There is a long history of SF novels about interstellar free traders eking out a marginal existence on the fringes of the huge trader corporations, from Andre Norton's Solar Queen novels to the Space Angel series by John Maddox Roberts. Go to The Tough Guide to the Known Galaxy and read the entries "ECONOMY", "FREE TRADERS", "PIRACY", "REPLICATOR", "TRADE" and "TRADE FEDERATION". Don't forget the entry in this website about Cargo Holds
As mentioned below, if you want to play around with interstellar trading, or even try doing a full simulation (to do worldbuilding for creating the background of your new novel), I'd suggest getting a copy of GURPS Traveller: Far Trader. Written with help from a real live economist, this allows one to model interplanetary and interstellar trade with equations and everything. It has detailed analysis of the economics of interstellar trade, and a system of equations to model trade routes and economic demands.
Sometimes the traders live in large "clan-ships", developing a "trader culture." Each ship is a world, carrying the entire clan. Novels include CITIZEN OF THE GALAXY by Robert Heinlein, STAR WAYS aka THE PEREGRINE by Poul Anderson, the Cities in Flight novels of James Blish, MERCHANTER'S LUCK and FINITY'S END by C. J. Cherryh, RITE OF PASSAGE by Alexi Panshin, A DEEPNESS IN THE SKY by Vernor Vinge.
Naturally, to make interstellar trade work, you need the cost of interstellar transport to be incredibly low, or the value of the trade item to be incredibly high. Or both.
Raw minerals probably are not valuable enough, it will probably be cheaper to synthesize rare elements instead of shipping them in. As for manufactured goods, why not just send the blueprints by radio or by your Dirac Poweredtm FTL Ansible communicator? In a future where everybody has 3D printers and rapid prototyping machines, the economy would be based upon trading intellectual property.
Since there does not seem to be any real-world trade item worth interstellar trade (unless it is cheaper to ship from another star than it is from another city), you will probably be forced to invent some species of MacGuffinite.
In Larry Niven's PROTECTOR, asteroid miners prospect for magnetic monopoles (which are great for constructing compact motors and generators). Dr. Robert Forward proposed prospecting for Hawking black holes. In the old SPI game StarForce, the only valuable commodity is "telesthetic" women, who are the sine qua non of FTL travel, and who cannot be mass produced by genetic engineering. In Vernor Vinge's A FIRE UPON THE DEEP, some of the main characters are traders contracted to transport part of a huge one-time pad for secure cryptographic transmissions (such a pad cannot be transmitted without compromising security). Sometimes humans and aliens discover that one man's trash is another man's treasure. And in Charles Stross' IRON SUNRISE, the most valuable things are packages of entangled quantum dots, used for FTL communication via Bell's Inequality (with the fascinating twist that the dots must be transported slower than light or they are ruined. They are shipped by Starwisp).
The main mechanism for trade is what is called "Arbitrage", the practice of taking advantage of a price difference between two or more markets. In this context it boils down to "buy cheap and sell dear", that is, purchase goods that are cheap at Planet A, then transport and sell them at Planet B where the goods are expensive. The money you make selling at Planet B, minus how much you spent purchasing at Planet A yields your gross profit. Subtract from that your transport expenses and other expenses and you'll find your net profit (if any).
There is also the problem of price convergence. The profit is from the price difference between the two markets. The difference tends to shrink over time, which eliminates the profit. Sometimes the market at your destination becomes saturated (as the manufacturers of Beanie Babies found out), sometimes the supply at the origin dries up (like petroleum).
Traditionally, the unit of currency in science fictional futures is called the "credit". This is the futuristic equivalent of a dollar, Euro, or whatever. Using metric, one megacredit is a cool million credits. In some science fiction, physical money is illegal since the Police State cannot trace such transactions. Nowadays we have Bitcoin (BTC), symbolized by , Ƀ, or ฿. You can find an amusing list of the names of various fictional currencies here
- In SPI's RPG Universe and Star Trader, the unit of currency was the "Tran" or "transaction", where 1 Tran was equal to about $500.
- SPI's Star Force had "LaborCredits".
- In Philip E. High's The Prodigal Sun money was literally hours of work.
- In James Blish's Cities in Flight the OC Dollar was based on the Germanium Standard, because of its vital use in transistors and computer chips. This worked fine, until some joker figured out how to synthesise germanium and thus destroyed the economy of the entire galaxy.
- In George O, Smith's "Pandora's Millions", the invention of a replicator crashed the economy of the solar system. Replicators mean there are no longer any rare metals to base your money on, and all material goods become basically free. The only thing of value are personal services (such as those of a surgeon or doctor). The only thing that prevents utter disaster is a synthetic element that cannot be replicated (because replication causes it to explode). The element allows one to create cheques, legal tender, and other critical items that cannot be counterfeited by a replicator.
- In the Star Trek universe, the Federation is a post-money society that uses replicators. The Ferengi use "gold-pressed Latinum" as the basis of their currency, since Latinum is the one element a replicator cannot create.
- EVE Online has a little more complex a take on things. The currency, known as ISK (Inter-Stellar Kredits), is not so much a global currency as it is a global exchange currency. Planetary economies and sometimes individual planetary nations almost all have their own currencies, ISK was merely setup as an exchange medium to manage the obscene amounts of money being used at the interstellar level
- In the Micronauts series of comic books, the evil Baron Karza has a monopoly on lifespan prolongation technology (the "Body Banks"). He issues his own currency called "Life Credits", with which a person can purchase extended lifespan. The underclass waste all their credits in gambling institutions, and can sell personal organs and other body parts in exchange for more life credits. The aristocracy is firmly under control of Karza, since they know he literally has the power of life or death over them.
- In the Demon Princes pentology by Jack Vance the currency 'SVU' or Standard Value Unit was a printed note equal in value to one hour of common labor. A device called a "fake meter" is used to detect counterfeits. In the second novel the protagonist discover how to fool the fake meter, and hilarity ensues.
- In The Great Explosion by Eric Frank Russell, the planet K22g is a post-money utopian society, but they still have a medium of exchange. They use favor-exchange based on "obs" (obligations). This might explain the value of the poker chips you see in all those Star Trek poker games.
- In John Morressy's Del Whitby series, the unit of currency was the cash-cube. These were cubical coins of precious metal.
- In Diane Duane's My Enemy, My Ally, the Romulan's currency is in the form of chains of precious metal.
- In John Brunner's Intersellar Empire series, the currency is in the form of rings of preciouis metal.
- In Frank Herbert's novel DUNE, the Fremen's currency is based on liters of water, symbolized by metal rings. They tie the rings in strips of cloth so as to not make noise when they are sneaking up on an enemy.
- In the Battletech universe, a common unit of currency was the C-Bill, redeemable for a certain amount of data transmission on Comstar's FTL communications network.
- In the simulation game High Frontier, the unit of currency is "the most valuable thing in the universe", namely water. Water can be used for reaction mass, as a source of hydrogen and oxygen, radiation shielding, and a host of other uses. The unit is a 40 metric ton tank.
- In Kim Stanley Robinson's Red Mars Trilogy, calories of heat were used as the basis of the Martian economy.
- I am somewhat dubious about the Quasi Universal Intergalactic Denomination. Apparently it is intended to be safe in the space environment and will survive the space environment. This means it is constructed out of a space-qualified polymer, emit no toxic fumes, has no sharp edged, be resistant to high temperatures, and not use a magnetic strip like a credit card since cosmic radiation will render them inoperative.
- Of course nowadays most people use credit cards and PayPal.
Note that while Planet A and Planet B may both internally use a barter system instead of money, they might use arbitrary money (a nonstandard medium of exchange) when trading between each other. Using a medium of exchange avoids the problem of ensuring there is a double coincidence of wants, which is a problem inherent in the barter system.
Example: Floyd the guitar player lives in a culture that uses barter. At his job at the local bar, he is paid with booze and food. Unfortunately Floyd's landlord will not accept booze and food for the rent. In this case there is no coincidence of wants: Floyd wants his apartment for the month but the landlord does NOT want booze and food. However, in that happy double coincidence of wants, if Floyd's landlord happened to be throwing a party and wanted some guitar music, and Floyd wanted his apartment for the month, the barter system works.
The point is that a double coincidence of wants does not happen very often, which makes the barter system rather awkward and impractical. If however you create some arbitrary money-like medium of exchange, you can avoid the whole mess. It also avoids the problem of when one of the things you are bartering has a shelf-life or is seasonal.
Sometimes you will see traders using Trade Tokens. These are basically money that is not issued by a government, but instead by a private company, group, association or individual. From the 17th to the early 19th century these were used by merchants because the local government was not up to the task of issuing enough coins to allow business to operate. Nowadays you generally see them in the form of casino chips, in video arcades, and car washes. But a hypothetical interstellar trading company might issue their own trade tokens if there were no local government in the trade area, or at least one single government recognized by all the trade planets.
And scrip is an even more localized form of trade tokens. You often see this in old time mining or logging camps. The employees were not paid in money, but instead in company scrip. The company scrip could only be spent in the company store. Due to this Truck system, the employees more often than not wound up owing their soul to the company store.
Historically coins were disc shaped because that's what you get when you roll out a measured ball of precious metal and flatten it with a stamp bearing the King's face. They are also convenient to carry, especially if they have a hole in the middle for stringing. You should mill the edges to prevent crooks from engaging in the crime of coin clipping. Though nowadays most US coins are composed of such worthless metal that the milling is purely decorative or as a aid to the visually handicapped.
In medieval times there were so many currencies that merchants had to carry coin pan balances in order to determine the worth of a given coin.
Unless all the planets you trade with are members of the same interstellar govenrment, or there exists some sort of interstellar money-changing organization, the money used on one planet is worthless on another planet.
If you have a group of planets that share a common currency, for the planets sake it is vitally important that they share a common fiscal policy. The ongoing Eurozone crisis has been made much worse by the fact that while the Eurozone has monetary union (i.e., one currency, the Euro) it does not have fiscal union (e.g., different tax and public pension rules). This ties the hands of European leaders, making the crisis almost impossible to solve. When the Eurozone was proposed, the various nations were persuaded to surrender their currency, but reluctant to surrender control of their fiscal policy (give up their national sovereignty? Never!). The proponents figured to get around the problem by doing the Eurozone union in two stages, which in retrospect was an insanely bad decision.
Back in medieval times, merchant voyage durations were measured in years and long distance communication was non-existent. The same may hold true with hypothetical interstellar traders. In order to cope with the problems, medieval merchants invented Letters of Credit and Bills of Lading. For a simple explanation (with diagrams) of how they worked go here.
Medieval merchants had other innovations that might be useful in an interstellar trading future.
The roads were bad and in poor repair. Ocean routes were treacherous. Brigands and pirates lurked in parts of the trade route far from any help. Distant nations treated merchants with disdain at best and as rich people to rob at worst. And every single landowner along the trade route felt that they had a right to extort whatever tax they could get out of the trade caravan.
To fix these problems the medieval merchants found effective solutions, the most effective being the concept of a Merchant Guild. These were association of of traders. Guilds could invest the member's fees in such things as improving road conditions and suppressing pirates and brigands. Lighthouses were erected at dangerous points, to prevent merchant shipwrecks. The guild would negotiate treaties of commerce with foreign nations, protecting the liberty and security of guild members (sometimes the guild could even get an agreement for foreign troops to travel with a trade caravan). And while a single trader could not do much about landowner's imposed taxes, a huge guild could negotiate from a position of power. Negotiations with a landowner would result in a Merchant Guild charter, where guild members would pay a fixed sum or an annual payment for right of passage.
You can see how these concepts can be re-used in an interstellar trading future, the situations are much the same.
The flip-side of course is that the guild members have to pay their dues to the guild, and obey all the guild regulations. Members cannot engage in any type of trade forbidden by the Guild charter, fines were imposed on members who broke the rules, and guild members had to aid and support fellow guild members in times of trouble. If a guild member was killed, the guild would care for any orphans thus tragically created. Guilds also supplied health insurance, funeral expenses, and doweries for girls who could not afford them.
Naturally the guilds became quite powerful. Independent traders would find it difficult to compete. In a village, local craftsmen also found it difficult to compete with the Merchant guilds, which lead to the rise of Craft guilds in self-defense. Eventually the merchant guild members delegated all the actual traveling and trading jobs in their profession to employees, and instead sat comfortably at home while their factors did all the hard work.
A trading post or "factory" is where a merchant (or the merchant's factor) carries on the merchant's business on a foreign planet. The trading post exchanges imported trade items for valuable local goods. In some cases a trading post and a couple of warehouses can grow into an actual colony. The trading post merchant or factor is responsible for the local goods logistics (proper storage and shipping), assesing and packaging for spacecraft transport. The factor is the representative for the merchant in all matters, reporting everything to the merchant headquarters. The longer the communication time delay between trading post and headquarters, the more trustworthy the factor has to be. Factors may work with native contract suppliers, called a comprador
Also interesting is how the rise of the 17th century Dutch seaborne empire was due in part to their superior utilization of wind energy in the form of their breakthrough cargo transport, the Fluyt ship. Unlike other cargo ships of the time, the Fluyt was not designed to be easily converted into a warship. It was pure merchant vessel. This means it was cheaper to build, carried twice the cargo, and needed a smaller crew. Specialized shipyards optimised for Fluyt production brought the construction price down to a mere 50% of a cost of a conventional ship. It could also operate in much shallower water than a conventional ship, allowing it to get cargo in and out of ports other ships could not reach. By using a Fluyt, cargo transport costs were only 70% to 50% of the transport cost with a conventional ship. The only trade route Fluyts could not be used on were long haul voyages to the East Indies and the New World, because Fluyts were unarmed.
If you are a science fiction writer or game creator, these ideas should start the wheels turning in your mind. It may be instructive to read a couple of history textbooks on the topic of Merchant Guilds, and look over the Nicholas van Rijn stories of Poul Anderson.
While a trading post can be on a remote planet at the frontier of a long space route, a Transport Nexus will probably be more centrally located. A trading post planet might be the only source of some valuable luxury good (exotic gem stones, unique liquor, native artworks) so it can be located on Planet Sticks in the Boondocks Cluster. By way of contrast, transport nexuses are centers of commerce and will be "strategically" located. If one is talking about science fictional faster-than-light starship trade, they will be at important junctures and cross-roads. If one is talking about real-science Solar system trade, there ain't no such junctures, so strategic will probably mean on or in orbit around planets that are important markets for interplanetary trade goods. You cannot have permanent junctures when the destination planets are constantly changing their position relative to each other.
A transport nexus is a crossroads for passengers, a port of entry, a trade warehouse where interplanetary goods are stored, released, and transshipped, a "trade-town".
Predictably, as soon as a merchant tries to move his imported goods out of the spaceport, the tax and tariff man shows up. As Terry Pratchett said, there exists Death and Taxes, and taxes is worse since at least death doesn't happen every time you try to cross the customs border.
If some trade goods landing at the spaceport are destined for another port, they are unloaded into a spaceport bonded warehouse, and later loaded into another merchant spacecraft. The point is the goods are just passing through, so the local customs agents can do nothing. However, if the spaceport is at the market for the trade goods, the port will probably be inside a sovereign nation, and the sovereign nation wants their taxes. The nation will have its customs and immigration agents controlling the flow of goods and people into and out of the spaceport, enforcing the nation's customs and immigration laws. The magic line is called the customs border. Goods land at the spaceport inside the customs border. The instant the goods are shipped across the border they have to be cleared by the customs agents, and the relevant duties, tariffs, and taxes paid. And some goods are contraband, which are restricted or prohibited from crossing the customs border. Depending upon the law, contraband items are refused entry or confiscated.
If the nation's list of contraband includes lucrative items, or if the tariffs are too high, there will be a strong fence around the customs border patrolled by customs agents on the lookout for smugglers.
The spaceport area inside the customs border is usually a free trade zone. In this zone, goods may be landed, handled, manufactured or reconfigured, and reexported without the intervention of the customs authorities. The agents cannot interfere at all with goods that are transshipped through the port. Trade goods inside the free trade zone are stored in bonded warehouses.
Trade wants to be free. The invisible hand will not be denied. If a government forbids the import of a trade good, it becomes a seller's market and the price to purchase said good rises. This creates a financial incentive on the traders and importers. The definition of traders and importers trying to avoid the government restriction is "smuggling". Some define smuggling as "international trade through an unauthorized route." The lesser reason to smuggle is if the item is not actually contraband, but there is an expensive import tax.
Smuggling rapidly becomes an arms race between the custom inspectors and the traders, as the smugglers think of new and creative ways to sneak their contraband in right under the nose of customs. Or an arms race between the border patrol and the traders. Naturally if the bootlegger is trying to avoid going through customs at all, they do not have bother with putting up the charade that they are really honest merchants. On the other hand, custom-hood-winkers do not have to deal with boarder patrol spacecraft crewed with trigger-happy agents with no sense of humor.
It doesn't really matter whether the forbidden item is drugs (drug-runners), firearms (gun-runners), alcohol (rum-runners), stolen property, fugitives, rebels, illegal immigrants, items to avoid paying taxes or tariffs on, or cheap imported commercial goods competing with the local economy (avoiding a trade embargo); market forces will have their say. Smuggling became a recognized problem in the 13th century, a few minutes after England created the first national customs collection system. The English smuggling problem only lessened after the tariff laws were liberalized under pressure from the free trade movement.
This is why Han Solo had that hidden compartment below the deck plates of the Millennium Falcon, and Malcom Reynolds had that concealed cubby hole in the side of the Serenity. Not to mention Northwest Smith, Esmar Tuek, Stella Star and Jenna Stannis.
Note that custom duties are border taxes paid on goods being imported, such duties are being avoided by smugglers. Excise taxes on the other hand are "inland" taxes paid on goods being moved internally in a nation, and are normally of no concern to interplanetary smugglers.
In the 1700's along the English coast, the high custom duties imposed on tea, wine, and distilled spirits made smuggling very profitable. So much that impoverished fishermen and seafarers found it to be so lucrative that for many communities smuggling was more economically significant than legal activities such as farming and fishing. In Robert Louis Stevenson's Kidnapped it is said the most common name for a bar on the coast was The Smuggler's Inn. This can be adapted to a science fiction background if you can figure out some sort of poverty-stricken profession that requires regular travel between the planet's surface and low orbit. Keep in mind that "poverty" is relative.
Naturally a smuggler can make their life so much simpler if they can bribe or otherwise corrupt a government official to look the other way. This not only applies to giving a rustling handshake to a customs inspector, but also to large under-the-table sweetheart deals with the Parliamentary Off-Planet Trade Minister. The only difference is the size of the bribe and the size of the operation.
Occasionally the contraband item is being smuggled off planet instead of being smuggled into the planet. Illegal emigration, fugitives from justice, spies, stolen items, espionaged secret or confidential information, dangerous native animals, and so on. It matters not if the controlling government is trying to control import or export, they are creating an opportunity for a smuggler to make some money.
The government forbidding the import of goods might not be the government of the planet. The planet may be invested by a hostile fleet, under siege by an external enemy trying to starve them out. In this case the trader is not so much a smuggler as they are a blockade-runner. The runner might be a noble patriot working for free, an amoral mercenary being paid by the interdicted planet, or a slimy opportunist trying to make a killing by importing luxury items at inflated prices. The stakes are higher with blockade-running as compared with smuggling, since enemy combat spacecraft are probably armed quite a bit better than a little putt-putt customs boarder patrol boat.
Space Pirates is a science fiction trope that just won't go away. The image of pirate freebooters on the high seas is just too romantic for words, science fiction writers can't resist. Alas, in a scientifically accurate world, they are more or less impossible, much like space fighters and for similar reasons. There ain't no stealth in space, so it is practically impossible for a fat space galleon to be surprised in mid trip by a sinister space corsair flying the Jolly Roger. Or a rude surprise for a space merchant ship whose trajectory passes too near the Somali Asteroids for that matter. It would be several orders of magnitude easier for the "piracy" to take the form of grand theft from the merchant's warehouses on the ground.
Synonyms for "pirate" include corsair, buccaneer, and freebooter.
Do keep in mind that back in the days of Blackbeard piracy was punishable by death. If nothing else many pirates were savage murderers. The skull-and-crossed-bones flag was a message to the hapless galleon to hand over your treasure with no resistance, or the pirates would kill you and take it anyway. These are not the jolly comedic figures many of us remember from childhood stories. But over and above the homicide aspect, under Admiralty law pirates were considered Hostis humani generis (Latin for "enemy of mankind"). The high seas could be claimed by no nation, they were the common property of all. So piracy was seen as a crime committed against all nations. Therefore all nations were bound by admiralty law to capture, try, and (if found guilty) execute any pirates they encountered; regardless of whether the nation had been attacked by that particular pirate or not. The trial usually was in a court martial land-side, but in extreme cases could be by drum-head court-martial convened by the officers of the capturing ship. Convicted pirates were traditionally hanged, in space I suppose they'd be thrown out an airlock without a space suit.
The other class of seafaring criminal who were considered hostis humani generis were slavers.
Nowadays things are a bit different. Vessels on the high seas are under the protection of and in the jurisdiction of the vessel's flag state. Piracy is considered an offense of universal jurisdiction, so any state can board and seize a vessel engaged in piracy. And any state my try and impose penalties according to that state's laws.
But of course if one is creating a fictional universe with faster-than-light starships, the author can tweak the properties of the FTL drive in order to allow piracy. As a matter of fact, many tweaks that will allow interstellar combat could also allow interstellar piracy.
As a general rule, merchant ships cannot be armed, armored, and combat crewed enough to fight off a pirate attack, not without increasing the amortized and operating cost and reducing the cargo capacity to the point where the ship cannot turn a profit. A "Q-ship" is a warship disguised as a merchant vessel, intended to fatally surprise hostile convoy raiders. They would also work against piracy. However since a Q-ship is a warship, it carries no cargo.
In Peter Hamilton's The Night's Dawn Trilogy, merchant starships can be armed yet still carry cargo with profit. The merchants tell everybody that the weapons are an anti-pirate measure (and because the ships sometimes hire out at mercenary warships). However some merchants ships actually commit piracy if they are sure no one will see or live to tell. In other words they are pirates hiding in plain sight.
Another problem to be addressed if you want piracy to be viable is infrastructure. Captain Jack Sparrow's ship needed no fuel, only the winds. The crew can repair much of the ship if they can find an island that has trees. And there is no shortage of places that will accept gold coins and jewels. Now a pirate starship might be able to squeak by if they can use water or hydrogen for fuel, but it will be a real problem if their ships require antimatter or highly refined plutonium. Repairing ones ship is job for a shipyard, not a random asteroid with the crew frantically looking for nuggets of titanium. And fencing high tech computer chips will be a challenge. In James H. Schmitz The Witches of Karres there are outlaw planets that handle these matters.
The two models of pirate havens are Tortuga and Port Royal. Tortuga was a place made by pirates and run by pirates for the benefit of pirates. Port Royal was a place that officially was against pirates. But unofficially they would purchase pirated goods, repair pirate ships, and show pirate crews a good time. In order to maintain the illusion of their anti-pirate stance the officials of Port Royal would strain themselves looking the other way, and never ever asking any embarrassing questions.
When is a pirate not a pirate? When they are a Privateer, of course. What's the difference? Not much, just a Letter of Marque and Reprisal. If a government is at war, and it doesn't want to spend a lot on warships and/or naval officers (or it wants plausible deniability), privateers are the solution. But the line between pirate and privateer is quite vague. The term "corsair" can mean either pirate or privateer.
Here's the deal. The privateer is a civilian warship, owned by citizens of the government. The owner receives a Letter of Marque from the government. The letter authorizes the privateer to attack vessels belonging to the "enemy" (as defined in the letter) in the name of the government. Other than what is stated in the letter, the privateer does not take any orders from naval command.
As the privateer captures or sinks enemy vessels, they get prize money. The privateer submits claims for bounty to the Prize Court to get the prize money. Generally they submit their claim by putting a prize crew in charge of the captured ship at the site of the battle and having it set sail to the port city containing the prize court. The prize money comes from the sale of the captured ship and its cargo (the government can purchase the captured ship at cost).
The prize crews usually are unhappy, since once they are off the privateer they do not receive any prize money from future captures. Only the crew on board the privateer during the battle get prize money from that battle. So the longer a crew person stays on the privateer, the more prize money they get.
The privateer is initially funded by private investors, who in exchange get a portion of the prize money earned. The privateer's officers and crew get the rest of the prize money. The government does not have to pay any money, yet gets the benefit of pressuring enemy convoy fleets and warships.
If the privateer commits certain offences, the navy can revoke the letter of marque as punishment. If the privateers mistakenly capture a ship of the wrong nationality, the prize court can order the captured ship returned the owners, and will not pay any prize money. In addition, the privateers will be liable to the owners for damages. If the privateers are smart, they will post a performance bond before hand, as insurance to pay for damages to owners. Legally privateers are not pirates, but warships. Pirate law does not apply, but the laws of naval warfare do.