The MMOG Economical Flaw

[slog]

Fuck, if investment bankers are thinking like this no wonder the economy's in the shitter.

One of the interesting things I kept running across researching this is the quiet backroom belief that eventually this system will collapse.  Much of it tinfoil hat stuff of course, and I had to wade through a lot of religious anti-usury nonsense as well.  Some of the papers I read were the occasional legislative attempts to more solidly backup the new money created, motivated by the need to dramatically reduce government's costs to finance its own projects.  Not surprisingly some politicians are somewhat honest and don't want the government so heavily influenced by banking.   The concern goes back to the Red Shield family (Rothschilds).  It's a little daunting to follow the history since there is so much tinhattery caught up in the topic but underneath the paranoia is no small kernal of truth.

The entire system relies on the faith that 1) Not everyone will withdraw their deposits/investments at the same time, and 2) everyone believes that their neibhor will accept currency in echange for goods and services.

I'm going to go back and my word and provide one more example.

It's the middle ages(ish), and Slog the Goldsmith sets up for business in the town of Oz.  10 Rich lords all give me big Lumps of gold.  5 of the Lords give Slog 10 ounces of gold to make stuff out of, the other 5 because they know I have a big lockbox that's guarded.

Schild the Wizard of Oz decides he needs some gold for a reagant for a new spell he's creating.  He's flat broke and doenst feel like camping the Bugbear spawn.  He hears that Slog is holding a bunch of gold and gets an idea.

Schild: "Slogeth!!! I have an idea.  If you give me 6 ounces of gold from your vault, I will return it within a week and give you 2 chickens"

Slog: "Chicken?  mmmmmm

Schild: "What say you"

Slog: "ok.  If you welch, I'm sending over my boys to PK your ass though"

Schild goes off and makes his spell:

Slog (to himself); "hmmm, I can make some serious phat lewtz doing this, as long as the Lords don't all want the gold back at once."

slog lends out 30 more ounecs of gold, for a total of 36 ounces out of 50 ounces lent out.

Shild comes back a week later.  "Slog, here is your 6 ounces of gold back and 2 chickens"

Slog "thanks.  fethers"

slog now has 20 ounces of gold in his vault.  He promplty lends out 6 moure ounces to someone else, cause he wants some more chickens....

[Glazius]

Fuck, if investment bankers are thinking like this no wonder the economy's in the shitter.

One of the interesting things I kept running across researching this is the quiet backroom belief that eventually this system will collapse.

Lemme give you a quick example.

Let's say I put a hydroelectric dam on a river.

Every day that dam taps the energy of the river to turn it into a usable form of power. And people are willing to pay for that power. In effect, my dam is creating something every day that's _worth_ money.

If I hire people to maintain my dam and the power lines and such, then if I have any kind of business sense at all the laborers are worthy of their wage. Their work on my dam is worth something and their wages reflect that work. Their _time_ is worth money.

Let's say that I go to a bank, and their assessors tell me my dam is worth $2 million. And I tell them I have amazing plans to put up another dam on a different river - but it'll take $3 million to get started, though I'll put up my dam as collateral. They draft up a loan document that has me repaying $4 million over the next four years, or something like that.

If I repay the loan, presumably my dams and all the people working on them have created that extra million bucks worth over the course of four years. Perhaps we've created more. In this case the amount of wealth and the amount of money in the system match. But until I pay back that loan, the bank has paid $3 million for the guarantee of something worth only $2 million.

Simple example with made-up numbers, but it should illustrate the point. People and the things we build are creating new wealth all the time - banks create something to keep score with. It's the difference between duping a million gold pieces and getting a million gold pieces through quest rewards and selling 'vendor trash'.

--GF

[slog]

Fuck, if investment bankers are thinking like this no wonder the economy's in the shitter.

One of the interesting things I kept running across researching this is the quiet backroom belief that eventually this system will collapse.

Lemme give you a quick example.

Let's say I put a hydroelectric dam on a river.

Every day that dam taps the energy of the river to turn it into a usable form of power. And people are willing to pay for that power. In effect, my dam is creating something every day that's _worth_ money.

If I hire people to maintain my dam and the power lines and such, then if I have any kind of business sense at all the laborers are worthy of their wage. Their work on my dam is worth something and their wages reflect that work. Their _time_ is worth money.

Let's say that I go to a bank, and their assessors tell me my dam is worth $2 million. And I tell them I have amazing plans to put up another dam on a different river - but it'll take $3 million to get started, though I'll put up my dam as collateral. They draft up a loan document that has me repaying $4 million over the next four years, or something like that.

If I repay the loan, presumably my dams and all the people working on them have created that extra million bucks worth over the course of four years. Perhaps we've created more. In this case the amount of wealth and the amount of money in the system match. But until I pay back that loan, the bank has paid $3 million for the guarantee of something worth only $2 million.

Simple example with made-up numbers, but it should illustrate the point. People and the things we build are creating new wealth all the time - banks create something to keep score with. It's the difference between duping a million gold pieces and getting a million gold pieces through quest rewards and selling 'vendor trash'.

--GF

You are confusing Wealth with Money Supply.

 In terms of Money supply, the dam company borrows 3 million from the Bank.  That 3 Million isn't the bank's money, it's the depositors money.  Each one of them counts their piece of the 3 million as part of their money.

Money Supply isn't dependent on Assets backing up loans. 

[Merusk]

Yes they do. And they would pay it in US dollars that had just become completely worthless becuase the entire banking system collapsed.  This has actually happened: Argentina in 2001 and Nazi Germany where everyone life savings were wiped out, but they were paid!! the currecny was worthless of course....

OK, Germany was blown to bits twice, that's why their money was worthless. And neither country were covering valid withdrawals, they were printing money to pay their bills... kind of like my point about MMOGs really.

Um.. if everyone ran the banks in the US at once, and all deposits are covered by the US government, it would do the exact same thing. We don't even have to be bombed to hell and back.  All the withdrawls would be 'valid' because, hey, my bankbook says I have $X, so give me my damned $X.

Then everyone would have the now-useless funy-colored paper with the dead guys awful portraits and we could burn them for warmth, because they'd be shit-all for anything else.  There's no 'standard' it's based on other than the good-faith that everyone won't run the banks, and the US government won't collapse so all they can give you is the funny paper.  Yes, it's frightening, but that's how it is.

[Glazius]

You are confusing Wealth with Money Supply.

 In terms of Money supply, the dam company borrows 3 million from the Bank.  That 3 Million isn't the bank's money, it's the depositors money.  Each one of them counts their piece of the 3 million as part of their money.

Money Supply isn't dependent on Assets backing up loans.

You came into the thread at an inconvenient time, and I think that's been the cause of all this confusion.

The "real world" is the result of two loosely coupled mechanisms working - people are building the net value of their assets, _and_ banks are creating money, and in the ideal case one keeps pace with the other. In practice banks "lead" value a bit, which leads to more money being in circulation than there is value.

In a MMORPG, money is created every time someone gets gold as a quest reward, picks gold up from a monster/treasure chest, or sells something to a vendor and gets gold in return. (Note that this may vary in some systems - money may be created for all intents and purposes when a monster spawns, if its purse is open to being lifted.) Value is created every time someone crafts or loots an item, with "tapping resource nodes" also being defined as loot. Note that in some cases the value of something is exactly its monetary value when autosold, or at least in constant relation to some monetary value (hey kid, bring me three rat tails and I'll give you a copper). Money is actually destroyed when players buy from vendors (including repair), and value is lost when items are destroyed, discarded, damaged, or sold to vendors. 

The difference between a MMORPG and the real world is that the banking system (in the ideal case) is only going to draft GM a $2 billion line of credit if it anticipates GM can create enough value to repay the interest on $2 billion, but money and value enter and leave a MMORPG in completely arbitrary amounts. (Even more arbitrary if someone starts dupin' rares.)

--GF

[HaemishM]

Slog, you might get more people to read your links if you weren't trying to be such a condescending douchebag. But hey, that's your schtick, so go with what works I guess.

The economy, like civilization, like law, like authority, are all illusions, perceptions in the minds of the populace. What gives a policeman his authority? The law. What is the law? Words on a piece of paper. He exerts his authority through the use of that gun and its magic bullets, but the gun isn't his authority, the law is. If he shoots that gun at you in an unlawful manner, he can be punished by the legal system who gains its authority over the policeman through the law.

Economies are the same types of fabricated constructs that drag us above the barter system of "I give you chicken, you give me head." I think the biggest flaw in the particular capitalistic system we have today is that creation of wealth that comes from interest. It predicates the entire health of the economy on the ever-expanding growth theory, the idea that the economy must always be growing to be healthy. And the way the economy is set up, that's a true statement. But growth is not constant nor is it in anyway predictable, especially when it is susceptible to the whims of the mob. And we all know the mob is a rutting, easily-led, self-destructive force of nature that shifts its attitudes with the wind. Knowing that the entire foundation of our economic system is the creation of wealth through interest on deposits and loans, and that Islam has declared that paying interest on any sort of loan is evil, is it any wonder capitalist democracy and fundamental Islamism are at such loggerheads? Just to bring politics into the discussion.

I also think part of the problem in our discussion is that we are talking at cross terms. Some of us aren't differentiating between the creation of wealth and the creation of money, which ARE two different things.

I submit to you that based on the things I'm learning from slog's links and this discussion, an MMOG economy is LESS flawed than a real one because there IS a standard value that the currency is based on, and it is a factor which is almost completely controllable by a decent dev team. Sure, in comparison to a "real-life" economy, it's flawed, but only because it doesn't model all the intricacies of the capitalistic system, nor does it handle the sheer numbers that our real-life economy does.

And if the aim of simulating that type of economy is to be able to get even with the shitheels and monopolists and uberasstards, then modeling the real economy is the LAST goddamn thing you want to model. I mean, the Enron/Worldcomm/Tyco/Martha Stewart punishments are an ANOMALY when you talk about economic justice. Can anyone honestly say that Haliburton's executives shouldn't be punished as badly as Bernie Ebbers for all the Iraq-based fuckups they've committed? Other than maybe Triforcer that is. The truth of a capitalistic system is that without controls, profit > everything else, including the lives of people with less money, and the principles of social responsibility.

[AOFanboi]

Next GM borrows 2 Billion from Bank X.  GM takes the 2 Billion, and deposits the money in a new checking account at Bank X.

How much money do we have on deposit?
Before GM took out the loan, Bank X had 4 billion in checking accounts.  After the loan, they have 6 Billion in Checking accounts.

But two billion of those are balanced by two million in debt, owed transitively GM to bank and bank to savings account holders. Or, seen a different way, only the original checking accounts "own" the 4 billion in actual money. The rest is account balancing - which as anyone who have done books for a company know total 0. Cash is cash, the rest is just playing with numbers.

Yes, the bank pays interest on 6 billion (2+2 bn. real money, 2 bn. "pretend" money) in the savings accounts, but that is financed by the interest paid by GM on the 2 billion they borrowed - this is why banks charge more interest on loans than they pay to saving accounts, and why banks have to lend out most of the real money in saving accounts to make ends meet. Or go the Middle East route and leave out interest entirely.

So, subtract the 2 billion GM debt ("anti-money") from the 4 billion initial savings account (real money) and add the 2 billion real money deposited by GM, for a net total of - drumroll please - 4 billion.

If the original account holders withwraw the whole of the 4 billion, then the bank has to go to GM to get back the 2 billion real money that went there. If GM actually put that money in a savings account then they can simply do so, but in the real world GM would have invested that money (i.e. spent it); then the bank is in deep doo-doo since they cannot pay out more than 2 billion, since they don't have more real money. Then the bank would still owe the account holders 2 billion of the real money the borrowed from them in the first place; The other half of the real money has been spread by GM to others.

Car analogies suck, but anyway: Pretend that instead of 4 billion cash we have two cars. And I park them in your garage, allowing you to lend them out to others. But if that person lends his borrowed car away to a third person, and I come and want both of my cars, you the garage owner have a problem. But if the borrower parks the car in the same garage, you can just "transitively" take the car from the borrower and give it to me.

But all of that has fuck all to do with "infinite supply" MMORPG economies anyway, where all items and money are just numbers in some software. (Which in turn makes Sony's little eBay thing look like a scam since they are free to make their software produce the items that are sold. Fnord.)

[koboshi]

Um.. if everyone ran the banks in the US at once, and all deposits are covered by the US government, it would do the exact same thing. We don't even have to be bombed to hell and back.  All the withdrawls would be 'valid' because, hey, my bankbook says I have $X, so give me my damned $X.

Then everyone would have the now-useless funy-colored paper with the dead guys awful portraits and we could burn them for warmth, because they'd be shit-all for anything else.  There's no 'standard' it's based on other than the good-faith that everyone won't run the banks, and the US government won't collapse so all they can give you is the funny paper.  Yes, it's frightening, but that's how it is.

Wrong. The value of money is determined by two factors; whether or not people will accept it, and supply and demand. The secret that was discovered about a hundred years ago was that as long as the first was true then the second would be all you needed to determine value. I’ll try to explain this. If everyone in the market has, lets say for the sake of this example, an average of $100 in their bank accounts, some have more and some have less. Prices are going to be about right for a hundred dollar customer; some places will cater to the poorer and some to the richer. This is your run of the mill economy. Now let’s say everyone in this economy takes their money out, then the average cash everyone has on hand is $100. (This is of course sidestepping investment bankers, sorry guys)  The supply of money hasn’t changed the rich are rich, the poor are poor, and the average have about $100 to spend, and prices are still relevant. Or perhaps you could look at it this way, if you have a debit card in your wallet you are, in essence, carrying around all of your money in the same way as if you had withdrawn it all. With all the people walking around with debit cards in their pockets prices remain relatively the same, QED, merely having the money in hand is not enough to devalue it. So the system is based, not on any gold standard, but on the simple mechanics of supply and demand.

Of course this still begs the question can we rely on the money, will anyone accept it as cash. Well, why not? The value of the money is no different than it was before. The dollar is worth the same as it was the day before everyone took their money out of the bank. Furthermore why have a run on the bank? Is it perhaps because the people value the currency in their account?

The cases which he mentioned were of governments who took control of industry and started paying employees themselves. They did this because they wanted to stem the tide of unemployment in their countries. Their logic was that they could pay whatever they wanted to the labor force because they were the ones who made the money. The problem there was that money is only as valuable as the work needed to attain it, just because you add some zeros to a check doesn’t mean your making money. Or to put it another way the value money represents remains constant regardless of how much cash, or numbers representing cash, exist in the market. The real tragedy in both these cases was caused because the error was compounded by hundreds of thousands of workers over months and months. This is the lesson I want everyone to come away from my article with. You can’t pay people what you want them to earn just because you can. Just because you can print money doesn’t mean you can print value. You have to pay them what they earn, otherwise all you are doing is making the money you transact in worthless, and that hurts not only the worker you meant to support but everyone in the economy.

[koboshi]

And if the aim of simulating that type of economy is to be able to get even with the shitheels and monopolists and uberasstards, then modeling the real economy is the LAST goddamn thing you want to model. I mean, the Enron/Worldcomm/Tyco/Martha Stewart punishments are an ANOMALY when you talk about economic justice. Can anyone honestly say that Haliburton's executives shouldn't be punished as badly as Bernie Ebbers for all the Iraq-based fuckups they've committed? Other than maybe Triforcer that is. The truth of a capitalistic system is that without controls, profit > everything else, including the lives of people with less money, and the principles of social responsibility.

I get what you’re saying, but the people responsible for Enron/Worldcomm/Tyco/Martha Stewart are those who seek to provide structure to the society; the ones who allow tax shelters, the ones who allow no bid government contracts, the ones who hand out subsidies like they didn’t come from anywhere. The very problems I have with MMOGs. You and I agree, that kind of system is not helpful. If you are asking that the devs be the ones who control these entities then you and I may differ on that point, but if you want those oversights then you need to get the devs working on that kind of thing. Now all they are doing for the economy is working their hardest to create a heaven for these types.

Also, a nit pick, don’t let the concept of 'money is power' lead you to believe that the opposite is true. Power is so much more than money. Case in point, if I wanted I could kill the heads of Halliburton, which would cost me the price of a rifle and ammunition. Power > Profit. Although to translate that into the games would require PKing and that’s a different discussion.

[Strazos]

Knowing that the entire foundation of our economic system is the creation of wealth through interest on deposits and loans, and that Islam has declared that paying interest on any sort of loan is evil, is it any wonder capitalist democracy and fundamental Islamism are at such loggerheads? Just to bring politics into the discussion.

Interesting little tidbit I learned recently: Not only are there Western-style banks in the Near East (which charge interest), but there are also native Arabic banks that have "found" ways to circumvent the banking stipulations of the Koran in order to charge interest.

[Pococurante]

It took the Western world a few centuries to find those same "ways" around the Bible's injunction against usury.  In the meantime they harvested the Jews.

[Llava]

I was a crafter in DAoC.

You've summed up exactly why I quit DAOC in disgust.  My preferred playstyle is merchanting.  I simply could not compete against "guild mules" (not trying to be insulting) who viewed crafting as a necessary inconvenience subsidized by friends.  Nor was crafting at that time even much fun - it was the worst kind of crafting implementation I had ever seen in a MOG at that point.  DF was the final straw for me simply because at that point players overwhelmingly preferred "free" drops or there was someone like yourself just being a nice guy and helping friends out.  (I'm not ripping you - given the implementation your approach was more sane than mine)

I finally agreed "this was not the game for me" ( ) and moved on, never looking back.

Oh I don't really care one way or the other- like I said, I'm pretty sure that the crafting I did hurt the crafting economy.  But like I said, and like you've said, it wasn't the fault of the people using the system efficiently- it was the fault of the system designers for making that the most efficient way to use the system.  Like I said, I could ONLY make money with my crafter by salvaging/trinketing.  Any other money made was unreliable and usually accidental.  So what's really sad is that the most reliably profitable thing a crafter can do involves buying resources from other players and then dumping those resources into the NPC black hole, creating more money in the community in the process. (I pay 1000 gold to a player to buy Diamond Seals from him, take those seals to an NPC and trade them for armor, salvage the armor for its metal bars, turn those metal bars into metal hinges, sell those metal hinges to an NPC for about 1500 gold.)  The whole process ends with no additional resources for the community- just more money.  Fortunately the seals themselves were protected from inflation, because you could only make so much money from each one and anyone trying to charge crafters more would find no buyers. 

But with lots more money in the community, it took far more money to impact a player's bank roll, and I think what really killed the economy is that Mythic allowed inflation by charging so much for player housing.  So the bar is raised, more money is passed around, more money comes out of thin air, and suddenly a sword you could've bought for a few platinum a year ago is suddenly worth 30 platinum (or would have been, except that that particular sword is now useless and won't sell for 100 gold- but let's just say "a sword of equivalent modern value".)  The process continues to the point that anyone trying to make money from crafting has to spend all their time trinketing to make decent money, and anyone not crafting has to spend hours upon hours trying to collect seals in the hundreds instead of dozens just to get together enough money for a neat new weapon, which means everyone is spending more time trying to make money and less time doing the stuff they want to do, so less fun is being had overall.

Or you just get into an uber guild and skip the whole process, farming for the items with 7 friends and not allowing anyone else to join in your circle because it's just another mouth to feed, so the community eventually fractures into a bunch of minicommunities.  The richest and most successful people never interact with people outside their circle, the social community of the game dies (or becomes vicious and competitive as people argue about spawns and drops rather than working together to achieve a goal) and the people who do regularly interact with people quickly fall into the "have-nots" category as they drop behind the curve either because they don't sequester themselves away to turn bars into hinges, or they don't seal themselves in their guild homes and run off all potential competitors.

Sounds like fun.

Course, I back this up with nothing but what I saw and instinct.

[Roac]

Slog, you might get more people to read your links if you weren't trying to be such a condescending douchebag.

Not knowing how something works is one thing.  Willful, active participation in intellectual depreciation is something else, and equivalent in practice to the Kansas School Board, just with a different topic du jour.  People can either ignore the subject, read for their own benefit, or get laughed at for talking nonsense.  Better a condescending douchebag than a jejune flapping head.

[Roac]

The truth of a capitalistic system is that without controls, profit > everything else, including the lives of people with less money, and the principles of social responsibility.

That's the problem with the philosophy of allowing rampant capitalism within a game; it's just PK with moneyclips.  Instead of running you through with a sword and /bow over your corpse, players can rape your wallet by controlling resources or production and forcing you to /bow for the 'privledge' of buying whatever you're selling.  Neither experience is particularly enjoyable for the average consumer, because the average consumer is not a Enron/Worldcomm/etc that can leverage much power - whether IRL or in a MMOG.  Not to mention the sheer impracticality of trying to setup an investment system of any sort in a game.

The article should be mostly tossed out at this point, in terms of consideration of the issues.  The real harm that inflation does to a MMOG economy is nothing like a RL one; the practical effects are that it puts non-controlled items out of reach of most players.  Anything with limited supply rockets in value, because its value is not checked by the forcefully stablized NPC market, or massive supply (ie, the 10,000 craftable foozles needed to gain your next 0.1 skill).  The high end market becomes very, very high end, because the high end players are able to capture the market.

What's so bad about having an exclusive market?  Well, it locks out part of the game to most players, and this IS a bad thing.  When I buy a single player, I can expect to be realistically able to unlock all of the content.  I'll get 90%+ on my own, and any hidden stuff I miss I can discover with guides I find online.  With 10-40 hours of play, I can become the complete hero.  In an MMOG, I can't come close.  If I put in 5-10h per week, for a year, there will still be a fair amount of content that I am entirely shut out from.  It's good that MMOGs always have goals that players should strive for, but not goals that are out of reach because inflation is rising faster than the amount of time I'm able to participate. 

Inflation does *not* damange an MMOG economy by destroying business and causing recession.  My character doesn't need to eat, drink, have a hosue, etc.  Because the nature of the economy is different, the nature of the solution is bound to be different.  There are similarities to a RL market, and knowledge of how RL markets work can be invaluable when trying to design a virtual one, but lines need to be drawn between each set of issues.  Two things that need to be understood;  (1) what are the problems facing a MMOG economy, and (2) what are the tools available that can help combat them?  For each of those items, there are some things from a RL market that are similar, but some that are not.  There - now start to categorize.

[HaemishM]

Slog, you might get more people to read your links if you weren't trying to be such a condescending douchebag.

Not knowing how something works is one thing.  Willful, active participation in intellectual depreciation is something else, and equivalent in practice to the Kansas School Board, just with a different topic du jour.  People can either ignore the subject, read for their own benefit, or get laughed at for talking nonsense.  Better a condescending douchebag than a jejune flapping head.

Sure, willful ignorance is worse than being a condescending douche. But this is a discussion of somewhat friendly yet heated terms. Being a condescending douche is much more likely to just get people to leave the discussion or ignore your points entirely, meaning no education, learning or real discussion can be had. It's almost exactly like the problems we have with the American political system now, everyone is being a condescending, self-righteous douchebag and neither side is doing the slightest thing to understand the other side's points. We can have a rational discussion without being complete cockmunchers to each other. If we're only half-cockmunchers (head-nibblers?) maybe we can come to some form of consensus on the issues.

What's so bad about having an exclusive market?  Well, it locks out part of the game to most players, and this IS a bad thing.  When I buy a single player, I can expect to be realistically able to unlock all of the content.  I'll get 90%+ on my own, and any hidden stuff I miss I can discover with guides I find online.  With 10-40 hours of play, I can become the complete hero.  In an MMOG, I can't come close.  If I put in 5-10h per week, for a year, there will still be a fair amount of content that I am entirely shut out from.  It's good that MMOGs always have goals that players should strive for, but not goals that are out of reach because inflation is rising faster than the amount of time I'm able to participate. 

You know, that's a good distallation of what's wrong with MMOG's in general, not just in economic terms. The game designs actively strive to make sure that 90% of the player base simply ever hope to access more than say 60% of the content in a reasonable amount of time. And players who can somehow maximize their time/organization are not only able to access all of the content, they are able to restrict other player's access to said content in some form or fashion, whether economically or directly.

[Roac]

You know, that's a good distallation of what's wrong with MMOG's in general, not just in economic terms. The game designs actively strive to make sure that 90% of the player base simply ever hope to access more than say 60% of the content in a reasonable amount of time. And players who can somehow maximize their time/organization are not only able to access all of the content, they are able to restrict other player's access to said content in some form or fashion, whether economically or directly.

To get a little off topic, the essense of that argument is why I am pro PvP despite the whole "it destroys the playerbase" whines of some.  In short, PvP is just another form of competition.  The problem with most PvP systems is that it allows a minority to dominate the way the game is played in order to exclude content to a majority.  It isn't competition for some secondary goal, it's competition to continue to compete, but this is only a result of how the game rules are setup; ID hasn't gone out of business because they include PvP.

Likewise, economics can spur competition or it can kill it.  This is why monopolies and trusts are verboten IRL; they destroy competition, which is the lynchpin of capitalism, even as they are a natural product of it.  The trick as always is to encourage participation, not exclude it.  Systems need to reward winners, but only to a point.  Excessive winning needs to have diminishing returns, or require advance into other areas.  There is already self-feedback in any of these systems, in that people who start to win tend to continue, because they are better enabled to earn skills neccessary to compete.  There needs to be some measure of negative feedback to help brake growth of the top-end winners.  Soon as a small group is able to "win" at your game, it means everyone else lost, and you'll find that you don't have to have PvP for the wolves to eat your sheep.

[HaemishM]

In real life, one of the things that eventually destroys the winners is the cost of maintaining the spoils of victory. In military terms, the more land you conquer, the less resources you have available to keep conquering because of all the resources necessary to hold your conquered lands. Monopolies in business I believe really only have this problem when there are still competitors to face them. Once they are the only option for a particular product, they have no incentive or need to spend as many resources to maintain their market dominance. I think it takes a lot longer for a monopoly to grow so complacent that a competitor is able to mount any kind of challenge than it does for a conquering army.

MMOG's, on the other hand, have almost no mechanisms built in that make it harder for the winner to keep winning. If anything, it becomes exponentially easier. Item decay helps, but people whine, and since item decay hits everyone, it isn't really much of a help. And of course, those focused on PVE development don't really consider their game a competition.

[slog]

Wrong. The value of money is determined by two factors; whether or not people will accept it, and supply and demand.

I'm back for more abuse. 

   The secret that was discovered about a hundred years ago was that as long as the first was true then the second would be all you needed to determine value. I’ll try to explain this. If everyone in the market has, lets say for the sake of this example, an average of $100 in their bank accounts, some have more and some have less. Prices are going to be about right for a hundred dollar customer; some places will cater to the poorer and some to the richer. This is your run of the mill economy.

Ignoring the secret part that was discovered in 1905, sure I'll buy that.

Now let’s say everyone in this economy takes their money out, then the average cash everyone has on hand is $100. (This is of course sidestepping investment bankers, sorry guys)  The supply of money hasn’t changed the rich are rich, the poor are poor, and the average have about $100 to spend, and prices are still relevant.

ok,

first, this is not Investment banks, it's regular banks.
second, the whole point of banks is that they take the money out of your accounts, and lend it out to other people, hoping to god that not everyone comes to get it out at the same time.

 Or perhaps you could look at it this way, if you have a debit card in your wallet you are, in essence, carrying around all of your money in the same way as if you had withdrawn it all.

No, Carrying around a debit card is exactly the same as carrying around a checkbook.  It's still money in a bank that is lent out and the bank is praying to God not everyone cashes it in at the same time.

With all the people walking around with debit cards in their pockets prices remain relatively the same, QED, merely having the money in hand is not enough to devalue it. So the system is based, not on any gold standard, but on the simple mechanics of supply and demand.

It sounds like what you are saying is this:  Prentend there is no banking system whatsoever, and eveyone has a single 100 dollar bill in their possession.  At the same time, everone changes in their 100 dollar bill for 5 20 dollar bills.  There is no net change to the system.   
Leading you to say this...

Of course this still begs the question can we rely on the money, will anyone accept it as cash. Well, why not? The value of the money is no different than it was before. The dollar is worth the same as it was the day before everyone took their money out of the bank. Furthermore why have a run on the bank? Is it perhaps because the people value the currency in their account?

  Because there is no bank.   If their was a bank, it would have gone out of business long ago since it had no money to lend out.

The cases which he mentioned were of governments who took control of industry and started paying employees themselves. They did this because they wanted to stem the tide of unemployment in their countries. Their logic was that they could pay whatever they wanted to the labor force because they were the ones who made the money. The problem there was that money is only as valuable as the work needed to attain it, just because you add some zeros to a check doesn’t mean your making money. Or to put it another way the value money represents remains constant regardless of how much cash, or numbers representing cash, exist in the market. The real tragedy in both these cases was caused because the error was compounded by hundreds of thousands of workers over months and months. This is the lesson I want everyone to come away from my article with. You can’t pay people what you want them to earn just because you can. Just because you can print money doesn’t mean you can print value. You have to pay them what they earn, otherwise all you are doing is making the money you transact in worthless, and that hurts not only the worker you meant to support but everyone in the economy.

I think you are trying to say, "if you double everyone's pay, and just print money to pay everyone, it doesn't mean anything."

It doesn't mean anything if you don't have a banking system. 

[Strazos]

I think the problem is that while some people are dealing with absolutes, Slog is dealing with accouting tricks and playing with banking balence sheets.

[Pococurante]

/shrug

I'm always happy to learn something new - that defines a good day for me.  But this *is* a thread about game economies... ;)

[slog]

I think the problem is that while some people are dealing with absolutes, Slog is dealing with accouting tricks and playing with banking balence sheets.

The basic problem is this.  The author of the article assumes there is 1 paper dollar for every dollar in the bank, so everyone can just go to the bank and withdraw their cash.  That's just blatantly untrue, due to how banks works.

[koboshi]

I think the problem is that while some people are dealing with absolutes, Slog is dealing with accouting tricks and playing with banking balence sheets.

The basic problem is this.  The author of the article assumes there is 1 paper dollar for every dollar in the bank, so everyone can just go to the bank and withdraw their cash.  That's just blatantly untrue, due to how banks works.

It’s an MMOG, you DO walk around with all of your cash on you, there are no banks for people put their money in. Despite what your ego tells you that gets you up every day you go to work, investment bankers are not a necessary part of capitalism. The economic model I was demonstrating was one where a bank is not required in any form. As such, we needn’t worry about the lie that is our 'real world economy' and the inevitable apocalypse that it will cause. In the system defined by the article I do believe we have little to no problems with each others viewpoints, anything regarding our disagreements on how it works 'IRL' we can take to the politics forums.

[slog]

It’s an MMOG, you DO walk around with all of your cash on you, there are no banks for people put their money in. Despite what your ego tells you that gets you up every day you go to work, investment bankers are not a necessary part of capitalism. The economic model I was demonstrating was one where a bank is not required in any form. As such, we needn’t worry about the lie that is our 'real world economy' and the inevitable apocalypse that it will cause. In the system defined by the article I do believe we have little to no problems with each others viewpoints, anything regarding our disagreements on how it works 'IRL' we can take to the politics forums.

1) Investment bankers?  What are you talkng about?

2) Without Banks, you will never get beyond a Barter economy, which is why MMORPG economies fail completely.

[Glazius]

I think the problem is that while some people are dealing with absolutes, Slog is dealing with accouting tricks and playing with banking balence sheets.

The basic problem is this.  The author of the article assumes there is 1 paper dollar for every dollar in the bank, so everyone can just go to the bank and withdraw their cash.  That's just blatantly untrue, due to how banks works.

Banks do have a lot of their money out on loan at any given time. It's how they make _more_ money, right?

In theory the only obstacle to everybody making a run on the bank at once would be logistical - printing enough money to provide everyone with those paper vouchers. But then the bank's got nothing but outstanding debts to collect on and it's not likely to lend out _more_ money to anyone - so in practical terms banks will usually put a cap on how much money you can take out at a time.

In a barter economy, if you work for Farmer Brown and he promises to repay you in corn - after the first time you try to collect in the middle of summer with the corn as high as an elephant's knee, all future agreements from Farmer Brown will include the phrase "WAIT FOR THE HARVEST, ASSTARD". Same principle.

--GF

[slog]

I think the problem is that while some people are dealing with absolutes, Slog is dealing with accouting tricks and playing with banking balence sheets.

The basic problem is this.  The author of the article assumes there is 1 paper dollar for every dollar in the bank, so everyone can just go to the bank and withdraw their cash.  That's just blatantly untrue, due to how banks works.

Banks do have a lot of their money out on loan at any given time. It's how they make _more_ money, right?

In theory the only obstacle to everybody making a run on the bank at once would be logistical - printing enough money to provide everyone with those paper vouchers. But then the bank's got nothing but outstanding debts to collect on and it's not likely to lend out _more_ money to anyone - so in practical terms banks will usually put a cap on how much money you can take out at a time.

In a barter economy, if you work for Farmer Brown and he promises to repay you in corn - after the first time you try to collect in the middle of summer with the corn as high as an elephant's knee, all future agreements from Farmer Brown will include the phrase "WAIT FOR THE HARVEST, ASSTARD". Same principle.

--GF

You are correct, Banks don't lend out all their money, as they need on-hand cash to handle the daily withdrawels.  One of the Feds tools for manageming money is the "Reserve Requirement" or percentage of cash the banks can't lend out.

The point I'm trying to make is that it's silly to compare the money supply in a MMORPG to the real life money supply.  In Real Life, a regulated Free Market economy has numerous checks and balances to keep the money supply inline. 

A MMOPRG has none of these.  It's all fountains and sinks.  Money gets instantly created by farming and gets instantly destroyed by NPC Merchants, etc.  Therefore, it's not even worth trying to make a MMORPG econ look like a real one.

[Pococurante]

Therefore, it's not even worth trying to make a MMORPG econ look like a real one.

Well I was nodding my head until the last statement.  I don't think anyone is advocating an exact simulation of the real world.  Just something with enough symbolic similarities that we can have some complexity in our entertainment.

Anyway it's a shame because this really is a relevant topic but we can't seem to get past agreeing there is something missing and instead focus on constructive approaches.  Like this maybe.  I don't need someone to tell me when something is broken especially when the topic of virtual economies has been nosed around since the military-industrial complex's invention of electronic machines.

[Train Wreck]

Surely it's still fair game to write about if no-one has got it right yet ?

Certainly but I didn't see anything new in Koboshi's analysis of the problem.

It was probably new to a lot of people.  Not everybody has been involved with MORPGS for as long as some of us have.  I love a good economics discussion as pertaining to both real-world and online game situations, and anything that stimulates it is good, IMO.  As to the content of the article, it was an interesting read.

(My apologies if I repeat what has already been discussed, as I have not yet read the four pages of discussion.) 

The definition of inflation was a bit off.  Inflation is when the money supply outpaces the supply of goods.  In other words, it's when money supply outpaces economic growth.  Inflation in itself is not inherantly bad; runaway inflation is.  In a healthy economy, money supply is always a bit ahead of the curve, and an annual inflation rate of 3% reveals healthy economic growth.  This is because when people get more money, they generally want to spend it.  A good economy will allow them to get more by spending more (such as spending two gold to get two loaves of bread).  An inflated economy will cause them to spend more to get the same (spending two gold to get one loaf of bread).

[koboshi]

You are correct, Banks don't lend out all their money, as they need on-hand cash to handle the daily withdrawels.  One of the Feds tools for manageming money is the "Reserve Requirement" or percentage of cash the banks can't lend out.

The point I'm trying to make is that it's silly to compare the money supply in a MMORPG to the real life money supply.  In Real Life, a regulated Free Market economy has numerous checks and balances to keep the money supply inline.  

A MMOPRG has none of these.  It's all fountains and sinks.  Money gets instantly created by farming and gets instantly destroyed by NPC Merchants, etc.  Therefore, it's not even worth trying to make a MMORPG econ look like a real one.

[Spit Take]
I agree with you!
Well… at least as far as Pococurante does.

I don't need someone to tell me when something is broken especially when the topic of virtual economies has been nosed around since the military-industrial complex's invention of electronic machines.

Maybe you don’t, but someone does. Why else would it still be a problem? But I take your point and I agree it’s about time to move on to answers.

I too made a suggestion in that forum, but my idea was really only half a reaction to his problem. The other half was that in a system like I mentioned in the post the collateral funds could be used as an indicator of money's acceleration within a game. because every gold piece (or whatever) used for collateral is locked by the agreement you know that that money cant be used, and as such the money is out of the system and the other money is more valuable. (Yes Slog, I realize I am gaily tripping back to the very subject of our last disagreement but this is just a suggestion and if it doesn’t work there are always others.) The basic aim would be to lock up money at least for some time which would allow for a slowing of inflation. (The money that is locked away cant increase with inflation so the money acts as a dampener on the acceleration of money not in treaties) The money which is locked in these treaties would be something devs could observe as a function of economic progress in the system they oversee. the system also doesn’t require such interactions so unlike reserve rates IRL, which the lay person might see as the devs just taking their money, players would lock themselves into these agreements and as such would only have themselves to blame.

[Pococurante]

It's an interesting approach - I'm not sure that an Al Gore lockbox would be looked upon fondly by most large guilds.  But keep the money in flow somehow, force opportunity costs to be figured in, overlay a minigame that is actually the overarching strategic distinction between guilds - that gives a semblance of motion and action.  But then I'm just rationalizing the strawman I floated in that other thread.   I'm exactly the kind of person who would revel in that sort of playstyle while the other officers of the guild would be freed up to just plan the evening's tactics.

Fundamentally my strawman is a glorified sink that represents an investment in the guild's ability to compete.  I honestly think the real solution is putting in more sinks than fountains, rewarding the player for playing the various sink minigames rather then pissing them off with equipment repairs etc.  Emphasizes the carrots.

Freezing the supply is just punitive enough I'll bet five dollars against two dead flies most guilds would spend their creativity trying to get around it.  It's a stick and it's cool to show off ways to subvert it.

[Swede]

Ehu...pardon my english, im from sweden, the almost working socialist county...

Fiat money: money without no intrinsic value. Value is instead established by a government decree, a fiat..)
which is the opposit to
Commodity money: which have an intrisic value, often Gold!

MMORPG money is always of the later kind, which IS a problem since only about half of the game (all npcs) have actually seen the govenmental decree that it actually have value..=)

Usually we try to assign two or three different kinda "costs" to society from inflation. The two foremost are the "shoeleather cost", since we wear out our soles when we have to grab more money in the bank more often, and "menu cost", since resturants have to print new menus when prices change. The third one is related to taxation, being that it hurts a non-indexed taxation system. Then there is the annoying fact that with inflation we cant really say how much the currency is worth. Imagine trying to figure out if a highjumper broke a world record if the lenght of a centimetre (or whatever you use oversea) would variate.
Keep in mind, we are talking about inflation, and NOT hyperinflation, which is another matter.

However, what the OP is talking about as something that would hurt us is "Seigniorage"! Seigniorage is the benefit govenments get by printing money. OP had the base down correctly, by printing more money, they indirect lessen the value of money already out in the society. Inflation can be regarded as a tax on holding money. However, in a mmog the inflation is not a result from a govenment issueing more money, but from players playin.

The issue boils down to the speed that every individual accumulates money at. If you accumulate it faster than someone else, you will gain RELATIVELY more for your time than he will.. Basicly, by earning alot of money fast, you can "tax" his money!

Btw, THAT is the real problem with moneyfarmer.. Not that they farms, but that they are able to "take" your money!


However, its not all bad.. Inflation vill help you pay the costs that arent effected by it, namely everything related to NPC (horsies in WOW par example) purchases.


(in real life, inflation have some benefits too! For example, some inflation is generally wanted by employers, since it facilitates lowering wages at poor times)


I would prolly recommend to do away with money. Players will automatically establish the basis of a working economy (which IS NOT the same as a basic market!). Anyone who ever played diablo will draw parallells to how SoJ were used as currency.

Regulating markets to prevent market failures is ALWAYS bad for the economy. If noone wants to pay Tradeskill Joe for his cannon, that isnt an economical problem, but a problem with the quality of the tradeskills. Trying to ease the balancing with economical restrictions is, at best, a poor clutch.


Why dont MMORPGproducers employ economists?! HIRE ME!..)

I didnt proofread.. I know i misspelled country in the opening paragraph

[HaemishM]

If noone wants to pay Tradeskill Joe for his cannon, that isnt an economical problem, but a problem with the quality of the tradeskills.

Unless his cannon is of such fine quality, he charges more for it than the market can bear. Or no one needs the cannon, because there is peace on. His cannon is perfectly acceptable quality, but the market has no demand. I'm not in favor of subsidies myself, but it's a gross oversimplification to say the quality of his tradeskills are the problem.

[Swede]

Ok - i can take the peace.. The cannon might have been a poor choice as an example.. You can safely exchange that for anything you feel is ok in peacetime.. Food perhaps..)

And omg howcan you say that the quality is no problem when the first example you provide states exactly that..).? If noone feel that they have enuff wealth to spend on his uber cannon, its NOT an economical problem, but an itemization one!

Demand is NOT a result of PRICE.
PRICE is a result of demand!

--------

The point i want to make is that a economic system have no impact on gameplay per se (barring market failures induced by producers, like segniorage) . Its there to facilitate the transaction of value between two actors. The whole market (as a market) is simply a human device to provid easy solutions to alot of the issues we would have without it. Start to blame game related issues on it, and you fail to adress the real problems..)

[koboshi]

The point i want to make is that a economic system have no impact on gameplay per se (barring market failures induced by producers, like segniorage) . Its there to facilitate the transaction of value between two actors. The whole market (as a market) is simply a human device to provide easy solutions to alot of the issues we would have without it.

The choice of economic system has a very real impact on MMOGs. It is true that it is not an obvious one, it’s more subtle than that, but it’s hard to rant about subtle. When a development team gets down working on a new MMOG they spend their time split between the many tasks set before them. Tasks that include the development of gameplay, lore, quests, and world design, as well as backend development like graphics and server protocols. When a programmer or designer is working on any of these functions they are spending development time and money. But if those involved with developing these aspects don’t understand the economics involved they are wasting their time.

For example, when a designer makes a quest they must assign an award to it, if that award is devalued by inflation no one will play that quest and that dev has spent development time and money on a worthless addition to the game. Same is true for lore, it doesn’t matter who the king is, was, or could be, because it doesn’t change the price of a sword. Even world design is important to some extent. If there is only one marketplace which is shared throughout the world it will mean that there will be too much competition for the market to employ more that a dozen crafters. That in turn means that any programmers working on crafters are for the most part wasting time and money by spending there effort on something that will only employ a handful of players. Hell, even the use of global chat has an economic effect. On the one hand by shrinking the market the same way a world market does, and furthermore by removing the need for meeting places which reduces or removes the value of housing, security, and transport.

The unfortunate truth is that it is nearly impossible to be laissez faire about economics in games. The only way to would be to remove venders, missions, loot, gold drops, and gold sinks. I am not, nor would I, advocate that.

Or to approach from a different angle, consider what you stated above. “[An economy is] there to facilitate the transaction of value between two actors.” What else is an MMOG? If value transaction isn’t involved it’s either a single player game or a chat client.

MMOGs are economies.

[Swede]

..)

For me there is no "...choice of economical system.." as there is no alternatives available. The fact that a producer spend time working on a quest that rather were made redundant due to what you call inflation is, again,  not an economical problem!

Said producer sealed the fate of the quest at the moment other alternatives were made available with better "risk vs reward" or "hourly wage" or whatever term you wanna use. Economical systems is not a "choice" alá "oh do we want to use economics?", but a direct result from everyday transactions.

An ideal mmorpg "market" for me WOULD be governed in a laissez-faire style. Trying to emulate real life economical and market system has, I feel, proved it self to create more problems than it actually solves!

Provide players with imput (material, items, etc etc) and a fully functioning market system willl establish itself! There is countless of examples you could focus your attention on, rangin from the already mentioned "SoJ as currency" to the fact that players naturally focused their commerce in EQ to NC or GFAY (minimizing transactioncost as you already pointed out).

Of course - this would depend on that there is no npc vendors of any sort in the game..) Ie that its either the players thet tame and sell horsies, shear sheeps and make bandages, and melt ingots to provide you with swords, or that you provide the basic utensils with the real currency as a cost, namely timeconsuming quests..)

Inflation WILL persist as long as the base imput available to all players (TIME!) will yeild different rewards for different actions! Trying to prevent this is fruitless, and time should be better spend on trying to correct the root of the problem, the design of the mmorpg.

[koboshi]

..)

what is that? what does it mean?  Why do you keep using it?

The fact that a producer spend time working on a quest that rather were made redundant due to what you call inflation is, again,  not an economical problem! Said producer sealed the fate of the quest at the moment other alternatives were made available with better "risk vs reward" or "hourly wage" or whatever term you wanna use

  The problem is that the developer should have created an NPC who understood what money was worth (or not made an NPC at all). Your point is a good one, there is a best quest and it will make it unreasonable to take any other quests, but that’s an economics problem too! I'll show you how that problem, and the one I was originally referring to, occurs.

  As it is now, an NPC is programmed to give, say for example, 10 gold pieces for completion of a quest.  Let us also say that the quest was not the most time efficient one. In that case players would go to more efficient quests. At this point if an NPC acted like it should (meaning it acted as if it were aware of the fact that no one was going to help it) the NPC would raise the reward to entice players to come and help them. Also, if everyone was clamoring to do the same quest the NPC in charge of that quest should lower its rates because supply of labor is so high. This means that the peaks and valleys of quest payouts should fluctuate. But let’s go further, as inflation occurs players go to more efficient quests like running to higher ground in a flood. As it rises it will drown even the best quest, when that happens players will claw over each other to get above the rising tide of inflation. At this point much of the gold a player is gaining is not from questing but rather from other players. This vision of a writhing boil of players struggling to float as the living eek out another second of life only by climbing on the drowning bodies of their brethren is what I think of when someone speaks of the endgame. At this point the time and money that the development team put into developing quests has been rendered absolutely worthless.

  The developer should have made it so that the NPCs would act like anyone else would have and raised the pay when labor supply was low and then raised it again when the value of money changed, that they didn't is an economic problem. Although I do agree that it isn’t a problem of economics but rather a problem of the developer's which affects the economy.

.For me there is no "...choice of economical system.." as there is no alternatives available.  Economical systems is not a "choice" alá "oh do we want to use economics?", but a direct result from everyday transactions. An ideal mmorpg "market" for me WOULD be governed in a laissez-faire style. Trying to emulate real life economical and market system has, I feel, proved it self to create more problems than it actually solves!

  Oh, so there is no choice, but if there was you would chose free market…

  The economical choice is, in which way you should, or shouldn’t, interfere with the economy (socialist vs. free market) and to which ends you should steer the economy (growth vs. employment).

  But that isn’t what I was talking about.  It is impossible to be laissez faire because the developers make the world in which the economy functions. Every decision from where to place the resources and in what quantity to how the game designers drew each different piece of clothing has an effect on the economy.  An economy is fluid; it will take the form of the vessel to which it is confined. Developers may not directly form the economy but they will form its container. By making the game they make the choice of economic system, the problem is that they forget, or ignore, the fact that they are making choices and so the resulting economy fails.

Provide players with imput (material, items, etc etc) and a fully functioning market system willl establish itself! There is countless of examples you could focus your attention on, rangin from the already mentioned "SoJ as currency" to the fact that players naturally focused their commerce in EQ to NC or GFAY (minimizing transactioncost as you already pointed out).
Of course - this would depend on that there is no npc vendors of any sort in the game..) Ie that its either the players thet tame and sell horsies, shear sheeps and make bandages, and melt ingots to provide you with swords, or that you provide the basic utensils with the real currency as a cost, namely time consuming quests..)

  That’s one possibility but not the only one. Another option is for the NPCs to follow inflation, by raising prices and rewards. Yet another option is for monsters to increase in difficulty relative to the average strength of players. But there is truly a full spectrum of possibilities, not all of which would be so drastic a change as to remove the NPC element completely.