Economics of Westeros

House Keynes

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John Maynard Keynes

Before we talk about the Keynesian model, let’s talk about the history of Keynesian thought and how it can be applied to Westeros.

British economist John Maynard Keynes developed his system of economics during the 1930s in an attempt to describe and understand the Great Depression. The two main pillars of what would become known as Keynesian economics are centered around increased government spending and lower taxation. Keynes believed that these two measures would stimulate demand and pull the worldwide economy out of the depression. 

Since the 1930s, Keynesian economics has remained a popular school of thought with many economists believing that it accurately described the catalyst for the Great Depression: An unsteady system of demand that resulted from dramatically low government spending prior to that infamous Tuesday in October of 1929 (Thanks Hoover). 

Variables of Keynesian Economics (The Keynesian Cross Model)

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The General Theory of Employment Interest and Money

The major variables of the Keynesian equation are as follows:

  1. Consumption
  2. Planned investment
  3.  Government Spending
  4. Net Exports

These 4 variables combined equal what is called Aggregate Expenditure. When in equilibrium, Aggregate Expenditure will be equal to GDP. 

Results in Changes to Variables

The model is in equilibrium when planned expenditure is equal to GDP. If GDP is less than planned expenditure, aggregate demand is greater than what is actually being output. In contrast, if GDP is greater than aggregate demand, producers are overproducing and there will be excess goods, which will be put in as inventory. You can see these relations on Figure 1, below. 

The vertical line denoted as “potential GDP” represents output if 100% of the labor and capital force were optimally producing (it’s a theoretical constraint). “Aggregate Expenditure” again represents consumption and “GDP” represents output. Where the two intersect (AE^0 and Y^0) is the point of equilibrium at which consumption matches output. 

Figure 1

The evaluation of demand-side economics that surrounds the Great Depression transitions seamlessly to the suboptimal economy of Westeros. It should be noted that demand is representative of all people “willing and able” to purchase goods and services. In medieval societies, there are plenty of people “willing” but not as many that are “able”. In brevity, people with no ability to purchase goods and services are nearly exogenous to demand past their autonomous consumption (things they must consume to continue living). 

This is a systemic issue with feudal societies that don’t have the physical or financial infrastructure to support more consistent demand levels, and it is bad for all parties involved, including suppliers. Many of the proposals in this essay series will be centered around employing a higher percentage of potential demand. 

Major Economic Problems Facing Westeros

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The Iron Throne by Marc Simonetti

While Keynesian economics accurately described how low government spending turned into a catalyst for the Great Depression, it can additionally be used to describe economic inefficiency in the Seven Kingdoms. The economy of Westeros faces many fundamental challenges including the lack of a liquidity vendor, debts, inefficient demand cycles, and improper population distribution. 

1.) No Central Bank

There is no central lending system in Westeros. As can be seen in our above equation, Planned Investment is a variable of Aggregate Expenditure. With no central lending system, investment in the Westerosi economy is naturally lower than it would be with a central lending system. A central bank would additionally lead to the growth of business that would have a new source of funds to invest in new opportunities.

Additionally, the lack of a central bank has left Westeros at the mercy of foreign lending agencies such as the Iron Bank of Braavos, and self-interested internal lending agencies such as the Faith of the Seven and wealthy major Houses. Which leads us to our next problem.

2.) Debts

Petyr Baelish by Hao Zhang

“The Crown is more than six million gold pieces in debt.. The Lannisters are the biggest part of it, but we have also borrowed from Lord Tyrell, the Iron Bank of Braavos, and several Tyroshi trading cartels” (AGoT Eddard IV).

The second major issue facing the Iron Throne is debt and debts. In A Game of Thrones, Ned is informed by Littlefinger as to the nature and depth of the crowns debt crisis. While the crown has been in debt in the past, these sums appear to be primarily from the rule of King Robert I Baratheon, propagated and borrowed by Master of Coin Petyr Baelish.

Much has been written about how much of these sums were purposefully borrowed by Petyr Baelish to achieve the end of weakening the crown in the long run. This assertion appears to be mostly accurate so I won’t be going into that here. Instead, we’ll focus on how the borrowed money is behaving and exactly why it’s a problem. 

In A Storm of Swords Tyrion IV, Tyrion thinks that the “crowns incomes are ten times higher than they were under Aerys.” While the claim of “ten times higher” is possibly an exaggeration, the fact remains that Littlefinger’s borrowing system has had an effect on the economy — a Keynesian effect. Government spending in investments resulted in increased revenues.

However, we also know that despite massive increases in Government revenue, that sum is barely covering the usury (interest) on their loans. 

This indicates two main assumptive problems with the crowns debt:

  1. Petyr Baelish likely agreed to loans from the Iron Bank (and potentially House Lannister and the Faith) with unreasonably high interest rates. This explains why, despite massive factor increases in crown incomes, they are barely outpacing the interest they owe. 
  2. The ventures Petyr Baelish “invested” much of this money into are not leading to a Multiplier Effect within the economy.

The Multiplier Effect is an effect in economics in which an increase in spending produces an increase in national income and consumption greater than the initial amount spent. Essentially, Littlefinger’s investments are not actually increasing economic consumption on a macro scale despite increasing The Crown’s incomes. 

Let me use an example to explain this: The crown provides 20,000 Golden Dragons to build new roads around the Seven Kingdoms. While the initial cost is 20,000GD, that money is paid to the suppliers of materials and labor. That money is then spent by those it was paid to for other goods and services and this gets repeated by multiple individuals and organizations. Additionally, the Kingdom now has improved infrastructure, allowing for more food and goods to quickly circulate within Westeros. More nominal taxes are collected on increased levels of consumption in addition to a higher volume of goods being accessible to a higher percentage of the populus. In the long run, the economy benefits by an amount greater than 20,000GD.

3.) Demand in Westeros

Tomasz Jedruszek Kings Landing.jpg
Kings Landing by Tomasz Judruszek

One of the largest issues facing the Westeros economy is a lack of demand, which can be discerned from throughout the story. A strong example of this comes in A Storm of Swords;

“Hollow-eyed children swarmed underfoot, some looking up in silent appeal whilst others begged noisily. Tyrion pulled a big fistful of coppers from his purse and tossed them in the air, and the children went running for them, shoving and shouting. The lucky ones might be able to buy a heel of stale bread tonight. He had never seen markets so crowded, and for all the food the Tyrells were bringing in, prices remained shockingly high. Six coppers for a melon, a silver stag for a bushel of corn, a dragon for a side of beef or six skinny piglets. Yet there seemed no lack of buyers. Gaunt men and haggard women crowded around every wagon and stall, while others even more ragged looked on sullenly from the mouths of alleys” (Tyrion IV ASoS).

Tyrion notes “He had never seen markets so crowded” and that despite high prices “… there seemed [to be] no lack of buyers”. These things may sound like indicators of high demand. However, remember that demand includes all people both willing and “able”. Here, Tyrion describes “Hollow-eyed children” some of whom “begged noisily”. Tyrion states that he threw a fistful of coppers and the children shoved and shouted running for them. He then says that “The lucky ones might be able to buy a heel of stale bread tonight.” He also describes the adults as “gaunt men and haggard women”. The physical description of the people in the streets is reflective of people who are not able to purchase goods and services. Thus, low demand. 

It should be noted that there is an argument to be had from supply-side issues going on here as well. Prices remain high because of future uncertainty on the availability of food as a result of the war. We see the fear of this uncertainty met with the Bread Riots of 299 AC. The prelude to the riot is described as the result of a lack of food due to The Reach cutting off supplies to Kings Landing during The War of Five Kings. Even following this, it is noted many times that the supply of food is low.

However, I would argue that the demand-side issues are a systemic cancer to the supply-side issues because a proper system of able customers provides markets for supply to grow and exist within. This logic is reflective in our consumption and output equations from earlier.

The variable we are focused on here is planned investment. If a baker in Flea Bottom only has twenty “willing and able” paying customers, he cannot save to open up a shop on the Street of Silk. This is a demand-side issue that contributes to low-supply. If, however, demand is increased and that same baker now has one hundred “willing and able” paying customers he can now save money for future investments. If he decides to open up a second shop on the Street of Silk, planned investment increases and so does our total planned expenditure. In equilibrium, this reflects on the output side as well and GDP rises. As can be seen, increasing our demand “funds” opportunity for supply.  

While demand is certainly central to the economic plagues of Westeros, there are other systemic problems plaguing the realm.

4.) Inefficient Population Distribution

The North by Michael Klarfeld

Another issue facing the realm is inefficient population distributions. This leads to multitudes of inefficiencies throughout Westeros. 

The North makes up approximately one-third of Westeros’ land mass and is abundant in resources including lumber, livestock, stone, and silver. Despite its competitive advantage in total available resources the North is at a competitive disadvantage when it comes to labor, as the North is incredibly sparsely populated. Thus, the North represents waste in the form of lost opportunity cost to the Westerosi economy.

The Iron Islands offers a stark (pun intended) contrast to the North, as the Iron Islands are relatively poor in resources but relatively populated. Adam Whitehead wrote an excellent resource on his blog (find link in footnote) called An Economic Map the Seven Kingdoms in which he states that this effect is;

… putting a strain on local food supplies (although fish are abundant in the waters surrounding the islands). In ancient times it is believed that the islands’ lack of riches encouraged the Ironborn to develop their raiding culture, and since the rich plunder of the coasts of Westeros were denied to them by the Targaryens, their economic situation has deteriorated. (Whitehead)

Adam Whitehead also describes the Reach as the most, “populous, with a population estimated at between ten and twelve million souls, more than twice that of any other region.” Now, this doesn’t actually represent an issue for the Reach, as the region is more than able to support its population due to being extremely fertile and agriculturally productive. However, it does again represent lost opportunity cost when other regions are specifically scarce in labor as a result of low population.

The inefficient distribution of labor means Westeros’ output is at a much lower equilibrium point than it could be. Westeros is currently operating with massive amounts of inventory that are consistently not being accessed.

5.) The Instability of the Riverlands

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The Riverlands by Michael Gellatly

The Riverlands are the most central region in Westeros. Its quick rivers, fertile plains, and well stocked woods are economic boons to both production and travel. The region shares a boundary with every other kingdom in the realm except Dorne, contains large river’s that empty into the Narrow Sea at Saltpans and Kings Landing, and has the largest road in Westeros running through it.

 While the Riverlands boasts many economic advantages in isolation, it’s geographic centrality has left it in the path of many major military conflicts throughout Westerosi history.

During The Conquest, Harrenhal was burnt to a crisp and parts of the Riverlands were savaged as Aegon moved North. Torrhen Stark would ultimately submit at a spot east of Riverrun, but only after the infamous Field of Fire.

The Riverlands served as a major battle field during the Dance of the Dragons, as well. Throughout the war, the region fell victim to no less than ten named military conflicts and the small-folk perished in the thousands.

War would violently sweep over the Riverlands again during Robert’s Rebellion and a multitude of Lord Hoster Tully’s vassals remained loyal to the Targaryen Dynasty, highlighting the region’s political divisiveness. A number of battles took place in the Riverlands throughout the rebellion, including the deciding conflict at the Battle of the Trident.

In more recent events, the Riverlands hosted the greater brunt of conflicts during The War of the Five King’s. Through point of view chapters of characters like Arya, Brienne, and Jaime, readers see first hand just how decimated the Riverlands are due to the war.

Even in ancient times, the Riverlands were conquered and ruled numerous times by House Justman, the Storm King’s, and the Iron Borne. 

As can be seen, the Riverlands central location within the realm has left it in the crosshairs of military conflicts throughout history, leaving it both politically and economically unstable. This instability is a major economic negative to Westeros as it prohibits the regions ability to serve as a reliable trading alley and leads to waste. 

Conclusion of Problems

Now that we’ve outlined the major problems facing the realm, we can see that Westeros does not have economic systems that support a consistent growing demand cycle.  

In the next part of this essay series, I will provide proposals to address these problems and build a Westeros with a more consistent and stable economy. These proposals will be centered around creating systems that will support a growing demand cycle in the Seven Kingdoms. Through the creation of access to funds, increased stability, and healthier population distributions, demand will thrive and the populous of Westeros will reap the benefits as the Seven Kingdoms moves towards a more attractive and optimal steady state economy.

Thanks for reading! Part 2 of this essay series will be published in the near future!

Find me on Twitter @kwdent2. Additionally, you can find my podcast @Bloodofthepod, where we covered statistical survey results from Season 8 of Game of Thrones. More coming from that way soon! Special thanks to BryndenBFish for his help editing this essay as well as all artists and sources cited. Thank you to the fandom for your continued kinship and thank you to George R.R. Martin for crafting such a rich world to analyze.


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18 responses to “Economics of Westeros

  1. roger reid

    Brill! Thank you, K.W.D

  2. This made my econ major heart very happy! I greatly enjoyed the read and look forward to the next installments.

    • Thank you! I was also en economics major myself so I’m happy people are enjoying at and also providing constructive feedback where they see it! Next installment will have some 3-equations stuff in it so it should be really fun!

  3. ElevenxHeaven

    I’m a post-marxist myself but this is an absolutely AMAZING write up I’ll have to share around. Props to you

  4. While Keynes claimed he had a “General” theory, it was tailored for early twentieth century western economies with central banks. As Tyler Cowen has said, the vast majority of business cycles throughout human history, particularly centuries ago, have been real business cycles, because “real” factors like the weather were far more important than monetary or financial fluctuations.

    Keynesian stimulus is supposed to provide “pump-priming” during the contractionary phase of such a cycle. Alternatively, when the economy is expanding fiscal policy should reverse to prevent overheating and an unmanageable deficit. It is not a theory intended to solve “thousands of years” of poor growth, because it was invented after the industrial revolution and for industrial economies. The growth side of macro is different from the business cycle side, with the Solow model being the starting point rather than anyone’s formalization of Keynes. Although the economic historian Greg Clark thinks most contemporary economic theory isn’t helpful in explaining how we finally left the Malthusian trap via the industrial revolution.

    • These are great points! In the original version of this paper, I address some of those concerns that “modern models” don’t necessarily “perfectly equate” to medieval systems. For brevity, I cut those sections to be more succinct. Certainly, there is general infrastructure that modern economic models build their variables off of, so that concern is valid. However, I think viewing Westeros ‘through the lens’ of modern models still presents a relatively accurate view of what the problems are facing the realm and what solutions can address those problems. That being said, I appreciate your notes and thorough analysis!

  5. Samu

    Looking forward to the next essay!

  6. I didn’t actually notice you had a second page when I commented earlier.

    The evaluation of demand-side economics that surrounds the Great Depression transitions seamlessly to the suboptimal economy of Westeros.

    I strenuously disagree. The Bank of France caused a worldwide downturn by hoarding gold in an infeasible attempt to get back to their pre-war gold ratio. The death of Benjamin Strong of the NY Fed led to adherents of the “real bills doctrine” in the rest of the Federal Reserve to take charge and attempt to pop what they believed was a stock bubble. This is known as the “Great Contraction”. Hoover exacerbated things from a Keynesian perspective by hiking taxes and particularly with the Smoot-Hawley tariff. Government spending did not plummet under his term, although he had a harder time paying for it given the cyclical nature of government revenues. This monetary “Great Contraction” meant that prices were going down, and the phenomena of “sticky wages” combined with that to produce deadweight loss in the form of unemployment. This is not the case in Westeros. Instead we see that prices are going up due to the war, so demand is outstripping supply. In traditional agricultural economy “unemployment” is less common than modern economies, as instead you have lots of people employed in a low-productivity traditional sector.

  7. Zoocation

    Well-done, interesting take on Westeros from an economic lens. Do you think Westeros suffer the same hyper-inflation problem as some of our real-world economies do?

    • Thank you so much! In a way, Westeros suffers (at times) from massively inflated prices due to uncertainty surrounding Supply. This is technically an example of inflation (to prices) but it’s not inflation in regards to the actual purchasing power of coin. It’s more an example of extremely “un-sticky” prices that are typical within feudal society. However, to your point, hyper-inflation would become a subject of concern if a Central Bank was implemented in Westeros (which is actually a point I address in Part 2… coming soon(ish))!

      • Zoocation

        Looking forward to Part 2, I would be interested to hear if you think hyper-inflation is a logical by-product of Central Bank in Westeros (possibly due to Robert printing money to fund his extravaganza), or if you think hyper-inflation would have occurred naturally due to:
        1. monarchs debasing their coins
        2. uncertainty surrounding supply of goods as it tend to happen in a feudal economy.

  8. kayjay

    Than you very much! I’ve never read the books nor watched the series, but i needed to prepare for a game and that was just what i wanted to know. Great work!

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