Trading Distances: Economics in Space

I just came across a wonderful article via the website Paul Krugman, Nobel Prize Winner And Failed Psychohistorian. Earlier today, Krugman was awarded the Nobel Prize for Economics, taking him completely by surprise. Given that io9 is a website that deals with Science Fiction, it’s a slightly weird thing to talk about there, until you take a look at the article, which provides a line of links to one of Krugman’s early articles: The Theory of Interstellar Trade. (This is not why he won the Nobel though.)

The paper’s abstract is as follows:

This paper extends interplanetary trade theory to an interstellar setting. It is chiefly concerned with the following question: how should interest charges on goods in transit be computed when the goods travel at close to the speed of light? This is a problem because the time taken in transit will appear less to an observer traveling with the goods than to a stationary observer. A solution is derived from economic theory, and two useless but true theorems are proved. (1)

First, call me a nerd, but this just sounds fascinating to me. Reading through the paper (which you can download here, through Princeton’s website) it has a number of theorems that make a bit of sense, especially since you can essentially remove the technical aspect out of the equation and just ignore it for a little while.

The main issue that he takes up is how much would items cost when transit times vary depending on the observer – a passenger on a ship going the speed of light would be traveling for relatively less time than someone waiting for their package to arrive, and thus, when interest is applied, you would essentially have two different figures, which I imagine could (and probably will someday) cause problems when you decide to cop out on interstellar delivery services. This problem, Krugman, explains, is solved by calculating the interest levels from relative time frames – basically, something that’s not affected by relativity, assuming that parties on both planets can decide on the same time zones. (1)

The decision comes with the second theorem of the paper: “If sentient beings may hold assets on two planets in the same inertial frame, competition will equalize the interest rates on the two planets” (2). So, prices will remain competitive between planets, and thus allow for common points of trade.

What fascinated me more was another point that he raised: “Because interstellar trade will take so long, any decision to launch a cargo will necessarily be a very long term investment project, and would hardly be conceivable unless there are very extensive future markets.” (3) This point makes the most amount of sense to me – mathematics and everything aside – this paper presented trade in interstellar settings – something that has been seen in numerous works of Science Fiction – in a very new way for me. I’ve never really considered how interstellar cargo trips would be financed, other than major corporations or governments, at least not down to smaller details such as this. It has also never occurred to me that given the distances, any space pilot with a cargo hold could lose out on a lot of capital because by the time he arrives in his destination port, the inhabitants have already moved on to other, cheaper or easier markets, leaving him stranded high and dry with something that he can’t unload without incurring a huge loss.

The idea of corporate space travel isn’t something that’s wholly new – my thoughts on the matter essentially boil down to the US replacing NASA’s mission with one of oversight and placing the entire business of exploring new worlds to people who are willing to do the legwork and not leave taxpayers hanging. Robert Heinlein has some views along these lines (more libertarian), particularly when it comes to the book The Moon is a Harsh Mistress. Isaac Asimov also has some good short stories on corporations in space, which makes this idea somewhat plausible, at least in theory. A couple other books that I’ve read, most notably, Elizabeth Moon‘s Marque and Reprisal and Trading in Danger have this view, although they don’t nearly go into this level of detail.

Mainly, I think that it’s somewhat funny to be able to point to an article such at this and know that the guy behind it knows somewhat what he’s talking about, but also because it fits firmly within my own vision of the future, namely that private interests will rein in outer space, but now, I have a basic set of rules from which they will most likely be governed.

1 – Paul Krugman, The Theory of Interstellar Trade, (Yale University, July 1978), 1
2 – Ibid, 8
3- Ibid, 11
4 – Ibid, 3