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. See the Space People article at TV Tropes. Novels including this 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.
Sometimes these trader cultures in large clan-ships have a Thalassocracy, where they have a monopoly on trade since they control all access to space. If people living on planets want to engage in interstellar trade, they have to go through the thalassocrats. The leader of the thalassocrats is of course called the thalassiarch.
This section is basically a rough outline of Rick Robinson's Interstellar Trade: A Primer. You'd probably be better off reading the full article but some people want executive summaries. Rick starts with certain assumptions and follows them to various conclusions about the interstellar economy. You can alter some of the assumptions yourself to tweak the economy to suit your science fictional background.
Merchant Starship Costs
Assumption: starships in the interstellar empire are equivalent to present-day jet airliners. They go fast, can carry lots of people and cargo, and are the most advanced technology that can be massed produced.
The ticket prices will not be similar between airliners and starships because FTL interstellar travel will probably take more than a few hours for the trip. Therefore the starships will do fewer trips per year than airliners, so the starship passenger ticket price (and cargo waybill) will have to cover a larger share of the starship's yearly expense.
For comparison purposes we need an airliner's average cost of running, but the corporations are remarkably closed-lipped about that. Using a long series of estimations whose details can be found in Rick's article he concludes that the annual operating cost for an airliner is about $30 million (not counting fuel, landing fees, and taxes). An airliner's purchase price is $100 million so one year's uses costs about one-third of the purchase price.
A cargo jet can carry 50 tons so its purchase price is about $2 million per ton of cargo capacity.
Assumption: starship purchase price will only be about $1 million per ton of cargo capacity instead of $2 million, because starships are orbit-to-orbit, need no landing gear, need no wings, can use lighter structure because they accelerate under 1 g, and we will assume they can carry twice as much cargo per deadweight (inert mass) as a cargo jet.
Assumption: cargo starship operating cost is similar to cargo jet. Therefore it costs $300,000 per ton of cargo capacity per year to run a cargo starship. This ignores taxes, station docking fees, and fuel. Assumption: starship fuel is cheaper than cargo jet JP-4 fuel. Big assumption since JP-4 is about $1.39 per gallon.
Assumption: the service life of a merchant starship is 30 years. So the starship initial purchase price is about 1/10th of the overall lifetime service cost ($1 million / (30 * $300,000)). Actually it will be closer to 1/5th due to the interest on the purchase loan. With creative maintenance, the service life might be longer than 30 years, see below.
Question: how many cargos can a merchant starship carry in 1 year? That is, assuming a full cargo turnover at each port of call, how many one-way runs can the ship make?
Assumption: a one-way trip takes three months. From departure planet orbit to FTL flight to arrival planet orbit. This is comparable to the Age of Sail.
Assumption: each trip requires one month for servicing, maintenance, selling the cargo, buying new cargo for the next run.
This makes each trip four months from departure to departure, or three cargos per year. This means the ship owner must earn $100,000 of profit per ton of cargo. That is, selling price at destination MINUS purchase price at origin must be $100,000 or more. Therefore if the cargo was available for free at the origin the minimum selling price at destination is $100,000 per ton, or $100 per kilogram. The implication is that only very high value cargo can be profitably shipped interstellar.
Assumption, average of 1/2 of retail price goes to shipping cost. Therefore the minimum price of interstellar imported goods are $200 per kilogram.
The implication is that the only things shipped interstellar would be luxury goods, items with a very high value per weight. Jewelry, spices, fine liquor, designer-label clothing. Maybe some high value per weight industrial goods, such as microchips. Not high mass items such as sports car, not with a $100,000 shipping charge added to the car's price. Bottom line is that you are not going to ship bulk goods like wheat, not at $100,000 per ton you ain't.
Assumption: the Gross Planetary Product (GPP) of a colony planet is $100,000 (about three times that of present day USA). If 2% of citizen income goes to imported luxuries and high-value capital goods, it comes out to $2000 per capita, with $1000 going to shipping cost.
Assumption: Colony planet population is 10 million. Therefore the total shipping cost of imported goods is $10 billion.
Calculating backwards, this implies that 100,000 tons of interstellar cargo arrives at the colony planet annually. The colony must export the same amount or it will run a trade deficit and import prices will rise. This is because if they don't export, the cargo starships cannot find cargoes to transport and sell at the next destination. Starships with empty cargo holds cost nearly as much to run as with full holds. They will have to make up the shortfall somehow, so they will raise the price of what they sell at this planet.
Take simplest model: two planets trading with each other. Each year, 100,000 tons moves in each direction, or 200,000 tons total.
Assumption: average cargo starship carries 1000 tons. This is less than seagoing cargo ships, but more than cargo airplane. This means there has to be 200 annual cargo loadings and unloadings to accommodate 200,000 tons.
Since each ship can make 3 one-way legs per year, then each ship will do three loadings. The implication is that the two planet's combined merchant fleet is between 65 to 70 ships.
Of course if each ship carries more than 1000 tons then fewer ships are needed. If the ships can carry 5000 tons then you would only need 13 or 14 ships. In practice this would not work very well, since the larger the cargo hold, the more difficult it is to find enough cargo on the planet to fill it.A trade network of a dozen colony worlds will support a few dozen to a few hundred cargo ships depending upon cargo hold size.
Airliners carry about four to five passengers per ton of equivalent cargo capacity. However airliner trips are only a few hours. Interstellar passengers cannot live in their seats for three months.
Assumption: Each interstellar passenger berth equals one ton of equivalent cargo capacity. This includes the passenger, their baggage, the berth, apportioned galley/diner space, and food.
The direct result is that the cost of the passenger ticket is the same as the cost of one ton of cargo: $100,000. You are not going to get much tourist traffic, not at those prices. A few rich people and business travellers.
Problem: you must have large scale passenger traffic for the colony network to exist at all. In a word: Colonization.
$100,000 per colonist is prohibitive. Probably several times that for extra stuff like tractors and horses. Even worse, since the new colony will not have any exports, the cargo starship will have not cargo buy for the next trip. So the starship captain will have to charge round-trip prices for a one-way trip. It could total to around $1 million per colonist.
The problem is that our assumptions have made it so that only millionaires can afford the ticket, but millionaires do not want to go live on some jerkwater frontier world. Sending 10,000 colonists to a new world could cost $10 billion, which is a huge amount for private industry or governments to spend, regardless of the potential value of the planet.
Our price schedule has made interstellar colonization unlikely in the first place.
We will have to change some of the assumptions. Lucky for us, there is some room to bring the costs down. We can make the merchant starships cheaper, or make them faster. We shall do both.
Assumption: annual starship service cost is $100,000 per ton of cargo capacity, not $300,000. This is reasonable, since starships are not stressed as much as airliners (at least not orbit-to-orbit starships).
Assumption: starship purchase price is $500,000 per ton of cargo capacity instead of $1 million, since starships are build for long-haul reliability.
With the 30 year service life, the purchase price is now 1/6th of the total lifetime service cost instead of 1/10th. Within interest payments this may be closer to 1/3th.
Assumption: a one-way trip takes 35 days instead of three months. This means the cargo starship can deliver 10 cargoes per year instead of three. Assume 27 days is transit, 8 days is for servicing, maintenance, selling the cargo, and buying new cargo for the next run.
Crunching the numbers, the minimum profit per ton of cargo or passenger ticket is now $10,000 instead of $100,000.
The cost for colonists (provisions and no return cargo) is probably about $100,000 or less. That's more like it. In the reach of the middle class. This price schedule makes interstellar colonization viable.
Note that the same ten-fold cost reduction can be had by making the one-way trip 12 days but keeping the original $300,000 annual cost.
Our colonization-viable starships will also increase interstellar trade. Shipping cost of $10,000 per ton means the threshold cost of imported goods is about $10 per pound. Only $10,000 shipping cost for a sports car. But no bulk cargo, not when oil's shipping cost will be $1500 per barrel. As with all freight the rates will vary. Higher value merchandise will support higher shipping charges. A long-term fixed contract (allowing ship owner to have dependable regular cargoes) will get a lower rate. Standby cargo will get a better rate, if the ship is making a run anyway, it is better to have full cargo holds.
If imports are still only 2% of CPP, the volume of goods will increase ten-fold. The shipping capacity will only have to increase three-fold since starships now deliver three times as much cargo per year. Since shipping costs ten times lower (so a wider range of goods are worth importing) then the import-export sector can expand in total value of goods shipped as well.
Assumption: an inverse square-root rule applies here, so reducing the shipping costs by a factor of 10 will increase spending upon imported goods by a factor of 3.
This means 6% of CPP now goes to imports. High, but not out of reach for a mature trading zone. So a colony of 10 million will have an annual export and import of 3 million tons per year.
Each trade starship can pick up and deliver 10 cargoes per year, so they need a net cargo capacity of 300,000 tons. For a trade network of 12 colonies, the combined merchant marine needs a capacity of some 3.6 million tons. Most ships will still be small (but bigger than jumbo jets) to facilitate filling their cargo holds, but the heaviest-traffic routes will support some bigger ships.
Assumption: say the trade network's merchant fleet is:
|Type of ship||Number|
of one ship
|Total cargo capacity|
|Large||75||20,000 tons||1,500,000 tons|
|Medium||300||5000 tons||1,500,000 tons|
|Small||400||1500 tons||600,000 tons|
If there is no FTL radio, then some of the small freighters will sacrifice cargo capacity for speed (i.e., acceleration), in order to become something like an interstellar FedEx or pony express. The idea is to reduce the normal space transit time. Actually this might be a better job for an unmanned drone, they can take higher acceleration than human beings.
Passenger traffic is only a fraction of total cargo volume (unless there is a colonization effort underway). Freight makes a profit for somebody, passengers are pure expense to whoever pays their ticket. Perhaps passengers are 1% of total volume, makes 360,000 passengers per year. A few routes may support scheduled passenger service (probably in small ships). But most will ride in cargo bays (like railroad sleeping cards), in freighters, or in spare crew quarters.
Ship mass and size
Full load mass and physical size depends upon assumptions about fuel mass ration, fuel bulk, etc.
|Deadweight (inert mass)||1||17%|
Note that total mass is three times the cargo capacity. As you can see, deadweight is the ship proper, structure, engines, anything that is not cargo or propellant.
With this assumption, the big freighters will have a fully loaded mass of 60,000 tons. The largest ships might be twice as big: 120,000 tons.
Our building cost is $500,000 per ton of cargo capacity, the mass assumption makes a building cost equal to $1 million per ton of deadweight. Annual service cost is $100,000 per ton of cargo capacity, the mass assumption makes the annual service cost equal to $200,000 per ton of deadweight. The starship hulls are not cheaper, but they can carry more cargo in proportion to their structural mass.
|Type of ship||Cargo capacity||Purchase price|
|Large||20,000 tons||$20 billion|
|Medium||5000 tons||$2.5 billion|
|Small||1500 tons||$750 million|
At $500,000 per ton of cargo capacity, largest giant freighter cost $20 billion to build, but it it has a cargo capacity of 200 Boeing 747 jets, and accounts for over one percent of whole fleet's cargo capacity all by itself. Small freighter costs $750 million, and has seven time the capacity of 747.
With a 30 year service life, the combined shipbuilding yards of the 12 planet trade network will turn out about 25 ships per year.
Hulls will last longer than 30 years but the equipment wears out and has to be replaced. Ships go back to the yards for an overhaul every decade or so, but eventually the cost of stripping everything and replacing it will exceed the value of the ship. Depending upon overhaul costs the shipyards may make more money on rebuilding than on constructing brand new ships. Some ships will stay in service for many decades. Others will be retained as the futuristic equivalent of naval hulks or the old passenger equipment that railroads use as work trains. Every big commercial space station will have a bunch of these old ships in the outskirts.
If modular design is taken to its limit, "ships" will have no permanent existence. Instead they will be assembled out of modules and pods specifically for each run, much like a railroad train. In that case, a ship's identity is attached to a service, not a physical structure. Example: the Santa Fe "Chief" was identified by a timetable and reputation, not a particular set of locomotive and cars.
The analysis up until now focused on money and economics. Businessmen only care about how long it takes to deliver the cargo and how much transport costs, they could care less about the scientific details of the ship engines. But authors care.
As with everything else, it all depends upon the assumptions. Your assumptions will be different, so feel free to fiddle with these and see what the results are.
Assumption: the time spent in FTL transit is zero (jump drive). For the FTL segment of the transit you can use whatever you want, as long as the details do not affect the analysis. The main thing is that the required time spent in FTL transit will add to the total trip time, and thus the number of cargoes a starship can transport per year.
Assumption: starships use reaction drives for normal space travel.
We know that the mass ratio is 2.0. So the Tsiolkovsky rocket equation tells us that the starship's total delta V will be the propulsion system's exhaust velocity times 0.69 (i.e., ln(2.0) ). Since starships accelerate to half their delta V, coast, then decelerate to a halt, their maximum speed is half their delta V, or exhaust velocity times 0.35 (i.e., ln(2.0) / 2). In practice you would accelerate up to a bit less than half their delta V in order to allow a fuel reserve in case of emergency.
It will be even less if the FTL drive happens to use the same type of fuel that the reaction drive does. Basically part of the fuel mass will have to be considered as cargo, not propellant, which will alter the ship's mass ratio.
|Reaction drive||Exhaust velocity|
rule of thumb
|Nuclear powered Ion||~100 km/s|
|Fusion||a few thousand km/s|
|Beam core matter-antimatter||about 100,000 km/s|
( 1/3 c )
We have assumed that the ship spends 27 days in route (with an instantaneous FTL jump), so the outbound and inbound legs are 13.5 days each (1.17 million seconds).
Assumption: the acceleration on each leg is constant. In reality at the same thrust setting the acceleration will increase as the ship's mass goes down due to propellant being expended. The thrust will probably be constantly throttled to maintain a constant acceleration. Makes it easier on the crew and easier on our analysis. The implication is that obviously the average speed will be half the maximum speed (which is half the delta V)
|Reaction drive||Exhaust velocity|
rule of thumb
or Early Fusion
|400 km/s||130 km/s||75 million km|
|Advanced Fusion||10,000 km/s||5000 km/s||20 AU|
|c||0.3 c||350 AU|
(x5 Pluto's orbit)
|8 g !!!|
These figures will be lower if time is consumed in FTL flight, maybe be only Terra-Luna distance
Propulsion system's thrust power is thrust times exhaust velocity, then divide by 2. To get the thrust, we know that thrust is ship mass times acceleration. The ship mass goes down as fuel is burnt. As a rule of thumb for ship mass, figure that it only has 2/3rds of a propellant load. That is, multiply the total ship mass by 0.83. So our 120,000 metric ton ship would have a rule of thumb mass of 120,000 * 0.83 = 100,000 metric tons (100,000,000 kilograms).
|Reaction drive||Exhaust velocity|
rule of thumb
or Early Fusion
|1.08×107 N||2.16×1012 W|
|Advanced Fusion||10,000,000 m/s|
|4.3×108 N||2.15×1015 W|
|7.65×109 N||1.15×1018 W|
(1 million terawatts)
Where does fuel come from and who does it get into the ship's fuel tanks? Easiest if it is obtained locally at the destination's solar system. The economics of interplanetary transport is same as interstellar (since we did a lot of work making interstellar a cheap as interplanetary).
if fuel from a gas giant at a distance comparable to Terra-Jupiter and round trip is to only take weeks, interplanetary tankers will need speeds of around 1000 km/s. So tankers will be almost as expensive as starships. If tankers use low speed (to make them cheaper), the round trip balloons to a year or more. To service the starship fleet's thirst for fuel, tankers will need to be huge or there will have to be a lot of them. Either way, fuel shipped from gas giants ain't gonna be cheap.
If we forgo interplanetary tankers and instead have starships make extra leg to the local gas giant to refuel, it will cost you more than you will save.
The alternative is shipping fuel up from destination planet. Yes, we know about how surface to orbit is "halfway to anywhere" in terms of delta V cost. But in order to colonize space at all, surface-to-orbit shipping cost will have to be cheap anyway. The industrialization of space will start with using space based resources, but eventually surface-to-orbit will have to be cheap or there is no rocketpunk future. Laser launch, Lofstrom loop, space elevator, something like that.
Assumption: surface-to-orbit shuttle economics are equivalent to current day airliner economics. Round trip to LEO and back is about two hours (not counting loading/unloading). With loading/unloading and maintenance, figure 4 flights a day. Implication is that a round trip passenger ticket is $250 and round trip freight service is $1000/ton (which is +10% added to interstellar transport costs)
Fuel is not round trip, it only goes from surface to orbit, but shuttles have to go orbit to surface in order to get the next load. You will have to streamline the process. High capacity pumps to minimize load/unload times, crew-less shuttle. You might be able to squeeze fuel lift cost to $500/ton. So if starships carry 1.5 tons of fuel per ton of cargo, surface-to-orbit fuel lift costs adds $750/ton to interstellar shipping cost.
So total surface-to-orbit overhead is $1000/ton + $750/ton = $1750/ton or 17.5%. This is an ouch but not a show-stopper.
Back to starships. How big are they?
Present-day maritime tonnage rule: 1 registered ton = ~3 cubic meters.
Assumption: 1 ton = 3 m3 applies to fuel and hull (e.g., crew quarters, engineering spaces, etc) as well as cargo. Therefore, if the absolutely hugest cargo starship in service has a cargo capacity of 40,000 tons (twice that of a large cargo starship), then:
Volume of a sphere is 4/3πr3, so the radius of a sphere is 3√(v/(4/3π)) or
radius = CubeRoot( v / 4.189)
diameter = (CubeRoot( v / 4.189)) * 2
Assumption: a "cigar-shape" for a spacecraft is a six times as long as it is wide, with the proportions indicated in the diagram above. The center body is a cylinder 1 unit in diameter (0.5 units radius) and two units high. The two end caps are cones of 0.5 units radius and 2 units high.
If the monstrous cargo starship is spherical, it would have a diameter of 88 meters. If it is cigar shaped then length = 300 meters and diameter of 50 meters.
A 1500 ton cargo capacity tramp freighter would have a wet mass of 4500 tons and a volume of 13,500 m3. Spherical shape would have a diameter of 30 meters, cigar shaped length = 100 meters long and diameter of 17 meters.
Modular ships dimension would be similar but a bit larger due to being assembled out of component parts.
This is very difficult to estimate.
Since each crew has same berthing requirement as passengers, each crew represents one ton = $100,000/year in lost revenue capacity. Therefore crew will be kept as small as practical.
Operating crew: pilot-navigator and engineer for each watch. Plus life support specialist/medic, cargo-master, and captain. Total of nine. Small ships might squeeze this to four or five. Big ships might double up with assistants and trainees for 20 to 25.
Maintenance technicians will be needed. Ships are en route for a month or so at a time. Unlike aircraft, maintenance can't all be done during layovers. Time is money, you do not want to hold off departure because station tech has not finished some routine servicing. So techs will be carried to do maintenance during the flight. Assume (conservatively) 1 tech embarked per $100 million in construction cost (i.e., stuff to be maintained). So small ships will have a maintenance crew of seven or eight (total crew of ten or twelve). Largest ships in service might have total crews up to 250. Scut work (swabbing decks and peeling potatoes) will be done by junior crew. As has been the case since time began.
Hotel Staff: passenger-carrying ships will need crew for hotel-type services (stewards, chefs, etc.), but not if passengers are colonists (fend for yourselves, steerage scum!). Coach class could make do with one for every 10 passengers. First class would have one for every 2 or 3 passengers (and the ticket price would reflect this). If a typical ship has 1 percent of cargo given over to passengers, the required hotel staff could increase the crew by about a third. Naturally the hotel staff will be looked down upon by the operating and tech crew members. On a passenger ship the hotel staff will vastly outnumber the rest of the crew by some 30 to 1.
Orbital high ports
These are primarily starship ports and service bases, though they may have other functions.
With our current assumptions, at a given time 3/4ths of the ships are en route, the rest are in port. So at the stations of the dozen colony worlds there will be docked about 15 cargo ships. One or two would be large cargo ships. A cargo ship will arrive and depart about three times a day.
Orbit-to-surface traffic is heavy. If each shuttle can carry the load of a 747 jet, about 100 arrive and depart each day. If starship fuel is shuttled up from surface, some 150 daily tankers arrivals are needed as well (if 4 daily flights per shuttle, about 65 physical shuttles are needed).
This is for a typical station. The busiest station in the trade network might have twice the traffic volume.
At any one time we might expect to find 200 to 300 off-duty starship crew at a typical station (probably all in bars). Unlike airports, passenger traffic is small. 200 or so arrive and depart each day. Passenger shuttles will also carry station crew, ship's crew going sightseeing, so there will be a few daily passenger flights.
A station is a ship without a drive engine, so its capacities can be estimated the same way.
If 10% of the overall cost of the merchant fleet goes to support the stations (since the stations maintain the ships) then the stations taken together will have about a tenth of the fleet's deadweight mass, or 180,000 tons all told. A typical station would then have a mass of 15,000 tons, not counting cargo awaiting loading, fuel in storage tanks, etc. But stations are likely to grow by accretions over the years and become sprawling structures extending hundreds of meters in all directions.
Using same estimates for cargo ships, the maintenance crew of an average station would be about 150. However, stations provide the major ship maintenance, so they probably have about as many technicians altogether as the ships themselves do. They alone will multiply the station population by tenfold; support staff and miscellaneous services might double it again, so a typical station could have some 3000 workers. The largest stations might have two or three times as many.
Living quarters will be nearly as expensive ship quarters, but frequent shuttle fare also add up. The income from shuttle fare can be used to subsidize living quarters rent, so many people could live on board, even with families. Station could be a cosmopolitan orbiting town.
The entire space-faring population of the trade network, ship crews and stationers, come to well over 50,000, maybe as many as 100,000 (out of a total population on 12 colonies of some 120 million). The space economy as a whole however employs many times more. If the merchant marine industry accounts for 3% of the economy it will also employ 3% of the workforce, 2 million people. With a similar number employed in the import/export industries.
The expense of a trade-protection navy is an insurance premium charged against trade.
Assumption: the insurance premium to fund the navy is 10% of total value of trade.
Say the 12 colony network is a trade federation and the insurance premium for defense is 10% of total value of trade (this setup could just as well be one planet monopolizing trade, in which case the navy protects the franchise. We will call it a federation anyway). Half the value of trade goes to support the merchant fleet (the other half is initial purchase cost of shipped goods) therefore the cost of the war fleet will be about 1/5 of the merchant marine
Assumption: warships have the same relationship to cargo ships as cruisers do to ocean liners or jet bombers to airliners.
Instead of cargo, warships carry weapons, sensors, armor, more powerful engines, and greater fuel capacity. Ton for full-loaded ton they are more expensive than trade ships (maybe x2) but cost per deadweight ton is about the same since technology going into it is similar. (some present day warplanes have higher cost-to-mass ratio than jetliners. This is due partially to "gold-plating" of weapon systems and partial due to false economies such as small orders that reduce production efficiencies. We will assume that a navy funded by merchants will not allow such expensive stupidities)
Assumption: For first approximation, scale down merchant marine by factor of 5 to get war fleet.
- 1 battlecruiser per 5 heavy freighters
- 1 cruiser per 5 medium freighters
- 1 corvette per 5 small freighters
This will give the following order of battle:
- 15 battlecruisers
- 60 cruisers
- 80 corvettes
This may or may not be balanced, substitute as needed.
(ed note: for a discussion of what Rick Robinson means by those three ship classes see his analysis here)
Space navy combat starships will require auxiliary starships to support them: food supply ships, ammo and missile supply ships, repair ships, hospital ships, fuel ships, etc. So some of the cruisers and corvettes in the order of battle will have to be traded for auxiliaries of various kinds. Some civilian cargo ships can be requisitioned in wartime for auxiliary missions (such as tankers). Depending upon technology and threat level, it might be feasible to fit cargo ships with weapon pods instead of cargo and use them as armed merchant cruisers. And warships might be fitted with cargo pods to become very well-armed transports.
Assumption: a warship's deadweight mass is 1/3rd (0.33) of loaded mass (propellant always dominates a reaction-drive spaceship's mass). You could call the deadweight mass the Washington Treaty Mass.
Assumption: the following deadweight mass values in the following table.
Assumption: warships are always cigar shapes because Hollywood hates spheres
We have already assumed that purchase cost of a spacecraft is $1 million per ton of deadweight. We have also assumed that each ton of loaded mass equals 3 m3 of volume.
Result of assumptions:
|Battlecruiser||30,000 tons||10,000 tons||$10 billion||90,000 m3||200m × 30m|
|Cruiser||7500 tons||2500 tons||$2.5 billion||22,500 m3||120m × 20m|
|Corvette||2000 tons||700 tons||$700 million||6000 m3||75m × 12.5m|
Corvette are the length of a 747 or C-5 Galaxy but larger diameter. Very close to space shuttle in launch configuration. Since corvettes will have a surface landing module (for gunboat diplomacy) they may even look like space shuttle stack (with a big winged thing stuck on the side). Merchant express mail couriers might be a civilian version of courvette.
During peace time war fleet has lower operating tempo than merchant marine. May spend half their their time docked instead of the one-quarter that merchants do. This saves operating expenses. The savings allows greater procurement, so they are replaced and retired from active duty after 20 years instead of 30. Then they go into a mothballed reserve force for another 20 years, so reserve is the same size as active fleet. As with cargo ships, warships might undergo top-to-bottom overhauls and remain in service longer.
Crews are larger in proportion than for cargo ships. Operating crew will be augmented with offensive and defensive weapon controllers, scan/ECM, and communication/intelligence; larger ships will have in addition a command staff.
The maintenance technicians will be larger per unit cost because they have to repair battle damage, during or after the battle.
Of course there is no hotel staff.
Some warships will carry a landing force of marines or espatiers. Due to berthing cost and limited space (mass ratio of 2.0, remember?) there won't be many marines, but they will be highly trained (SEALS).
Crew numbers will be higher if they have a landing strike team embarked
This is not a huge crew force. about 10,000 for the entire fleet, with probably a similar number on shore duty at any given time. Add in the marines and the total wearing uniforms is still no more than 25,000 to 30,000. Perhaps with a similar number of civilian employees.
Defense spending for running the fleet (by far the largest budget item) is a modest $72 billion, 0.6% of trade federation's combined GPP. In a prolonged major war this would expand greatly. But this is supported by trade. If the cost of trade protection (the insurance premium) approaches or even exceeds the value of trade itself, there will be a collapse of political support.
Operations in a trade war will be primarily in space. If large scale planetary landings are required, cargo ships can be pressed into service as troop transports. Light infantry is roughly equivalent to civil passengers: 1 ton equivalent cargo capacity per soldier. However heavier equipment, shuttles to carry troops/gear/provisions to surface, armed shuttles for close air support, will all be required. So for an invasion force, 3 ton equivalent cargo capacity per soldier, not counting the naval escort.
If 1/10th of the entire merchant marine is gathered as an invasion force it can transport and land 120,000 light troops, less if heavy equipment is required. But 120,000 troops is a pretty big force to invade a planet of 10 million people.
Suppose instead of 12 worlds, the empire had a thousand worlds, each with a population of 100 million. Then all the above can be multiplied by a factor of over 800. Improved technology will increase size and number of ships. If typical ships is x3 in linear dimensions they will be x27 greater in mass, and fleet can have x30 as many of them.
Large cargo starships: if spherical 300m diameter, if cigar 1,000 km long. Cargo capacity 1 million tons. Full-load mass of 5 million tons each. Empire will have about 1000 ships of that size (and some larger). It will have 50,000 medium cargo ships with cargo capacity of 20,000 tons, and hundreds of thousands of smaller vessels.
Great hub-route stations will have population in the millions.
Navy battlecruisers will be 1 km long, full-load mass of 3 million tons. Build cost $1 trillion. Crew of 30,000. Empire will have 125 battlecruisers in the fleet. It will have thousands of cruisers with a full-load mass of 100,000 tons. Naval budget can be held down to $60 trillion.
100,000 worlds with average population of few billion each. The scale factor is another x3000. You can do the math yourself.
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).
I will note that historically one of the most valuable trade goods was spices. Which cannot be 3D printed unless their resolution is atom-by-atom. Freaking black pepper was so valuable that it was used as collateral for loans, or even currency. In the 1400s the Italian monopoly on black peppercorns was the incentive behind the Portuguese effort to find an alternate route to India. Vasco da Gama managed to reach India by sailing around Africa, which would be a very uneconomical route except for the sky-high value of black pepper.
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).
A trader would like a nice simple two-planet set up: where they go to planet Alfa to buy a load of Alfan Aphrodisiac Apples, transports them to planet Bravo to sell them at a fat profit, buys a load of Bravoian Bodacious Beef, transports it to planet Alfa, and sells it at a fat profit. Rinse, lather, repeat.
But all too often one of the planets does not cooperate, such as when planet Bravo desired Alfan Aphrodisiac Apples, but the vegetarian Alfans look upon Bravo's major export with horror.
The key to solving the problem is Triangular trade. The trader has to find a third planet, one that wants to import Bravo's export, and which exports something that Alfa wants. Such as planet Charlie, which adores Bravoian Bodacious Beef, and exports Charlean Chicory Coffee without which no Alfan breakfast is complete.
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.
And there are a few examples of science fictional socialist utopias where money is obsolete, e.g., Star Trek. Good luck with that.
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 Karl Gallagher's Torchship the unit of currency is called Keynes or "Keys", named after Keynesian Economics.
- In Philip E. High's The Prodigal Sun money was literally hours of work.
- 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 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 which would stack into neat rectilinear piles.
- 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.
Money has four functions:
- Medium Of Exchange: a way to avoid the double coincidence of wants problem inherent in the barter system. Or "he wants two coconuts for that shirt but all I got is this mango."
- Common Measure Of Value (or Unit Of Account): a way to set a standard price tag on market value of goods, services, and other transactions. This is essential to allow commercial agreements that involve debt. The loan officer ain't gonna give you a loan for that used car if you are using the barter system. It is too hard to figure the car's value in tiger-skins.
- Standard Of Value (or Standard Of Deferred Payment): using money to settle a debt sometime in the future. As Wimpey says "I'll gladly pay you Tuesday for a hamburger today"
- Store Of Value: So you can bank your money, with the expectation that when you withdraw the money it is still worth something. This doesn't work with the Banana Standard, put a banana in a bank box and you will be dismayed to find in a few years it has turned into worthless moldy goo.
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.
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 (this does little to stop the crime of in sweating). 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.
Gold coins are generally composed of a gold alloy (Coinage Gold) because pure gold is too soft to hold up to the stress of being used as a coin. In modern times, a popular popular choice for silver-colored coins is the alloy cupronickel, due to its corrosion resistance, electrical conductivity, durability, malleability, low allergy risk, ease of stamping (metalworking), antimicrobial properties and recyclability.
In low-tech places, coins are manufactured by hammering or casting. In more modern-day tech settings, coins are machine-struck. In futuristic data-driven societies, physical coins are obsolete and instead virtual coins are used. Indeed, as previously mentioned, physical money may actually be illegal since the Police State cannot trace physical money transactions.
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.
There are three basic monetary systems:
- Commodity money: The currency is physical lumps of something valuable, e.g., solid coinage gold coins.
- Representative or Commodity-backed money: The currency is paper bills or worthless coins that are backed by stores of something valuable in the treasury. Example: the Gold standard. Paper gold certificates can only be printed by the treasury up to the amount of gold in their vaults.
- Fiat money: when the paper bills have value because the issuing government says so. Most modern governments use fiat money because it allows flexibility during a financial crisis. It allows the government to adopt an expansionary monetary policy aka "printing money".
Unless all the planets you trade with are members of the same interstellar government, 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.
Debasing a currency means making a nation's money worth less. Generally this is done by the nation in question in order to gain some financial advantage at the expense of its citizens. The historic method was to reduce the precious metal content of each coin. Soon Gresham's law rears its ugly head. The old more valuable coins will vanish from circulation as people horde them, and the new less valuable coins will become widely used.
In science fiction debasement sometimes happens for more radical reasons. Some science fictional means suddenly destroys the value of the material used for the standard; e.g., some idiot invents a device that cranks out tons of gold, thus blowing the gold standard out of the water and crashing the entire economy. Alternatively another idiot invents some new and improved method of counterfeiting money, commonly by inventing a matter-duplicator which can make perfect duplicates indistinguishable from the original.
- 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 obliterated the economy of the whole 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.
- 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 some science fiction, physical money is illegal since the Police State cannot trace physical money transactions. By law all money transations must be via credit cards or debit cards. Intangible electronic numbers transferred from one bank ledger to another through traceable internet connections (credit cards or debit cards), so the state can keep a close eye on all your purchases. To the very last penny.
Naturally people wanting to bribe somebody or purchase illegal goods had to find some physical untraceable alternative. Purchasing illegal drugs with your bank card will just get you busted by the narks.
Such illegal currency is related to the concept of money laundering.
In the science fiction show The Expanse, Detective Miller accepts bribes in the form of casino chips. One of the authors said: "Why do they use casino chips as money on The Expanse? It's how you get a black market economy when everything else is traceable e-money."
In the real world, events overtook science fiction when some genius invented a way to transfer money over the internet, but encrypted in such a way that the authorities could not track it. Specifically they can see the transaction but have no idea of the identity of the sender or receiver. This is called Bitcoin (BTC), symbolized by , Ƀ, or ฿. Bitcoin is the first cryptocurrency that is decentralized.
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.
Rob Garitta's Planet Zaonia is sort of like the Duchy of Grand Fenwick in space. It is a tiny interstellar colony with backwards technology which manages to become a galactic trade powerhouse by innovative use of "obsolete" tech.
Careful study of Zaonia will give you all sorts of idea along these lines.
Trade is such a source of power and control that quite a few groups want to restrict trade for fun and profit.
If you are an undeveloped colony or base and own no trader spacecraft, you are at the mercy of the off-planet traders. If the various trade ships collude in their pricing; you either pay it, hope for a trader willing to undercut the colluders, or do without. And if a trader has a monopoly on your planet, you are shafted. About the only thing that can be done is for the colony to build or otherwise obtain their very own trade ship (or make a plea to an off-planet government, good luck with that).
In some science fictional universes, a powerful group manages to obtain a monopoly on all spacecraft and starships. This is called a Thalassocracy. A good example is the Spacing Guild in the DUNE novels.
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.
Sometimes the entity controlling the flow of trade is a hostile fleet from an invading foreign power. If they cannot conquer the planet (or are unwilling to pay the military cost) they will invest the planet and try to starve it out.
The enemy fleet is constantly on the lookout for blockade runners trying to sneak stuff in.
Things get really messy if there are several colonies on the planet that belong to different star nations, so the investing fleet is only trying to stop trade to Colony X, but allowing it to Colony Y and Colony Z.
Trade improves pretty much all economies, so a planetary colony will find their economy enhanced by interplanetary and/or interstellar trade spacecraft.
My question is what happens to such a colony who relies upon off-world trading if the trade is cut off? Is this a minor inconvenience or does it cause a major recession that crashes the entire planetary economy? Such interruptions can happen due to trade embargoes, blocades by hostile starfleets, or by the decline and fall of the galactic empire.
That question is above my pay grade, but I suspect that either outcome is plausible enough for an author to utilize it in their novel.
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 border patrol boat.
A Transport Nexus is a crossroad spaceport for passengers, a port of entry, an orbital warehouses where valuable minerals from asteroid mines are stored and trade goods transshipped, or a "trade-town". Will include related services, such as bonded warehouses, trading posts, hotels and longshoremen.
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.
In a rocketpunk universe, a transport nexus would be in a space station. Now, the thing about space stations is that they are basically a spacecraft without an engine. Which means if you add an engine you suddenly have a mobile transport nexus.
Now, let me take a moment to mention James Blish's classic Cities in Flight series. In it, they invent paragravity machines called Dillon-Wagoner Graviton Polarity Generators (commonly called "Spindizzies"). These can lift spacecraft into orbit, move them around the solar system, and land them. They are also a FTL drive.
The amusing point is that the efficiency of a spindizzy goes up with the mass of the spacecraft. This means spacecraft were big. Huge, even. Finally entire cities were uprooted and turned into starships. The latter novels center around the adventures of New York, basically Manhattan island. The "Okie" cities became migrant laborers of the galaxy, traveling between planetary colonies. Upon arrival they can land the entire city on the planet under spindizzy power (lacking hand-waving paragravity, it makes more sense for mobile space stations to merely park into a convenient orbit and use surface to orbit shuttles).
Much like Flying Castles, actually.
If you optimize your mobile space station less towards "transport nexus" and more towards "military force projection", and have the resources of a galactic empire behind you, the result is more like the Death Star from Star Wars.
In the classic novel Gulliver's Travels, part III has our hero encountering the flying island of Laputa. It flies by virtue of magnetic levitation, controlled by the Laputans. The tyrant king controls the land of Balnibarbi, coincidentally the area Laputa can fly over. Rebel regions are brought to heel by either:
- Laputa hovers over the rebel region for a while. Region is deprived of sunlight and rain, thus causing crop failure
- Laputa conducts aerial bombardment, dumping large bolders on rebel cities
- In extreme cases, Laputa lowers itself on the rebel city, crushing it
The crush option is a last resort. While Laputa has a bottom plate of adamant 200 yards thick, crushing a rebel city could possibly damage the plate.
The city of Lindalino is the only successful rebel. They constructed large towers at the four corners of the city. On the top they placed loadstones (natural magnets). Since Laputa flies and moves by magnetic levitation, the towers are a defense. If Laputa got too close, the towers would either cause Laputa to crash or be pinned in place forever.
Free Traders live and work on a starship, traveling to little-known planets to find exotic goods to trade. The crews generally live and own their starship, and experience a hand-to-mouth existence. The opposite is the traders who work for the huge corporations, living as drab little cogs in a drab corporate machine. The corporations have all the choice trade worlds to themselves, while the free traders have to fight over the scraps or do dangerous and financially risky explorations into unknown space. Term "Free Trader" was invented by Andre Norton.
As I previously mentioned 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.
Never lose sight of the fact that a Free Trader starship is not making any money while it is sitting on a planet or space station. The money comes by transporting cargo. Therefore the longer the ship sits on its butt while the cargo-master frantically tries to scrounge some cargo, the more money is being wasted. Even worse, spaceports charge berthing fees by the day.
Free Traders make money by two methods: Speculative Trade and Cargo Transport.
Speculative Trade is an attempt to make money from arbitrage, that is buying a cargo where it is inexpensive, transporting it to a planet where the cargo is expensive, selling it, and pocketing the profits. It is a big help if the Free Trader has a monopoly on a cargo, such as exclusive rights to the highly prized Zoran gemstones of the planet Lorgal. If the Free Trader guesses wrong, and the cargo is worthless on the destination planet, the traders have to absorb the financial loss themselves.
Cargo Transport makes money the same way as an 18-wheeler trucker. The free trader does not buy a cargo. Instead a client hires the trader to transport the client's cargo to a specified destination by a certain time, with the cargo intact. Traders who violate any part of the contract will not be paid.
FREE TRADER NEEDS
- Prosperous traders will own a trading post or factory with exclusive rights to some valuable trade good on a planet.
- Slighly less prosperous traders will just have the rights to the planet, and will have an arrangement with the natives to visit according to a schedule.
- Even less prosperous traders will just have right to visit somebody else's trading post and pay through the nose for their valuable trade good.
- Even lower are traders who scrounge around at a spaceport to find odd cargos they can trade or purchase, crumbs left over from the trade ships belonging to megacorporations.
- And at the bottom are the traders who depend upon investors or ship brokers to hire the Free Trader to be a mere blue-collar cargo hauling service.
Shipping cargo via seagoing ships and trans-oceanic trade can be really lucrative, but just one shipwreck or pirate encounter on the far side of the globe will result in a total loss. Spacecraft will be no different, except you will probably be able to spot the pathetic remains of your ship through a strong telescope.
The loss of ones ship is a risk, and the management of risk is the world of Insurance. Anybody who was required to purchase liability insurance for their automobile has a rough idea of how it works. The insurer is betting that they will get more money from you in insurance premiums than they will have to pay out to settle any car wrecks you cause. Which is why they jack your premium if you actually have an accident or get too many traffic tickets. The insurance companies spend lots of money researching methods of calculating the precise amount of risk involved with anything they cover.
In those times there were over 80 different London coffee houses (selling the "new black liquor from Turkey"), each associated with a different type of clientele. Lloyd opened his coffee house in a tiny area between the Tower of London and Thames Street, close to the Navy Office in Seething Lane. This just so happened to be the place where the world of London shipping and London finance intersected. While business was done at the Royal Exchange, news and information were gathered in coffee houses. So for Lloyd, it was a case of the three important parts of a successful business: Location, location, and location.
Lloyd's little coffee house quickly became very popular with ship’s captains, merchants and ship owners due to its location. Lloyd didn't have to listen to the sailor gossip for long to realize that all this intel was very valuable. He started publishing a regular sheet of intelligence on ships, individual ship seaworthiness rating, cargo and foreign events (which is still published to this day), and establishing a network of correspondents in ports across Europe. Lloyd's sheet was a shipping list containing each ship's name, owner, captain, port of departure and destination, tonnage, number of decks, guns if any, where and when the vessel was built, and most important of all a rating of the ship's hull and equipment. Hulls were rated by how sound they were by the letters A, E, I, O, and U. Equipment was rated either Good, Middling, or Bad. So the best risk was a ship with the rating AG, the worst was UB. Priceless information for an investor or insurer.
The investors and ship insurers took notice, and Lloyd's became the go-to place where the rich made deals with ship owners. Lloyd soon had to relocate his coffee shop to a larger building closer to the Royal Exchange, and offered the patrons coffee, tea, sherbet, and fruit punch. Not to mention unlimited pens, ink, and paper for deal writing. I suspect that Lloyd trained his employees to listen carefully to any conversations within ear-shot, and report back.
Lloyd also hosted "candle auctions." Say Cyrano Jones has a parcel of Spican Flame Gems for sale. The potential buyers gather at the auction site, the auctioneer sticks a pin into a candle an inch or so down from the top, lights the candle, and the frantic bidding begins. When the candle burns down to the point where the pin drops out, the auction is over and the high bidder has won (this is the origin of the phrase "to hear a pin drop"). The point of the candle is two-fold. First the time limit gets the bidders all frantic, which increases the seller's hopes of a bidding war breaking out. But secondly and more importantly, nobody knows exactly when the pin will fall, making it impossible for somebody to make a last-second bid. A similar method is used in the present day on some online auction sites. The exact ending time is randomly selected in order to foil last-second auction sniping.
Lloyd's coffee house had become an insurance marketplace. Starting with the Lloyd's Act of 1871, it became a partially mutualised marketplace within which multiple financial backers come together to pool and spread risk. This was the origin of the famous Lloyd's of London.
The insurance marketplace also created an infrastructure of useful specialists, such as shipbrokers, admiralty lawyers, bankers, surveyors, loss adjusters, general average adjusters, etc.
Naturally the underwriters exerted considerable power over the ship owners. If your ship was rated as being a broken-down ship-wreck-waiting-to-happen, nobody will be willing to hire you to ship cargo, or front you the money for cargo speculation. David Drake applied these concepts to the Bonding Authority featured in his science fictional mercenary stories.
The practice of insuring ocean shipping has the quaint name of "underwriting." The name was coined in Lloyd's of London, where under the Lloyd's risk information on the slip of paper the insurers would literally write their names.
Everything old is new again, so science fiction authors can confidently add a futuristic Lloyd's of Luna to their universe. Use the way that candle auctions transformed into random online auction end-times as a template.
Small businesses or even a Maw and Paw team might want to purchase a spacecraft to use in their startup business. A small ship can be used for asteroid mining or small cargo transport. Since spacecraft are going to be incredibly expensive, the happy couple will have to draft a business plan to convince Dealer Dan The Used Spaceship Man or the First National Bank of Ceres to advance them a mortgage loan or other type of financing.
Invariably many of these small businesses will discover that their business model does not capture enough value to keep up with the mortgage payments. They default. Sooner or later (depending upon how lenient the lender is) the business be hit by foreclosure and their ship will be repossessed. The bank will tell them to return the spacecraft or face a replevin lawsuit.
Honest businesses will meekly surrender the spacecraft to the bank and try to get a lift back to the civilized parts of the solar system. Desperate businesses will turn off their automatic identification system, and hope they can get the mortgage money before the bank catches up to them. Businesses that snap can "skip" or run away from the bank's mortgage and become a full pirate.
For the latter two types of foreclosure, the banks will need specialized employees or contractors to get their spacecraft back. Repo crew and bounty hunters. They are needed since a pirate will just use the bank's replevin as toilet paper. If you are dealing with a pirate, the repo crew will probably need to be armed. The situtation and the local laws will determine whether "armed" means sidearms or ship-to-ship missiles. Tough minded banks might consider the destruction of the forclosed spacecraft to be almost as good as repossession. Potential pirates might think twice if the bank has a reputation for bringing defaulters in dead or alive.
(ed note: You really should read the entire thing. And take notes.
The article traces the rise and fall of the East India Company, with historical trends and power structures that a science fiction author can easily transpose into their future histories.
Corporation Types Smithian
Mercantilism Schumpeterism Control of Land Control of Mindshare Space Time Zero-Sum Non-Zero-Sum Marketing Innovation
The Smithian/Schumpeterian Divide
The first point is that the corporate form was born in the era of Mercantilism, the economic ideology that (zero-sum) control of land is the foundation of all economic power (ed note: the idea that business should be organized around Space).
In politics, Mercantilism led to balance-of-power models. In business, once the Age of Exploration (the 16th century) opened up the world, it led to mercantilist corporations focused on trade (if land is the source of all economic power, the only way to grow value faster than your land holdings permit, is to trade on advantageous terms).
The forces of radical technological change — the Industrial Revolution — did not seriously kick in until after nearly 200 years of corporate evolution (1600-1800) in a mercantilist mold. Mercantilist models of economic growth map to what Joel Mokyr calls Smithian Growth, after Adam Smith…
…Smith was both the prophet of doom for the Mercantilist corporation, and the herald of what came to replace it: the Schumpeterian corporation. Mokyr characterizes the growth created by the latter as Schumpeterian growth…
The corporate form therefore spent almost 200 years — nearly half of its life to date — being shaped by Mercantilist thinking, a fundamentally zero-sum way of viewing the world…
…In fact, in terms of the two functions that Drucker considered the only essential ones in business, marketing and innovation, the Mercantilist corporation lacked one. The archetypal Mercantilist corporation, the EIC, understood marketing intimately and managed demand and supply with extraordinary accuracy. But it did not innovate.
Innovation was the function grafted onto the corporate form by the possibility of Schumpeterian growth, but it would take nearly an entire additional century for the function to be properly absorbed into corporations. It was not until after the American Civil War and the Gilded Age that businesses fundamentally reorganized around (as we will see) time instead of space, which led, as we will see, to a central role for ideas and therefore the innovation function.
The Black Hills Gold Rush of the 1870s, the focus of the Deadwood saga, was in a way the last hurrah of Mercantilist thinking. William Randolph Hearst, the son of gold mining mogul George Hearst who took over Deadwood in the 1870s, made his name with newspapers. The baton had formally been passed from mercantilists to schumpeterians.
This divide between the two models can be placed at around 1800, the nominal start date of the Industrial Revolution, as the ideas of Renaissance Science met the energy of coal to create a cocktail that would allow corporations to colonize time…
I: Smithian Growth and the Mercantilist Economy (1600 – 1800)
It is difficult for us in 2011, with Walmart and Facebook as examples of corporations that significantly control our lives, to understand the sheer power the East India Company exercised during its heyday. Power that makes even the most out-of-control of today’s corporations seem tame by comparison. To a large extent, the history of the first 200 years of corporate evolution is the history of the East India Company. And despite its name and nation of origin, to think of it as a corporation that helped Britain rule India is to entirely misunderstand the nature of the beast.
Two images hint at its actual globe-straddling, 10x-Walmart influence: the image of the Boston Tea Partiers dumping crates of tea into the sea during the American struggle for independence, and the image of smoky opium dens in China. One image symbolizes the rise of a new empire. The other marks the decline of an old one.
The East India Company supplied both the tea and the opium.
At a broader level, the EIC managed to balance an unbalanced trade equation between Europe and Asia whose solution had eluded even the Roman empire. Massive flows of gold and silver from Europe to Asia via the Silk and Spice routes had been a given in world trade for several thousand years. Asia simply had far more to sell than it wanted to buy. Until the EIC came along
A very rough sketch of how the EIC solved the equation reveals the structure of value-addition in the mercantilist world economy.
The EIC started out by buying textiles from Bengal and tea from China in exchange for gold and silver.
Then it realized it was playing the same sucker game that had trapped and helped bankrupt Rome.
Next, it figured out that it could take control of the opium industry in Bengal, trade opium for tea in China with a significant surplus, and use the money to buy the textiles it needed in Bengal. Guns would be needed.
As a bonus, along with its partners, it participated in yet another clever trade: textiles for slaves along the coast of Africa, who could be sold in America for gold and silver.
For this scheme to work, three foreground things and one background thing had to happen: the corporation had to effectively take over Bengal (and eventually all of India), Hong Kong (and eventually, all of China, indirectly) and England. Robert Clive achieved the first goal by 1757. An employee of the EIC, William Jardine, founded what is today Jardine Matheson, the spinoff corporation most associated with Hong Kong and the historic opium trade. It was, during in its early history, what we would call today a narco-terrorist corporation; the Taliban today are kindergarteners in that game by comparison. And while the corporation never actually took control of the British Crown, it came close several times, by financing the government during its many troubles.
The background development was simpler. England had to take over the oceans and ensure the safe operations of the EIC.
Just how comprehensively did the EIC control the affairs of states? Bengal is an excellent example. In the 1600s and the first half of the 1700s, before the Industrial Revolution, Bengali textiles were the dominant note in the giant sucking sound drawing away European wealth (which was flowing from the mines and farms of the Americas). The European market, once the EIC had shoved the Dutch VOC aside, constantly demanded more and more of an increasing variety of textiles, ignoring the complaining of its own weavers. Initially, the company did no more than battle the Dutch and Portuguese on water, and negotiate agreements to set up trading posts on land. For a while, it played by the rules of the Mughal empire and its intricate system of economic control based on various imperial decrees and permissions. The Mughal system kept the business world firmly subservient to the political class, and ensured a level playing field for all traders. Bengal in the 17th and 18th centuries was a cheerful drama of Turks, Arabs, Armenians, Indians, Chinese and Europeans. Trade in the key commodities, textiles, opium, saltpeter and betel nuts, was carefully managed to keep the empire on top.
But eventually, as the threat from the Dutch was tamed, it became clear that the company actually had more firepower at its disposal than most of the nation-states it was dealing with. The realization led to the first big domino falling, in the corporate colonization of India, at the battle of Plassey. Robert Clive along with Indian co-conspirators managed to take over Bengal, appoint a puppet Nawab, and get himself appointed as the Mughal diwan (finance minister/treasurer) of the province of Bengal, charged with tax collection and economic administration on behalf of the weakened Mughals, who were busy destroying their empire. Even people who are familiar enough with world history to recognize the name Robert Clive rarely understand the extent to which this was the act of a single sociopath within a dangerously unregulated corporation, rather than the country it was nominally subservient to (England).
This history doesn’t really stand out in sharp relief until you contrast it with the behavior of modern corporations. Today, we listen with shock to rumors about the backroom influence of corporations like Halliburton or BP, and politicians being in bed with the business leaders in the Too-Big-to-Fail companies they are supposed to regulate.
The EIC was the original too-big-to-fail corporation. The EIC was the beneficiary of the original Big Bailout. Before there was TARP, there was the Tea Act of 1773 and the Pitt India Act of 1783. The former was a failed attempt to rein in the EIC, which cost Britain the American Colonies. The latter created the British Raj as Britain doubled down in the east to recover from its losses in the west. An invisible thread connects the histories of India and America at this point. Lord Cornwallis, the loser at the Siege of Yorktown in 1781 during the revolutionary war, became the second Governor General of India in 1786.
But these events were set in motion over 30 years earlier, in the 1750s. There was no need for backroom subterfuge. It was all out in the open because the corporation was such a new beast, nobody really understood the dangers it represented. The EIC maintained an army. Its merchant ships often carried vastly more firepower than the naval ships of lesser nations. Its officers were not only not prevented from making money on the side, private trade was actually a perk of employment (it was exactly this perk that allowed William Jardine to start a rival business that took over the China trade in the EIC’s old age). And finally — the cherry on the sundae — there was nothing preventing its officers like Clive from simultaneously holding political appointments that legitimized conflicts of interest. If you thought it was bad enough that Dick Cheney used to work for Halliburton before he took office, imagine if he’d worked there while in office, with legitimate authority to use his government power to favor his corporate employer and make as much money on the side as he wanted, and call in the Army and Navy to enforce his will. That picture gives you an idea of the position Robert Clive found himself in, in 1757.
He made out like a bandit. A full 150 years before American corporate barons earned the appellation “robber.”
In the aftermath of Plassey, in his dual position of Mughal diwan of Bengal and representative of the EIC with permission to make money for himself and the company, and the armed power to enforce his will, Clive did exactly what you’d expect an unprincipled and enterprising adventurer to do. He killed the golden goose. He squeezed the Bengal textile industry dry for profits, destroying its sustainability. A bubble in London and a famine in Bengal later, the industry collapsed under the pressure (Bengali economist Amartya Sen would make his bones and win the Nobel two centuries later, studying such famines). With industrialization and machine-made textiles taking over in a few decades, the economy had been destroyed. But by that time the EIC had already moved on to the next opportunities for predatory trade: opium and tea.
The East India bubble was a turning point. Thanks to a rare moment of the Crown being more powerful than the company during the bust, the bailout and regulation that came in the aftermath of the bubble fundamentally altered the structure of the EIC and the power relations between it and the state. Over the next 70 years, political, military and economic power were gradually separated and modern checks and balances against corporate excess came into being…
…As an enabling mechanism, Britain had to rule the seas, comprehensively shut out the Dutch, keep France, the Habsburgs, the Ottomans (and later Russia) occupied on land, and have enough firepower left over to protect the EIC’s operations when the EIC’s own guns did not suffice. It is not too much of a stretch to say that for at least a century and a half, England’s foreign policy was a dance in Europe in service of the EIC’s needs on the oceans…
…To read both books is to experience a process of enlightenment (The Corporation that Changed the World by Nick Robins and The Influence of Sea Power Upon History: 1660-1783 by Alfred Thayer Mahan). An illegible period of world history suddenly becomes legible. The broad sweep of world history between 1500-1800 makes no real sense (between approximately the decline of Islam and the rise of the British Empire) except through the story of the EIC and corporate mercantilism in general…
…The 16th century makes a vague sort of sense as the “Age of Exploration,” but it really makes a lot more sense as the startup/first-mover/early-adopter phase of the corporate mercantilism. The period was dominated by the daring pioneer spirit of Spain and Portugal, which together served as the Silicon Valley of Mercantilism. But the maritime business operations of Spain and Portugal turned out to be the MySpace and Friendster of Mercantilism: pioneers who could not capitalize on their early lead.
Conventionally, it is understood that the British and the Dutch were the ones who truly took over. But in reality, it was two corporations that took over: the EIC and the VOC (the Dutch East India Company, Vereenigde Oost-Indische Compagnie, founded one year after the EIC) the Facebook and LinkedIn of Mercantile economics respectively. Both were fundamentally more independent of the nation states that had given birth to them than any business entities in history. The EIC more so than the VOC. Both eventually became complex multi-national beasts…
…But arguably, the doings of the EIC and VOC on the water were more important than the pageantry on land. Today the invisible web of container shipping serves as the bloodstream of the world. Its foundations were laid by the EIC.
For nearly two centuries they ruled unchallenged, until finally the nations woke up to their corporate enemies on the water. With the reining in and gradual decline of the EIC between 1780 and 1857, the war between the next generation of corporations and nations moved to a new domain: the world of time.
The last phase of Mercantilism eventually came to an end by the 1850s, as events ranging from the first war of Independence in India (known in Britain as the Sepoy Mutiny), the first Opium War and Perry prying Japan open signaled the end of the Mercantilist corporation worldwide. The EIC wound up its operations in 1876. But the Mercantilist corporation died many decades before that as an idea. A new idea began to take its place in the early 19th century: the Schumpeterian corporation that controlled, not trade routes, but time. It added the second of the two essential Druckerian functions to the corporation: innovation.
II. Schumpeterian Growth and the Industrial Economy (1800 – 2000)
…The action shifted to two huge wildcards in world affairs of the 1800s: the newly-born nation of America and the awakening giant in the east, Russia. Per capita productivity is about efficient use of human time. But time, unlike space, is not a collective and objective dimension of human experience. It is a private and subjective one. Two people cannot own the same piece of land, but they can own the same piece of time. To own space, you control it by force of arms. To own time is to own attention. To own attention, it must first be freed up, one individual stream of consciousness at a time.
The Schumpeterian corporation was about colonizing individual minds. Ideas powered by essentially limitless fossil-fuel energy allowed it to actually pull it off…
…If the EIC was the archetype of the Mercantilist era, the Pennsylvania Railroad company was probably the best archetype for the Schumpeterian corporation. Modern corporate management as well Soviet forms of statist governance can be traced back to it. In many ways the railroads solved a vastly speeded up version of the problem solved by the EIC: complex coordination across a large area. Unlike the EIC though, the railroads were built around the telegraph, rather than postal mail, as the communication system. The difference was like the difference between the nervous systems of invertebrates and vertebrates.
If the ship sailing the Indian Ocean ferrying tea, textiles, opium and spices was the star of the mercantilist era, the steam engine and steamboat opening up America were the stars of the Schumpeterian era. Almost everybody misunderstood what was happening. Traveling up and down the Mississippi, the steamboat seemed to be opening up the American interior. Traveling across the breadth of America, the railroad seemed to be opening up the wealth of the West, and the great possibilities of the Pacific Ocean.
Those were side effects. The primary effect of steam was not that it helped colonize a new land, but that it started the colonization of time. First, social time was colonized. The anarchy of time zones across the vast expanse of America was first tamed by the railroads for the narrow purpose of maintaining train schedules, but ultimately, the tools that served to coordinate train schedules: the mechanical clock and time zones, served to colonize human minds…
…The steam engine was a fundamentally different beast than the sailing ship. For all its sophistication, the technology of sail was mostly a very-refined craft, not an engineering discipline based on science. You can trace a relatively continuous line of development, with relatively few new scientific or mathematical ideas, from early Roman galleys, Arab dhows and Chinese junks, all the way to the amazing Tea Clippers of the mid 19th century.
Steam power though was a scientific and engineering invention. Sailing ships were the crowning achievements of the age of craft guilds. Steam engines created, and were created by engineers, marketers and business owners working together with (significantly disempowered) craftsmen in genuinely industrial modes of production. Scientific principles about gases, heat, thermodynamics and energy applied to practical ends, resulting in new artifacts. The disempowerment of craftsmen would continue through the Schumpeterian age, until Frederick Taylor found ways to completely strip mine all craft out of the minds of craftsmen, and put it into machines and the minds of managers. It sounds awful when I put it that way, and it was, in human terms, but there is no denying that the process was mostly inevitable and that the result was vastly better products.
The Schumpeterian corporation did to business what the doctrine of Blitzkrieg would do to warfare in 1939: move humans at the speed of technology instead of moving technology at the speed of humans. Steam power used the coal trust fund (and later, oil) to fundamentally speed up human events and decouple them from the constraints of limited forms of energy such as the wind or human muscles. Blitzkrieg allowed armies to roar ahead at 30-40 miles per hour instead of marching at 5 miles per hour. Blitzeconomics allowed the global economy to roar ahead at 8% annual growth rates instead of the theoretical 0% average across the world for Mercantilist zero-sum economics. “Progress” had begun.
The equation was simple: energy and ideas turned into products and services could be used to buy time. Specifically, energy and ideas could be used to shrink autonomously-owned individual time and grow a space of corporate-owned time, to be divided between production and consumption. Two phrases were invented to name the phenomenon: productivity meant shrinking autonomously-owned time. Increased standard of living through time-saving devices became code for the fact that the “freed up” time through “labor saving” devices was actually the de facto property of corporations. It was a Faustian bargain.
Many people misunderstood the fundamental nature of Schumpeterian growth as being fueled by ideas rather than time. Ideas fueled by energy can free up time which can then partly be used to create more ideas to free up more time. It is a positive feedback cycle, but with a limit. The fundamental scarce resource is time. There is only one Earth worth of space to colonize. Only one fossil-fuel store of energy to dig out. Only 24 hours per person per day to turn into capitive attention.
It is fairly obvious that Schumpeterian growth has been fueled so far by reserves of fossil fuels. It is less obvious that it is also fueled by reserves of collectively-managed attention.
For two centuries, we burned coal and oil without a thought. Then suddenly, around 1980, Peak Oil seemed to loom menacingly closer.
For the same two centuries it seemed like time/attention reserves could be endlessly mined. New pockets of attention could always be discovered, colonized and turned into wealth.
Then the Internet happened, and we discovered the ability to mine time as fast as it could be discovered in hidden pockets of attention. And we discovered limits.
And suddenly a new peak started to loom: Peak Attention.