Combating Inflation

Following Covenants, say your covenant spends £150 per year for five years. By this point, your expenses is going to be £5 higher from here on out, even if you reduce your expenses to less than £100 per year. What does it take for the damage from inflation to go away? Correct me if I am wrong to infer that inflation is cumulative, as that will answer my question if I am.

Covenants p.65 Inflation provides only a very rough "rule of thumb" guideline. Trying to parse it for info on how to reduce accrued inflation is besides its point, and at your own risk.

Cheers

Technically you can deflate the economy just by ripping a lot of silver out of it, but that's only a technical deflation in the sense that, against any basket of goods, silver is worth more. The problem here of course is that the Mythic Pound isn't actually silver specie, it's a unit of account for purchasing power in a primarily barter economy. Which means you unit of account still floats free, it just makes remittances cheaper for people who actually hold specie.

You could also effectively deflate the coinage by making the goods which are generally purchased with the specie substantially cheaper, although again this is basically an accounting trick. Computers, for example, put substantial deflationary pressure on the price of consumer goods in our modern economy.

I'd also note that deflation is a really, really, really bad idea which leads to peasant revolts. The reason for this is basically that inflation makes your debts cheaper unless they have been structured to hedge inflation. Debts in time are immune, but a lot of nobles, short on cash for war or lifestyle, remit those to cash payments, and inflation erodes that over time.

A more positive way is to up the consumption demand in your economy. If the surplus you make is consumed (as a higher standard of living) or traded out of your immediate area, that soaks up some inflation.

If your covenant offers something new on the surrounding 'market', by simple logic this would not be affected by the accrued inflation. So it might reduce its effect on the covenant finances, which Covenants p.64ff models.

Cheers

The cumulative effect of past inflation (towards current and future expenses) is like decrepitude, once accrued you can't get rid of it!
What you can do, however (in addition to avoiding accruing further damage) is create a new source of income.

One way to control the increase of, or even decrease inflation would be to expand your local economy or your trading distance. For example, when Oculus Septentrionalis weaves the Hanseatic League together, they'll be able to spread their biz around the entire Baltic and North Sea, which will be able to absorb much more covenant expense than just Lubeck.

Um, this is Ars Magica, right? You summon the local Spirit of Inflation and bind it into a circle. No more inflation! Alternatively, use PeTe magic to destroy excess silver in the economy (preferably the excess silver of your enemies, because you hate those guys).

Interesting thought, in some tribunals you are prohibited from creating more than 2 lbs of silver per year per magus, but there is no limitation on how much you can destroy (or for that matter steal, but that tends to get you involved with mundanes)- an arcane connection to a treasury an PeTe the money supply after building up a reserve yourself and voila- income via deflation!

You don't even have to destroy money; anything that can be bartered is valuable, so reducing supply of bartered materials is the same as destroying the money.

I don't really see the point of tracking price inflation. Unless the Covenant is significantly richer than a mid-level noble the local inflationary pressure will be no more than that cause by a rich manorhouse. Since manors and castles are scattered about Mythic Europe, price changes are just background noise barring exceptional story events.

Although I do like the idea of literally binding "the demon of inflation"! Now THAT could be a good story!

And this is where the concept of inflation really hits its head on the wall, because 1) this is primarily a barter economy and 2)inflation is about the rising cost of goods in terms of hard currency.

Which is why there is so much talk about increase or decrease in the money supply, when what we are really looking at is the devaluation of money as a medium of exchange- a medium of exchange which is largely not even being used in most parts of Mythic Europe (YSMV).

If the value of salt pork goes up that will benefit pig farmers or salt miners but be of detriment to anyone who wants to buy salt pork. If the value of salt pork and Lentils go up the lentil farmer and the pig farmer may not even fluctuate when trading with each other. The idea of an across the board inflation makes no sense for a Mythic Europe setting.

Covenants p.65 Inflation adresses the typical erosion of the value of trade goods, of which the covenant pushes lots into the local market. For this to happen, no silver coinage needs to be involved at all, but just some market glut.
The chapter makes clear, that it does not provide economical modeling, but just a rule of thumb for quick evaluation. If you like to detail the economy around your covenant any better, you are welcome to your homework.

Cheers

Realistically the inflation should have a limit, and should probably be modeled on a decrease in income rather than an increase in costs. The depreciation due to a new good being produced tends to have a fairly low ceiling, especially in the case of effectively a land management situation where someone else was likely already producing the same good prior to your involvement.

Realistically what it provides is an incentive for the magi to have ongoing concerns about the management of their covenant as costs rise and income has the potential to drop.

Covenants p.63 Inflation addresses local spending of a covenant at a value of a hundred pounds silver or more per year. Taking over existing local productions of such value tends to be a kind of revolution, like ousting some baronets. This risks labeling as 'mundane interference' at Tribunal, and is not typical for the founding of a covenant. It is possible, though, with solid mundane and Hermetic preparation: Triamore (GotF p.47) is an example.

There are many other kinds of covenants. Oculus Septentrionalis (GotF p.70ff), whose magi act economically on a supra-regional or even European scale, is certainly not affected by the Covenants p.63 Inflation rule of thumb. These magi need to coexist with the other merchants and the Dominion of Lübeck instead.

Cheers

EDIT: If a covenant has a companion who is a capable merchant and regional trader, this companion may prevent local market glut for covenant products. He will also have to recover hauling expenses, and wish to make a little extra profit off the top.

To that degree, establishing a new covenant anywhere and generating income could be seen as interference with mundanes. The fact is that the economics in Ars Magica is extremely unrealistic, both in terms of how actual medieval economies operated and in term of the simple math where frequently a craftsperson makes more money manufacturing then the items they can make in that time period sell for.

That depends - among other things - on where the covenant is established, and which mundanes' income it takes away.

'Interference with mundanes' is arbitrated by the Tribunal, and persecuted if it looks like it might cause trouble. Usurping the income of some minor nobles requires significant work by the would-be covenant founders, to assure that neither nobility nor sodales feel threatened.
E. g. ArM4(!) Triamore has a very complex backstory, before it arrives at its state in 1220: warily watched by the Quaesitores and the count of Namur, but not marched or besieged.

Cheers

ArM5 is not, and was never meant to be, a simulation of medieval economics.

With regard to someone on this forum and the quality of his arguments on economics, take a look at https://forum.atlas-games.com/t/e-mail-verification/172/1 again, and how he got there. So we shouldn't repeat that.

Cheers

After being established, why should a covenant cause inflation? They are a normal part of the economy at that point.

I can see it happening if they're introducing new money into the system (conjured silver or a silver mine), but otherwise?

Remember, inflation in Ars Magica is an abstraction. Magi have the potential to achieve dramatic and sudden increases in productivity in certain areas, and due to the greedy nature of magi, this is often quickly accompanied by increases in costs within the covenant... Which in some cases leads to more sudden increases in some area's productivity, because that's how magi roll, but generally just means pulling in a lot more of some resource. Suddenly they've added a lot of extra grain to the economy and pulled an equally enormous amount of iron from the local mines. Grain prices go down, reducing the impact of the aforementioned increased grain productivity, while iron prices skyrocket. People still need iron and iron tools, and now that those are more expensive, they have to make everything else they produce a little more expensive so they can afford the iron and tools they need.

Again, it's really simplified, but remember, this is also measuring very gradual long-term price trends, not the normal month to month fluctuation in the value of a given good. In-game inflation is measured, and changes, in terms of years.

A covenant, that introduces new products with a value of over 100 pounds of silver per year to a local medieval economy, needs quite some time and effort to become established as a normal part of that economy.
Covenants p.65 Inflation provides a simple rule of thumb for the price of not making that effort, if you do not wish to make it a part of the saga to be played out in more detail.
If your covenant already exists for a century or two, and you decide that in its past it already made the needed effort to 'fit in' economically, you can also disregard that chapter.

Cheers