The Value of Money

[Maniac]

Originally posted by Chaos Theory
If your mineral production is large, then your minerals are worth less relative to energy.

Why's that?

Anyway, I'd say an interest of six percent is decent. That's more or less the return you get from a common action like harvesting two minerals with a crawler from a forest.

Edit: Btw, wasn't there a 50 credits per turn limit on interest?

[Chaos Theory]

You can't efficiently distribute a base's mineral production to other bases, or use it directly for purposes such as research. If you actually want ECs from your minerals, you only get 1 per 2. Later in the game, I find that I just can't use all my minerals, so I stockpile crawlers, for lack of anything worth building. I still like energy at that point, and ECs are still handy for probe actions and rushes at small bases. Thus, my minerals are worth less relative to my energy.

Originally posted by Maniac
Btw, wasn't there a 50 credits per turn limit on interest?

Never heard of that.

[Illuminatus]

Originally posted by Maniac
Edit: Btw, wasn't there a 50 credits per turn limit on interest?

That would be Civ3, Maniac.

[Straybow]

Originally posted by Chaos Theory

A recycling center rushed on the first turn costs the same as a recycling center rushed on the 100th turn. By definition, no inflation and no intrinsic time value.

Which one's worth more? The one on the first turn, of course. They both cost the same price in terms of ECs, so the ECs are worth more on the first turn than on the 100th. Therefore, if you hold onto ECs, they become less valuable: the essence of inflation.

Neither is worth more or less. If I have enough ECs to rush the recycler on the first turn it doesn't matter whether I have 1 EC left or 100. Next turn I will want to rush something, and then it will matter how many EC I have. But whether I had the money on turn 1 or obtained it on turn 2 doesn't matter. The money neither gains nor loses value between turns.

Once a base has a recycling center it can't build another one. A new base needs a recycling center, and now you compare the two. All the income from previous turns by the recycler in the first base is "sunk" and contributes nothing to the present or future value of the facility. Therefore the new recycler rushed in the new base has exactly the same cost and return as the earlier recycler.

Originally posted by Flubber
1 ec a turn is trivial even pretty much at turn 1. If you truly believe there is no time value to money, you would make the amounts significant. In your 100 ec economy, lets make it 50 a turn. So you lend me 50 a turn for 50 years and then I will return 50 a turn. All other things being equal, the guy with the money earlier wins.

. . and yes its not about the having of the money, it is due to what the money can buy... SO ??

That's my point. If the money is not enough to make or break a rushbuy it has no value unless you save it turn by turn until it can contribute to your capital. If it had time value even trivial amounts would make a difference over 50 turns, and the one who received the first 50 payments of 1ec would be way ahead because of the huge time interval involved.

[Straybow]

Chaos Theory, to answer your "real question" the only decision is whether you need the item now, or not. If it costs 100ec to rush production in base X, holding that money for one turn isn't going to make a difference unless the interest is sky-high.

If base X is producing an EB the returns are strictly financial, but there is also the factor that by rushing the EB this turn I get to start production of something else next turn. I will also weigh the production at base X (both the EB this turn and my planned production next turn) against the production at other bases.

If I have no facilities left to build at X other than EB, and no pressing need for new units, I will likely not bother to rush. If base X has my only Command Center and I need ground units, I'll rush the EB just so I can start production on the next rover or whatever.

The primary consideration is not time value of the money, but the opportunity cost of base production. So in my book you still need to think the other way around, as it were. Only capital has time value, money (in SMAC/X) does not.

[Chaos Theory]

Originally posted by Straybow

Originally posted by Chaos Theory

A recycling center rushed on the first turn costs the same as a recycling center rushed on the 100th turn. By definition, no inflation and no intrinsic time value.

Which one's worth more? The one on the first turn, of course. They both cost the same price in terms of ECs, so the ECs are worth more on the first turn than on the 100th. Therefore, if you hold onto ECs, they become less valuable: the essence of inflation.

Neither is worth more or less. If I have enough ECs to rush the recycler on the first turn it doesn't matter whether I have 1 EC left or 100. Next turn I will want to rush something, and then it will matter how many EC I have. But whether I had the money on turn 1 or obtained it on turn 2 doesn't matter. The money neither gains nor loses value between turns.

That's just another way of saying that your ECs won't depreciate enough by next turn for the returns from next turn's purchase to be less than those from a purchase this turn.

Once a base has a recycling center it can't build another one. A new base needs a recycling center, and now you compare the two. All the income from previous turns by the recycler in the first base is "sunk" and contributes nothing to the present or future value of the facility. Therefore the new recycler rushed in the new base has exactly the same cost and return as the earlier recycler.

How can you compare the two facilities, when you've already paid for the first and the second is still an option? The returns from your rec tank in the past will not cause it to contribute more in the future, but they're in your pocket.

Compare the value of purchasing a rec tank on turn 1, vs waiting to buy it on turn 10. Assuming you sit on your ECs, by turn 10 you're better off if you purchased the rec tank on turn 1. By the time you want to buy your second tank, it's later in the game and your expected returns may be less, so your return on investment for building or buying the tank is less.

Chaos Theory, to answer your "real question" the only decision is whether you need the item now, or not. If it costs 100ec to rush production in base X, holding that money for one turn isn't going to make a difference unless the interest is sky-high.

With the consensus for interest at around 5%, the 5 ecs you'd waste by delaying production a turn aren't a big deal, but they add up if you do this at every base, every turn. The only time you truly need a build is if it would grant you victory or potentially stave off defeat. Otherwise, it has a finite expected return dependent on circumstances. My poll is intended to discover the typical expected return.

If base X is producing an EB the returns are strictly financial, but there is also the factor that by rushing the EB this turn I get to start production of something else next turn. I will also weigh the production at base X (both the EB this turn and my planned production next turn) against the production at other bases.

Meaning that you compare your expected returns for various combinations of purchases, picking the best.

If I have no facilities left to build at X other than EB, and no pressing need for new units, I will likely not bother to rush.

Until rather late in the game, you can find something to do with your production. However, you describe discovering that your minerals have become worth less.

If base X has my only Command Center and I need ground units, I'll rush the EB just so I can start production on the next rover or whatever.

When you rush a facility, you aren't simply buying it, you're buying minerals. When the base is slated to produce something else in the future, you've bought a piece of it by buying minerals now.

The primary consideration is not time value of the money, but the opportunity cost of base production. So in my book you still need to think the other way around, as it were. Only capital has time value, money (in SMAC/X) does not.

Your phrase "time value" is unclear to me, but I'd say the primary concern is maximizing your expected return on investment. Holding onto ECs reduces your future expected returns, though they may still be higher than expected returns if you spend now.

[Straybow]

Compare the value of purchasing a rec tank on turn 1, vs waiting to buy it on turn 10. Assuming you sit on your ECs, by turn 10 you're better off if you purchased the rec tank on turn 1. By the time you want to buy your second tank, it's later in the game and your expected returns may be less, so your return on investment for building or buying the tank is less.

I won't try to counter you point by point for time considerations. This paragraphs demonstrates how you are wrong on three counts.

First, you've neglected that there are two sources of capital investment: minerals and ECs. By waiting you are allowing both minerals and ECs to accumulate. If you are building units rather than facilities the accumulation of minerals decreases the per mineral cost of rushing. This, of course, could indeed be offset by a high enough interest rate.

Second, under conditions of limited resources (early in the game or in warfare) the needs anticipated in future turns may outweigh the value of rushing a unit or facility now. Your assertion that "by turn 10 you're better off..." is not based on the time value of money, but on numerous unstated assumptions you've made about when and why you are rushing a rec tank (or whatever).

Third, it is impossible for the expected returns on a base facility to be less just because "it's later in the game." If that is your expectation, what is it based on? Not the game parameters but perhaps your strategies or something.

Rec tanks cost doesn't increase. Maintenance doesn't go up. In fact, later in the game there's a tech that changes rec tank from 1ec maint to free. The value of a min, nut, or energy unit may increase if other base facilities become available to multiply their effects. So what return is decreasing later in the game, in your view?

Please, if you are leaving out of your explanation some critical steps in your thinking process, fill them in.

Your phrase "time value" is unclear to me, but I'd say the primary concern is maximizing your expected return on investment.

But by definition not everything can be maximized. You are sacrificing cash reserves to bring capital on-line. You must state what one thing (or maybe two) you are attempting to maximize.

Time value is just exactly that: value relative to time. 1ec buys exactly the same on turn 1 as on turn 100. It has no time-variance in value in the absence of inflation.

[Flubber]

To me its much simpler-- take a simple example

In the very early game, I offer you 50 credits right now or 50 ten years from now-- Obvious-- take it now . . . can anyone dispute this?

If I make it 50 now or 75 ten years from now it might be a tougher call. the balance is the benefits now versus slightly greater benefits later.

Its subjective but you know that money now can allow the purchase of things that improve your inductrial capacity NOW

The assumption here is that you have something useful to build/buy. If you don't then money now is no more valuable than money later in the absence of interest ( except for any value you place on being able to rush things you don't want)

[Urban Ranger]

Originally posted by Straybow
No, capital has time value and money can buy capital.

If capital is not money (or equivalent) what is it?

[Urban Ranger]

Originally posted by Chaos Theory
This calculation is nontrivial, as it depends on circumstances and probability. Polling the market seems like a much easier way to get an approximate answer.

That's what a spreadsheet is good for.

[Chaos Theory]

Originally posted by Straybow

Compare the value of purchasing a rec tank on turn 1, vs waiting to buy it on turn 10. Assuming you sit on your ECs, by turn 10 you're better off if you purchased the rec tank on turn 1. By the time you want to buy your second tank, it's later in the game and your expected returns may be less, so your return on investment for building or buying the tank is less.

I won't try to counter you point by point for time considerations. This paragraphs demonstrates how you are wrong on three counts.

First, you've neglected that there are two sources of capital investment: minerals and ECs. By waiting you are allowing both minerals and ECs to accumulate. If you are building units rather than facilities the accumulation of minerals decreases the per mineral cost of rushing. This, of course, could indeed be offset by a high enough interest rate.

I've been discussing facilities rather than units because units are more complicated. The longer you wait, the lower the price per mineral, which often offsets the loss of return caused by waiting. I find that I avoid paying more than 2.5 ECs/mineral when rushing units.

Second, under conditions of limited resources (early in the game or in warfare) the needs anticipated in future turns may outweigh the value of rushing a unit or facility now. Your assertion that "by turn 10 you're better off..." is not based on the time value of money, but on numerous unstated assumptions you've made about when and why you are rushing a rec tank (or whatever).

You're right, I was assuming nothing dramatic had happened by turn 10, since it's unusual for serious problems to manifest so early. I assume you're rushing a rec tank to reap its returns of 1 nutrient, 1 mineral, and 1 energy/turn.

If you delay rushing a rec tank because you worry you might need the ECs in the future, you are placing a higher value on your expected future returns than your potential current returns, is all.

Third, it is impossible for the expected returns on a base facility to be less just because "it's later in the game." If that is your expectation, what is it based on? Not the game parameters but perhaps your strategies or something.

Rec tanks cost doesn't increase. Maintenance doesn't go up. In fact, later in the game there's a tech that changes rec tank from 1ec maint to free. The value of a min, nut, or energy unit may increase if other base facilities become available to multiply their effects. So what return is decreasing later in the game, in your view?

Please, if you are leaving out of your explanation some critical steps in your thinking process, fill them in.

First, rec tanks never cost anything to maintain. Apart from that, rec tanks built late in the game will yield returns for a fairly short period of time before the game end, thus their expected returns are less. It's why players tend to stop building bases even when they could cover the planet in drop singularity colony hovertanks.

Your phrase "time value" is unclear to me, but I'd say the primary concern is maximizing your expected return on investment.

But by definition not everything can be maximized. You are sacrificing cash reserves to bring capital on-line. You must state what one thing (or maybe two) you are attempting to maximize.

One thing: expected sum future discounted return summed over your empire:
r = a fair interest rate, expressed as a fraction (say, 1.05)
sum over empire( sum over time( r^-t * income(t) ) )
Where t = 0 is now.

Income may be a vector, since some quantities are hard to measure in terms of energy, in which case I'd want at least some non-dominated sum return.

Time value is just exactly that: value relative to time. 1ec buys exactly the same on turn 1 as on turn 100. It has no time-variance in value in the absence of inflation.

Early in the game, if someone drops 1000 ECs on you, you'd have a hard time spending it, though it would be a huge boon. Later on, but before the end of the game is looming, you could get much better immediate returns on the ECs, through such things as genejack factories, fusion speeder crawlers, satellites, and so forth. So it seems that an EC can buy more later in the game, but what this really means is that ECs can buy more after sufficient investment. Holding on to ECs in general delays being able to spend them for greater gain. Assuming you spend your ECs wisely, this can look like interest on your empire's value.

[Straybow]

Originally posted by Urban Ranger


If capital is not money (or equivalent) what is it?

In real life money is considered directly exchangeable with capital because the modern marketplace has high liquidity. Traditionally, capital is physical items used for the production of goods and services. A subclass is fixed capital, anything which is not consumed in the process of production or service.

In a game like this resources are consumable capital (nuts, mins, energy). Facilities plus crawlers would be fixed capital. I suppose Colony modules would be capital, too. Vehicles and equipment generally are not, they are expendables. Their purpose is to protect the capital.

[Maniac]

Or acquire someone else's capital...

[Commy]

Where's Ned, we should ask him...

[Leon Trotsky]

A friend of mine made a personal faction which included:

^-20% of the treasury every year: {Money trashed in useless things}
^Production hurry 80%: {Jokers are good at improvisation}

He claimed that those would balance, as he wouldn't be able to save the money he required to do the hurry. My answer was that nobody wants to save credits in SMAC (except if pursuing an economic victory), and there are always in-turn sources of income (mindworms, diplomacy, pods, etc). What do you think about it?