Theory of Interstellar Trade

Those who know me know of my obsession with three topics: pirates, illicit economic activity and Star Trek. Let's just say I was a bit giddy earlier this afternoon when I read this post over at the Faculty Lounge discussing a new article in the journal Economic Inquiry by Paul Krugman titled "The Theory of Interstellar Trade."

In P-Krug's piece he mainly engages how interest on transactions should be calculated when transit time calculations differ between those on the planets that are trading the goods (buyer and seller) and those on the warp-capable starships moving the goods being traded.

So you'd realize how this directly caught my eye. The United Federation of Planets is no doubt engaged in economic activity with other worlds so Federation-based exports would be affected by these interest calculations (i.e. Earth trading with Kronos pre-26th century). But it also has ramifications for inter-Federation trade (i.e. when a person on Earth trades goods with those on Vulcan or Andoria). Money is obsolete by the late 22nd century in most of the Federation but no doubt that interest is still used and applied on transactions so some sort of conversion system would be needed by those trading goods across the universe.

P-Krug seeks to answer that question. In his words:

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.

Krugman settles the question by laying out the "First Fundamental Theorem of Interstellar Trade":

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

For his reasoning and how he arrives at this first theorem, and how competition can equalize interest rates on two planets involved in trade (his second theorem), hop over to EI and check out the article.