A Virtual Weimar: Hyperinflation in a Video Game World
May 26, 2013 6:09 AM   Subscribe

A culmination of a series of unanticipated circumstances — and, finally, a most unfortunate programming bug — has over the last few weeks produced a new and unforeseen dimension of hellishness within Diablo 3: hyperinflation. [via]
posted by Pyrogenesis (95 comments total) 17 users marked this as a favorite
 
I've think that Path of Exile's attempt to mitigate this problem is fascinating -- Instead of "gold", Path of Exile has various "currency" items, all of which are consumables.
posted by Proofs and Refutations at 6:21 AM on May 26, 2013 [1 favorite]


So does this mean Austrian Economists have given up on studying real economies?
posted by aw_yiss at 6:32 AM on May 26, 2013 [16 favorites]


EVE is the only game that actually understands its economics; and their game managers chortle with glee when a player corporation manages to corner the market on an important element...

You can even check out a stock ticker.
posted by sonic meat machine at 6:33 AM on May 26, 2013 [3 favorites]


With a reasonable facsimile of virtual GDP (game hours played, perhaps, or real world currency spent on subscriptions) you ought to be able to target Nominal GDP to some fixed nominal growth rate, including zero or a monthly rate well below hyperinflation. Seems like it would work as well in the game as it has recently worked in Japan, Australia, and Israel, and better yet, it could be used to gather evidence for the NGDP targeting that might persuade real central bankers in the US and EU.
posted by anotherpanacea at 6:37 AM on May 26, 2013 [1 favorite]


So does this mean Austrian Economists have given up on studying real economies?

Hopefully this is rather their first step towards the realization that they never did.
posted by Pyrogenesis at 6:54 AM on May 26, 2013 [23 favorites]


First sentence pretty much blows the credibility of the source.
As virtual fantasy worlds go, Blizzard Entertainment’s Diablo 3 is particularly foreboding.
Yeah.

EVE Online is worth bringing in for the distinction it makes between intra- and extraludic attempts to break the system. So, there was a kind of inflation bug when Inferno was launched. That pack made it possible to get Faction Points by blowing up enemy faction ships, which could then be traded for items in-world. Somebody worked out that you could buy up the entire stock of an item and then massively hike its price. Nobody would want to buy it, but you could get a friend in a rival faction to blow up the ships you had loaded with it. Those registered as high-value targets, so the friend would get a huge dollop of points - hugely in excess of the price you bought the item for - and could use those to buy items which you then split.

In that case, CCP decided that this was exploiting a bug in the game (because that's not actually how markets work) and stripped the players who were using it of the profits and items they had made as a result of it. However, the "Burn Jita" campaign of destruction against the trade hub of Jita, which was intended to damage the economy and make "high-security" space unsafe - that is, an act of terror - was not just permitted but enabled by putting the Jita system on the most robust server.
posted by running order squabble fest at 6:55 AM on May 26, 2013 [11 favorites]


Diablo 3 would be an interesting economic model if the developers took it seriously.

Hyperinflation can not be measured in the D3 economy at all, since valuation can not be determined at all given huge central control factors, some of which this article goes into.

The conclusion that 'by all accounts, Diablo 3 is a great game..." is unreasonable. Diablo 3 is hugely unpopular.
posted by flyinghamster at 7:01 AM on May 26, 2013 [1 favorite]


The conclusion that 'by all accounts, Diablo 3 is a great game..." is unreasonable. Diablo 3 is hugely unpopular.

I think you're confusing something being unpopular with something inspiring a bunch of people to whine online. In reality, Diablo 3 is fucking huge and will probably sell a bunch more when the PS3 version comes out.
posted by Pope Guilty at 7:05 AM on May 26, 2013 [5 favorites]


Good article - thanks.

Neverwinter is a relatively new MMORPG (they're in 'open beta'). They had a nasty bug last weekend that allowed players to put in negative bids on the auction house which would earn them the item they bid on and the amount of money they bid. The market flooded with cash (well, it's a bit more complex than that, but it'll do as a summary).

The most expensive tradeable item purchasable with that cash are mounts, specifically great cats. The market zone became full of comments from people trying to buy or sell cats.

In this case they seem to have taken it fairly seriously - they rolled back the game to before the majority of the cheating happened (basically undid several hours of play for everyone in the game) and patched the bug. They also permanently banned the exploiters.

They also gave a goodie bag to all the players as compensation for surviving 'Caterday'.

The economy does seem to be recovered now (not that I look too closely). I still get spam from gold farmers, though, so things are still far from perfect.
posted by YAMWAK at 7:06 AM on May 26, 2013 [2 favorites]


Way the fuck back in, what, 2003? 2004? Kingdom of Loathing had a bug that would give you millions or billions of meat (KoL's currency) every time you used the money. KoL didn't roll anything back, and let everybody keep the "bugmeat". It totally changed the game, leading to people not valuing meat at all for a couple of years because there was just so goddamned much of it. Radio KoL, a Shoutcast station operated by and for KoL players, had several DJs who would give away ridiculous amounts of meat, including the "Big Meat Show" would would give away millions and millions of meat. One of the community's most popular members, Bashy, was giving away formerly expensive food and booze (the means with which one gains extra turns per day) in days' supply quantities for the minimum amount you could charge.

There were a ton of gold sinks and so on; I'm sure rifflesby could say more on the subject.
posted by Pope Guilty at 7:20 AM on May 26, 2013 [5 favorites]


It was pretty broken long before this bug, I'm glad they addressed it to some degree but I think there wasn't enough emphasis on how stupid the RMAH turned out to be. For the first... I dunno, week or so, people were making some crazy money there. But the nature of Diablo's items is that 99.999% of everything is trash. Of course, we knew that. But of that tiny remaining sliver, even of highest-level items, 99.999% of those are not within the subset of items which are actually useful enough to carry you through the end of Inferno mode.

That last category is basically the only one which was capable, by the time I abandoned the game entirely, of selling on the RMAH for any amount of money whatsoever, as far as I could tell. And those amounts weren't much. But that also cut back the supply of those things into the gold auction house, which drove the costs higher and higher--while the selling prices for anything short of that level dropped.

I basically quit the game when I realized that the whole thing had been designed so that, short of amounts of grind that seemed totally unprecedented in single-player gaming, Inferno was unwinnable without paying real cash for either gold or items.
posted by Sequence at 7:25 AM on May 26, 2013 [1 favorite]


I have been wondering for a while if governments couldn't model real world economics with the faucet and drain model, with taxes and fees as drains, and money printing and government spending as faucets.
posted by empath at 7:42 AM on May 26, 2013 [1 favorite]


Isn't part of the problem in studying game economies is that games, sort of by definition, are expected to be fun? So, for an online game you want to expand, you have to have expandable resources. And each "mission" needs to, much more often than not, produce a net gain, whether measured in currency, items, or advancement. If resources were fixed, or grew below the rate at which players were added to the game, you would end up with a population of impoverished player-characters incapable of advance. Which is not so much fun, so those players, presumably, would go play something else.

Capitalism, in a fixed-resource environment, needs poverty. If you remove poverty by expanding resources, won't your model automanticall become unstable, especially when players can deploy shenanigans in the hopes of generating real-world cash?
posted by GenjiandProust at 7:46 AM on May 26, 2013 [1 favorite]


empath: "I have been wondering for a while if governments couldn't model real world economics with the faucet and drain model, with taxes and fees as drains, and money printing and government spending as faucets."

An analog computer was in fact built to do just this in 1949.
posted by ArgentCorvid at 7:47 AM on May 26, 2013 [9 favorites]


empath: Isn't that essentially what Keynesianism is about?
posted by baf at 7:47 AM on May 26, 2013 [2 favorites]


Those who fail to read history ... The In-game Economics of Ultima Online (1999)
posted by RobotVoodooPower at 8:11 AM on May 26, 2013 [4 favorites]


Isn't part of the problem in studying game economies is that games, sort of by definition, are expected to be fun?

A sort of pursuit of happiness.
posted by migurski at 8:16 AM on May 26, 2013 [2 favorites]


This article confuses two different sources of inflation in the Diablo 3 economy. The unimportant source is the hilarious 1.0.8 patch bug that sent infinite gold into the economy. Blizzard jumped on that fast and said they were going to clean it up by confiscating the illegitimate money made. (I'd love to read a followup on whether that worked.) In that case the economy was broken by a bug. The bigger problem the article describes is the lack of gold sinks in the game; in this case, the economy is broken by design.

Long before D3 launched we were discussing this flaw in the D3 economy. No soulbinding, a game that's literally all about collecting loot, an auction house to recycle it all.. Seemed like a mess. And then to throw on top of it a real money auction house, exchange for actual dollars, it seemed insanity.

D3's economic design still seems insanity. I'm really hoping Blizzard turns over the Diablo 3 market records to an economist at some point, because they did this really fascinating experiment with the Real Money Auction House. By all accounts that experiment has mostly been a failure; Game Director Jay Wilson even admitted as much. But it's still an interesting failure. I'd love to know how much real money flowed out of the RMAH and to how many people, for instance.

I'm also surprised other games haven't taken more inspiration from Eve Online. As remarked above, CCP has built a really interesting functioning economy. And the economic game is fun, part of what makes Eve such a successful longstanding game.
posted by Nelson at 8:21 AM on May 26, 2013 [2 favorites]


Isn't part of the problem in studying game economies is that games, sort of by definition, are expected to be fun?

Not necessarily. EVE, for example, is not fun. The PVE mechanics for grinding currency and loot (planetary interaction, asteroid mining, and missions) are really pretty terrible and boring. In fact it is the boredom that keeps their payouts valuable. If mining was genuinely fun, then everyone would do it and prices would plummet.

(I know some newer players are going to argue with me that mining or something is fun. But they're wrong. It's maybe kind of interesting at first, but it's not the reason people stay subscribed to EVE for 10 years.)
posted by ryanrs at 8:36 AM on May 26, 2013 [5 favorites]


I was going to argue with you but the lack of fun in mining/ratting is exactly why I stopped playing Eve. And yet those mechanics work, work well, for 300,000+ players. I guess it's just a basic grinding mechanic; you have to do something time consuming to make Wealth. The thing that's smart about Eve is that the Wealth you generate is then treated like a real economic good; you can trade it, scam it, spend it. It's not just "grind 15 more soulbound unique tokens for the Sword of Awesomeness", you get ISK and then you can use the ISK in a functioning market to do whatever you want.

Also a lot of games have a fake work element, where you do something that feels like a job, but simpler, and you feel productive. We can argue about whether that's "fun", but I think fake work is part of what draws people in to games.
posted by Nelson at 9:04 AM on May 26, 2013 [1 favorite]


That was a well written article. Thanks for posting it.
posted by Tell Me No Lies at 9:14 AM on May 26, 2013


And yet those mechanics work, work well, for 300,000+ players.

The majority of mining in EVE is done by people who run 20+ accounts simultaneously and/or use bot programs. Mining in EVE is so boring you can "play" 20 account simultaneously without significantly impacting your efficiency.
posted by ryanrs at 9:32 AM on May 26, 2013 [1 favorite]


I destroyed an economy once. It was epic, fun, and pretty joyous.

It was back in about '92. To allow the Copper MUD server to operate in the university, the MUD shut down every day, early in the morning. But they didn't force users to save before shutting down the server. So on a number of occassions me and a couple of friends would take over a university computer lab (we didn't attend the university, just its computer lab) and hand items/gold to puppet players of ours, saving the items, then handing them on to the next puppet player. When the server shut down, we duplicated our gold and items by about 20 times (we had a large base of gold to start with from honest playing). A few of these sessions and we had more gold than the rest of the players combined.

I was visiting a friend across the country when I first tried LSD. Him and I were both players of the MUD, and we thought it would be hilarious to destroy the economy of the MUD (they had slighted us in the past - demoted us from level 21 for 'abusing' our god status). So we gave insane piles of gold to random players (many newbies, some veteran players), verbally berating them as we did so (funny thing, if you hand someone 100 million gold pieces they will gladly put up with verbal abuse and still remain thankful).

Copper's economy never recovered; items were auctioned off for over 100 times what they were before that acid trip.

Good times.
posted by el io at 9:38 AM on May 26, 2013 [11 favorites]


Leave it to the Ron Paulites of the world to turn the problem of a Monty Haul campaign into an issue of fiat currency.

Funny how they believe that a metal priced far above its industrial use value and liked because it is shiny is not an example of a fiat value assigned to a commodity.
posted by Ironmouth at 9:52 AM on May 26, 2013 [10 favorites]


"Now, I'm not saying I approve of everything Diablo and his brothers did. Certainly, they had some good ideas that got out of hand. But when you look at the state that Sanctuary was in when they took power -- people bringing wheelbarrows full of gold to the shops just to buy a healing potion -- they needed a strong leader to come in and make some changes. Were some people killed and their bones turned into torture cages for flayed infidels? Yes. But sometimes that's the price you have to pay for civic order."
posted by PlusDistance at 10:14 AM on May 26, 2013 [13 favorites]


By all accounts that experiment has mostly been a failure

And for the good of all future video games ever, I for one am incredibly thankful for that.
posted by mstokes650 at 10:16 AM on May 26, 2013 [1 favorite]


The majority of mining in EVE is done by people who run 20+ accounts simultaneously and/or use bot programs.

Do you have a reference for that? Not being snarky, genuinely curious. There's clearly some botting in Eve but my impression (from when I played) was that it was relatively rare and downright absent in nullsec where the most valuable mining is. CCP is pretty active in shutting down botters and in the past have published data showing the effect on the economy of shutting down groups of bots. (Noticeable, but not game-changing.) Multiboxing is more common, but most folks I know played 2–4 accounts at most.

I'd love to see real data on Eve player engagement. There's 500,000 subscribers and 32,000 average logged in users (peak of about 60,000). I don't believe CCP publishes data on how many of those are paying dollars for subscriptions; presumably all the botters are self-funding buying PLEX for ISK. And I'm pretty sure they publish no data on bot activity. Although.. in March this year CCP says they are busting about 50–100 bots a week. Of course, that doesn't count the bots they don't catch.

Back on-topic, what's cool about Eve is that the economics are robust enough that this kind of discussion is interesting, or even possible. By contrast something like Diablo has a really broken, incomplete economy. Partly this is by design, Blizzard's goal with the RMAH was to simply undercut the black market, not build an economic game. Still it's a shame they didn't do something more meaningful with the economics.
posted by Nelson at 10:20 AM on May 26, 2013 [1 favorite]


Hyperinflation in D3 required an essentially permanent, uncontrolled, increase in the money supply and the central authority allowing the currency to be devalued rather than changing the way money was created. As far as I can tell, all hyperinflation has required either a deliberate choice to allow those conditions to exist or a loss of control of the printing of money.

My takeaway then, is that countries with private or strongly independent central banks and low corruption probably should not worry about it since neither of the above conditions are likely to take hold at the Federal Reserve or the Bank of England.
posted by Grimgrin at 10:22 AM on May 26, 2013


Pretty much nobody mines ore in nullsec. Instead you mine ice in a massive multibox fleet, because you make better isk/hour. If you only have one or two accounts, shooting NPC pirates in hubs makes better isk, so you don't have to mine at all. This will all change in a couple weeks with the release of EVE Odyssey. Mining will become more profitable in nullsec and changes to the ice mining mechanics will make it harder to multibox. We'll see how that goes once it's released.


I only mine ironically.

[Machariel, miner]

Damage Control II
Mining Laser Upgrade II
Mining Laser Upgrade II
Nanofiber Internal Structure II
Co-Processor II
Co-Processor II
Co-Processor II

Large Shield Extender II
Large Shield Extender II
Adaptive Invulnerability Field II
Adaptive Invulnerability Field II
Gist C-Type 100MN Microwarpdrive

Miner II
Miner II
Miner II
Miner II
Miner II
Miner II
Miner II
Drone Link Augmentor I

Large Processor Overclocking Unit I
Large Processor Overclocking Unit I
Large Anti-EM Screen Reinforcer I

Hammerhead II x5
Warrior II x5
Hornet EC-300 x5

posted by ryanrs at 10:26 AM on May 26, 2013 [2 favorites]


Just spent some time reading up on Eve. This whole Burn Jita is fascinating. However, if you truly wanted to terrorize a game you would attack in all dimensions--real world, in cyberspace and in-game environments. In the real world you could launch litigation, try leveraged buyouts and even, were you insane, send armed men to go after the servers. In cyberspace, DOS and virus attacks and in-game, attacks designed to undercut the finanical and other bases of the game.
posted by Ironmouth at 10:31 AM on May 26, 2013


That would be pretty terrible. It's just a game, after all. (Also you would rightly get perma-banned.)
posted by ryanrs at 10:33 AM on May 26, 2013


I mean, that's like saying you should win a chess competition by beating the shit out of your opponent before the match. Or winning poker night by burning down your buddy's house. I don't think you understand EVE culture at all, Ironmouth.
posted by ryanrs at 10:35 AM on May 26, 2013 [2 favorites]


Pretty sure you just summoned cstross, Ironmouth.
posted by verb at 10:37 AM on May 26, 2013 [3 favorites]


On the other hand, griefing a guy in-game enough that he sued you in real life would be AMAZING. Truly winning at EVE.

Recently fweddit recruitment scammed some guy so hard that he paid to have them DDOSed. So great!
posted by ryanrs at 10:43 AM on May 26, 2013


I mean, that's like saying you should win a chess competition by beating the shit out of your opponent before the match. Or winning poker night by burning down your buddy's house. I don't think you understand EVE culture at all, Ironmouth.

But I thought these goonswarm people were just doing the Burn Jita to go after people who played the game differently than they did. I read their statements and it basically said they wanted to make life hell for people who played a different way. A writer argued they just had contempt for everyone else's way of playing.

I guess there are no Kobyashi Maru stories in these games.
posted by Ironmouth at 10:44 AM on May 26, 2013


I mean, that's like saying you should win a chess competition by beating the shit out of your opponent before the match.

No, during the match.
posted by charlie don't surf at 10:46 AM on May 26, 2013


On the other hand, griefing a guy in-game enough that he sued you in real life would be AMAZING. Truly winning at EVE.

Game systems will have to have a lock-up contract to prevent this with an incredibly strong arbitration system that is internationally recognized. If you don't live in a country where binding arbitration can be imposed by contract, you can't play.
posted by Ironmouth at 10:46 AM on May 26, 2013


But I thought these goonswarm people were just doing the Burn Jita to go after people [IN GAME] who played the game differently than they did [IN GAME]. I read their statements and it basically said they wanted to make life hell [IN GAME] for people who played [IN GAME] a different way. A writer argued they just had contempt for everyone else's way of playing [IN GAME].
posted by ryanrs at 10:48 AM on May 26, 2013 [3 favorites]


Seriously, the idea that people are leaving this shit at the in-game door has long been blown with the stories of for-profit in game item mining for sale in the real world.

It is inevitable that real-world litigation and conflict will affect in-game play.

I don't play these games for these reasons.
posted by Ironmouth at 10:49 AM on May 26, 2013


Game systems will have to have a [lawyer stuff]

Actually it's been working just fine for over a decade!

Will you, Ironmouth, be the lawyer who becomes EVE-famous for breaking the game with your +15 XP lawsuits? Pay $15 to sign up and let's find out.
posted by ryanrs at 10:50 AM on May 26, 2013 [1 favorite]


But I thought these goonswarm people were just doing the Burn Jita to go after people [IN GAME] who played the game differently than they did [IN GAME]. I read their statements and it basically said they wanted to make life hell [IN GAME] for people who played [IN GAME] a different way. A writer argued they just had contempt for everyone else's way of playing [IN GAME].

So a basement in Shanghai where World-of-Warcraft items are mined by employees doesn't exist?
posted by Ironmouth at 10:50 AM on May 26, 2013




As any discussion of game economies grows longer, the probability of someone changing the subject to EVE approaches 1.
posted by Sequence at 10:53 AM on May 26, 2013 [12 favorites]


Leave it to the Ron Paulites of the world to turn the problem of a Monty Haul campaign into an issue of fiat currency.

Funny how they believe that a metal priced far above its industrial use value and liked because it is shiny is not an example of a fiat value assigned to a commodity.
When capitalists put money into industry to make things, they are very careful about the costs, and if something is overpriced, alternatives or workarounds are found. Gold is still has many industrial uses, therefore it is not overpriced.
posted by MikeWarot at 10:57 AM on May 26, 2013


The industrial value of gold is almost completely irrelevant to the price of gold. Its price is almost entirely driven by the irrational valuation that people place on it, which is why gold prices fluctuate so wildly.
posted by Pope Guilty at 11:01 AM on May 26, 2013 [4 favorites]



I have been wondering for a while if governments couldn't model real world economics with the faucet and drain model, with taxes and fees as drains, and money printing and government spending as faucets.

I read an article once by an economist who posited that the US government could be equally as effective (if not more) if it simply quit taxing everyone and literally printed the money it needed to run the government. Instead of arguing about budget deficits AND inflation, everyone could just argue about inflation and the government would (the theory went) have to restrain itself or risk hyperinflation. Seemed awfully risky to me, but it was interesting.

Also, I think that's how central banks DO think about the economy. They sell bonds when they want to vacuum up money, and they buy bonds when they want to put that money back out into the economy. Same thing with interest rates- when sink starts getting too full, they widen the drain by increasing interest rates.
posted by gjc at 11:03 AM on May 26, 2013


I think some lawyers in here are misunderstanding the victory conditions of EVE. High-level conflict in EVE revolves around forum grudges and gloat-posting. First you defeat your opponent in-game, then you shit on them on the forums. Suing someone will NOT get you forum rep, it will make you a pariah. This may be hard to wrap your head around, Ironmouth, but winning in court guarantees you will lose the forum game.

Seriously, what are you even going to sue for? To make everyone favorite your posts? It's not like there's money involved.
posted by ryanrs at 11:04 AM on May 26, 2013


Seriously, what are you even going to sue for? To make everyone favorite your posts? It's not like there's money involved.

If people desire things, even irrational things, they will find a way to pay for them in real world money. Eventually, someone will not care about the social approbrium and break social code.

But I guess my larger point is the IRL space is battlespace where one can manuver and take unobserved action. Isn't that how that one group of people in EVE got to the security chief of another group and wiped out another, spawning the Hitler "Downfall" meme? Eventually, large groups will collect $1 each and bribe an enemy IRL.
posted by Ironmouth at 11:14 AM on May 26, 2013


Strange that they didn't mention what I would guess would be a significant sink: players and/or characters leaving the game. I assume there are no wills in Diablo 3.
posted by Flunkie at 11:23 AM on May 26, 2013 [1 favorite]


Every game, every competition, every friendly sport is theoretically beholden to the powers of the courts. And yet, our most famous athletes, our most cunning poker players, and our most brilliant chess masters are not lawyers who sued their way to the top. It just doesn't work that way.
posted by ryanrs at 11:23 AM on May 26, 2013 [2 favorites]


No one tell Mises about Recettear.
posted by Marisa Stole the Precious Thing at 11:31 AM on May 26, 2013 [2 favorites]


Every game, every competition, every friendly sport is theoretically beholden to the powers of the courts. And yet, our most famous athletes, our most cunning poker players, and our most brilliant chess masters are not lawyers who sued their way to the top. It just doesn't work that way.

My response is: Don King.
posted by Ironmouth at 11:36 AM on May 26, 2013 [2 favorites]


a significant sink: players and/or characters leaving the game.

I was wondering about that. If all Diablo players had equal amounts of money, a person leaving the game is a net neutral; you remove both some wealth and a consumer and the money/consumer stays the same. But not all players are equal, and my guess is the folks with less money are more likely to quit playing. So the money/consumer goes up over time. Doubly so since the remaining characters are continuing to conjur wealth out of thin air, every time gold or items drops.

The other part of the D3 economy that was so insane was just how many items drop. Something like 200 an hour when clearing a dungeon? And that's ignoring the white trash items. But the green uncommon and rare blue items are also mostly worthless, there are so many. In theory you could recycle those into enchanting materials but then the price of those materials went to zero pretty fast. So you're left with a slot machine that is mostly paying out pennies and you're hoping for the one lucky $10. I didn't find that much fun. At least the pulls don't cost anything more than your time.
posted by Nelson at 12:02 PM on May 26, 2013 [2 favorites]


my guess is the folks with less money are more likely to quit playing

Yeah, that'd be my guess too. In Diablo 2 I feel like the "players leaving" tended to be predominantly the insanely-rich players that had basically "done everything" in the game and were bored; in D3 I think the insanely rich players probably move on to gaming the market and the "players leaving" is more likely to be the players (like me!) who just weren't willing to put in the time and/or real money required to become a rich player.

Thinking back to D2 it's kind of amazing they didn't see this coming; I mean, Diablo 2 had basically all the same gold sinks (Gheed being a sort of approximation of the blacksmithing in D3) and gold still became instantly worthless there; trading was all done with perfect gems, SoJs, and higher-end runes - basically all stuff so rare that it was perfectly possible to put in tons of time playing and never see one drop naturally. (Lord knows I never saw a SoJ drop.) And yet there was no sink for SoJs at all, except for wealthier players getting bored and leaving the game.
posted by mstokes650 at 12:13 PM on May 26, 2013


This far into a Diablo economy thread and nobody has made a Stone of Jordan reference?
posted by Xoebe at 12:13 PM on May 26, 2013


Dammit mstokes650, we had the same thought at the same time. You beat me to the punch by *that much*!
posted by Xoebe at 12:14 PM on May 26, 2013


And I was just about to clarify that SoJ = Stone of Jordan for the folks that don't know. Oh hai Xoebe!
posted by mstokes650 at 12:16 PM on May 26, 2013


So does this mean Austrian Economists have given up on studying real economies?

Gamera wins! TheWhiteSkull will get this....

My response is: Don King.

Could you please elaborate, your argument isn't as obvious as you seem to think, and it'd be interesting anyway to hear it laid out. Does it have to do with his probable involvement with organized crime? How can you look at him as being anything other than a big-haired outlier in a sport that already carries with it a strong whiff of criminal enterprise?

Anyway, you seem to be saying: not only can't we have nice things, it's impossible, because courts. The existence of nice things argues against that.

If people desire things, even irrational things, they will find a way to pay for them in real world money. Eventually, someone will not care about the social approbrium and break social code.

Except they'd destroy their own market in doing so. Once real money becomes a large part of the game, it becomes like playing D&D with someone who's bribed the GM to give him Blessed +5 Arrows of Disintegration. But you don't have to play with that group, you can go elsewhere or just not play. Virtual worlds are the same way. They're as fragile as a soap bubble, separating the interior air from the raging storms outside. And because such a scheme would affect subscriptions, CCP would have to get involved; if their TOS didn't outlaw such schemes, it would be rapidly changed in order to do so.

Real world economies, in comparison to rarefied virtual ones in which participation is voluntary, are somewhat toxic due to the dire import of money, and the existence of so much genuine suffering they can feed on. When these virtual economies become exposed to that (like, say, through the introduction of Chinese gold farms), it is always harmful to the virtual economy at the cost of lessening the toxicity of the real world economy -- except, it's like a drop in the bucket in the real world, and people always need more food.
posted by JHarris at 12:27 PM on May 26, 2013


I wish that, some times, when we are talking about games we could not talk about EVE.
posted by Our Ship Of The Imagination! at 12:34 PM on May 26, 2013 [2 favorites]


I wish that, some times, when we are talking about games we could not talk about EVE.
posted by Our Ship Of The Imagination! at 12:34 on May 26 [+] [!]


Apparently, that ship sunk a long time ago.
posted by Pyrogenesis at 1:00 PM on May 26, 2013


Well I've been doing my best to relate Eve to the subject of this fine post, Diablo's broken economy. But if you're going to talk about economics in online games it's really hard to avoid Eve Online, since it's the only significant online game I know of that has a functioning economy. Do you know any others?

I'd love to read more about the Diablo 2 black market economy, particularly how it persisted through so many exploits and dupes.
posted by Nelson at 1:40 PM on May 26, 2013 [1 favorite]


Blizzard's goal with the RMAH was to simply undercut the black market, not build an economic game.

It's worth wondering if the long-term lesson to be learned here is that you can't really do the former without making some serious effort doing the latter.

But I guess my larger point is the IRL space is battlespace where one can manuver and take unobserved action. Isn't that how that one group of people in EVE got to the security chief of another group and wiped out another, spawning the Hitler "Downfall" meme? Eventually, large groups will collect $1 each and bribe an enemy IRL.

I remember back when the first few examples of crazy skullduggery coming out of EVE were first hitting the Internet I wrote and tried shopping around a (in retrospect, terrible) story about professional hackers working as spies for different corporations in an EVE-style online game, taking real money to hack into discussion groups and Skype networks and inform their opponents of ongoing operations.

I still hold out (slightly guilty) hopes for seeing my dreams become reality someday. But I don't think it will be in EVE - the people running it seem to understand that they've hit something of sweet-spot in engaging people in wide-ranging and emotionally intense conflict without letting real-world financial concerns enter into the calculus except in certain very specific ways. That limits the IRL nonsense that does happen to people being insane, rather than bringing in the scarier profiteering aspect. And good for them! Games should be games.
posted by AdamCSnider at 1:52 PM on May 26, 2013


At the risk of bringing up EVE again where it's maybe not wanted, here's how EVE massively cut down on black market item sales.

CCP, the game developer, will sell you an in-game item called a PLEX for about US$17. This in-game item represents one month of subscription time and can be bought, sold, and traded amongst characters in the in-game market. When finally consumed, it adds a month to the owners subscription.

People who want to trade IRL cash for game items buy these PLEX from CCP's website and sell them on the in-game market for ISK (in-game currency). Then they can buy whatever ships and gear they like with ISK.

People who have lots of in-game wealth can buy PLEX on the in-game market and use that to pay for their account(s). In effect, they are giving another player game items so that they will pay IRL cash to CCP on their behalf. I give you a fancy ship, you pay for my next month's subscription fee.

This arrangement is revenue-neutral to CCP (actually they make a little extra since PLEX costs $17 and straight subscription time is more like $14/month). But the important thing is that is sucks all the casual ISK buyers away from shady gold sellers and eBay auctions. This makes it much harder for commercial gold farmers to make money selling EVE items. Without the large casual customer base, the reverse transaction, converting ISK to IRL cash, becomes much harder.
posted by ryanrs at 2:38 PM on May 26, 2013 [1 favorite]


Way the fuck back in, what, 2003? 2004? Kingdom of Loathing had a bug that would give you millions or billions of meat... There were a ton of gold sinks and so on; I'm sure rifflesby could say more on the subject.

We talked about it (and Neverwinter) some on a recent podcast, actually, though I can't remember now if it was Video Games Hot Dog, or our Kingdom of Loathing-specific show.

What happened was, there's an item in the game called a meat vortex, which you can throw at a monster to drain some of its meat. If you use it when you aren't in combat, though, it destroys some of your own meat. Someone discovered that if you had 0 meat on-hand and used one, it rolled over past the negative and you ended up with 4 billion meat.

It wouldn't have been so big a deal, except a couple of the guys who found the bug decided they wanted to force us to roll back to a backup, despite the fact that a rollback would have sucked for a huge number of players who hadn't actually been affected by the bug. So they made the bug public, told everyone how to do it, bought every item in the player-run mall, and threw masses of meat around in the chat. Sigh.

We decided it would still suck too much to roll it back, though, so we made a world event out of it. A gang of Penguin Mafia rolled into town and started breaking into overrich players' campsites at night, stealing meat by the tens of millions. They also appeared as monsters in various places, and could steal your meat in combat. The Council of Loathing started a fundraiser to build a giant cannon with which to get rid of the penguins. I forget how much it cost. Hundreds of billions.

After that, the penguins stopped menacing people directly, but opened a disreputable antique store (where you could buy $10,000 raffle tickets with powerful new gear as prizes, access to a new chat channel for $500 million, and for $1 billion a "Mr. Exploiter", an accessory that did nothing except broadcast that you had one.)

It took probably half a dozen years before the economy really went back to normal, I'm guessing, but everyone looks back on it as a really wild and memorable and fun part of KoL's history, whereas if we'd done a rollback like Neverwinter did, it would have just been remembered as "that time bullshit happened and pissed a lot of people off".
posted by rifflesby at 2:43 PM on May 26, 2013 [11 favorites]


You don't need to invoke the austrian school conception of inflation to talk about this — when I reached that (third?) paragraph, I looked to the URL and realized it was at mises.org and then stopped reading.

I went to see if anyone at Terra Nova has blogged about this; but Edward Castronova just links to this piece, which he praises (but he's a pretty conservative economist — and culturally conservative, too — so that's not such a surprise). I'd really like a decent, economically-informed analysis of this that's not an opportunity to pitch austrian-inflected crankary (there are some respectable economists who are ideologically austrian, and this author may be one of them, but mises.org is about 20% respectable and 80% crap and I just refuse to read any its content).

And I'll repeat my lament — years old, now — at the decline of Terra Nova. I've been interested in virtual worlds since I closely followed the development of Ultima Online in the 90s. I can't tell if academic virtual world research — from sociology to ludology to economics, etc — has been accepted into mainstream departments and so, as a niche, there's less particular interest, of if there's just less interest. Use to be, there were all sorts of academics regularly writing for Terra Nova, including a big chunk of economists. Now, the blog is almost dormant.

Nothing interesting seems to have resulted from Yanis Varoufakis's unexpectedly brief stint as Steam's economist. In economics, there has been quite a bit of interest in using virtual worlds as little laboratories. I've seen much less resulting from this than I expected to see ten years ago.

Anyway, you really can't talk about virtual game economies without discussing Eve. It's not a derail or something of only minor, related interest. It's a functioning, relatively diverse economy with a long eventful history.
posted by Ivan Fyodorovich at 3:47 PM on May 26, 2013 [3 favorites]


We decided it would still suck too much to roll it back, though, so we made a world event out of it. A gang of Penguin Mafia rolled into town and started breaking into overrich players' campsites at night, stealing meat by the tens of millions.

The fact that KoL deals with bugs by integrating them into the game's content is just one of the many things that makes it my favorite online game.
posted by painquale at 4:33 PM on May 26, 2013 [4 favorites]


We talk about games all the time without mentioning eve, but if you're going to talk about economics and markets in games, not mentioning it would silly.
posted by empath at 5:26 PM on May 26, 2013 [1 favorite]


As any discussion of game economies grows longer, the probability of someone changing the subject to EVE approaches 1.

Corollary: When this happens, soon after, some wag will quote a statistic for what percentage of Iceland's Gross National Product CCP represents (researched and accurate numbers optional).
posted by radwolf76 at 5:28 PM on May 26, 2013


Pope Guilty,

If you believe that the market valuation of gold is irrational, modern finance provides you with simple means to profit from your superior, rational valuation. Unless you're taking money from fools by shorting gold right now, you leave yourself vulnerable to a very simple rejoinder: why aintcha rich?
posted by lambdaphage at 5:51 PM on May 26, 2013


If you believe that the market valuation of gold is irrational, modern finance provides you with simple means to profit from your superior, rational valuation. Unless you're taking money from fools by shorting gold right now, you leave yourself vulnerable to a very simple rejoinder: why aintcha rich?

I didn't say that it's over- or under-priced, but that its valuation isn't rational. It doesn't react to events the way other commodities do, because commodities are valued for their function. Nobody believes that wheat is a good thing to buy a bunch of because wheat is intrinsically valuable- wheat has value because it can be sold to be processed as food. Gold's value isn't related to its industrial value, but to the millenia-long love of it for being rare and shiny. Glenn Beck doesn't do ads about how you should buy a bunch of pork bellies because Obama's going to destroy America and pork bellies will be valuable in the aftermath.
posted by Pope Guilty at 6:02 PM on May 26, 2013 [4 favorites]


I mean, perhaps the simpler version would be that you could pay attention to world events and predict with some success their impact on commodity prices- that grain prices would go up in response to a famine, for example. Since gold is not valued for its actual use, this cannot be done with gold- witness the utter shock and surprise every time it falls among goldbugs.
posted by Pope Guilty at 6:04 PM on May 26, 2013


Has anyone tried to address this sort of issue with a capital tax? Considering there isn't any way to hide assets this would seem to be a perfectly adjustable sink.
posted by Mitheral at 6:14 PM on May 26, 2013


I think you'd see a lot of anger from the players that like watching their wealth/stats slowly improve over time, which is a huge portion of most MMORPG's populations.
posted by ryanrs at 6:30 PM on May 26, 2013


Diablo3's economy was really doomed to fail from the start. For players trying to progress their character, they would accumulate gold, spend everything they have on a new item, and sell / destroy the old one... since you only need 1 set of "optimal" equipment, and the total gold you've accumulated in the game keeps on going up, prices have only one direction to go.

I was actually most disappointed when they nerfed the game difficulty. Blizzard said "Inferno was supposed to be super hard, we made it impossible then doubled the difficulty". Cool, I love a challenge. I was playing a Barbarian, and was working my way slowly through Act 4 Inferno when Blizzard released patch 1.04 and reduced damage done by Inferno monsters by around 40-60%. Suddenly I was (nearly) immortal. Logged in and killed Inferno Diablo.

Once you beat the game that's kind of the end, so I sold all my items or gave them away. In particular I remember one sword that I bought for a bargain 100,000 gold... selling for $90.

Ah, inflation... nowadays 100,000 gold is worth 0.4 cents. Used to be worth $50 per million, now 4 cents per million. And power creep too, that $90 sword is now laughably bad.... I won the game with 15k DPS on the warrior, while some people nowadays have 400k DPS.

Anyway, fond memories. Only game I ever played for 2 months and came out with $250 in my paypal account.

And in Blizzard's defense, they actually never managed to test the Auction House or RMAH before launch - the game was entirely played and tested and tuned without those elements being present, because they never had the volumes of players internally to actually test them. They naively thought that only a minority of players would use the marketplace.
posted by xdvesper at 7:20 PM on May 26, 2013 [1 favorite]


ryanrs, actually money is one of the statistics tied to your character that doesn't go up and up, it goes up as you earn but down, sometimes way down, as you buy things.
posted by JHarris at 7:22 PM on May 26, 2013


Firstly, the price of gold is related to its industrial value; about 3/4 of the demand for gold owes to its use as a raw material for jewelry, electronics and dental/medical applications.

What you seem to be criticizing is the component of the variation in the price which is explained by people buying gold as an investment. Even here, though, I don't understand your claim that the price of gold doesn't respond to events-- it certainly does, and in ways that are consistent with the explanation that gold is expected to be a reliable store of value and is therefore attractive in the face of inflation or general financial crisis. That gold has been an attractive asset throughout the globe for millenia, as you mention, is something you cannot say about cash or T-bills, which tends to raise the evaluation of the former relative to the latter during periods of extreme uncertainty.

you could pay attention to world events and predict with some success their impact on commodity prices...since gold is not valued for its actual use, this cannot be done with gold

This is just false. For example, just knowing the price of crude would give you a lot of predictive power about the price of gold: the two correlate with an R^2 of nearly 0.8. Gold jumped on 9/11 and was predicted to do so by traders even as they watched the towers fall (I seem to recall an interview in Fahrenheit 9/11 about this very point).

I don't mean to go meta on you but I can't shake the feeling that this criticism of gold-as-investment is driven by general cultural antipathy towards people who think gold-as-investment is a good idea. (vide "Glenn Beck", "Obama destroying America", "goldbugs", &c.) I don't think the probability of the Obama years ending in post-apocalyptic wilderness is very high, but clearly if it were, gold would be a much better position than T-bills or the like. So it seems like your disagreement is really about the probability of things getting dire enough for gold to be the most sound investment, rather than gold actually performing that function in such circumstances. No?
posted by lambdaphage at 7:31 PM on May 26, 2013


Mitheral: Has anyone tried to address this sort of issue with a capital tax? Considering there isn't any way to hide assets this would seem to be a perfectly adjustable sink.

Capital taxes exist (in a sense) in some games like this in the form of arbitrary upkeep costs on player owned infrastructure, but I don't think anyone has tried to apply one to everything someone owns - it would definitely complicate the situation for mules / guild banks.

An example of an infrastructure tax, I think, is EVE's player owned stations, which requiring regular topping up with goodies lest they fall back into a much less powerful (and more easily compromised) state. Another example of sink design, but revolving around continual, ongoing cost instead of one off sinks like expensive vanity items or levelling costs. The sink can be adjusted at either the consumption or resource production end.

I wonder if you could just de-incentivise the accumulation of ingame wealth? There's been some academic consideration of applying real world taxes on virtual asset accumulation, but they're usually considered as applying at a "cashing-out" stage.

Ability-To-Pay and the Taxation of Virtual Income - Adam S. Chodorow

The Play's the Thing: A Theory of of Taxing Virtual Worlds - Bryan Camp

Schafft das Internet neue Probleme für die Theorie und Praxis der Besteuerung? Theoretische Hintergründe, praktische Probleme und erste steuerpolitische Lösungsansätze - Michael Altendorf.
posted by curious.jp at 7:49 PM on May 26, 2013 [1 favorite]


EVE has both isk and resource sinks. It's import to distinguish the two because they are definitely not fungible on a macro scale. For example, you can't convert minerals into isk. You can sell minerals to another player in return for isk, but that transaction doesn't change the amount of minerals and isk in the universe. So minerals and isk have separate faucets and sinks.

The player owned stations you mention (control towers), require fuel to run, so they are resource sinks. There is also a sovereignty tax* to hold conquerable space. This is an isk sink. My alliance holds sovereignty over 52 systems which costs us roughly 10 billion ISK per month (enough to run 20 account subscriptions). The fuel for our control towers is worth about double that.

The biggest resource sink in EVE is pvp ship destruction. Because EVE is fundamentally a King of the Hill pvp game, a LOT of spaceships get destroyed every day. So you don't get the resource inflation issues you might find in a questing type MMORPG. You don't have people flying around all day in their best, most expensive spaceship that never dies. Instead, you ride into battle in your +0 Basic Spaceship of Utility, which gets blown up and has to be replaced pretty often.

* yeah it's kind of weird that a sovereign entity must pay taxes
posted by ryanrs at 8:20 PM on May 26, 2013 [2 favorites]


Firstly, the price of gold is related to its industrial value; about 3/4 of the demand for gold owes to its use as a raw material for jewelry, electronics and dental/medical applications.

There is the key word, jewelry. The ornamental value of gold so outweighs the others that it borders on disingenuousness to lump all these things together under the term "industrial value." Its other applications are slight compared to that. And its value in jewelry is directly related to its perception as a valuable metal, which is, when you come right down to it, due to its rarity and traditional value.

Even here, though, I don't understand your claim that the price of gold doesn't respond to events

Of course it responds to "events," it's not immune to causality, what Pope Guilty said was: It doesn't react to events the way other commodities do, because commodities are valued for their function.

Even if we granted all two-thirds of gold's demand for "industrial" use, most other commodities don't have an entire third of their value driven by what amounts to woo. RationalWiki states (unfortunately, uncited) that: "The world consumption of new gold produced is estimated to be about 50% in jewelry, 40% in investments, and 10% in industry." Jewelry and investments together are 9/10ths of the demand. I think that's what Pope Guilty is talking about.
posted by JHarris at 9:10 PM on May 26, 2013 [1 favorite]


As virtual currencies are digitally-created and not commodity-backed — therefore, not particularly dissimilar from real world currencies in this day and age — those such as Diablo 3’s gold are de facto fiat currencies.
They want to make this into a parable about the evils of fiat currency. But it seems to me that it's more of a parable about the evils of a badly designed commodity currency.

The big problem was that "gold", in the game, is a commodity that can be produced. So when that commodity is a currency, the incentive was to create all those gold farming bots to produce it. It's like making mushrooms into a currency and wondering where all these extra mushrooms are coming from.

An actual fiat currency, that can only be created by the central authority, might have done better than a commodity that can be created by anybody.
posted by TheophileEscargot at 10:46 PM on May 26, 2013 [1 favorite]


It seems unfair to hold Eve up as a shining example of economy-done-right without acknowledging that Eve, by nature of its particular brand of gameplay, doesn't have to aim as high as most MMOs do. Eve deals with griefing by saying, "Okay, grief away!" And its player base expects that. Could WoW, e.g., ever really get away with that philosophy? So WoW has to deal with the potential effects of troublemakers on its economy, and that's where a lot of the trouble comes from.

Sure, D3 is a little bit different-- but not that much different. D3 is of a type of game where you expect to start poor and finish rich. If you designed D3 such that it ever went the other direction, then you are alienating most of your player base. But as long as the economy isn't roughly zero-sum, then you have inflation. As far as I can see, it's as simple as that. Eve is built differently, and its players don't expect the relentless increase in power that is the most powerful motivator involved in most MMOs.

The fact that Eve isn't running into these problems shouldn't be chalked up to some economic brilliance. It's almost entirely a function of Eve being designed with player-vs-player conflict at its core, rather than at its periphery.
posted by nathan v at 12:05 AM on May 27, 2013 [1 favorite]


It's like making mushrooms into a currency and wondering where all these extra mushrooms are coming from.

I just realized something. Witness, from whom else but the always correct prophet Douglas Adams:
"How can you have money," demanded Ford, "if none of you actually produces anything? It doesn't grow on trees you know."

"If you would allow me to continue ..."

Ford nodded dejectedly.

"Thank you. Since we decided a few weeks ago to adopt the leaf as legal tender, we have, of course, all become immensely rich."

Ford stared in disbelief at the crowd who were murmuring appreciatively at this and greedily fingering the wads of leaves with which their track suits were stuffed.

"But we have also," continued the management consultant, "run into a small inflation problem on account of the high level of leaf availability, which means that, I gather, the current going rate has something like three deciduous forests buying one ship's peanut."

Murmurs of alarm came from the crowd. The management consultant waved them down.

"So in order to obviate this problem," he continued, "and effectively revalue the leaf, we are about to embark on a massive defoliation campaign, and ... er, burn down all the forests. I think you'll all agree that's a sensible move under the circumstances."

The crowd seemed a little uncertain about this for a second or two until someone pointed out how much this would increase the value of the leaves in their pockets whereupon they let out whoops of delight and gave the management consultant a standing ovation. The accountants among them looked forward to a profitable autumn.
posted by Pyrogenesis at 2:01 AM on May 27, 2013 [4 favorites]


It seems unfair to hold Eve up as a shining example of economy-done-right without acknowledging that Eve, by nature of its particular brand of gameplay, doesn't have to aim as high as most MMOs do.

I'd argue that eve aims higher than anyone.
posted by empath at 3:18 AM on May 27, 2013


Firstly, the price of gold is related to its industrial value; about 3/4 of the demand for gold owes to its use as a raw material for jewelry, electronics and dental/medical applications.

Jewelry is not an industrial use. Jewelry is a finished product with only a luxury value. Industrial use of gold is related to its use in other products. That use is related to the physical properties of gold as a conductor and other properties.

The U.S. government does not consider jewelry to be an industrial use of gold:
the last year I have stats for is 2003. (usgs.gov Excel Spreadsheet.)

105 tons were used for jewelry and the arts and only 10 for industrial uses. Another 10 metric tons were used for dental, and 12 tons were used for coins, which is a part of the investment side of gold use. 66 tons were used for investment purposes. So we have 182 metric tons for investment and 20 for industrial use.
posted by Ironmouth at 10:53 AM on May 27, 2013


I don't think the probability of the Obama years ending in post-apocalyptic wilderness is very high, but clearly if it were, gold would be a much better position than T-bills or the like.

this is the most ridiculous position of all. In the Zombie Apocalypse (1) you aren't going to be able to get to your gold unless you have the bars in your basement; and (2) gasoline and bullets will be the only store of value. Having shiny gold will mean nothing, there will be few social events in a complete breakdown of society. The purpose of gold jewelry is to flaunt wealth you have in a society where you can use it.

The gold people are just like Ron Paul, personally wanting to believe in a psychological sense that there is some ultimate measure of wealth that will always stay valuable and can be relied upon. Hence the love of the Glenn Beck viewers for this sort of thing.
posted by Ironmouth at 11:00 AM on May 27, 2013 [1 favorite]


If you believe that the market valuation of gold is irrational, modern finance provides you with simple means to profit from your superior, rational valuation. Unless you're taking money from fools by shorting gold right now, you leave yourself vulnerable to a very simple rejoinder: why aintcha rich?

People shorting gold are making a pile of money right now. All the major investment banking houses are shorting it and recommending that their customers short it. This year is is falling nearly straight down.

As for Pope Guilty investing in gold, to truly own a piece of gold and get its value costs a lot. Most of the other investments aren't really investments in gold. They are either exposures to the price of gold. Certificates are even worse, especially the unallocated ones which do not guarantee access to a single bar of gold.

Unless you have a piece of the gold in your home, you are not going to travel to a gold depository when the zombies come and present your certificate of demand for the gold. Without a government to enforce it, the idea you would walk out of there with the gold "because you bought it under the last government" is laughable.
posted by Ironmouth at 11:15 AM on May 27, 2013


Ironmouth,

Obviously the marginal utility of the first few thousand dollars' worth of gasoline, perishable food, anti-biotics &c. is going to supercede that of gold in a SHTF scenario, and obviously in such a scenario a certificate of demand will be worthless unless you can actually demand what it entitles you to. I was being a bit glib about the literal "post-apocalyptic wilderness" of the later Obama years, but if you really believed such an event to be probable, gold (i.e. frangible bullion in your basement) still wouldn't be a bad bet for converting the remainder of a portfolio after you've maxed out basic necessities. Consider that almost all of human history until ca. 1800 CE has basically been one long SHTF scenario, during which gold was actively traded wherever people could get their hands on it.

More realistically speaking, financial stress is a continuous quantity and there are plenty of scenarios under which it would be reasonable to believe that gold would hold its value better than a product more directly tied to faith in USG. NB: I don't care to argue about how likely those scenarios are, just that it would be hypothetically prudent not to hold government IOUs if confidence in the government were eroding. I don't see such conditions obtaining at present, but if they were it wouldn't be irrational to hold gold, as Pope Guilty suggests.

Pope Guilty and JHarris's beef with gold, as I understand it, seems to be that you can't do very much with it besides trade it for something else, which you can only do because of a shared expectation that others will accept it. Of course, this is not quite the entire story: gold got that way because it is rare and easily recognizable, and therefore a credible signal of wealth. That people find credible signals of wealth valuable may strike them as vain or frivolous, but the expectation that people will continue to consider such things about as valuable in the future as they have in the past is not an irrational expectation.

PS: I'm not that worried about distinguishing jewelry from industrial applications. The difference I think is relevant is the difference that would be apparent to a Martian anthropologist looking at a spreadsheet of the global economy: jewelry-making is an activity that accepts gold as an input and produces a good or service, and should be distinguished from investment in gold as an asset. It strikes me as unlikely that any appreciable part of the demand for gold jewelry is investment behavior, rather than wealth signalling. Put another way, I would predict that jewelry consumption should correlate positively with economic growth (along with other industrial uses), whereas gold investment should correlate negatively.
posted by lambdaphage at 12:06 PM on May 27, 2013 [1 favorite]


gold got that way because it is rare and easily recognizable, and therefore a credible signal of wealth. That people find credible signals of wealth valuable may strike them as vain or frivolous, but the expectation that people will continue to consider such things about as valuable in the future as they have in the past is not an irrational expectation.

Everything you're saying is true of the US dollar. It is a credible signal of wealth. People have considered it to be valuable in the past as they likely will in the future, and its value has moved up and down in a similar pattern.

What made gold valuable to everyday people is that is is the rarest readily-obtained metal which you can stamp the face of the local ruler on. So its use value as currency was quite high. But once it became clear that the combination of a full capitalist/credit economy and a metal-based currency created unnaceptable levels of price fluctuation, its value was considerably less, hence all governments going off the gold standard.

I'm not sure how much of its current value is based on the conservative mind's (in a Russell Kirk sense) desire for an illusion of an economy based on some ultimate and therefore safe measure of wealth, but that belief is the type of thing smart investors trade on day in and day out.
posted by Ironmouth at 12:26 PM on May 27, 2013


Everything you're saying is true of the US dollar

Well, almost. The two principal distinctions here are that the US government can compel you (1) to render taxes in US dollars, and (2) not to print more of them, two properties which are not true of gold. That's not to say that holding dollars isn't rational, and indeed I've never claimed that it wasn't.

What made gold valuable to everyday people is that is is the rarest readily-obtained metal which you can stamp the face of the local ruler on.

I'm willing to hear out a Graeberian-type argument about the inseparability of currency from the state and taxation, but I don't think this is it. Goldsmithing predates gold currency by thousands of years, suggesting that gold had use-value (to wit: as a cool, high-status material for jewelry and iconographic swag) independent of its role as a currency. Besides, the purpose of minting gold coins, as opposed to paper money, was QA: what are you going to redeem a gold coin for, more gold?

I'm not sure how much of its current value is based on the conservative mind's (in a Russell Kirk sense) desire for an illusion of an economy based on some ultimate and therefore safe measure of wealth

No doubt there are people who think that way, but I'm not sure that it's any kind of conservative hallmark. In personal experience, I've encountered extreme hostility towards the subjective theory of value in certain parts of the left. (e.g. rhetoric about workers being paid less than the true value of their labor*, or complaints about speculators selling commodities for more than their 'true price'). YMMV.

but that belief is the type of thing smart investors trade on day in and day out.

Indeed, and I've encouraged anyone who thinks gold is over-priced to dine out on that belief. I think there's a pretty telling consensus, however, about how the events of the last decade have changed its relative value.


* There's a difference between arguing that we ought to try to improve aggregate welfare by helping the poor in whatever way, and arguing that a certain class of workers is being paid less than what their work is worth, which is definitionally what someone is willing to pay for it.
posted by lambdaphage at 1:21 PM on May 27, 2013


ryanrs: "I think you'd see a lot of anger from the players that like watching their wealth/stats slowly improve over time, which is a huge portion of most MMORPG's populations."

No doubt. You'd want to isolate your casual players from crushing taxation. The beauty of a MMO taxation scheme is it could be quite complicated and arbitrary.

Just of the top of my head a few schemes:

1) Give players a tax credit for play. Either for hours in or experience gained and probably on an account basis. This encourages people to play and it makes it difficult for people with vast stores of wealth.

2) Make the tax progressive; maybe even make it essentially nominal for 50% of your players while taxing the top 1% very heavily. The goal is to reduce the effect on the majority of your players while squelching those who are amassing vast fortunes.

3) have a sales tax that varies depending on the character's or player's net worth.

Someone else mentioned how a capital tax would be difficult for guilds and mules to manage. Guild taxes could be handled by automatic deduction from members; mules would be treated like anyone other character.

Honestly trough I'm not the best person to be designing this. I'm a pretty casual gamer who hates a grind. One of the guys I game with spends 80% of his time gaming the auction house system of whatever MMO we're playing at the time and I can't see that as being fun at all. He probably could have made serious bank with D3 real money auction house.
posted by Mitheral at 1:50 PM on May 27, 2013


Those schemes would encourage abuse and cause complications, I think. You'd want to spread your wealth among a bunch of different characters to avoid the progressive taxation, so all sorts of "tax shelter" accounts would rise up, either in the form of a player's own multis, or other players acting as banks who would propose to take a smaller cut than the system would take. Also, in pretty much all MMORPGs, you'd be able to hide your net worth from the system by putting your wealth in some sort of other good. The system would be bound to undervalue certain goods.

These are pretty similar to real-world ways of beating the taxman.
posted by painquale at 3:45 PM on May 27, 2013


The two principal distinctions here are that the US government can compel you (1) to render taxes in US dollars, and (2) not to print more of them, two properties which are not true of gold.

You transfer that gold via inheritance or trust and you will be paying taxes on it denominated in dollars.

Second, the whole point of the gold standard is to be able to print more or less dollars. The problem with gold-redeemable dollars is that they are inelasticlly set to how much gold is out there. So during inflation, prices range in a much wider band and savings are destroyed or debts are paid for in more expensive dollars. This makes it hard for actors in the economy to predict conditions, depressing economic activity. The purpose of central banking is to allow the value of prices and money to be more stable than if it was if the currency were pegged to a finite store of metal.

Right now we are in a period of near-deflation. Prices are barely moving. We need more activity. Taking moves to expand the money supply keeps debtors afloat and paying creditors. It also keeps demand up during this period of low demand.

That is why austerity is insane policy. It tries to reduce demand, which it posits will help the economy grow, for some magic reason that involves handwaiving.
posted by Ironmouth at 6:45 PM on May 27, 2013 [1 favorite]


1) Give players a tax credit for play. Either for hours in or experience gained and probably on an account basis. This encourages people to play and it makes it difficult for people with vast stores of wealth.

Make it cost money to level up. Gary Gygax had people pay to go up levels and made weeks go by to level up. I'd always require them to spend that money--wooden swords, spell components.

Just make it costly. But the more you play, you get discounts on cost.
posted by Ironmouth at 6:53 PM on May 27, 2013


Ironmouth,

I think we've moved pretty far past the original point that motivated this exchange, viz:

Funny how they believe that a metal priced far above its industrial use value and liked because it is shiny is not an example of a fiat value assigned to a commodity

which, of course, it isn't: the price of gold is determined by supply and demand, not fiat, and it can be rational to hold gold for reasons I've outlined above. I am not suggesting that it is presently a good idea, but at least a bad idea rather than a not even wrong one as you seem to suggest. I don't think I got an actual reply on that point, but my apologies if I missed it.

You transfer that gold via inheritance or trust and you will be paying taxes on it denominated in dollars.

Yes, and? What you pay taxes with is totally orthogonal to what you pay taxes on. The fact that you can pay taxes with USD is ultimately the only reason it is valued more highly than monopoly money. The fact that taxes are levied on gold is just further evidence that people value gold intrinsically (or expect that other people will). I'm afraid I don't really take your point here. You're not suggesting that an asset's value is set by virtue of its being taxed, are you?

The rest of your comment provides a lot to respond to, but the shortest reply is just to reiterate that I'm not arguing in favor of a gold standard or austerity (!).
posted by lambdaphage at 7:40 PM on May 27, 2013


The fact that you can pay taxes with USD is ultimately the only reason it is valued more highly than monopoly money.

People accept dollars as currency. If they didn't, the government would collect taxes in kind. See the first famine under the Bolsheviks for reference.

The rest of your comment provides a lot to respond to, but the shortest reply is just to reiterate that I'm not arguing in favor of a gold standard or austerity (!).

Conceded. That was an assumption on my part, I see now.

If we are talking strict valuation only, its overvalued right now and price movements are showing that.
posted by Ironmouth at 8:57 PM on May 27, 2013


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