While everyone else is waiting in line to check out Kristen’s MySpace page, we at the Antitrust Review keep offering wholesome nerd fare such as Paul Krugman’s 1978 Theory of Interstellar Trade. (HT: /.) The 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 derived. … It should be noted that while the subject of this paper is silly, the analysis actually does make sense. This paper, then, is a serious analysis of a ridiculous subject, which is of course the opposite of what is usual in economics.

The First Fundamental Theorem of Interstellar Trade is:

When trade takes place between two planets in a common inertial frame, the interest costs on goods in transit should be calculated using time measured by clocks in the common frame, and not by clocks in the frames of trading spacecraft.

Indeed. For further elaboration I suggest that the reader turn to Alastair Reynolds Revelation Space universe and to Ken MacLeod’s Engines of Light trilogy. Frank Herbert, on the other hand, cheated his way out of the problem with FTL travel, which Krugman rightly dismisses.

That brings us to the Second Fundamental Theorem of Interstellar Trade:

If sentient beings may hold assets on two planets in the same inertial frame, competition will equalize the interest rates on the two planets.

The upshot is that interstellar trade can be viewed as long-term investments, similar to 17th Century merchant capitalism. Interestingly, Krugman remarks that:

Recent progress in the technology of space travel … raise[s] the distinct possibility that we may eventually discover or construct a world to which orthodox economic theory applies.

But what if the rate of innovation within the inertial frame makes any estimate of the value of goods in transit a wild guess? In that case, interstellar trade might not be trade in new goods but rather in antiques, a possibility that Cory Doctorow considers in his short story Craphound.

Technorati Tags: economics, SF, interstellar trade

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