Martian con-economics: Water as currency

[Ares Land]

Do you know that feeling, when you get an idea and you're not quite sure if it's a great insight or just stupid?

How much sense would it make for a Martian colony to use water as a currency? Or more precisely, to use water prices as an index for their currency?

Pros:
- Well, as Herbert and Heinlein have shown, it's a great way to make the setting properly alien at little cost to the author.
- It'd certainly be valuable. When everything is fully recycled, water is non perishable. So it fits traditional criteria for a money standard.
- There would be a direct, natural relationship between the size of the economy and the money supply.
- Exchange rates between Earth currencies and Martian currencies would somehow have a relation with shipping costs.

Cons:
- I'm a little uncertain about the exchange rate part. Martian water would be hideously expensive, so I'm not sure how this would affect imports and exports.
- Austrian economists and goldbugs would insist on the money supply being fixed.
- On the opposite side, why bother? Fiat currency works fine. (It's boring, though).

An alternative: using some other bottleneck resource, like phosphorus.

What do you think?

[zompist]

Commodities make good currencies— cows, salt, bags of prison hooch.

I'm not sure that necessities do, though. You can hoard cows or gold; you need to use the water. If a settlement has 1000 gallons and uses it as collateral for a loan with 10% interest per annum, what does it do, execute 10% of its citizens each year?

Also, commodities don't make great currencies, because they're distorted by new sources and uses. You know that you could get more water by mining comets, right? Or by grabbing oxygen from Rhea and hydrogen from Saturn?

On the other hand you could probably work out a system where a settlement's (or a person's) water supply is a direct measure of their economic power and all sorts of decisions are made based on it, without actually having to hand the water over to anyone.

The Austrians are crackpots, ignore them. Money need to grow as productivity and population grow, and ideally it grows faster than that. Deflation means a depression, and you need a couple points of inflation as a buffer.

[Ares Land]

Commodities make good currencies— cows, salt, bags of prison hooch.

I'm not sure that necessities do, though. You can hoard cows or gold; you need to use the water. If a settlement has 1000 gallons and uses it as collateral for a loan with 10% interest per annum, what does it do, execute 10% of its citizens each year?

That's a pretty good objection -- though I'm not entirely sure it's that different from our extant system. We need to use the money as well after all.
No bank will give me a loan with my entire savings as colleteral if I have no source of income.

Also, commodities don't make great currencies, because they're distorted by new sources and uses. You know that you could get more water by mining comets, right? Or by grabbing oxygen from Rhea and hydrogen from Saturn?
(...)
The Austrians are crackpots, ignore them. Money need to grow as productivity and population grow, and ideally it grows faster than that. Deflation means a depression, and you need a couple points of inflation as a buffer.

That's really the point of the scheme; if a settlement grabs a million gallons of water, it will use it for growth.

Inflation would be guaranteed at a rate that would track colony growth (colony size and productivity being a factor of its water supply).
Deflation would be a very clear sign that someone is sequestrating water somewhere useless, or doesn't bother recycling.

[mèþru]

I think the best currency based off of what I remember from your world is some rare metal, animal products or the animals themselves. Water is too vital to give it as freely as one would spend currency to get other goods. Products like meat, rum in the Golden Age of Piracy or fiat money today are important resources but you won't necessarily die if you have an unexpected shortage without a reliable backup. You will always die without water no matter what else happens, and if you have only a little that will keep everyone alive they could be physically and/or mentally disabled for life by the experience.

[Ares Land]

I think the best currency based off of what I remember from your world is some rare metal, animal products or the animals themselves. Water is too vital to give it as freely as one would spend currency to get other goods. Products like meat, rum in the Golden Age of Piracy or fiat money today are important resources but you won't necessarily die if you have an unexpected shortage without a reliable backup. You will always die without water no matter what else happens, and if you have only a little that will keep everyone alive they could be physically and/or mentally disabled for life by the experience.

No, that's not the same setting
I'm considering, say, a 22nd century Mars colony.

I get your objection... And yet, in our own world, you will die without money too! Well, you can try to survive off the grid, but that wouldn't be on option on Mars no matter what.

[Salmoneus]

That answer doesn't work, because you're conflating different senses of "money". Do you mean money as in currency, or money as in wealth, or money as in coinage? In the case of money as in coinage - no, coins (notes, bank statements, etc) aren't necessary in their own right, but only because they symbolise money. In the case of money as in currency, no, currency is not necessary to live, only to have an efficient national economy (hyperinflation and deflation can kill people, but they don't immediately cause mass starvation). "Money" is only a necessity when you're talking about wealth, and wealth is not a finite resource (well, I guess technically finite, because universe, but not bounded within the limits of current economic scales). What's more, wealth isn't the parallel to water here, because you're not talking about replacing wealth with water, but replacing (notional) coins with water.

The key difference is that with water-currency, there's a conflict between water's value as water, and the value water would have as wealth - whereas coins only have value as wealth. The closest parallel here would be the gold standard, where coins had value both as currency and as commodity. The result was that gold was gradually taken out of the system by hoarders, producing deflation, encouraging further hoarding. Making the same commodity essential to two different markets (metalwork and coinage) diminished its availability to both.

How do you set the price of water in your system? You can set the non-currency value of gold through the demand and supply of gold, and base the currency value on that. But my desire for water is not like my desire for gold - it's inelastic. If you increase the asking price of your gold coin - making me give you more and more of my possessions in exchange for it - there comes a point where I will just say owning the gold isn't worth it, I'd rather keep my possessions. And if that price is too high, then gold stops being usable as a currency and we go back to barter. But if you increase the asking price of your water, I end up having to hand over every last one of my possessions to you, because there is never a point where I can just say I'll do without water. So the value of the water would seem to just increase without limit (i.e. there'd be virtually limitless deflation). The only way to avoid that is with a free market in water, but you can't have a free market in water on Mars - because the barriers to entry into that market (the cost of acquiring more water) is immense, so the market becomes colonised by water-hoarding oligarchs. [which means it won't be a currency, because it's not in the oligarch's interests to give people extra water to use as currency, when holding water-currency is profitable]. This stops being the case when acquiring water is cheap enough, but then what's so special about water in that case? Then we're just back on Earth! If water is a tightly limited resource, water allocation is a major problem, but it is a problem that can only be resolved politically, not economically. And even if it were possible, I think basing your entire economic system on the smooth resolution of your most pressing political problem seems foolhardy in the extreme! If nothing else, if the people who have the water by definition also have the wealth, they are likely to also aquire the political power, and when they have both the power and the wealth, how do you get the water off them?

And what if there's a burst pipe? Not only would you have a water deficit, you'd also instantly have a bank run!

It would also be utterly unforgiving. On Earth, if I have water and no money, I can sell some of my water to get money. If I have money and no water, I can give up my money to get water. On Mars, these exchanges would be impossible: if I have water, I have money, and if I have money, I have water. So if I have no money, how can I aquire water? And if I have water, what's my incentive to give any of it away, since it can't be in exchange for money?
[I can give you some water in exchange for, say, books. But if I have the water and you have the books, I can just wait you out...]

Conversely, imagine if there weren't constrictive hoarding - you'd have periodic explosive inflation when new water resources arrived!

And on a practical level, water is a terrible currency, because it's a bugger to move and to store. It's heavy, and it leaks. So I guess it would only be notional water - you'd exchange chits representing how much water was in your bank account. But when we had the gold standard, Fort Knox had to be filled with bullion. There were bank vaults full of gold. If water is a precious resource, you don't WANT a huge amount of it to be held in bank vaults! So I guess it's a purely notional currency indeed, only representing how much water, that is not in your vault, you theoretically have a right to. In which case, what makes it the case that "water is a currency", rather than just "the price of water is legally fixed"? And then how do you keep the price of water fixed? If the true market value of a litre is greater than the true market value of a water-chit, people will trade water directly at the true price (or hoard it), and the water-chit will cease to be used as currency. But if the water-chit is more valuable than the water, it will never be exchanged for actual water, and in that case how is it a water-based standard anymore? [this is reminiscent of the bad-money-drives-out-good paradox of bimetallism: the government can say by fiat that a gold coin is worth four silver coins, but depending on the real price of each metal, that just means that one of the two types of currency will never actually be used]. And if the system is indeed purely notional, with no requirement to actually hold the notional volume of water, then the value of the water-chit will be driven by economic factors, like fiat currency, while the value of the water itself will be driven by the supply and demand of water, so the two values will rapidly diverge.



For clarity, there are usually two different types of commodity backing: a water specie standard would mean actually paying via jugs of water; a water bullion standard would mean the government (central bank, etc) agreeing to give you water at a fixed price in exchange for your cash. The former is impractical because of the difficulties of transporting and storing water; the latter is impractical because it would require the government to hold huge, inactive water reserves that it was willing to give away, which is an inefficient way of dealing with a scarce and vital resource. It also involves the government fighting against the market prices, which costs money, and drives inflation/deflation. And the more you reduce the reserves, the more vulnerable you are to bank runs, and the more you resemble an ordinary fiat currency and the idea of a link to water becomes purely conceptual.




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But the two bigger problems are: it's a backed currency, so inherently bad; and why on earth would anyone do that? What would be gained?



I'm not saying this is impossible. I don't know enough economics - and conceptual currency stuff is its own thing anyway. Maybe there's some way it could work. But at first glance, it looks to me like it would have all the downsides of a gold standard, but much, much worse?

[Ares Land]

I think I can answer some of these objections. Keep in mind, though, that I'm not entirely sold on the idea myself, but it has some story-telling potential and I'd like to know how far I can go with it

But the two bigger problems are: it's a backed currency, so inherently bad; and why on earth would anyone do that? What would be gained?

I think I'll start with that

The main appeal in a backed currency is to keep currency independent from bad political decisions. The gold standard doesn't work, because as it turns out it's naturally deflationary, and we find a currency works best when inflation more or less tracks economic growth.
(Plus, on Mars, a gold standard would be inflationary instead).
But what if the supply of a commodity actually was a pretty good predictor of economic growth?
At least in early stages of colonization, that would be the case of water on Mars. I believe that later on as settlements grow and the economy mature, that would no longer be the case and they would have to ditch the system.

Let's consider smallish settlements, a few thousand people, transitioning from the planned economy of outposts to a market economy... What would they pick as currency?
Terrestrial currencies wouldn't really be usable; gold is out of the question.
Rationally, they'd try to do more or less what we do right now, which is measure prices on a selection on goods and index the currency on that, with a margin for inflation. Now, let's suppose colonial government gets it wrong somehow (not unlikely!). What would colonist turn to?

Alternatively, you can think of it as a fixed price for water. That would have some political appeal!

That answer doesn't work, because you're conflating different senses of "money". Do you mean money as in currency, or money as in wealth, or money as in coinage? In the case of money as in coinage - no, coins (notes, bank statements, etc) aren't necessary in their own right, but only because they symbolise money. In the case of money as in currency, no, currency is not necessary to live, only to have an efficient national economy (hyperinflation and deflation can kill people, but they don't immediately cause mass starvation). "Money" is only a necessity when you're talking about wealth, and wealth is not a finite resource (well, I guess technically finite, because universe, but not bounded within the limits of current economic scales). What's more, wealth isn't the parallel to water here, because you're not talking about replacing wealth with water, but replacing (notional) coins with water.

What I mean is money as wealth. From the standpoint of my hypothetical Mars settlement, water is technically finite, but there's water on Mars well beyond the economic scale of a few thousand colonists.

The key difference is that with water-currency, there's a conflict between water's value as water, and the value water would have as wealth - whereas coins only have value as wealth. The closest parallel here would be the gold standard, where coins had value both as currency and as commodity. The result was that gold was gradually taken out of the system by hoarders, producing deflation, encouraging further hoarding. Making the same commodity essential to two different markets (metalwork and coinage) diminished its availability to both.

Fair point about hoarders. Though there are two differences:

• Hoarding water is a great deal more difficult than hoarding gold. If you build a huge reservoir the people are bound to notice...
• If you managed to hoard water, why not do something economic useful while you're at it? Cycle it through a farm, or grow algae and sell the oxygen!

But if you increase the asking price of your water, I end up having to hand over every last one of my possessions to you, because there is never a point where I can just say I'll do without water.

Yes, but there is a point where it's just more useful, economically speaking to go check out the water ice in the next crater over!

The only way to avoid that is with a free market in water, but you can't have a free market in water on Mars - because the barriers to entry into that market (the cost of acquiring more water) is immense,

If there is a Mars colony at all, the cost of acquiring more water can't be too great, or you can't have a Mars colony at all. If it takes enormous resources to go get some water, there's no way for the population to grow.

This stops being the case when acquiring water is cheap enough, but then what's so special about water in that case? Then we're just back on Earth! If water is a tightly limited resource, water allocation is a major problem, but it is a problem that can only be resolved politically, not economically.

Water has to be cheap enough -- otherwise you have no colony to speak of.
The key difference with Earth is that all water is recycled; it's not perishable as on Earth: the total quantity of water is precisely accounted for.

So if I have no money, how can I aquire water? And if I have water, what's my incentive to give any of it away, since it can't be in exchange for money?

Well, in exchange of labour, which you do need. Also, carbone dioxide, phosphates, and so on.

Conversely, imagine if there weren't constrictive hoarding - you'd have periodic explosive inflation when new water resources arrived!

You get that issue with gold because it's not that useful, economically speaking. Whereas new water resources would mean more opportunity for water-expensive industry, or settlement expansion. Plus the process would likely be predictable -- the water resources would be mapped.

So I guess it's a purely notional currency indeed, only representing how much water, that is not in your vault, you theoretically have a right to. In which case, what makes it the case that "water is a currency", rather than just "the price of water is legally fixed"?

Yes, indeed, that's pretty much the idea. The Martian dollar is defined as the price of a cubic meter of water, or alternatively the Central Bank of Mars will buy a cubic meter of water at a fixed rate of one Martian dollar.

And then how do you keep the price of water fixed? If the true market value of a litre is greater than the true market value of a water-chit, people will trade water directly at the true price (or hoard it), and the water-chit will cease to be used as currency.

Let's one day's work of an average labourer is one Martian dollar, that is one cubic meter. The water supply of the colony increases by 10 percent. So the same day's worth gets you 1.1 cubic meter now, that is 1.1 Martian dollar. In other words, you have 10% inflation; meanwhile the 10% extra water gets run through greenhouses, thereby increasing agricultural production by 10%. Which means you have 10% economic growth.

For clarity, there are usually two different types of commodity backing: a water specie standard would mean actually paying via jugs of water; a water bullion standard would mean the government (central bank, etc) agreeing to give you water at a fixed price in exchange for your cash. The former is impractical because of the difficulties of transporting and storing water; the latter is impractical because it would require the government to hold huge, inactive water reserves that it was willing to give away, which is an inefficient way of dealing with a scarce and vital resource. It also involves the government fighting against the market prices, which costs money, and drives inflation/deflation. And the more you reduce the reserves, the more vulnerable you are to bank runs, and the more you resemble an ordinary fiat currency and the idea of a link to water becomes purely conceptual

I think you've guessed at this stage that it's the latter I meant
It certainly would drive inflation, but inflation correlated with economic growth. (Which a Keynesian would approve, I suppose.)

Holding water reserves, in any case, would be a sound policy. Bank runs could be a concern, but wouldn't a significant bank run require an awful lot of plumbing?

[zompist]

I think the main question you have to ask yourself is: are you rewriting Mad Max: Fury Road? That is, are you aiming at a brutal world with sociopaths hoarding essential commodities?

That can make for great stories, but you also want to set it on Mars. And space dystopias tend to forget the fact that Wild West libertarianism doesn't work in space.

To put it bluntly: oligarchy doesn't work so well when a well placed gunshot can destroy your life support system and murder all the oligarchs.

Mars is a hellhole, as Sal put it in another thread, and realistically it could only be settled with a huge degree of cooperation, and a very low tolerance for sociopathy. We don't run the International Space Station like we run a for-profit prison.

If you're not aiming at Mad Max, but at a reasonably civilized world, then the obvious question is "Why not use a fiat currency like everyone else does?"

Again, I think making decisions based on water resources could work. Cf. Sal's discussion of notional water. In the history of currency, there are plenty of examples of currencies which never actually change hands— sometimes because the notional currency did not exist in physical form.

Maybe look at this the other way. On a day to day basis, how does your water currency work? Does your boss pay you in water jugs? How do you buy a plot of land, or a cup of coffee? Does a bank store your water, and pay you extra water as interest? For that matter, how do you actually buy water to use for irrigation, drinking, or showering? ("You need 1000 liters for your farm? We'll have it piped over right away. That'll be 1000 liters, please.")

I think you'd very quickly end up with notional water... which is really a non-water currency that we pretend is represented by physical water.

[Salmoneus]

Mars is a hellhole, as Sal put it in another thread, and realistically it could only be settled with a huge degree of cooperation, and a very low tolerance for sociopathy. We don't run the International Space Station like we run a for-profit prison.

Yeah, we probably have to gloss over here the fact that colonies on Mars make no sense, even by the standards of space colonies.

If you're not aiming at Mad Max, but at a reasonably civilized world, then the obvious question is "Why not use a fiat currency like everyone else does?"

AL says it's because fiat currencies are vulnerable to bad political decisions - which of course they are. But two things need to be considered: first, if you don't trust your political decisionmaking, don't go to Mars, because on Mars currency stability is the least of your political problems (after all, since, say, 1960, it's taken a really very stupid government to just wander into a hyperinflationary crisis); and second, non-fiat currencies are ALSO vulnerable to volatility arising from political decisionmaking. We've had deflationary and inflationary crises since the invention of currency.

Maybe look at this the other way. On a day to day basis, how does your water currency work? Does your boss pay you in water jugs? How do you buy a plot of land, or a cup of coffee? Does a bank store your water, and pay you extra water as interest? For that matter, how do you actually buy water to use for irrigation, drinking, or showering? ("You need 1000 liters for your farm? We'll have it piped over right away. That'll be 1000 liters, please.")




I think you'd very quickly end up with notional water... which is really a non-water currency that we pretend is represented by physical water.

Well, as AL and I seem to agree, eventually this just becomes a fixed price for water. Which... sounds much less interesting. But it's still very problematic because he's using a model in which water is easy to come by. And that means he can't have monetary stability. Gold is relatively stable because it's relatively rare, and hard to obtain.

Let's look at two hypotheticals.
1: Mars is humming along very nicely, until one day a guy called Croesus arrives from Earth in charge of a company that deorbits Phobos into a small crater he owns. Croesus now has more water than the rest of of the colony put together, and can outbid every other employer: Croesus now basically owns the entire colony and everybody in it.

2: Everybody gets to be Croesus: more and more water flows into the colony. To maintain a fixed price for water, the government has to print vast quantities of money; there is hyperinflation.

And remember: hyperinflation on Mars isn't like ordinary hyperinflation, because presumably, at least early on, Mars is dependent on imports from Earth. What high levels of inflation mean is that individual colonists who don't happen to own a water tanker can no longer afford anything from Earth. One way or another, power and wealth (and the very right to survival) will concentrate in the hands of the oligarchs.

Unless everyone is a water miner? But how do you afford to become a water miner? Borrowing money from the people who own the water? It would be like asking De Beers for a loan for your synthetic diamond startup company.

No, the only way to prevent the nightmare in that scenario is that people will, if they can, gather together and outlaw water mining: for the sake of their currency, they'll say, they need to control the water supply to ensure stability! And then you won't be able to grow... or, of course, the government could just cave in to popular demand and end the guaranteed water price.

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There's another problem here: AL assumes that water production with match general growth, because a constant and sane amount of output will be spent on increasing the water supply. But it won't! Because in this world, a glacier isn't an economic resource to power industry that can make you money - a glacier IS money! A glacier is a a mountain of gold!

If you're an industrialist on Mars, and you can spend 60 units on, say, a plate factor, and make a profit of 60 units a year, or you can spend 60 units on water mining and make a profit of 1000 units a year, you will pick the latter every time. And if there's enough water accessible that everyone can mine water, everybody with cash will spend all their money and time mining water, or loaning money to people who are mining water, because why would they do anything else? Nothing else would be economically viable. In the long run of course wages would gradually be pulled up by the increase in the money supply (making imports unaffordable), but they'll always lag behind, so it'll never make sense to do anything other than mine. So the real economy will be crippled...

And of course the inflation will also deter any external investment.

Oh, and another wrinkle: if there's inflation, and the government guarantees to buy at a fixed price, everyone wants to sell their water to the government as soon as possible (because it'll be worth less tomorrow) - so the government ends up hoarding all the water?

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We don't have to speculate too much what happens when the government offers a fixed price for a resource that there's a lot of locally - it's called a gold rush. It can lead to population growth, but it tends not to lead to robust economic development. The gold rush ends when the gold runs out - at which point the thinness of the economy is shown by the economic collapse that follows - but at least then the area can attempt to transition to a stable, long-term growth model. Here we seem to be talking about a permanent gold rush? Except a permanent gold rush in which nobody actually gets rich - because a millionaire from California could spend his wealth in New York, but a millionaire in Martian water can't spend that water on Earth, so his wealth is trapped in a closed economy in which inflation eats away his profits. A gold rush where you have to find gold every day just to break even?



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And to re-iterate: commodity-backed currency is bad. It leads to increased volatility, which deters investment. It removes the ability of the government to moderate economic bubbles or crashes. The proposed benefits of backing are that it helps minimise government (which isn't great in a colony with no breathable air), that it enables fixed exchange rates with other countries (which doesn't work if you're the only one on the standard), and that it prevents inflation (which isn't true if your commodity is not rare and inaccessible).

So what's the benefit here?

[Ares Land]

Thanks to you both for you help in taking this apart!

That can make for great stories, but you also want to set it on Mars. And space dystopias tend to forget the fact that Wild West libertarianism doesn't work in space.

No, it's not really what I have in mind
But I can't resist pointing out the proponents of Libertarianism in Space were perfectly aware of the issue, and that it was, in fact, practically the whole point.
The whole idea was to cycle the sociopaths through the airlocks until the population is 100% decent Missouri farmers who don't need the government to get along.
(Oh, and apparently decent people never, ever get nightmares or even just feel bad over getting rid of their asshole neighbour by explosive decompression. And they never hold grudges over Daddy getting spaced back in 2076. There must be some real good therapists in Luna City.)

Yeah, we probably have to gloss over here the fact that colonies on Mars make no sense, even by the standards of space colonies.

I'm not sure I see why. Mars is deadly and unattainable, sure, but less so, on the whole, than the rest of the solar system.
I feel SF authors have gotten a little too pessimistic on the subject of space colonization these days...
Bruce Sterling: "I'll believe in people settling Mars at about the same time I see people settling the Gobi Desert. "
China: "Hold my beer."

If you're not aiming at Mad Max, but at a reasonably civilized world, then the obvious question is "Why not use a fiat currency like everyone else does?"

Agreed -- I believe the question I should by asking is, how would the currency be set up in the first place?
The Euro (and the dollar and the pound, unless I'm missing something) works by setting an inflation target, using an index of consumer prices.
Nice, but not really workable when a settlement transitions from the planned economy of an outpost to a market economy. I'm not sure what to use at this stage.
Commodities feel natural. Using only water looks too simplistic, looking at the objection you raised, but would an index calculated on a few basic commodities (water, nitrogen, phosphorus, power?) be workable?
Another annoying question is how to fix the value of Martian currency relative to extant currencies. At this point, there'd be practically no imports to speak of as there's nothing Mars could conceivably export... well, except intellectual property (patents, software, and reality TV) and maybe services (would providing a place for political prisoners be marketable? Gulag as a service?)

The proposed benefits of backing are that it helps minimise government (which isn't great in a colony with no breathable air)

The appeal to me is not so much to minimize government, but to figure out some way the money supply could self-regulate. (The analogy with air is apt: the government is great, but I'd rather have breathable air inside no matter who's in charge).

But two things need to be considered: first, if you don't trust your political decisionmaking, don't go to Mars, because on Mars currency stability is the least of your political problems (after all, since, say, 1960, it's taken a really very stupid government to just wander into a hyperinflationary crisis)

I think the real question is how to design institutions that ensure that decisionmaking stays relatively sane no matter what.
I should add that it's perfectly reasonable to reconcile a monetary policy that's mostly off-limits to day-to-day political decisionmaking with a large government: Germany did just that for decades, and it's pretty much the whole idea behind the inflation targeting we're doing these days.
I'm wondering if there'd be some way to make the process self-regulating somehow.

[mèþru]

I assume the first nation to have a large share of colonisers will have their currency become the initial currency of the outpost; either that or the currency of the nation of the transportation company that transports the most colonisers. The first native currency can just be introduced by replacing a set amount of units in old currencies with a set amount of the new one. It can then be pegged to a(n index of) commodity value(s), the cost of labour, the cost of energy, a(n index of) Earth currency(/ies), a combination of any of those options or just allowed to float.

[Salmoneus]

Yeah, we probably have to gloss over here the fact that colonies on Mars make no sense, even by the standards of space colonies.

I'm not sure I see why. Mars is deadly and unattainable, sure, but less so, on the whole, than the rest of the solar system.

We've been over this before, and no doubt will again, but the short version would be: Mars is wrong in almost every way. The fundamental things you're looking for when building a survivable outpost (assuming we don't find a paradise planet with breathable air, and assuming technology or timescales too frugal to permit total terraforming), are, in approximate decreasing order of importance:
- earthlike gravity
- earthlike lack of deadly radiation
- power sources
- earthlike heat
- earthlike pressure
- construction materials

Mars has probably unliveable gravity, certainly unliveable radiation, minimal power resources (solar power is very weak there), unliveably low temperatures (except one or two spots that only have unliveably low temperatures at night or in the winter), and low pressure. So any settlement is going to be very expensive - people living in rotating habitats shielded by vast amounts of shielding (or in caves), any puncture being fatal, and on the edge between freezing to death and boiling because heat can't escape quickly enough. The only asset is that there's a lot of rock lying around. Which produce immense and constant storms of deadly microdust (moon dust has been found to be able to pass through most protective materials, and to destroy human cells, and Martian dust is probably similar).

Nowhere's great to settle, but Venus clearly looks better - it matches the first five of those criteria, and probably the sixth if we transition to mostly carbon materials (graphene etc). Even the ice moons may be better, though it depends on how easily we can melt our way through the ice - at least there's a radiation shield, and maybe even warmth... but more to the point it's hard even to see why Mars would be much better than Phobos or Deimos, which have mostly similar situations to Mars, only a lot more immediate access to water, and without the duststorms.

I feel SF authors have gotten a little too pessimistic on the subject of space colonization these days...
Bruce Sterling: "I'll believe in people settling Mars at about the same time I see people settling the Gobi Desert. "
China: "Hold my beer."

Well, of course the big problem is that nobody's managed to propose a viable economic reason for any sort of colonisation.

The Euro (and the dollar and the pound, unless I'm missing something) works by setting an inflation target, using an index of consumer prices.

No, they're just currencies. Inflation targeting works by setting an inflation target using an index of consumer prices. That's not how the currencies work - the currencies would be the same if the inflation targeting weren't there. And indeed did - inflation targeting was introduced in the 1990s only. The US began inflation-targeting only in 2012. And note that there's no kind of fixed price involved here - you cant' turn up to the ECB with a basket of household items and demand your currency at a fixed rate.

Nice, but not really workable when a settlement transitions from the planned economy of an outpost to a market economy.

Huh? Are the US, UK and EU not market economies?

I'm not sure what to use at this stage.
Commodities feel natural. Using only water looks too simplistic, looking at the objection you raised, but would an index calculated on a few basic commodities (water, nitrogen, phosphorus, power?) be workable?

I'm not sure what you mean. Are you still talking about inflation targeting, or are you talking about fixed prices? If the latter - you can try a "fixed" price for multiple items, but you'd have to constantly be adjusting it to match the market prices or else you'd be severely distorting the market and causing hoarding. [if one obol is actually worth four florins, but you 'fix' the same price for the obol and the florin, then people will sell you all their florins and buy all your obols...]
If you mean inflation targeting, then a wholesale commodities bundle won't by itself reflect the actual inflation experienced by domestic consumers, for whom costs are mostly reflective of production and service costs, rather than the prices of the raw materials.

Another annoying question is how to fix the value of Martian currency relative to extant currencies.

Why would you want to fix the value? If you did fix the value, you'd do it just by saying "the value is fixed relative to the dollar!" (etc), but you would provoke speculators to attack you, and economists would probably questions whether it's efficient for the economy, since basically you'd be distorting the balance of trade.

At this point, there'd be practically no imports to speak of as there's nothing Mars could conceivably export... well, except intellectual property (patents, software, and reality TV) and maybe services (would providing a place for political prisoners be marketable? Gulag as a service?)

Mars would be a crucifyingly expensive place to store prisoners.

I suspect the major export would be immigration berths. But do remember than exports are driven by comparative advantage, not absolute advantage. So you'd probably be importing services and exporting manufacturing? Raw materials would be relatively available, and you could be extremely polluting (because who cares), whereas with a small population and very high living costs, anything based on human labour is going to be expensive. Although of course tourism could also be significant (either in person or via entertainment).

[ricardo's law only works if transport costs are low relative to the price of the goods transported. If they're high, then you're back to absolute advantage, and Mars is screwed. So if you don't figure out cheap transport between planets, Mars will only be able to export TV, and internet forum moderation...]

But two things need to be considered: first, if you don't trust your political decisionmaking, don't go to Mars, because on Mars currency stability is the least of your political problems (after all, since, say, 1960, it's taken a really very stupid government to just wander into a hyperinflationary crisis)

I think the real question is how to design institutions that ensure that decisionmaking stays relatively sane no matter what. [/quote]
Well that would be nice, but...

I should add that it's perfectly reasonable to reconcile a monetary policy that's mostly off-limits to day-to-day political decisionmaking with a large government: Germany did just that for decades, and it's pretty much the whole idea behind the inflation targeting we're doing these days.
I'm wondering if there'd be some way to make the process self-regulating somehow.

No, I would suggest. Economics may, arguably, be stable in the long run, given no technological change or population growth, but in the short run it is volatile - it's a spring, not a solid mass. Or rather: yes. Economics is self-regulating, in the long run. It's just that many of its modes of adjustment may mean uncomfortable pain in the short term. For instance, in 2008 we would 'naturally' have plunged into a depression, in which deflation and if necessary mass starvation eventually took the hot air out of the economy - in which, for example, all the people who bought houses despite 'not being able to afford them' would have become homeless. Central bank intervention aims to make this process less murderous.

[evmdbm]

So you'd probably be importing services and exporting manufacturing? Raw materials would be relatively available, and you could be extremely polluting (because who cares), whereas with a small population and very high living costs, anything based on human labour is going to be expensive. Although of course tourism could also be significant (either in person or via entertainment).

That seems to me to imply that the only reason to manufacture goods on Mars is lack of any point to any environmental regulations. But all that is counter-acted by how difficult it is to get to. If you're going to have a sensible manufacturing export base you need an easier transport method. That could be deuterium (D-D) fusion, but given the (relative) lack of water on Mars you would have to import your fuel source. This doesn't seem plausible to me as it ramps up costs again (neither for that reason does Venus seem plausible). The best place might be Europa with its huge ice sheets and probable liquid water. The only reason for Mars seems to me the availability of some unique natural resource (classic sci-fi unobtainium) which there isn't.

I can see - despite the higher living costs - that a space station manufacturing goods in zero or micro-gee environments would be economically sustainable, because you can't make these things anywhere else. But you wouldn't have it orbit Mars!

Sorry I'm raining on your parade, but there's a reason why in my consystem my humans (and indigenous aliens) colonised the already life-bearing planet orbiting the other star in the binary system.

[Ares Land]

Mars has probably unliveable gravity, certainly unliveable radiation, minimal power resources (solar power is very weak there), unliveably low temperatures (except one or two spots that only have unliveably low temperatures at night or in the winter), and low pressure. So any settlement is going to be very expensive - people living in rotating habitats shielded by vast amounts of shielding (or in caves), any puncture being fatal, and on the edge between freezing to death and boiling because heat can't escape quickly enough. The only asset is that there's a lot of rock lying around. Which produce immense and constant storms of deadly microdust (moon dust has been found to be able to pass through most protective materials, and to destroy human cells, and Martian dust is probably similar).

We really don't know about gravity, given that we only have data for microgravity and Earth gravity, and nothing else. The effects of Mars gravity on health are guesswork at this stage; we just don't know what healthy gravity would be (we only have data for microgravity and Earth gravity). In any case, rotating habitats seem unpractical, to say the least.
Digging or living in caves would be expensive but not much more so than a floating city on Venus.

Floating cities have a lot of appeal though!

I feel SF authors have gotten a little too pessimistic on the subject of space colonization these days...
Bruce Sterling: "I'll believe in people settling Mars at about the same time I see people settling the Gobi Desert. "
China: "Hold my beer."

Well, of course the big problem is that nobody's managed to propose a viable economic reason for any sort of colonisation.

I'm researching early Iceland history these days... It's a little intriguing that it got settled at all. Another unexpected case is the Gobi desert: who would've thought growing tomatoes there would be economically viable?

The Euro (and the dollar and the pound, unless I'm missing something) works by setting an inflation target, using an index of consumer prices.

No, they're just currencies. Inflation targeting works by setting an inflation target using an index of consumer prices. That's not how the currencies work - the currencies would be the same if the inflation targeting weren't there. And indeed did - inflation targeting was introduced in the 1990s only. The US began inflation-targeting only in 2012. And note that there's no kind of fixed price involved here - you cant' turn up to the ECB with a basket of household items and demand your currency at a fixed rate.

Yes, certainly. In any case inflation targeting is how we set monetary policy these days...

Huh? Are the US, UK and EU not market economies?
(...)
Why would you want to fix the value? If you did fix the value, you'd do it just by saying "the value is fixed relative to the dollar!" (etc), but you would provoke speculators to attack you, and economists would probably questions whether it's efficient for the economy, since basically you'd be distorting the balance of trade.

Let me phrase the question differently; maybe it'll be clearer.
In early stages, a settlement would not need money, or prices. Alice the lifesystem engineer isn't going to sell oxygen to Bob the solar panel specialist when it's just ten people living in a cave.
Now, let's say the colony grows to reach a population of 5000. 5000 people are going to need some kind of market economy -- so how do they define their currency? And how does it proceed from there? And if they need to import something from Earth, how do they work out exchange rates?

I suspect the major export would be immigration berths. But do remember than exports are driven by comparative advantage, not absolute advantage. So you'd probably be importing services and exporting manufacturing? Raw materials would be relatively available, and you could be extremely polluting (because who cares), whereas with a small population and very high living costs, anything based on human labour is going to be expensive. Although of course tourism could also be significant (either in person or via entertainment).

Why didn't I think of this sooner? Of course manufacturing makes a lot more sense.

[ricardo's law only works if transport costs are low relative to the price of the goods transported. If they're high, then you're back to absolute advantage, and Mars is screwed. So if you don't figure out cheap transport between planets, Mars will only be able to export TV, and internet forum moderation...

That seems to me to imply that the only reason to manufacture goods on Mars is lack of any point to any environmental regulations. But all that is counter-acted by how difficult it is to get to. If you're going to have a sensible manufacturing export base you need an easier transport method. That could be deuterium (D-D) fusion, but given the (relative) lack of water on Mars you would have to import your fuel source. This doesn't seem plausible to me as it ramps up costs again (neither for that reason does Venus seem plausible).

A few centuries from now, environmental regulations are going to be taken very seriously indeed, so there'd be a lot to be gained by being able to release all the CO2 you want.
Getting from Earth to Mars, surface-to-surface is awfully expensive and would conceivably remain so. The escape velocity is too high at departure, and at arrival there's not enough atmosphere to drag you down.
On the other hand, sending manufactured from Mars could be made cheap for two reasons:
- the escape velocity is much lower.
- you can use horribly dangerous engines, like nuclear thermal engines, because, as Sal put it, who cares?
Fusion engines would be overkill, really. Fission engines would be perfectly fine.

[Salmoneus]

We really don't know about gravity, given that we only have data for microgravity and Earth gravity, and nothing else. The effects of Mars gravity on health are guesswork at this stage; we just don't know what healthy gravity would be (we only have data for microgravity and Earth gravity).

Theoretically true. But nothing so far suggests that everything just magically goes wrong at 0G. Most of the things that go wrong - other than the DNA stuff, I guess - are the result of linear processes that should occur even at low-G. For instance, as you lower the gravity, the pressure in your eyeballs will inevitably increase, so it seems inevitable that eyesight problems would become more common. Likewise the pressure in your skull, which the body then has to combat by thinning your blood, which then has effects on other organs. It would seem that these problems would just get worse the lower the gravity gets. Of course, trained astronauts going to somewhere like Mars, following a specified exercise regimen and taking the right medication, shouldn't be a problem (other than the radiation). But when you have mass settlement by civilians...

In any case, rotating habitats seem unpractical, to say the least.

I'm not sure that's necessarily true. I mean sure, they're expensive and awkward. But not necessarily unpractical. I've assumed that the basic approach will be to contain the rotating habitat within a fixed shell, and the space between habitat and shell can be filled with a very low pressure atmosphere, or some sort of ultra-low-friction lubricant. The habitat can then be propelled magnetically, effectively as a circular maglev. Of course, it would take a lot of energy to spin up the habitat; but that could be done slowly, and then merely maintained, with little energy lost to friction.

Digging or living in caves would be expensive but not much more so than a floating city on Venus.

I think people radically underestimate the amount of energy (and hence money) require to dig holes!

If you take something like the Burj Khalifa - that's apparently around 1.5 million cubic metres in volume (the concrete in it alone is over 300k cubic metres). Imagine having to move 1.5 million cubic metres of rock! It's doable, sure - the largest open pit mines have excavated volumes in the billions of cubic metres (I think around 9 billion is the largest?). But those mines took decades if not a century to excavate, and they were commercially viable because they literally had diamonds in (or other precious materials...). My point is, it's a big expense. A huge expense. And then you need to cover that hole. And crucially, the buildings in the hole have to be able to withstand the weight on top of them, and the potential weight bearing in on them from the walls of the hole. And we're talking a serious amount of rock - something like 5 metres of regolith shielding required. And five metres of rock is very heavy.

[I guess, if you were to do it, you wouldn't do it by carving out a big underground city - you'd do it by boring a lattice of relatively narrow tunnels, which, as vaults, could withstand the weight much more effectively. (However, this also has a major disadvantage: the problem of rubble removal. It's far easier to remove rubble from an open pit, or even a wide cave, than it is from a narrow tunnel with a borer at one end.)]

But it's a vast expense - and at that point, you have to ask why we're doing this exactly, to live on a planet with no attractive features. It's like living on Phobos, only you have less water, dust storms, and you start down the bottom of a gravity well.

Floating cities have a lot of appeal though!

Yes. I think people also overestimate the cost of balloons. The beauty of living in a balloon, aside from not having to excavate millions of cubic metres of rock, is that you're no longer living under the tyranny of a gravity-based architecture. Buildings on earth have to withstand the weight of the building above them - buildings underground on Mars have to withstand the weight of the building and the weight of the regolith above that. Buildings on Venus don't - the top of the building is as supported by the balloon as the bottom is. That means that the strength of the building, and hence the mass required for it, can be a fraction of what it would be on earth. You probably want a little rigidity in your structures, but beyond that you're just dividing up space, rather than having to constantly fight against gravity. Which means the material cost of your structure can be, relatively speaking, very low.

Of course, it's a bigger technological innovation required in the first place, because we don't do balloons, whereas we do do holes in the ground. But long term...

(another small but important advantage of balloons: replicability. You can just pump the things out. Whereas caves and tunnels, before you do anything you'll spend years surveying the details of each site and how the geology will react to weight and heat and moisture and so on, and your final solution will have to be bespoke to the details of each site. But a balloon...)

Yes, certainly. In any case inflation targeting is how we set monetary policy these days...

Yes, but it doesn't define currencies.

Huh? Are the US, UK and EU not market economies?
(...)
Why would you want to fix the value? If you did fix the value, you'd do it just by saying "the value is fixed relative to the dollar!" (etc), but you would provoke speculators to attack you, and economists would probably questions whether it's efficient for the economy, since basically you'd be distorting the balance of trade.

Let me phrase the question differently; maybe it'll be clearer.
In early stages, a settlement would not need money, or prices. Alice the lifesystem engineer isn't going to sell oxygen to Bob the solar panel specialist when it's just ten people living in a cave.

Why not? I guess you're assuming a dictatorial system, a la NASA, but that doesn't seem inherent to the idea of space colonisation.

Now, let's say the colony grows to reach a population of 5000. 5000 people are going to need some kind of market economy

This also seems like an assumption! If you're assuming colonies are created by a dictatorship, it would be interesting to see how far they'd attempt to continue their control - particularly in a situation with powerful computers, presumably extreme surveillance, and limited resources. I don't think it's impossible that they'd attempt to run this camp of 5,000 people as an army camp, rather than as a free trade outpost.

-- so how do they define their currency? And how does it proceed from there?

I think I'm missing something here. They say "this is our currency", and that's that. What's the problem you're trying to solve here exactly?

And if they need to import something from Earth, how do they work out exchange rates?

Err... they don't. You're assuming a market economy, so the market works out the exchange rate. Prices (in the currency of the seller) will be set where supply meets demand, and the buyer's currency will then be defined against the seller's currency on that basis.

For instance, if I have ten obols, and I want to buy your chickens, and a chicken costs five florins in your country, and you and I agree that it'll cost me ten obols to buy your chicken, then there is an "exchange rate" of two obols to the florin.

(I mean, in practice it's a little more complicated, what with currency speculation and exchange fees and whatnot, but...)

[chris_notts]

I'm not sure if anyone mentioned this, but Mesopotamian economies may represent a similar historical example. Early accounting and transferable debts (i.e. money) were done in terms of quantities of storable food owed. For example, the shekel represented a claim on a weight of barley held in centralised storage:

https://en.wikipedia.org/wiki/Shekel

I believe that over time this was generalised into a more abstract unit of accounting, but its origin was accounting for quantities of food and the value of other commodities was established relative that core commodity.

[Ares Land]

But it's a vast expense - and at that point, you have to ask why we're doing this exactly, to live on a planet with no attractive features. It's like living on Phobos, only you have less water, dust storms, and you start down the bottom of a gravity well.

All excellent points -- O'Neill colonies never really amounted to anything but he did raise an excellent question: why bother with a planet at all?

Of course, it's a bigger technological innovation required in the first place, because we don't do balloons, whereas we do do holes in the ground. But long term...

Not really an area I've investigated much, but I think it's worth sharing that balloons (er, sorry, 'inflatable structures') are going to be essential space infrastructure no whatter what

Why not? I guess you're assuming a dictatorial system, a la NASA, but that doesn't seem inherent to the idea of space colonisation.

I wasn't joking about the ten people living in a cave -- any settlement is going to start with a small outpost; what's the point of a market economy when Alice is the only one to produce oxygen, Bob the only one to produce electricity, and any of them are expected to cover the other one's shift when it's convenient?

This also seems like an assumption! If you're assuming colonies are created by a dictatorship, it would be interesting to see how far they'd attempt to continue their control - particularly in a situation with powerful computers, presumably extreme surveillance, and limited resources. I don't think it's impossible that they'd attempt to run this camp of 5,000 people as an army camp, rather than as a free trade outpost.

Yeah, there's probably a story there.
I do believe there will be a transition, ultimately. Somebody with some knowledge of economics is bound to notice that there's some black market going on, or that resources are being wasted, or that there's a marked lack of breathable air in the private quarters of people the base commander dislikes...
(To be honest I conjured that 5000 people out of thin air. I have no idea how big a community needs to be for a market to be necessary).

I think I'm missing something here. They say "this is our currency", and that's that. What's the problem you're trying to solve here exactly?

OK, they say, 'the maravedi is our currency'. Now how much does a cubic meter of oxygen, or a kilowatt cost?

I'm not sure if anyone mentioned this, but Mesopotamian economies may represent a similar historical example. Early accounting and transferable debts (i.e. money) were done in terms of quantities of storable food owed. For example, the shekel represented a claim on a weight of barley held in centralised storage

Yes, there are definitely some parallels: that was perhaps the last time someone had to invent money from scratch

[Salmoneus]

But it's a vast expense - and at that point, you have to ask why we're doing this exactly, to live on a planet with no attractive features. It's like living on Phobos, only you have less water, dust storms, and you start down the bottom of a gravity well.

All excellent points -- O'Neill colonies never really amounted to anything but he did raise an excellent question: why bother with a planet at all?

Well, I do think planets can have major advantages, both practical and psychological. They can offer heat, and heat dissipation, and pressure, and gravity, and radiation shielding, and sometimes an atmosphere... and the practicality of things staying put where you put them and having a solid anchor for any motion, and the psychological advantage of a 'natural' environment where you can walk around and see the sun. It's just that Mars doesn't offer much of that.

It does offer vast amounts of empy land, which would be great for agriculture, except that usable land on Mars would cost a fortune because it has to be so protected from the element. [if Mars didn't have the deadly radiation, it could be the breadbasket of the solar system, given that the gravity well is smaller than that of earth or venus].

Of course, it's a bigger technological innovation required in the first place, because we don't do balloons, whereas we do do holes in the ground. But long term...

Not really an area I've investigated much, but I think it's worth sharing that balloons (er, sorry, 'inflatable structures') are going to be essential space infrastructure no whatter what

Yay balloons.

Why not? I guess you're assuming a dictatorial system, a la NASA, but that doesn't seem inherent to the idea of space colonisation.

I wasn't joking about the ten people living in a cave -- any settlement is going to start with a small outpost; what's the point of a market economy when Alice is the only one to produce oxygen, Bob the only one to produce electricity, and any of them are expected to cover the other one's shift when it's convenient?

The same as in any society. A market economy allows, in theory, the more efficient allocation of resources. At the very least, it offers a cheap way to set prices that avoids most major errors. Maybe Alice wants a little more electricity than Claire wants. If she pays Bob, Bob may work a slightly longer shift pedalling the electricity-cycle (or whatever).

Ultimately, you've got a choice between two models: an omnipotent authority that always knows exactly the most efficient way to produce every commodity and how to best distribute them; or people who work it out amongst themselves. If it's the latter, it can be worked out through barter - Alice works a bit of Bob's shift in exchange for Bob giving her one of those nice knitted cardigans he makes - but currency is a more efficient form of barter. Sooner or later, Alice is going to have the idea to just buy a cardigan from Bob.

This also seems like an assumption! If you're assuming colonies are created by a dictatorship, it would be interesting to see how far they'd attempt to continue their control - particularly in a situation with powerful computers, presumably extreme surveillance, and limited resources. I don't think it's impossible that they'd attempt to run this camp of 5,000 people as an army camp, rather than as a free trade outpost.

Yeah, there's probably a story there.
I do believe there will be a transition, ultimately. Somebody with some knowledge of economics is bound to notice that there's some black market going on, or that resources are being wasted, or that there's a marked lack of breathable air in the private quarters of people the base commander dislikes...
(To be honest I conjured that 5000 people out of thin air. I have no idea how big a community needs to be for a market to be necessary).

Perhaps - although that probably only happens if we adopt a very pessimistic view of computing advances.

I think I'm missing something here. They say "this is our currency", and that's that. What's the problem you're trying to solve here exactly?

OK, they say, 'the maravedi is our currency'. Now how much does a cubic meter of oxygen, or a kilowatt cost?

Well, they define an initial distribution of maravedis - say, ten maravedis each. Then each person compares their shopping list of desires (including the desire to save some money for tomorrow), and mentally works out the relative importance of each of their desired items to them, to determine how much of their budget they want to spend on each item. This is of course not just a single number, but a curve, in which willingness to spend on one item is in various ways correlated to the relative prices of other items. Then everyone compares their lists, and compares them to the available supply of each item, and the price of each item is set at the point where the supply at that price equals the demand at that price.

Let's say the colony only produces two goods: milk, and ocelots. Alice likes milk, but is less keen on ocelots. She wants to buy four gallons of milk and one ocelot - so as a first guess, she might want to pay two maravedis per ocelot, and two maravedis per gallon. But Claire likes both milk and ocelots. She wants to buy four gallons of milk and six ocelots. So she might want to pay only one maravedi per gallon and per ocelot. However, this means Alice is outbidding Claire in the ocelot market. Either Claire has to accept that she will not have any ocelots today, or she must increase the price she offers. But this will mean either getting fewer ocelots than she wants, or less milk. Let's say she has the idea of having only two ocelots, paying three Ms each, leaving her only paying one maravedi per gallon. She can thus outbid Alice for ocelots, but is still outbid for milk. Now, how many gallons of milk are there? If there are eight gallons, the seller has to lower the price to one maravedi per gallon to sell it all, and both Claire and Alice can be happy - plus Alice has more money now to buy additional ocelots. But if there are only four gallons, there may be trouble! Claire would be totally outbid. So if she really needs milk, she'll have to up her bid, which means reducing the amount she can have in total... etc etc...
...and so on, and, via the magic of lagrangrian maximisation and utility curves, everything has a price.

[roughly speaking: the more of a thing you have, the less you value having another one. So the value to you of a marginal ocelot depends both on your natural propensity for the collection of ocelots, and on your existing number of ocelots. Likewise the value to you of a marginal gallon of milk. All the money you spend on ocelots is money you can't spend on milk, so at a given price of milk and a given price of ocelots, you can balance the value to you of buying one more ocelot with the value to you of spending the same amount of money buying one more gallon of milk. Mathematics can calculate the combination of the two commodities that gives you the most total value, at any combination of prices. Likewise for everyone else. If these curves, given a certain price of ocelots, mean that there is lower aggregate demand for ocelots than there is aggregate supply of ocelots, then the supplier of ocelots will attempt to lower their price until supply meets demand*; whereas is demand is higher than supply, the supplier will raise their price until supply meets demand. At the same time, the same process is occuring in setting the price of milk - prices are always relative to other prices. The relative value in a society of each commodity is thus set by individual utility curves - and of course currency is itself a commodity.]

In other words, they'd do exactly the same thing you do when you go to the shops.

Or, of course, they'd just say "a maravedi is worth a dollar (at time X)". Then they'd probably begin by using a price list from earth, and they'd adjust things up or down to account for differences in supply and demand compared to earth.

I'm not sure if anyone mentioned this, but Mesopotamian economies may represent a similar historical example. Early accounting and transferable debts (i.e. money) were done in terms of quantities of storable food owed. For example, the shekel represented a claim on a weight of barley held in centralised storage

Yes, there are definitely some parallels: that was perhaps the last time someone had to invent money from scratch

It should be noted that Mars-colonists would not have to invent money from scratch - not only would they have the concept of currency, they'd surely actually have currency. Unless they have to give all their Earthly possessions to The Company in exchange for their berth...

[zompist]

All excellent points -- O'Neill colonies never really amounted to anything but he did raise an excellent question: why bother with a planet at all?

Fortunately, genre convention has solved this for you: it's decided that The Future will involve space colonies and FTL! It's not like sf readers are going to go on strike because planetary colonies make no sense.

On the plus side... it makes no sense with 2010s technology, but maybe it makes sense later on. After all, surely 2200s Mars is not making most of its money through growing soybeans and building cars? We're already in a service economy, and I've argued that in the not too distant future we'll be in the frivolity economy. You can do a desk job on Mars (once you have desks), and after some point the major portion of the economy will be servicing itself.

I do believe there will be a transition, ultimately. Somebody with some knowledge of economics is bound to notice that there's some black market going on, or that resources are being wasted, or that there's a marked lack of breathable air in the private quarters of people the base commander dislikes...
(To be honest I conjured that 5000 people out of thin air. I have no idea how big a community needs to be for a market to be necessary).

You can run a pretty large system on communistic lines. IBM, for instance (500,000 employees), or the US government (2.8 million employees).

Martian colonization is not going to be homesteading, where Joe Selfstarter moseys out onto a new plot of land, clears out the tumbleweeds, builds himself a log cabin, and grows enough potatoes to feed himself. For an awfully long time, expanding the colony would be a state project: digging out caves, building habitats, running electricity and air supply and water supply and sewage, planning the hydroponics or whatever. At what point do you need a market?

(I'm not saying you shouldn't have one, only providing a counterpoint to the idea that it's some kind of natural law.)

OK, they say, 'the maravedi is our currency'. Now how much does a cubic meter of oxygen, or a kilowatt cost?

Typically a new currency is just pegged to the old ones. E.g. the US dollar was just the Spanish dollar, the most readily available currency in the area.

Sal's point is also good: the colonists, and the government and/or corporations that run the place, already have money. Although all modern currencies are ultimately fiat currencies, it's considered inadvisable to stress this fact. So you'd probably start by equating the maravedi to a basket of existing currencies, and not increase the money supply too quickly...

[Ares Land]

Perhaps - although that probably only happens if we adopt a very pessimistic view of computing advances.

I think the issue with central planning is not really about how good the software is, but about how good the data is.
You're just better than the planning software at defining how many ocelots you're willing to produce and how much milk you're going to need.

Although you can always use superhuman AIs, like Iain M. Banks did, at which point the planning program knows what you want better than you do. But, to be honest, the Culture increasingly seems awfully unpleasant to me.

You can run a pretty large system on communistic lines. IBM, for instance (500,000 employees), or the US government (2.8 million employees).
[...]

Martian colonization is not going to be homesteading, where Joe Selfstarter moseys out onto a new plot of land, clears out the tumbleweeds, builds himself a log cabin, and grows enough potatoes to feed himself. For an awfully long time, expanding the colony would be a state project: digging out caves, building habitats, running electricity and air supply and water supply and sewage, planning the hydroponics or whatever. At what point do you need a market?
(I'm not saying you shouldn't have one, only providing a counterpoint to the idea that it's some kind of natural law.)

Well, yes and no.
Planetary colonization would be more economically sensible, if it can be done with a relatively small number of colonists -- it's awfully expensive to send people there.
Not exactly a homesteading model, then, but one in which Joe Selfstarter can do a substantial amount of the work by himself.

You have a pretty good question though. The way I see it, we are beginning to figure out when a market is the best tool for the job(food production, cars, cell phones) and when it should definitely not be used (health insurance, law enforcement, health and safety standards). 22nd century colonists would be aware of that -- presumably, even more so. Hopefully we'll have learned something about economics then!

It should be noted that Mars-colonists would not have to invent money from scratch - not only would they have the concept of currency, they'd surely actually have currency. Unless they have to give all their Earthly possessions to The Company in exchange for their berth...

OK, they say, 'the maravedi is our currency'. Now how much does a cubic meter of oxygen, or a kilowatt cost?

Typically a new currency is just pegged to the old ones. E.g. the US dollar was just the Spanish dollar, the most readily available currency in the area.

Sal's point is also good: the colonists, and the government and/or corporations that run the place, already have money. Although all modern currencies are ultimately fiat currencies, it's considered inadvisable to stress this fact. So you'd probably start by equating the maravedi to a basket of existing currencies, and not increase the money supply too quickly...

All good points.
An interesting question would be how to figure out exchange rates while factoring huge transportation costs.
Assuming we had that colony running now, it would cost about $1000 to ship something (hopefully neither delicate nor perishable); but we would definitely pay that much just to have someone on Mars walk around and look at pebbles for an hour.
So an hypothetical tourist would find both prices and wages insane (and the poor guy is already broke after buying his ticket.)

In a sense, the colonists would not have surrended all their possessions to get there -- but a million dollars are going to last you a couple of months at most.