With the Dr. Cantor seminar up and running, various individuals have asked me to forward one of my articles to the Mises blog. Dr. Cantor will be speaking shortly on Friday’s lecture concerning video games and how they are quickly becoming a new form of art. That said, last week my article “The Economics of ‘World of Warcraft’” was published on LewRockwell.com and I can only hope this will aid individuals in understanding the economics present within “virtual reality.”
All comments welcomed!
{ 25 comments }
Young Villacampa,
Thank you for posting your article. I found it to be well written and, thereby, easily readable.
Your enthusiasm for the topic is well noted, and well received. You did a fine job conveying much information, about the game, in a way that would be of interest, even to non-game players.
With this illumination: “What is marvelous about economic science is that it can be applied to almost everything. All human action can be analyzed through it and almost no realm is cut off from economic analysis.”–you should know that you are well ahead of many, even many who have invested their entire lifetimes studying Economics (without that lamp–aiding their Searches).
This: “This “farming” trend has become so popular that now families in China are using their time to farm gold for World of Warcraft players and are selling the virtual currency on Internet auctions for profit.”- is a compelling fact.
It will lead me ask you a question. Are you sure they are doing so, at a (profit) ?
Once again, Good Job!
First off, thank you very much for the compliments! I am glad it was of service to you.
Secondly, I believe that many of these farmers are gaining a substantial profit. This is evident in the fact that the field is expanding at a rapid rate. There are more gold and item farmers now than ever.
Thank you again for the comment!
Back in 1994 when I first started pitching my unique business idea for a virtual world featuring a realistic economy based on laissez-faire, people called me “moronic” (literally).
That is saddening. It has taken quite a period of time for individuals to gain respect for digital arts and video games. I believe that virtual reality can lend alot of useful information in understanding the workings of human action and only those with simple minds can disregard “virtual reality” as child’s play.
Alexander,
This: “This is evident in the fact that the field is expanding at a rapid rate. There are more gold and item farmers now than ever.”– is true sign that the “market” perceives the activity as potentially profitable. You instruct, by your response, the importance of Empirical observation to lend sound backing to one hypotheses. This, sadly, is contra to many who rely upon long winded syllogisms, tangled equations, or both, to inveigh upon others, the correctness of their viewpoint. To paraphrase A. Einstein: “It takes genius, to make it simple.” Sound minds know well to “keep it simple”. Occam’s tool is handy, indeed, to shave bare the field of Man’s thoughts, for it is in the thickets–where Snakes lurk.
And another Q: In your article you describe: More players in Total, and more “farmers” of Gold and various Items. You give rise to the idea that there is more “money” in circulation, even to the point that the U$D price of “Gold” at the physical/ virtual nexus is dropping, resulting in Nominal Price inflation. Yet, the Real Price of goods is going down? Did I miss something, or misunderstand, or could you describe how that has happened within the Game?
Thank you very much, in advance~
Alexander , very interesting article thank you for writing it. As a fellow student of economics and gamer, the internal economies of MMO’s have always fascinated me and its good to see others taking a similar look into them.
I personally play in a different MMO called eve online which has a ‘freer’ and less structured economy than WOW, its almost anarchy. Have you thought about looking at that games economy?
Concerning the real prices of certain good and services within the game, there has been a drop over time that I have seen. The real price, of course I can never be certain as to the rate of monetary inflation within the game, can be understood by accounting for the amount of goods and services a gold coin can purchase.
For instance, let say a good cost you 1 gold coin in the game at day 1 and the average daily income was 8 gold coins. Now, due to inflation, the purchasing power of the gold coins have been decreased to a certain degree on day 300. Lets say that now that the average income is 20 gold coins and, due to inflation, the price of the good is now 2 gold coins. At day 1, the good consumed 1/8 of the income of the individual and at day 300 it consumed only 1/10 of the income of the individual even though inflation has set in as to increase the price and the income of individuals. That is, though inflation has increased the quantity of gold coins and risen prices, it has been countered by productivity in the marketplace and the ability of individuals to specialize in certain fields within the game and deliver goods at more reasonable prices.
Thus, the real prices of goods and services have decreased even though the quantity of money has increased within the game. As we know, the purchasing power of any monetary unit is based on the amount of goods and services that unit can purchase on the market. If the vast array of these goods increases at a rate that can properly counter the increase in gold, this will lend to reduce the real prices of goods and services; that is, real vs. nominal.
Hence, what I tried to portray was the fact that though the quantity of gold coins has increased over time, the price of certain goods have decreased in so far that they take up a certain percentage of income.
Therefore, the quantity of money has been inflated, or increased, but the purchasing power of each gold coin has increased relative to earlier years. Prices have been increasing but not at the rate so as to fall behind monetary inflation. So, as I said in the article, the prices of goods have been rising drastically but as a percentage of income their value have been decreasing due to competition and specialization. Thus, the real prices of goods and services have decreased.
That is:
Delta quantity of money has increased, delta purchasing power has increased, delta prices has increased, delta real prices has decreased.
Rise in the purchasing power of the monetary unit has served to counter the rate of inflation in the game due to farmers.
I hope that clarified my message a bit! Thanks for the awesome questions, fi you have anymore don’t hesitate to ask!
Dear Todd,
I am glad that you enjoyed my article and it is good to see a fellow econ gamer! I have not played EVE online nor do I know much about it. I spend much of my gaming time in WoW though I have played a wide variety of MMO’s in the past including Star Wars Galaxies. I am sure that EVE online has many economic applications within the virtual market, it is the case in all MMO’s that have a somewhat unregulated market.
I am sure that as time progresses there will be new games coming out that will expand the virtual laissez-faire marketplace and have less market control than others.
You didn’t mention guilds, the main option for cooperation and charity in the game.
Alexander,
Thank you for your answer. I agree that “productivity” can overcome certain levels of monetary inflation. Thereby leading to a decline in “real” prices.
A minor edit: You have: “That is, though inflation has increased the quantity of gold coins…”
Do you think it should be: “The increase of the quantity of gold coins, root cause of inflation, has raised prices…” (?)
btw, your answer, again, was easy to follow along.
Mr. Hoffer,
Yes I believe that is better worded and more to the point I was trying to make.
Dear JB,
You are competely right about guilds and it should have been included. Guilds are an excellent source of charity, help, division of labour, and identity.
I played World of Warcraft for about a year; it was a fascinating look at human action and how Blizzard often failed to anticipate it. I remember, for example, how makeshift casinos sprang up on every server, with gambling providers competing to offer the most lucrative odds to dice-rolling customers.
Alexander,
It’s been done before. You want to search for papers available from SSRN that are written by Edward Castronova.
Paul,
I agree, I also noticed such occurences in WoW. It is quite spectacular to witness the sheer freedom markets may have in “virtual reality.”
Robert,
I was not aware of such papers. Thank you for pointing them out to me. I am sure this is a field that will be explored much more heavily over time.
If South Korea is, indeed, a proper harbinger, and this story: http://www.msnbc.msn.com/id/14011252/
is correct. This field will surely continue to yield many ancillary opportunities.
People certainly are more clued in to this concept now than they were when I first started out (my original ideas for “socio-economic” VR environments go back to 1980).
I hope to get back on that horse soon. This time I’ve teamed up with a brilliant woman who holds a Masters Degree in Educational Technology from Concordia. Fingers crossed…
Vanmind,
“Prophets are seldom appreciated in their own time”–is message that has long resonated down the channels of Time itself.
Worry not, and Keep Thinking/Doing.
Ed.Tech+ IT/VR is a fertile field in which to plow.
“Home Schoolers” are at the leading edge, in the “consumer” marketplace, in adopting those tools. Watch if “rebuilding our Economy” doesn’t become a Massively Multi-Player “game”.
Also, would you know anything about “the Twin Fish” ?
Tod
I’m not sure that EVE is more representative of laissez faire in it’s economy. The currency (ISK) appears to be fiat (there is no mention of it being a commodity) and it doesn’t look like you can ‘farm’ it. Indeed it isn’t clear how the money supply is controlled at all, since NPCs can sell/buy things with no indication of what happens to the money afterwards.
Having said that it has a market system that is broader and deeper than World Of Warcraft and more subtle.
As for anarchy, with cops in all the 0.5 and above security rated systems, contraband goods and customs officials on all the stargates it seems depressingly like our current state setup.
Thanks, M.E., for the encouragement. I am trying to leave behind my feelings of bitterness and move forward with my art/entrepreneurship. My friend & business partner certainly will complement my few strengths.
My biggest life hurdle has been getting past the whole success/failure trap so I can grasp the Way and release unencumbered creativity. I have heard of “The Twin Fish,” but haven’t learned much beyond the basic symbolism (Pisces, Yin/Yang, etc.). I try my best to follow a path toward Wu-Wei, and I enjoy reading the wisdom of Laozi, etc. Can you recommend anything that might help me & others attain the Dao?
btw: I am also a Red Cosmic Skywalker–thirteenth tone and thirteenth kin (thankfully I don’t suffer from triskaidekaphobia). Feel free, everyone, to check out your own Mayan calendar birthdate at: tortuga.com
Vanmind,
With this :”Can you recommend anything that might help me & others attain the Dao?”- Thanks!~ you know, for the easy Q. :^)
That tortuga.com was quite interesting, I hadn’t seen it before.
It would probably be best, in view of the thread topic, if you sent me an e-mail. If we come up with anything worthwhile, you’re more than welcome to share it.
Gekko, your correct in isk being a fiat currency in eve. Its a little strange as I cant actually track down who actually ‘prints’ it. Probably CONCORD as I make most of mine from shooting down re-spawing NPC ships.
Its one of the problems that i have observed in the MMO games, is that for a game to be ‘fun’ you need to be able accumulate money. There is a kind of visceral pleasure playing the game seeing your bank balance accumulate by millions. But then there is the usual problem of how do you counter the inevitable inflation that it causes. The developers need to balance the amount of money going into the economy, the amount going out while keeping in mind that the point of game is fun. If you have too few players chasing a finite pot then there is the risk that new players will be turned off and find it difficult to get off the ground. Even if there was a commodity based currency I don’t know how much ‘fun’ it would be.
Saying that tho, there are commodity based currency within the game. The corp i play with has to deliver a set number of ice compounds a week as rent for the region we are in.
Anyways, once you leave the high sec stuff and get into 0.0 (hopefully avoiding the typical gate camps), the game gets really interesting. The politics between alliances and even within the corps is always fun. The market is interesting in that if no one is manufacturing what you need, then there is no way to get from the market. On the other hand, it offers the large rewards for those willing to take the risk to ship stuff out to supply the stations.
The other things i find interesting about EVE is how the player built economic structures that are being created. Entities such as stock exchanges, banks, corps trying to raise funds through IPO’s, corps offering shares in POS’s. Corps selling services ranging from manufacturing through escort (as in police escort) through assassinations.
Todd
“Its a little strange as I cant actually track down who actually ‘prints’ it.”
I was discussing this with a colleague the other day. In the absence of a storyline ‘printer’ (there is no back-story mention of a cross-faction central bank) and so from a practical pov, the game maintainers presumably manage that process themselves. It must be easy to find out how much ISK is actually in the system and I am guessing that the supply can then be controlled by having more or less NPCs buying and selling goods to introduce or remove money from the system.
“If you have too few players chasing a finite pot then there is the risk that new players will be turned off and find it difficult to get off the ground.”
I find this interesting – what you’re rightly suggesting is that the injection of money (causing inflation) makes it easier to come by and therefore the game more ‘fun’. I think that has interesting parallels with money creation in the real world whereby people feel ‘wealthier’ in the early stages of an inflation – things are easier to come by, life is easier and more ‘fun’. While the money creators are the true benefactors in the real world, the money creation would appear to have a similar ‘reward’ effect as side-effect.
“Saying that tho, there are commodity based currency within the game. The corp i play with has to deliver a set number of ice compounds a week as rent for the region we are in.”
It would be interesting to see whether the commodities come to prominence as currency and the use of ISK reduces. Maybe the escrow system as an alternative market might encourage that. It would be interesting to see the effects of an ISK hyperinflation though.
“The other things i find interesting about EVE is how the player built economic structures that are being created.”
Maybe it has more anarchic market potential than I give it credit for. I’m still a newb so I haven’t had much contact with that side of it.
Thanks for writing this, I found it extremely informative.
In regards to world of warcraft (one of the best player economies I’ve seen), I am writing a blog which focuses on how players can make in game money through free guides that focus on using the player driven economy.
http://justmytwocopper.blogspot.com/
I look forward to reading more of your articles! Cheers!
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