conversion of "work" into "product" is the main economic engine - it is the manner by which each citizen (whether laborer or entrepreneur) can enrich himself, or at least sustain himself. The true measure of wealth is the total amount of money, plus the total amount of product. Since products purchased (except houses) are consumed (or discarded), there is a "leak" in the economy, in the sense that the total amount of global wealth does not simply increase as work increases.

Money (i.e., USD) is a special category of wealth - it is "non-consumable" in the sense that it is not destroyed when used. However, simply printing money is not a way to increase total wealth - instead, each new unit of currency printed decreases the value of every other unit of that same currency. It is effectively a tax, one that penalizes people who amass national currency, but leaves alone those whose wealth is mainly in assets (including gold), or other nation's currencies.

Gold is another special category - it sounds like "money" but acts like "product." Gold is "created" in numerous ways - most importantly for the game, when people pay RL cash for it, but also when certain milestones for each individual are reached. This new gold does deflate the value of gold, but the deflation is limited since the cost of many game features is a fixed amount of gold. It would be more proper to say that, as new gold enters the game, the price of these features drops in terms of national currency - and it rises when gold is spent on these features (and therefore destroyed, for our purposes - it is therefore quite unlike "money.")

From these standards, we can show that war is actually harmful to the economy, at least for most participants in it.

First: Large amounts of gold are expended. While this is good for holders of gold, it is a reduction in the total wealth of everyone (defined as the total of money and product). It is creation, not destruction, of gold which increases the global wealth, and therefore the average wealth. This is the most direct way in which war hurts the economy.

Another big factor is the loss of product supplies. Again, those who hold stockpiles in a shortage make off like bandits, but for the world at large, we're all impoverished whenever products are used at a higher than normal rate. The decrease in the fruits of our collective labor lowers the worldwide amount of wealth.

So why do people think that war helps the economy? Well, the costs are not borne equally. The best-situated people in war are weapons companies (the higher Q, the better), and to a lesser extent, other companies (food, gift, and moving tickets are used at somewhat higher rates), other than construction (which benefit far more from the threat of war than from actual warfare) and raw materials (which are too slow to react to war, since they must be converted to product to actually be useful).

In long-term peace periods, the laborers actually have a lot of advantages. Companies have to compete both on worker salaries, and on marketplace price. That competition forces them to take a smaller profit margin than they would like. In war, the profit margin spikes because the slow process of economic normalization doesn't have time to kick in - sure, wages go up a bit, but prices go up much more. Profits for companies (other than construction) go up. Weapons profits, in particular, soar - especially since their product is worthless in peacetime.

For company owners, war is pretty good. For the rest of us, peace is more profitable in the long run. Like so many other things in life, where you stand depends on where you sit.