As a teen, I used to play Dungeons and Dragons (D&D) with my friends. This started an interest in the medieval period that led to me taking a medieval history class in college just to understand the period more. Over the years I've also read great books like "Dungeon, Fire and Sword" about the crusades (I recommend the book) and yet with all that knowledge it wasn't until recently that it occurred to me I had a completely wrong understanding of economics in the Medieval Period.
In my D&D games, players who are adventures battling monsters and creatures would need equipment and on the trips to town, they'd get resupplied with their adventuring necessities. I'd run these moments referencing my imagination of what it must have been and fantasy books I'd read. There be an inn with a raucous bar, a gruffly black-smith, if a city also a weapon and armor smith, and so on. But in all, I gave the typical industrialized world pricing of things: the more of something you buy the cheaper it would be.
Only recently have realized that this is totally bonkers. The only reason we have this now is that once you set up an industrial process to produce an item, each successive item becomes cheaper to make. So selling in bulk is cheaper than selling detail, but that's not true on a decentralized, individual center of production way.
If you make swords in a factory, the hard most expensive part is setting the line once that is set, then materials become the constraint and the more you need the more you can transport in mass (water, rail or car) transport the cheaper each item gets. But that is not how an individual blacksmith would see it.
Say you needed 20 swords in a week to equip your group. What price should they be if one sword costs 100 coins? In our world, they would be 20 x 100 or less. But not if you had to do individual production. How many can one furnace and blacksmith produce in one week? One or two swords? So how do you get the other 18? You have to buy and transport the swords from other blacksmiths around and if there aren't enough? Well, you'd have to set up a new forge and get a new blacksmith to work alongside you not to mention get the materials to make the swords from. And then he has to worry about what that blacksmith is going to live from? Won't he become a competitor? How will the price of the new forge be made back? These are not idle considerations so you can be sure that 20 swords would cost way more than 2,000 coins.
This eluded me since I'd worked retail as a teen and also bought things. The "things get cheaper the more you produce" is called marginalized cost in economics. Marginalized cost doesn't include the cost of setting the factory, or the line, simply the cost of producing one more item in the line, but this is a very modern thing. For most of history the more you need of something the more expensive the cost is. And this comes to play when you can't ignore the cost of setting up a factory. Like say, when you have to move production from one country to another because of a tariff. Because the cost of setting up a factory is so high and takes inelastic time, tariffs will in the short term almost invariably have to be paid. But that's understood what's not understood is the time considerations. If I need to move a factory, I need to amortize the value of the factory and its set up over time. This means, once I move I have to stay put for a bit to make my money of moving back. So if the tariff may go away at any time soon, why would I expose myself to being locked up in a factory in a new country?
We take the elasticity and growth of a modern industrialized economy for granted these days, like I did in my D&D games to the point I had trouble imagining the real medieval economy of not scale. So it's so easy for us to not realize when we hit upon the limits of marginalized cost and the limits of scale of our own economy.
In my D&D games, players who are adventures battling monsters and creatures would need equipment and on the trips to town, they'd get resupplied with their adventuring necessities. I'd run these moments referencing my imagination of what it must have been and fantasy books I'd read. There be an inn with a raucous bar, a gruffly black-smith, if a city also a weapon and armor smith, and so on. But in all, I gave the typical industrialized world pricing of things: the more of something you buy the cheaper it would be.
"archers and skeletons and what-the-heck-was-that-anyways, oh my"by alison_- is licensed under CC BY-NC-SA 2.0
Only recently have realized that this is totally bonkers. The only reason we have this now is that once you set up an industrial process to produce an item, each successive item becomes cheaper to make. So selling in bulk is cheaper than selling detail, but that's not true on a decentralized, individual center of production way.
If you make swords in a factory, the hard most expensive part is setting the line once that is set, then materials become the constraint and the more you need the more you can transport in mass (water, rail or car) transport the cheaper each item gets. But that is not how an individual blacksmith would see it.
Say you needed 20 swords in a week to equip your group. What price should they be if one sword costs 100 coins? In our world, they would be 20 x 100 or less. But not if you had to do individual production. How many can one furnace and blacksmith produce in one week? One or two swords? So how do you get the other 18? You have to buy and transport the swords from other blacksmiths around and if there aren't enough? Well, you'd have to set up a new forge and get a new blacksmith to work alongside you not to mention get the materials to make the swords from. And then he has to worry about what that blacksmith is going to live from? Won't he become a competitor? How will the price of the new forge be made back? These are not idle considerations so you can be sure that 20 swords would cost way more than 2,000 coins.
This eluded me since I'd worked retail as a teen and also bought things. The "things get cheaper the more you produce" is called marginalized cost in economics. Marginalized cost doesn't include the cost of setting the factory, or the line, simply the cost of producing one more item in the line, but this is a very modern thing. For most of history the more you need of something the more expensive the cost is. And this comes to play when you can't ignore the cost of setting up a factory. Like say, when you have to move production from one country to another because of a tariff. Because the cost of setting up a factory is so high and takes inelastic time, tariffs will in the short term almost invariably have to be paid. But that's understood what's not understood is the time considerations. If I need to move a factory, I need to amortize the value of the factory and its set up over time. This means, once I move I have to stay put for a bit to make my money of moving back. So if the tariff may go away at any time soon, why would I expose myself to being locked up in a factory in a new country?
We take the elasticity and growth of a modern industrialized economy for granted these days, like I did in my D&D games to the point I had trouble imagining the real medieval economy of not scale. So it's so easy for us to not realize when we hit upon the limits of marginalized cost and the limits of scale of our own economy.
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