Matt Yglesias weighed in to the whole “how does the Star Trek economy work” thing. This followed on a long piece by Rick Webb. I think when it comes to juxtaposing knowledge of economics and knowledge of Star Trek, I am in some position of authority here so I had better put in my two Credits worth.
The argument centres around, is the Federation a market economy or not? It has private property (including businesses), some considerable public expenditure (e.g., StarFleet and that Terrestrial Weather Control system can’t be cheap) and an absence of money for most transactions within the Federation. And then, of course, there are replicators. These essentially convert energy into matter to create any material good you want. It is this last innovation that usually has people unstuck.
The key to thinking about the Star Trek economy is to actually start with the “what happens when many goods become free” issue that was raised by James Surowiecki in the New Yorker yesterday. There is a problem with measurement when it comes to those goods and services. Put simply, the way we measure economic activity is to use the unit of account that is provided by money. However, when products do not involve the exchange of money, we have trouble measuring their worth. At one level, this merely highlights that we have trouble measuring value per se as even non-free goods involve value in excess of their monetary cost, but, at another level, there is a lack of price signals about economic allocation and that makes it hard to work out what is driving resource allocation there.
In Star Trek, most economic value is created by essentially free goods. That is the simple explanation as to why we don’t see money exchanged. That is the point of free. But more to the point, one has to think about how much is free in terms of allocations. Researchers on happiness like Justin Wolfers, in my reading, seem to indicate that once we have about $100 million in wealth (based on today’s goods), that is about as happy as people can get. Marginal utility is effectively zero in wealth beyond that point. In Star Trek, at least the closer you get to Sector 001 (or the Solar System), everyone has what, in today’s terms, would be $100 million or more in wealth. The free goods that are provided from housing to technology to services and to Earth and Earth orbit transportation are what would $100 millionaires can get today. They may be the very same humans who are motivated by wealth acquisition as we have today but the economic problem of “not enough to go around” has been solved up to the level of a saturation point.
The Star Trek world is in the Keynes “Economic Possibilities of Our Grandchildren” era. Scarcity has moved from material goods to other things. For instance, as Ken Arrow pointed out to me 20 years ago when we were having precisely this conversation (!), “the Enterprise is still scarce.” That is, not everyone can have their own starship. Want to do that and you have to control some wealth so you can acquire resources to do that. There clearly is some broad inter-governmental trade that is afforded by larger projects and more advanced technologies and that itself will provide a rational for a Federation-wide medium of exchange — hence, Federation Credits. That such Credits also find themselves into the hands of Federation citizens is also not surprising even if they don’t have to use them except when they go abroad.
So what of the small businesses that apparently the father’s of starship captains disproportionately run? (The other occupations for captain’s parents are either Starfleet admirals or scientists). If this is how those people get money to access the services of their public servant counterparts, then the cost of a French bottle of wine (non-replicated) runs in the millions of dollars in today’s money. In other words, Yglesias and Webb (like many others) seem to mistake simple, long-standing artesian businesses with low revenue. Instead, their long-standing and increasing scarcity implies a much, much higher price. It is just that their wealth isn’t relatively high so they don’t flaunt it.
Of course, this analysis here is really pre-Wolf 359 (the first Borg invasion). Following that and with on-going threats, the Federation turned towards massive allocation of effort towards defence. This is not unprecedented. It did the same likely after the Xindi attack and also classically with the Klingon and Romulan threats leading to less than a century of relative peace. The defence appropriation was enormous. Thousands of starships were produced in a matter of years. That couldn’t have been easy and likely sent ripples throughout the whole Federation economy. In other words, while all this was written in the 1990s, the Federation looked more like a post-911 economy during that era.
There are puzzles though. First, there is a distinct lack of waste in Star Trek. One would expect that there would be more baseline inefficiency given the abundance of material goods and services. Perhaps it isn’t seen as waste because you can’t waste free goods. Second, there is a lack of robots in Star Trek. This is, in fact, as my co-blogger Erik Brynjolfsson would point out, the biggest miss of the Star Trek future. After all, they have great computers capable of AI like holograms and also a highly skilled android but otherwise people are still crawling through jefferies tubes and making their own repairs. Seems implausible. This is where Star Wars seems to have a leg up in the future vision stakes as their are robots everywhere. But Star Wars has always had better economics, it is the political economy that makes no sense.
In conclusion, the Star Trek economy is a well-defined general equilibrium production-exchange economy with a large government presence. It is, therefore, capable of analysis using the tools of neoclassical economics. There is no need to dress it up any other way.