[Mud-Dev] Broken currencies

[Michael Dekker]

(Given that this thread is going well with this subject header, I'm not 
sure I want to break it for the new format . . .)

On Wed, 4 Apr 2001, Matt Mihaly wrote:

> 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.

[This reply is not specifically to Matt, except that his comment is
the one that led to me thinking of what I have to say.]

The following is excerpted from Investments, 3rd Edition. Bodie, Kane
& Marcus. 1996. Chapter 1.

  "The material wealth of a society is determined ultimately by the
  productive capacity of its economy--the goods and services that can
  be provided to its members.  This productive capacity is a function
  of the real assets of the economy: the land, buildings, knowledge,
  and machines that are used to produce goods and the workers whose
  skills are necessary to use those resources.  Together, physical and
  'human' assets generate the entire spectrum of output produced and
  consumed by the society.

  "In contrast to such real assets are financial assets such as stocks
  or bonds.  These assets, per se, do not represent a society's
  wealth.  Shares of stock are no more than sheets of paper; they do
  not contribute directly to the productive capacity of the economy.
  Instead, financial assets contribute to the productive capacity of
  the economy indirectly, because they allow for the separation of the
  ownership and management of the firm and facilitate the transfer of
  funds to enterprises with attractive investment opportunities.
  Financial assets certainly contribute to the wealth of the
  individuals or firms holding them.  This is because financial assets
  are claims to the income generated by real assets or claims on
  income from the government."

What I want to focus on is that there is a dreadfully small amount of
cash in the economy.  There is certainly far less cash in the economy
than the combined "market value" of all of the real assets in the
economy.  All of the real assets of the economy are owned directly by
the people, indirectly by the people through corporations and trusts,
in trust for the people by the governments, or are unowned (air is
used to produce goods, but is not owned).

What are the real assets in a Mud? Typically, they are the possessions
of the players and the skills of the characters.  Gold, in a Mud, is
not a real asset, because it cannot be used to produce goods.  (It can
only be used to purchase things that produce goods).  Neither is gold
a financial asset, because it does not represent a claim to the income
generated by real assets.  Thus, financially astute players in a Mud
are not interested in the acquisition of gold, except insofar as gold
is a tool that will lead to the acquisition of other real assets or
financial assets (which typically don't exist).

The sole advantage of gold (cash) over other assets, both in Muds and
the real world, is liquidity. Once a player possesses sufficient gold
to purchase all needed goods from NPC vendors, there is no economic
reason to acquire more.  It simply isn't productive.


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