The economy is considered by many to be the beating heart of a country. Others consider it to be their livelihood, especially if they’re involved in trading stocks. For the most part though, the economy determines how our lives turn out. Whether or not inflation exists. How the job market is. These sorts of big-ticket issues that affect all of us in our daily lives. The economy is also very vital to a fantasy world, and it’s often overlooked by most writers. However, the economy is what spurs jobs, businesses, and more. It’s also what spurs wars, because nothing is more profitable than war… unfortunately. But seriously, when we look at the real world, the economy is typically the number one concern for every politician ever. So, how exactly can you create an economy for your world, realistic or fantasy?
As a fantasy and sci-fi writer, for the most part, I focus on curating stuff for fantasy worlds. However, designing an economy for the most part takes on the same forms across many genres. It’s just the finer details like jobs or businesses that can really make or break your true economic differences. But, that’s a post for another time.
And speaking of world building (did I mention that yet?), if you’re still a bit new to world building, I recommend you go check out my ultimate beginner’s guide to help you get organized and then you can come back to these more detailed posts!
WHAT IS AN ECONOMY?
According to Investopedia, an economy is “a complex system of interrelated production, consumption, and exchange activities that ultimately determines how resources are allocated among all the participants.”
In easier terms, the economy is basically how money is made and moved from businesses to people to the government. The economy determines how the distribution of wealth happens for the most part.
The economy can come in many different forms depending on a country. What we see as the popular form today is the market-based economic system. This is basically the free market or where you have unrestricted access to enter the market, high competition, and lots of products to pick from. There is also a command-based economy, which is controlled and commandeered by a government body and this is something seen in more communist-style countries. There’s also the mixed economy, which combines both. I’ll go more in-depth in a second.
An economy can be very different depending on which country you’re talking about. An economy takes into account regional, cultural, and historical differences because no two countries will truly have the same implementation of a similar economic system. What flies in one country may not fly in another, you know?
The Economy and Money
The economy affects pretty much everything that relates to money and jobs. For instance, when the Great Depression of the 1930s happened, many people suddenly found themselves out of a job. When the housing crisis of 2008 happened in the United States, a lot of people lost their homes and jobs. The economic crises that affect our world have genuine impacts because the economy is the core of how societies function.
A relevant feature of our world today is inflation, which is basically when a country prints so much money that the value of the currency goes down thus lowering the purchasing power of an individual piece of that currency. For instance, what you could buy for $2 three years ago may now cost $5 because of inflation since the value of $2 is not really the same anymore. This is typically a consequence of fiat currency, which is a currency type that is not backed by something like a gold standard. A gold standard is basically when you value a currency based off of the value of something like gold.
The Economy and Trade
Today’s world places a huge emphasis on the global economy because every country is interconnected in every way. A couple hundred years ago, it wasn’t nearly as intense as it is today. At some point in history, an economy was relegated to a local population. Eventually, the idea of the economy broadened and has become its form today, which is a globalized economic system. Trade and industrialization has helped facilitate and expand this by a huge margin, and the idea of trade has been existent for a really long time.
The first evidence we have of economies were things like bartering systems. The barter system was pretty ineffective at some point though because how can you actually value a wooden shovel versus maybe some sticks? That’s when people determined that there needed to be a standardized currency that can be used to trade for items instead of trading items or services for other items or services. At first, currencies were made out of metals and were valued on the value of that individual metal, which came about with metallurgy. Then, bank notes and eventually paper bills were used to curate the system we have today.
That was a pretty big economics lesson, but I hope that you have a bit more of an understanding of some of the theory behind economics before we proceed with designing an actual economy. I don’t want to overwhelm you with the stuff I had to go through in business school, so we’ll stick to this for now, haha!
HOW TO DESIGN AN ECONOMY FOR YOUR WORLD
STEP 1: PICK YOUR BASE
By base, I mean this: Market, Command, and Mixed.
When you’re determining this base for your economy, this will affect basically everything else that exists in the economic system. So, let’s get into that now.
MARKET ECONOMY
A market economy is the system that allows for the free flow of trade, an almost nonexistent interference of the government, and a maximization of wealth and profit. The idea of the market economy is that the market is a force that is controlled by an invisible hand and determines what goes up and what goes down on its own without interference (see Adam Smith’s theories for more).
The market economy is based on the ideas of the law of supply and demand. Basically, what this means is that the economy and the value of items moves up and down based on the demand of the consumers and the supply of the suppliers.
The idea of most market economies is to allow people to enter the market easily and exit the market easily while giving freedom for the consumers to pick and choose from these different market participants.
COMMAND ECONOMY
The command economy system is not so popular these days, but it was more commonly seen during the time of the Soviet Union. This system is basically where the government determines the distribution of wealth in society.
What this means is that the government determines the flow of money, the flow of trade, how people get paid, and their main goal is to maximize social welfare. This means that wealth is not promoted as much as in the market economy
Most people imagine a communist government when they imagine a command economy, which is probably the easiest way to understand it.
MIXED ECONOMY
A mixed economy is basically where you find a system that combines aspects of both the command and market economies. This is pretty much the most common system available in today’s world. For the most part, there is no entirely capitalist or entirely socialist or entirely communist country anymore today.
Most countries will allow for the government to regulate the markets in the public’s interests and most countries allow for a free-enough flow of trade. Of course, some countries push more to the market side or more to the command side than others, but being a mixed economy allows for more opportunities in different aspects.
STEP 2: DETERMINE A FORM OF CURRENCY
Currency is the main driver in most economies. It essentially serves as the unit for trade in which a person exchanges the currency for either a good or a service. A unit of currency can be a precious metal or a paper bill or anything really.
For most of history, coinage made of metals like silver and gold were used as a currency. Eventually, people would create paper bank notes that indicated how much gold was stored in a person’s personal account in a bank. Later, bank notes were replaced by paper bills and eventually the formation of fiat currency came about. I talked about fiat currency already earlier in this post, but it’s basically when a unit of currency is not backed by some sort of standard like the gold standard. You arbitrarily assign value to that unit of currency (FYI, this is why inflation is a thing along with interest).
When you pick to design your world, you can choose whatever form of currency you want to use. You can make your currency based on metal, paper, or really anything else. In fact, you don’t even need to have a standard form of currency if you want to do something different like maybe assigning trade value to specific items such as plants or scrap metal.
At the end of the day, designing your currency is essential to the economy because when you showcase things in your story that have to do with the economy, it’ll make the world feel more complete.
STEP 3: DETERMINE LAWS FOR THE ECONOMY
I already talked about creating a government for world building, but I mentioned laws and legal procedures in that post. You see, the law is an important influence on the economic system, unless you’re writing a pure market economy.
For the most part, the way the legal system impacts the economy is that laws regulate how the economy functions and what works and doesn’t work. For instance, maybe there are certain goods that cannot be sold under your economy in your world. There would be laws restricting this from happening.
Laws may provide leeway for the economy and give more room for economic players to do whatever they want. Consider how the laws will impact your economy and in what capacity will that play a role in your story and your world.
STEP 4: DETERMINE JOBS IN YOUR ECONOMY
One of the main factors of the economy is the job market. The booms and busts of the economy will impact the rate of employment, how many jobs are available, and such things. Of course, if your economic state is down in the dumps, so will people’s ability to get jobs.
Under your economic system, you should determine how the process of getting jobs happens. For instance, do people need to apply with the government and get assigned jobs? Can people just submit applications like they do in many countries today? Do people need an education before applying? Are your jobs unique/skill-based only? Maybe they need apprenticeships or guild memberships to get jobs. These sorts of questions can help add even more layers to your economy for your world because you can shape a lot of that world building into your economy in this phase.
For instance, if magic is important to your world, how does that magic play a role in the job market? Are there jobs for people with magic? Is magic used in other jobs and therefore is having magic a high-value skill to know?
STEP 5: DETERMINE HOW TRADE WORKS
Trade is another huge part of the economy. Whether internal or external, trade makes a big difference in how the economy works. If a country relies heavily and extensively on importing goods from other countries, you should talk about that. Maybe you can talk about how merchants operate in the country or external to the country.
This obviously does depend on your chosen time-period. The more modern your story is, the more likely trade will play a big role in your economy, especially if that trade is mainly importing goods. Supply chains can dramatically affect a global economy, as we’ve been seeing, so take this into consideration.
If your story is more ancient or medieval in nature, chances are, you’ll want to look into things like merchant bazaars. I recommend looking at the Abbasid Caliphate’s souk system. They had a lot of emphasis on trade and merchant work in their time, so it’s a good reference. Additionally, the Silk Road is a really good resource to learn about old trade.
Another thing you can think about is how language impacts trade under your economy. Do merchants need to be multilingual? Are there translators? These things are interesting to think about, and you can check out my guide on designing a fake language for world building purposes to help give you some inspiration.
STEP 6: DETERMINE THE SOCIETAL IMPACT
Society is heavily impacted by the economy on many fronts. The way we shop, sell, and obtain goods and services is a driving force in our lives. You may not realize it because we just sometimes do things for the sake of doing them, but the economy is a major driver in your life. When you go to the supermarket, when you shop online, when you sell something online, when you exchange a service and a good, etc… these are all you participating in the overall economy.
Of course, what this means is that your economy in your world will impact your characters and their lives. If the economy is in a bust, then your characters may not be able to get jobs. They may not find affluence anymore. They may lose their wealth or gain wealth, because some people do prosper in recessions. If your economy is booming, maybe your characters are impacted negatively or positively depending on their position in society.
Economies also have hierarchies in many cases. Those with the most wealth have the most influence on the economic state of your country. So, in that case, is there some sort of unrest in your country as a result of the economic system in place?
These things and more should help you figure out how you want to orient your economy and should make it easier to develop your world even more.
And before you go, don’t forget to check out my military sci-fi/fantasy series, The Fallen Age Saga! You can buy my books over on Amazon right now.