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The Theory of Interstellar Trade

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The Theory of Interstellar Trade is a paper on hypothetical space trade written in 1978 by the economist Paul Krugman. The paper was first published in March 2010 in the journal Economic Inquiry. He described the paper as something he wrote to cheer himself up when he was an "oppressed assistant professor" caught up in the academic rat race.

Krugman analyzed the question of

How should interest rates 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.

Krugman emphasized that in spite of its farcical subject matter, the economic analysis in the paper is correctly done. In his own words,

This paper, then, is a serious analysis of a ridiculous subject, which is of course the opposite of what is usual in economics.

Commentary

Responding to the paper, the economist Tyler Cowen speculated on how time travel affects time preference discounting.

My own puzzling focuses on the determinants of real interest rates, given how time dilation changes the meaning of time preference. As you approach the speed of light you move into the future relative to more stationary observers. So can you not leave a penny in a savings account, take a very rapid spaceflight, and come back to earth "many years later" as a billionaire? Hardly any time has passed for you. In essence we are abolishing time preference, or at least allowing people to lower their time preference by spending money on fuel. I believe that in such worlds the real interest rate cannot exceed the costs at which more fuel can "propel you into the future through time dilation."

References

  1. Krugman, Paul (1978), "The Theory of Interstellar Trade", July 1978
  2. Paul Krugman. "The Theory of Interstellar Trade", Economic Inquiry, March 2010.
  3. Paul Krugman, "Economics: the final frontier", The New York Times, March 11, 2008
  4. Tyler Cowen, "The theory of interstellar trade", Marginal Revolution, March 11, 2008
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