[Mud-Dev] Broken currencies

[Matt Mihaly]

[I've renamed this thread to something more indicative of its
content. It was previously called Learning from MUDs.--matt]

On Tue, 3 Apr 2001, Brian 'Psychochild' Green wrote:

> Going back to the paper I referenced, "Lessons from Lucasfilm's
> Habitat", it wasn't the economy itself that was really broken, it
> was the currency.  People still traded items between themselves and
> carried on other economic activity, it's just that the medium of
> exchange was no longer the intended currency but rather other items.

Is this a bad thing? I don't know whether it is or not. I know that I
wouldn't call something broken simply because it's not behaving the
way the designers intended. There has to be a large tolerance in MUDs
for users to decide how things will work. A currency's value is in the
ability to store value more easily than physical objects, and its
ability to be neatly denominated in a way accepted nearly
universally. The design of most MUDs causes the concept of a currency
to have inherently less value. You can usually personally hold WAY
more than a real-life person could, and you can often store ridiculous
amounts of things basically for free. In real life, storage of
physical goods and moving physical goods is very expensive. If I had
to physically move a bunch of oil to you in order to buy my food,
buying food would be _very_ expensive to me, the consumer. As the
consumer can't take advantage of the economy of scale that a merchant
can, the consumer needs a currency to make any sort of real
consumerism (which drives a modern economy) feasible.

So, if the players don't use a currency, it strikes me that they don't
see much value in it. But the only value a currency has is that it
assists in other transactions. If there are no transactions they feel
they need currency for, is it terrible that they don't use it? 
Essentially I'm asking whether this would seem to have any effect on
how much the players enjoy the world.

 
> A basic tenet of economics is that value is determined by utility
> and scarcity.  Things that are more useful and harder to find are
> worth more than common items with little practical use.  My car has
> more worth than your dull pebble.

Not to split hairs but value is not so neatly defined. Value, first of
all, depends on your philosophical outlook on life. For instance, one
of the central economic tenets of Marxism is his labor theory of value
outlined in his essay "Value, Price, and Profit." He explains that the
idea of commodities as crystallised social labour. I won't go through
the argument he uses unless someone is specifically interested, but
the idea is that " ...the relative values of commodities are
determined by the respective quantities or amounts of labour that are
fixed in them."

Even from a capitalist outlook, it is not defined merely by scarcity
and utility. In a capitalist economy, you can basically sum up by
looking at value as whatever you can get someone to pay. "Market
price" It is influenced by scarcity and utility, definitely. More
importantly, they're influenced heavily by the _perception_ of
scarcity and utility, which is an important distinction. The utility
and scarcity of Amazon stock has not been reduced by a factor of 90%
in the last year. People's perception of it has. And that's what
mind-bendingly smart professional economists forget all the
time. That's what nearly sunk the world economy in 1998 when Long Term
Capital Management went down (with 2 Nobel Laureates in economics on
their staff) in response to the baht's fall.


> Currency is a bit odd in this respect.  While gold or the funny
> colored paper in my wallet doesn't always have inherent utility,
> society has agreed that it can be exchanged for goods and services,
> thereby giving it utility.  Of course, a measure of scarcity makes
> for a better currency; for example, the paper in my wallet tends to
> have very specific identifying marks to separate it from forgeries.

Gold has utility though. It looks pretty and it's very
malleable. That's the original reason for its value. Now, of course,
it's a bit self-fulfilling as just saying "gold" conjures up images of
wealth.

 
> What happens in many games is that game currency somehow becomes
> more common than it should be.  This usually happens because a) more
> money is found than is spent by the players, and b) there are bugs
> in the game (dupe bugs, etc).  If game currency becomes too common,
> then people stop using it as a medium of exchange.  Items with more
> scarcity (or a stable scarcity) become the new medium of exchange
> because the value of the items are higher.

So there becomes a significant cost (in time?) to moving the currency
itself in the case of high levels? The items presumably preserve their
value more than currency does too due to less item inflation (from
what you described).

 
> To see an extreme example of this, see if you can find anyone in
> EverQuest willing to sell items that don't drop anymore (mana
> stones, rubicite armor) for any reasonable amount of platinum.  Most
> people won't.  Yet, if you offer an item that no longer drops in
> exchange for another item that no longer drops, you might get more
> interest in your proposed transaction.

That doesn't indicate that the currency is broken though. As you say,
for any reasonable amount of platinum. Try buying things that aren't
made anymore such as Rembrandt's paintings for any reasonable amount
of dollars. Can't happen. And in my opinion, people in games don't
even come close to as relatively wealthy as people in real life do,
because MUDs don't tend to support systems that let you profit widely
enough from other people's work (for instance, there's no way to start
an IBM, harnessing the work of 100,000+ people for the shareholder's
profit).

It actually sounds to me like the fundamental problem with Everquest's
currency is just that it's a physical currency rather than a virtual
currency like modern currencies. I can buy a Rembrandt from Christies
by wiring them money, and incurring only a very very small transfer
cost. If I had to physically haul 10 million 1 dollar bills, that'd be
a significantly more difficult task.

The other problem I can see is that since there isn't really a way to
earn interest, or to invest, then _any_ currency inflation is going to
kill much of the value of the currency. Some inflation is acceptable
to people in the physical world because it's a natural effect of
economic growth, and because you're able to make money with your money
at at least an equal rate to the rate of inflation.
 
--matt

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