The Economics of Interstellar Trade

In 1978 economist Paul Krugman wrote a paper titled The Theory of Interstellar Trade that was published in 2010. It is pure genius:

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.

In the paper Krugman analyzes the effect of travel near the speed of light on interest rates and interstellar trade. The abstract:

This article 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 proved.

Interstellar trade is very complicated. Time passes slower to the observer traveling at the speed of light than to anyone who stays at home. Therefore, Tyler Cowen hypothesizes in a short comment that you could put a couple of dollars in a savings account and hop on a spaceship. While you travel for a year near the speed of light, a hundred or maybe a thousand years will have past on earth. You come back after a year, go to your savings account and are suddenly a rich man. Therefore, the interest rate can only really depend on the cost of fuel needed to ‘travel into the future’.

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