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You can take over a faction with diplomacy when you solve the diplomacy tree (get to the very right in the diplomacy menu). This way you can rebuild a faction. To inherit it by extinction is an interesting idea and would open up a more evil approach! I'll see if I can add this to the game. The thing already in the game is that you automatically get way of right and settling rights in this area.
The gold amount is low usually. But you can build a Harbor to start trading with the empire, where you can sell a lot of goods and theoretically get an infinite amount of gold.
With time you start to trade with your own villages mroe and more, and later you can trade with the empire for high quantities.
Like NESH, I was also in the first base scenario. I was going to the right in the diplomacy tree, but I thought it was improving the relationship and would maybe increase value of trade with them, not make them disappear. Besides the tree, I really wasn't paying attention to them. I started building in the desert when they were still there. It took me a long time to figure out why I was sitting at -1 gold, and even longer to notice that the other faction didn't have any employees working or anyone in their houses.
I'm not against the idea of being able to push out a faction, but I was definitely not trying to do that. So maybe I only go to the right on the tree to build there and stop? Or is that already too far? Do they start degrading when I start building there?