RW inflation
jlrogers, with all due respect I must quality your qualification. In the real world, inflation is not a function of capitalism, pop growth, or any such. It is a simple effect of the money supply growing faster than the production of goods and services.
In capitalism, goods and services grow faster than in any other system; this on the order of perhaps 2%/year. Perhaps more or less, depending on the level of socialism of various forms in the society (taxation, regultion, etc.). Only knowing the rate of increase of productivity, an economist would expect a fixed money supply to deflate at 2%/year.
But of course, the supply of money is not fixed.
The inflation that we moderns see is almost completely an effect made possible by fiat money. Banks, in essence, make up money out of thin air. This seems somewhat amazing at first glance, but then how much more amazing is it that by changing a number in a computer you have more money, than by printing a little paper placard?
Gold-weight money has always been impossible to intentionally inflate in the long run; however, to the extent that the banking system is large and integrated it can take a very long time for the long run to come around and bite the banks. Historically, one fruitful way of looking at the history of banking is as a struggle of the banking elites to escape the limits of gold-weight so that they could inflate.
In any case, all that is just to address the issue of what inflation in the modern world is. In the EU time frame, there was little or no paper money. What inflation there was, was due to two primary causes.
One, which is modelled in the game (though I don't know how well), is the effect of large influxes of gold and silver from the new world. The effect of this would have been to enrich Spain while impoverishing everyone else.
The other chief cause of inflation in the EU time frame, was intentional inflation by a royal mint. A king would decree that all the old money in the kingdom should be recalled and recast; in the recasting they would decrease the amount of gold in the coins. The king kept the difference, of course, thereby enriching himself at the expense of all of his subjects. This process is called debasing the currency.
Currency debasement was a widespread effect in the middle ages. Quoting Rothbard: "in 1200, the French livre tournois was defined as 98 grams of fine silver; by 1600 it equaled only 11 grams. ... A particularly striking case is the dinar, the coin of the Saracens in Spain. The dinar, when first coined at the end of the seventh century, consisted of 65 gold grains. The Saracens, notably sound in monetary matters, kept the dinars weight relatively constant, and as late as the middle of the twelfth century, it still equalled 60 grains. At that point, the Christian kings conquered Spain, and by the early thirteenth century, the dinar (now called maravedi) had been reduced to 14 grains of gold. Soon the gold coin was too lightweight to circulate, and it was converted into a silver coin weighing 26 grains of silver. But this, too, was debased further, and by the mid-fifteenth century, the maravedi consisted of only 11/2 silver grains, and was again too small to circulate."
As for the effect of governors or any such state action on inflation: forget it. If anything powerful states cause inflation, not the reverse. Historically, price levels have almost never dropped. However, inflation is also not as ruinous to the sovereign as EU models it. If from 1500 to 1600 you got a 100% increase in the price level in, say, England, it did not mean that the king effectively had his tax income halved. Rather, taxes would have been increased to a suitable level, and the king's income would be largely unaffected.
The real effect of inflation (if EU wanted to model it right), in the EU timeframe, would be to hurt the middle classes and the rich. (The poor mostly did not have any money.) So, inflation should reduce your prosperity level. It should also do something like eliminate some of your merchants each year. And it should raise the unrest level generally in your nation. It should also raise the price levels of things; that is fine; however, that should include tax income. Finally, the option to debase should be under player control. Each time you do it, you cause inflation but you also score a large gain to the treasury, proportionate to the size of your economy.
