The Inflatron, page 2: Devaluation
- page 2 -
Devaluation
May 9, 2008
Let’s revisit the balance of payments.
**- Blue Player: -10,000 **
**- Red Player: +15,000 **
**- Green Player: -35,000 !! **
**- Yellow Player: +30,000 **
Here is the Green Player’s import and export table:
Green Player:
Income: 20,000 red, 20,000 yellow. Total: 40,000
The Green Player can now consider devaluing their currency by a certain percentage x—for example, 0.8.
The green bill would then be worth only 0.8 red, or 0.8 blue, or 0.8 yellow. Residents of the Green country would pay 20% more for imported goods. Conversely, green goods would become 20% cheaper for importers from other countries. Devaluation would thus stimulate the Green country’s exports and slow down its imports. By how much? A good question.
We can only simulate this phenomenon. For example, schematically, we might apply the following (which in no way constitutes an economic law):
If a player devalues their currency by x%, we can assume their exports will multiply by 1.2 and their imports by 0.8. We must then revise the amounts on the relevant squares. For the Green Player, all "green on top" and "green on bottom" squares would have their values adjusted:
The Green balance has not turned positive, but it is significantly improved. Here is the updated overall table:
We have highlighted the amounts that were modified.
Green enterprises that rely on exports will get a "breath of fresh air." On the other hand, Green citizens will not appreciate paying 20% more for imported goods.
One sector that benefits from a devaluation is tourism, since residents of the devaluing country will find their stays in Red, Blue, and Yellow countries 20% cheaper.
This re-balancing will affect the balances of all other players:
Blue Player:
Little effect on the Blue Player. They were only weakly linked to the Green Player through their import-export activities. Only one square—square 14—is affected. Meanwhile, the Red Player suffers. Their balance of payments turns negative.
Red Player:
Thus, we see that if a country devalues its currency, this will have a significant impact on those with whom it is strongly economically linked. The game’s randomness might cause two countries to be highly interdependent. Then, the devaluation of one country could so disrupt the other that the latter must also devalue. This is the spiral of chain devaluations.
We thus see that the monetary system inherently contains instability. This game illustrates a number of mechanisms, but it will only truly come alive when you play it yourself. Do not mistake it for a faithful reflection of real-world economics. It is merely a "toy model" designed to highlight certain mechanisms. I therefore call upon readers to collaborate in improving it.
We previously introduced "fixed annual costs," identical for all players. These include all expenses, including wages. There is no reason why these costs should weigh equally on the four "countries," nor that their initial capital should be identical. You can thus experiment with different parameters: introduce different initial assets, allow "poorer" countries to have lower wage costs, resulting in lower annual fees.
All of this is meant to be experimented with.
At this stage, there are only four players and 26 squares, two of which are currently "silent." It is unrealistic to expect to capture all facets of the real economy with such a schematic representation. I recall that when we played Inflatron some... 40 years ago, we imagined that bankrupt players could be "bought out" by others through an auction system. Let’s suppose the Blue Player "buys out" the Green Player entirely. The Blue country then becomes a "satellite" of the Red country. The Blue currency transforms into Red currency. The acquisition of the "bankrupt country" may bring advantages, for example, the ability to recover a population with lower wages (thus reducing annual costs). Etc.
I have no idea how to incorporate "oil" into this game. A richer game would naturally feature profit rates rather than fixed amounts, which quickly lose meaning. These profit rates could correspond to different sectors of activity, which may be more or less affected by specific events (e.g., an "oil shock").
What is a true "bank"?
In such a game, it’s difficult to have as many banks as there are countries, but introducing a fifth player representing "transnational capitalism" would be useful. For the game to function properly, more players would be needed. The bank would then allow depositors to entrust their capital to it. With these liquidity reserves, the bank could exert stronger pressure to seize free squares or acquire those of struggling players. In exchange for this financial "muscle," the bank would provide returns to its shareholders. If the dividends paid meet players’ expectations, they will be tempted to increase capital flows toward this bank.
But this is precisely where we must attempt to simulate the kind of control seen in many videos—control achieved simultaneously through the issuance of "money," a "virtual currency" in the form of loans to struggling countries.
I must now stop this presentation of the game. There are too many other urgent matters based on documents provided by readers. I must synthesize a lecture from an INRA expert explaining the surge in agricultural prices.
INFLATRON is a project I am sharing with you. It is improvable. To do it well, people would need to program, exchange ideas, and play together. It doesn’t seem impossible, as with chess, to simulate the behavior of virtual players. It requires some thought, but it’s an interesting challenge. We could then create imaginary economies and observe emergent phenomena by adjusting parameters.
You know that computers can play against themselves in chess—not just by accessing a database of past games, but by using evaluation functions. This can produce sometimes surprising moves. Once a computer program has finished analyzing standard elements—pieces under threat, and other questions a player considers at each move—it must choose among a small number of possible moves.
Historically, early chess program creators, when the machine had to choose between seemingly equivalent moves, were encouraged to pick the one that maximized piece mobility. This led to surprisingly intelligent choices.
I once worked in "decision theory." This game offers material for developing something in that direction. But I have other urgent tasks. There’s low-density MHD to develop. There are information to disseminate. Inflatron is a message in a bottle. Whoever wants to pick it up, please do.
It’s like "ANTIBABEL," which no one has picked up. Too bad.
I am a bottle-launcher at sea
May 10, 2008 Jean-Pierre Petit