Just started a new playthrough, where I leave most of my loot, don't take prisoners excerpt potential recruits, no workshops or caravans and no traiding. And it seems like in that case early-game economy works quite well (only needs more quests).
Problem is in mid-game, where your money start rocketing with successful campaigns. Each defeated lord gives you loot-money, high tier prisoners and gear. So poor mercenary gets about 10-15k per battle plus free equipment and troops.
So I think removing plundered money at all or significantly reducing them should help a great deal!
First of all players don't loose money if defeated, so why AI lords should? And why do they need so much gold with them?
Why do you even oppose my suggestion of splitting it into different difficulties?
Don't think anyone would say anything against difficulty levels.