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[counting]

Announcement : Originally it's a fair warning about building a microeconomics-model-mimicry dwarf economy may be too unstable or difficult to present ideal outcome. It is - Dwarconomy may end in disasters. But I soon realize it has potential, so I analysis it, and find a way to realize Dwarconomy through the use of proper commodity valuing mechanism, functional currency circulation, and a network of hub-and-spoke economic units(markets, depots, guild, etc). But it's a slow and gradually building process, and its still ongoing before it can generate valid suggestions. I plan to use story-telling method for others to absorbs some difficult economy concepts easily. (at least, if this suggestion wasn't fruitful, it can always be moved to story board) And below is some of the important current working processes.


Adding additional introduction about money creation below. 2011/05/25

Adding education of money for dummy txt version. 2011/05/28

Adding the prequel 1 of the story "Goddess, drunk, kids, and old fisherman" : "The Island - Beach and Forest, Beauty and the Beast". 2011/05/30

Adding the story of "Goddess, drunk, kids, and old fisherman". for telling the evolution from bargaining to commodity money 2011/05/29

The follow-up continues in part 2

--- Original Post start here ---

I've read a lot of threads about economy simulation in DF (Here is a thread collections link, collected by NW_Kohaku), and kohaku mentioned the official development plan by Toady. So I went to read about it.

And it strikes me about a economic simulation I used to participate in the past. The same world build-up with basic landscaping related raw materials gathering, (either through mining or farming or gathering.) A tree like industrial production line from raw materials to finished goods. And a world composed by many regions (we used city-state like grid separated with wild areas). And we went even further to create a multi-currency trading networks, allowing each city-state to own their own currency. And we even setup selected citizens (you can called them the owners equivalent to the nobles in DF) in the city to own their own buildings, factories, shops, and even enterprises. (The reason why not simulating every individual is obvious - computers are NOT powerful enough)

But the problem I liked to talk about here is NOT how to setup currency networks, but it's that we discovered some inherited problems when simulating the inter-citystate trading - it either died out very quickly, or only happened in a very small scale. At first, we DID think it's happening because lack of comparative advantage between each city. (In simple term, each city is so self sufficient that it doesn't need to trade with others). So we scattered the resources through out different regions, and hopefully it can boost the world trading.

But we encountered a more daring problems, it's now not only the trading was dying out, but the cities themselves were dying out. And the reason is simple, they relied on trading to survive too much. Because only those regions are lucky enough to own most of the importance resourced can sustain themselves, the others were having difficult finding the right partners to import the goods they required.

And we later found out it's a very basic mathematical problems. Let's assume that we have 100 cities, than each city need to send 99 times of request to others. But resources need time to accumulate, so when a request was send, and assume it find the first trade partner, when they arrived there, they may find the target s/d has already changed, and there are chances it will be good, so the city buy some more, by doing so extract the already scares resources even more. But there are also chances that they are bad, so they can't buy what they needed. so it sends out more request to other cities to collect other kinds of resources, and this process keeps going on and on.

Also since all these are not instantaneous happening, (like in DF, caravans need time to travel, and there are limited amount of caravans an entity can be sent out at a giving season). So when the time they do find out the partner they needed, a long time has already past, and the key commodities that lacks during this time, has already causing the city's industries into a halt. And here is a trick that, the average seeking time for a source material must be quicker than the city preparing/setup time for the industry using this material, hence there must be a certain level of self sufficiency in each city's resource level (less resource scattering), most often too high to really make a change.

The situation decried above, happens so randomly, and involves many variables. Since the computer are not clever enough to make complicated decisions about specializing and focus on certain advantage industry, when a industry jammed, all aspects of city developing are affected. (decision-tree sub-routine are way too time consuming to implemented into each owners/nobles in each cities)

Then we settled a plan to create some cross-city international enterprises, and hoping they can help determine the shortages in regions through out the world, much like a kind of medieval guilds. But it kind of defeating the purpose of inter-city trading. And the the way we tweak these enterprises can determine the results of trading hugely. And it felt more like planning an economy, than evolving an economic system. (And the reason we didn't try further would be explained below)

Again, we tweak the industries in a city with protective measures, so no matter what, there is always some minimum amount of products can be produced (A little like protective tariff to support fragile industries). And something strange happening. that there are no longer high-end finished goods trading in the world, but most of the cities only export raw materials or low-level industrial half-products. And they all looks like third world countries, with minimum high-level industries, and lots of basic industries. Only those few cities with all kinds of abundant materials becomes mega-cities and buyers, but never selling finished goods to the poor neighbors, because they can't afford them. All the wealth are concentrated in the few mega-cities. And those mega-cities are not trading with each others because they don't even need them.

There are so many places may go wrong using bottom-up approaches. (The purpose of the experiments was trying to model a microeconomics system to verify some models in macroeconomics like international trading H-O theory, or neo-Ricardian trade theory). And quite dangerous if you only view them on the micro-level. I DO know that there are many macro models can be used to "simulate" the effect of international trading and the production in a region. Like using the famous Keynesian theory, it only focus on the demand which will automatically create the supply, and by defining a minimum import to support each local economy (think as blackmarket trading) that each city somehow gets the basic import they needed "magically" (for computer entities). Only when every entities subtract these goods and evenly "gifted" to each other, then they will start to trade the remaining "excessive" commodities through normal trading routes. (you can randomized during minimum trading, and create more natural fluctuations)

I'll make a basic summary I mentioned above :

1. If caravans are the only means of world trading, using local supply/demand differences as references. The most likely result will be global recession due to untimely trade and difficult AI decision making.

2. If a global trading networks DO create artificially, it's most likely due to careful tweaking, rather than natural evolving. And it has high failure rate if not careful, or otherwise become too predictable.

3. Using some macroeconomics theory and extracting the basic elements to put into, it can produce better results, but often with unexpected results. Like over centralized or uneven economic balances.

Hopefully this may come into some use.

P.S This is only a brief about global(world) trading with many entities, and what it may look like. But notice that it has NOT touched the problem about currency, (yes the illusive money and coins) or exchange, or even banking and interests. They belongs to a process called "money creation". (literally, I am NOT kidding, it's a real and serious economic subjects, and it's not only happening in modern time), and remember the measure of goods (like dwarfbuck) doesn't equal money automatically, and money is actually commodity. (There are a complete branch of economics dealing with that called Monetary economics)

[kaenneth]

Did the model take into account wanted 'luxury' goods? or only needed 'survival' goods?

Some trade is created by the desire for exotic goods, such as Coffee, spices, rare decorative gems, traditional handmade crafts, etc.

If the 'Nobles' in your model were only concerned with survival and efficency, and never made demands/mandates for things that arn't made locally just because they felt like it, it wouldn't match DF or Reality.

[counting]

Did the model take into account wanted 'luxury' goods? or only needed 'survival' goods?

Some trade is created by the desire for exotic goods, such as Coffee, spices, rare decorative gems, traditional handmade crafts, etc.

If the 'Nobles' in your model were only concerned with survival and efficency, and never made demands/mandates for things that arn't made locally just because they felt like it, it wouldn't match DF or Reality.

We use elasticity of demand to determine the needs of certain goods. And every goods has it's elastic. Also, the main purchasing force is the general populations (the workers numbers in millions), and the owners only numbers in hundreds to thousands. Simply put, the cures of demands whether it's been produced or not, exist in every cities (but they can be different from region to region). And the previous purchases will effect future purchases. (And the goods do decay or be consumed after purchases)

There are however some products used as tools, machinery, or transportation, even as additive to increase product quality (increase demand curve slop), like adding milk-additive-machine to coffee products into cappuccino. And owners will buy these things, although general population has a very low demand on them (extremely elastic)

So we observed something funny, that the machinery are ofter overpriced in poor cities, but too cheap in mega-cities. And the real interesting things happens on things like cars, that are generally useful (almost same demand curves), that almost every general people have one in mega-cities, but they become privileged tools for owners only in poor ones.

The truth is that the poor industries in poor cities just can't pay enough salaries for those poor working populations in order to buy the import goods.

Another interesting facts, that the salaries are universally defined in the beginning, that is each kind of jobs started paying the same amount using the currency of the cities, and if there is not enough workers, the owners will increase salaries to hire more skilled worker using less men powers. (You can say that the owners are paying these dumb workers to be better educated)

There are many interesting things can happen in a simulation, and often the result is surprising or counter-intuitive, and the more you digging in, the more you realized that there are so many variables can affect the pre-existing stabilized system. And forming a new uneven stabilized condition.

[Cespinarve]

That's neither funny, nor is it unusual. It's sad and seems to be an accurate simulation of real life. Shockingly, poor people who don't have delusions about credit cards can't buy iPads. The other people can't afford them either, but since they don't get credit they buy it anyways and then turn into one of the millions of American bankrupted by credit card debt.

[HollowClown]

But we encountered a more daring problems, it's now not only the trading was dying out, but the cities themselves were dying out. And the reason is simple, they relied on trading to survive too much. Because only those regions are lucky enough to own most of the importance resourced can sustain themselves, the others were having difficult finding the right partners to import the goods they required.

Maybe I'm missing something, but it sounds to me like your simulation was working correctly.  There are some fairly well-known and well-documented issues with export-based economies;  these issues become even more overwhelming when an export-based economy isn't capable of sustaining itself.

Off-hand, the only cities that I can think of that would tend to succeed in such a scenario would be the ones producing high-demand, high-scarcity products such as oil.  Historically, this works for a while (in a classic economic boom) until either the market gets saturated with the product or the city runs out of the resource.  Either way, the export-based economy then collapses -- so cities disappearing, when they were relying entirely on exports to sustain themselves, sounds like the correct behavior.

It also sounds like you were having some problems with simulated latency in the system;  but, again, that's the expected behavior.  In the real world, you'll never have huge industries appear or function without an adequate supply of the raw resources they're processing.  For instance, you'll never have a city suddenly found a huge number of gem-cutters without having an adequate supply of gems.  Generally, industries tend to start small, then grow hand-in-hand with their raw material imports as the industries succeed.  In other words, someone is unlikely to build a lumber mill without already having access to a large number of logs;  as the lumber mill profits, more people will try to sell logs to it;  when there are enough logs available to make a second lumber mill profitable, that's when a second mill will be built.  An empty lumber mill that can't quickly find someone to sell it logs is likely to go out of business, and a business or city that depends on a failing lumber mill is also going to fail.

So, while I'd fully agree that simulating economic networks is tricky, I'm not convinced that it will radically affect the future of DF.  Given that cities in world-gen already need to be self-supporting, and that all or most of the trade networks will be grown between these self-supporting cities, I suspect that Toady will manage to dodge most of the issues you had in your sim.

[counting]

But we encountered a more daring problems, it's now not only the trading was dying out, but the cities themselves were dying out. And the reason is simple, they relied on trading to survive too much. Because only those regions are lucky enough to own most of the importance resourced can sustain themselves, the others were having difficult finding the right partners to import the goods they required.

Maybe I'm missing something, but it sounds to me like your simulation was working correctly.  There are some fairly well-known and well-documented issues with export-based economies;  these issues become even more overwhelming when an export-based economy isn't capable of sustaining itself.

Off-hand, the only cities that I can think of that would tend to succeed in such a scenario would be the ones producing high-demand, high-scarcity products such as oil.  Historically, this works for a while (in a classic economic boom) until either the market gets saturated with the product or the city runs out of the resource.  Either way, the export-based economy then collapses -- so cities disappearing, when they were relying entirely on exports to sustain themselves, sounds like the correct behavior.

It also sounds like you were having some problems with simulated latency in the system;  but, again, that's the expected behavior.  In the real world, you'll never have huge industries appear or function without an adequate supply of the raw resources they're processing.  For instance, you'll never have a city suddenly found a huge number of gem-cutters without having an adequate supply of gems.  Generally, industries tend to start small, then grow hand-in-hand with their raw material imports as the industries succeed.  In other words, someone is unlikely to build a lumber mill without already having access to a large number of logs;  as the lumber mill profits, more people will try to sell logs to it;  when there are enough logs available to make a second lumber mill profitable, that's when a second mill will be built.  An empty lumber mill that can't quickly find someone to sell it logs is likely to go out of business, and a business or city that depends on a failing lumber mill is also going to fail.

So, while I'd fully agree that simulating economic networks is tricky, I'm not convinced that it will radically affect the future of DF.  Given that cities in world-gen already need to be self-supporting, and that all or most of the trade networks will be grown between these self-supporting cities, I suspect that Toady will manage to dodge most of the issues you had in your sim.

The trading partners we are supposed to simulate should be working, as a basic reasonable and measurable variables much similar to natural observations in real world exchanges. Although the test was not about a stable trading networks, but rather trading must take place first, in order to test some models may be correct or incorrect during tradings emerged from bottom-up simulations.

I was just try to point out some of the known dead-ends we encountered in simulating these kinds of micro-to-macro system using supply/demand differences models. In the end they do resemble some real world phenomena, but in fact it should not be happening in a perfectly simulated world. Most economic models will predict stable solutions. Although, we do know that they are flawed in nature, and it's exactly why we try to simulate them, in order to find out if we were missing something so basic. Like why the minimum amount of protective domestic industries with their diminishing marginal utilities, will not cause the poor cities to survive better, but rather be exploited by powerful entities, are we missing somethings, can we add something basic to achieve the better economic system predicted by the models. Or are we doom from preventing it to happen.

The liquidity of long-term assets (as the extra lumber mails you said) is a measurable variable, and is inherited in any kind of industry, and often it determines if a certain division of industries should be competitive in the market, labor extensive, or not. We do discovered that it's very hard to be implemented using only real world observations as templates. They require a lot of tweaking, in order to fit in and working properly. (Later we cut off a major chunk industries, that refused to cooperate, and not surprised that most of them involves too many inter-industries half products. or too deep in the chain of production)

I do wish and anticipate that DF will form a semi-statistical world economic structure backup by regional dynamic commodities market. The starvation problem is a sign of losing self sustain. The chance of local caravans finding long distance trading partners without a money market should be hard to tweak it right. The currency are supposed to be the oil in the machine, rather than excessive products. And my concerns are trades will not be spontaneous generated (or hardly enough) like our early tries, and had to be hard-coded in order to function like they are now in DF, only with more features and options only, and the core of trade is still meant only for the players, not NPCs' fortresses. But if you are talking about the fun of DF, I am absolutely OK with it ^^. Just hope that there are something more behind the curtains than quests like random events. (DF are supposedly good with detailing)

[counting]

That's neither funny, nor is it unusual. It's sad and seems to be an accurate simulation of real life. Shockingly, poor people who don't have delusions about credit cards can't buy iPads. The other people can't afford them either, but since they don't get credit they buy it anyways and then turn into one of the millions of American bankrupted by credit card debt.

You are talking about credits!!! (credits and debts, explosion of kitties, good things, yum yum yum) Well, we don't need credit cards to be miserable. Medieval serfs have harder lives than we are. They often barely survived from over-taxing by landlords. And probably never even used a table or chair, or seen s glass window in their entirely lives. And we are the serfs of the modern governments. (It explained a lot why government employees generally lived better, isn't it? They are the landlord's servants. JK or not)

So the dwarfs live in a community farming like fortress are in fact very very blessed indeed. (Apart from the goblins slaughters, construction accidents, dying from insanities we put them into). No worried about drowning in debts. But seriously I like to see if debts can be implemented into DF, because they are the foundations of interests, fiat money, banking, all the goods and wonders in modern society.

[counting]

Currency - the measuring tools and measurement itself.

In some of my previous posts and above, I talked about trading and some history about coinages. But before we can talked about currency, there are some "modern concepts" about money you need to forget first, such as first, money is not wealth, and most of them  existed only in thin air as numbers in the bank records. And in fact the money do physical exist, are more like an IOU from the bank. (Yes, that's right the bank owe you).

Think of your boss pays you directly with products, foods, clothing, as you want, and you need to find a place to store those things. So you go to a bank and lend these things to the bank. Then the bank write some IOU notes  - it says you can pick them up at anytime - for part of them, and gives you a key (deposit account number) so you can store the rest of those things in a box as you wish. (And you bet, that's why most banks provide real deposit box services, since they originally did used for storage with actual commodities and physical coins. So why not used them for storage purpose after people no longer used gold coins in modern life.)

So the trick in banking is that people do NOT actually used all those things every single day, we are happy to have only few necessary goods to get on with our lives, knowing we have most of them in the savings, being locked deep inside some bank vaults, and we can withdraw them in future. But once bankers realized this, they did the next logical thing - lending those things supposed belong to you but not being used and locked in side the vaults - to other people (likely business owners) who need capitals, with interests of course. And business men or not, they are human as well, so they also used only a portion of the wealth, and deposit most of them back to the bank. As this process progresses, the things that supposed to be stored in bank vaults are all withdraw and used by people who borrow them (mostly business loans and recently house mortgage loans). The only thing left in the bank is a heavy books written with names and number - those who owe and lend (deposit) money to the bank and how much.

This process is called the "money creation". A bank can lend out as much as 9 times with RR = 10%, (RR = reserve requirement in modern central bank policy, and they are often lower) the wealth originally deposited into the bank. Should be able to generate close to 10 times of money supply in the market. You may start to wonder, why would this seemly strange (to people who are not familiar with economics) system needed? And how does it started at the first place. And the short answer is that when the banking business start to transform from private loan-sharks into the actually enterprise in the 14th century, there are shortage of physical money in the market. So a necessity of creating more currency is needed ASAP when the growth of long-distance international market greatly expanded. And this improved technique requires nothing but a pen and some papers. (People and Governments are doing this for a long time without proper defined, it's the merchant banks made this process into private businesses and affect more daily lives)

The interesting facts is that although most of the money are "created" by the bank out of thin air, the real wealth, which in terns are lands, commodities, buildings, or even man powers, are always what the real power lies in. Currency is supposed to be the measuring tools only,  has no real value embedded in (neutral). Till people who once believe in only accept real commodities as wealth, now transfer their faith in these banks. The measurement itself as commodity money no long hold their real values anymore.

And it brings us to a good question, what's the number like 2.99 EURO, or 3.99 USD when you think of a hamburger really means? Does God places a meter in our heads so we automatically pop-up some numbers when look at something, as a smart dwarf? what's 1 dwarfback means anyway? God decides how pricy the goods should be? Or is it the merchants who sell things? And these questions will bring us back to the true supply/demand problems that bother us so much. Is it the only way to set a number for every objects in economic simulations? Perhaps it would be more reasonable to set only a certain measurement as baseline using some necessity goods, or the unit of time as a measurement in order to calculate the relative values of every other thing. All these need to be determined before a truly functional currency system can be simulated properly and naturally.

[Rooster]

Your knowledge is very impressive dear Counting.

I wonder, where do you draw that knowledge from? Did you go to school for it? What degree?
Can I find some good books on the matter?

I'm fascinated by economy, and wish to learn more.
And then maybe one day implement it in a game 

[greenskye]

I still find it amazing that I can be so fascinated by economic theory when applied to dwarves in a computer simulation, but economics in college was so boring.

[FGK dwarf]

Very interesting stuff counting!

It also sounds like you were having some problems with simulated latency in the system;  but, again, that's the expected behavior.  In the real world, you'll never have huge industries appear or function without an adequate supply of the raw resources they're processing.  For instance, you'll never have a city suddenly found a huge number of gem-cutters without having an adequate supply of gems.  Generally, industries tend to start small, then grow hand-in-hand with their raw material imports as the industries succeed.  In other words, someone is unlikely to build a lumber mill without already having access to a large number of logs;  as the lumber mill profits, more people will try to sell logs to it;  when there are enough logs available to make a second lumber mill profitable, that's when a second mill will be built.  An empty lumber mill that can't quickly find someone to sell it logs is likely to go out of business, and a business or city that depends on a failing lumber mill is also going to fail.

So, while I'd fully agree that simulating economic networks is tricky, I'm not convinced that it will radically affect the future of DF.  Given that cities in world-gen already need to be self-supporting, and that all or most of the trade networks will be grown between these self-supporting cities, I suspect that Toady will manage to dodge most of the issues you had in your sim.

I think this hits the nail on the head. In real life, cities didn't just spring up out of nowhere. They developed slowly over centuries out of agricultural communities that were fortunate enough to produce a surplus most years. It's only when trade networks were already developed that dedicated not-agricultural cities were viable, and they were initially tied to their raw materials.

Currently there's a problem in DF because the dwarves all starve (at least in my worlds). They rely on trading for their food, but at the beginning of worldgen there just isn't the trade network to support them, unless they get lucky and start near a human civ. But really the initial dwarf settlements wouldn't be there unless they were producing food for themselves anyway.

If settlements provided most of their necessities (the larger cities always imported food, even in ancient and mediaeval times) then trade disruption, economic instabilities &c would still arise, but wouldn't be civilisation destroying. They'd just cause wealth destruction and some level of famine. Which is what should happen!

[Vercingetorix]

And it brings us to a good question, what's the number like 2.99 EURO, or 3.99 USD when you think of a hamburger really means? Does God places a meter in our heads so we automatically pop-up some numbers when look at something, as a smart dwarf? what's 1 dwarfback means anyway? God decides how pricy the goods should be? Or is it the merchants who sell things? And these questions will bring us back to the true supply/demand problems that bother us so much. Is it the only way to set a number for every objects in economic simulations? Perhaps it would be more reasonable to set only a certain measurement as baseline using some necessity goods, or the unit of time as a measurement in order to calculate the relative values of every other thing. All these need to be determined before a truly functional currency system can be simulated properly and naturally.

Well, that's an interesting point.  The $4 hamburger means the value of that burger as determined by the merchant is equal to $4 worth of any other good as determined by the common currency unit, be it $4 worth of an airplane or crude oil or anything else for that matter; if people don't believe that that amount is justified on the basis of their utility, they won't buy it and the price will necessarily have to fall to stimulate demand.  Otherwise, it will never be sold or only very infrequently.

The challenge of this is as you identified a utility system; we'd need a way to determine utility for goods and services in order to determine prices and in turn trade networks and supply and demand.  The biggest question here is how to do so.  Do we assume civilizations have a certain utility for various classes of goods in the context of an overall hierarchy of needs, or do we simulate it on the individual level?  Do we calibrate this by a certain degree of variance, either random or fact-based, to produce more realism (e.g. one civilization values emeralds over diamonds because of religious symbolism or cultural aesthetics)?

Regardless, I do think DF needs more goods to create an economy; adding new animals is a good first step but more variety is needed to really establish plausible trade networks.

[counting]

Your knowledge is very impressive dear Counting.

I wonder, where do you draw that knowledge from? Did you go to school for it? What degree?
Can I find some good books on the matter?

I'm fascinated by economy, and wish to learn more.
And then maybe one day implement it in a game 

I used to manage a small company before the god damn stupid dwarf #*&^$ economics crises and decide to go back to graduated school. And I was fortunate to get used to how business is running, accessed and dealt with banking and financial system. And most importantly failing miserable to continue the business. So in part I am using my experience from those costly lessons, and more importantly want to understand more about how things should work successfully.

So I attend MBA courses, and lucky attend a class about experimental economics, and become fascinated by the history of economics thought. Since the requirement of simulating or experimenting some economic system is best to begin with simple and well documented and studies of early models. In fact, there is a practice participated by students and led by the professor using role playing economics roles in the classroom, to help student be familiar with each roles in economic system. And it made me start trying to implemented them using games. Why not? They are so much fun!! Here is an example

As for the recommendation of readings, since I am not a native English speaker, and the suggested readings in my book list are probably not understandable (to you. They are written by Chinese Authors using Chinese. And no, I am not from China, I am from Taiwan ), however, they are mostly the same, using the same terms, introducing from microeconomics, macro, monetary banking, international trade, to more financial courses, like accounting, or advanced courses like game theory, and econometrics etc. In fact if you want to read online, you can google mit online economics open course. If you want to have lite readings, well. I read a book : Freakonomics:A Rogue Economist Explores the Hidden Side of Everything. (but mine is the translated version). It's funny and can give you some fun start, although it's not written to be a serious economic introduction. But remember that to doubt everything behind the curtains, since we really don't understand much about economic.

 

[counting]

I still find it amazing that I can be so fascinated by economic theory when applied to dwarves in a computer simulation, but economics in college was so boring.

You had a bad teacher. (or perhaps old school) Modern economics are much more different now. And there are many cross-department studies and subjects. Experimental Economics is a good example. And the fun (as DF fun) of Econometrics.

[counting]

Very interesting stuff counting!

It also sounds like you were having some problems with simulated latency in the system;  but, again, that's the expected behavior.  In the real world, you'll never have huge industries appear or function without an adequate supply of the raw resources they're processing.  For instance, you'll never have a city suddenly found a huge number of gem-cutters without having an adequate supply of gems.  Generally, industries tend to start small, then grow hand-in-hand with their raw material imports as the industries succeed.  In other words, someone is unlikely to build a lumber mill without already having access to a large number of logs;  as the lumber mill profits, more people will try to sell logs to it;  when there are enough logs available to make a second lumber mill profitable, that's when a second mill will be built.  An empty lumber mill that can't quickly find someone to sell it logs is likely to go out of business, and a business or city that depends on a failing lumber mill is also going to fail.

So, while I'd fully agree that simulating economic networks is tricky, I'm not convinced that it will radically affect the future of DF.  Given that cities in world-gen already need to be self-supporting, and that all or most of the trade networks will be grown between these self-supporting cities, I suspect that Toady will manage to dodge most of the issues you had in your sim.

I think this hits the nail on the head. In real life, cities didn't just spring up out of nowhere. They developed slowly over centuries out of agricultural communities that were fortunate enough to produce a surplus most years. It's only when trade networks were already developed that dedicated not-agricultural cities were viable, and they were initially tied to their raw materials.

Currently there's a problem in DF because the dwarves all starve (at least in my worlds). They rely on trading for their food, but at the beginning of worldgen there just isn't the trade network to support them, unless they get lucky and start near a human civ. But really the initial dwarf settlements wouldn't be there unless they were producing food for themselves anyway.

If settlements provided most of their necessities (the larger cities always imported food, even in ancient and mediaeval times) then trade disruption, economic instabilities &c would still arise, but wouldn't be civilisation destroying. They'd just cause wealth destruction and some level of famine. Which is what should happen!

The comparative advantages of international trading. Simply put if 2 place is relative good at producing different products, and when the 2 regions started to trade they will become more and more specialized in those productions. And the combine productivity will be better than separately. It was a expended version of society roles of specialization. If you are good at something and by just doing that will give the maximum results for all. But in reality, there are many variables causing the trade to be weaken, and we are not fully understand what's really happening. (There are subject about public policy, they are not always pure economic problems)