Rampant Inflation: A Tale of Game Economics

written by Alastrom

 

MMO games have a prevailing economic problem that developers have yet to effectively find a solution to. Imagine you’re running through the forest of your favorite online game when suddenly a bandit pops out from behind the tree and attacks you. It’s an easy fight and doesn’t take you more than a few seconds. Upon the bandit’s defeat, you notice a beam of heavenly light shoot up from his corpse and into the sky. When you click on that beam of light, you find the bandit had thirty seven copper coins and a small rusty dagger on his body. You’ve made it through the forest and returned to civilization, having killed about a thousand bandits in your journey. As a result of your diligent effort, you’ve managed to loot quite a bit of coin and your inventory is filled with useless baubles and trinkets that a nondescript merchant will gladly buy in droves. You’ve had a good grind for the day and with any luck, you’ve got enough money to buy that shiny new rare drop, potion or other good from the in game auction house. At any given time there are tens of thousands of players performing this exact same action. It’s what fuels the economy of online games. The problem with this system is similar to one mirrored in our current geopolitical climate. People are effectively printing money.

“Printing money is merely taxation in another form.” – Peter Schiff

I recently returned to play Star Wars: The Old Republic. It’s been about five years since I last picked up the game but I was an adamant player back during its release. A frequent sight in PvP and during the downtime, I worked the in game auction house, where I was able to amass a small fortune of about fifty million credits. Back in the day, fifty million credits would have bought me the most expensive items in the game a few times over. Today? Well, not so much. Inflation is a rising problem in the MMO world and it’s not one that’s so easily rectified. The issue is that players are constantly generating new money into the world and eventually, that money has little to no value. This currency isn’t typically backed by any sort of commodity so the price of goods are dictated based on a general feeling of what a player wants to get for an item instead of what the item is actually worth. We don’t spend a great deal of time thinking about this as players. Every time a person gets a single coin in game, no matter what the value, the entire value of everyone’s money is lowered just a small amount. Developers that have attempted to curb this problem are met with even greater challenges that leave their in game economies in a constant state of inflation.

“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value.” – Alan Greenspan

The greatest example of hyper-inflation comes from Gaia Online. At one point in time, currency was worth so little that developers were offering to donate $250 to charity IF players were willing to throw away fifteen trillion gold. That’s great for the more altruistic members of the gaming community, but it does little in the long run. While that’s an extreme case of a “money sink” developers have included this same mentality in other parts of their game. Every time you use an auction house and the system takes a cut of your sale, that’s a money sink. Those vendors in game that sell generic mounts to players at high prices? Another money sink. Guild dues, property taxes, re-spec fees, so on and so forth, they’re all an attempt to remove currency from the game to keep the older players from stockpiling an infinite amount of the stuff. This should have the effect of reducing inflation except it doesn’t take into account the ability for gamers to “grind” new currency. At the end of the day, if you put something in game for a million gold and I want it, I’m going to grind a million gold. If I’ve done it once, there’s nothing stopping me from doing it again. As a simple equation, if players are generating more money from the game than they’re spending on “throwaway” goods, there will be inflation.

“The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin…” – Ernest Hemingway

The results of out of control currency aren’t simply felt by returning players. They have an overwhelming effect on new players as well. An adventurer that wants to buy a new sword may find that it’s tens of thousands more gold than they could ever hope to afford and that weapon would likely be obsolete in a matter of hours. Players looking to “grind” a crafting profession have to start at the bottom, using resources intended for new players. The “low level” resources shouldn’t be expensive as they have no value to older players. Artificial scarcity drives the cost of them to a premium, weighed against the large amounts of money that older players should have. This causes the price of those goods to spike. Mid-grade components can command an even higher price. The high level stuff, which is where most players are operating is cheap by comparison. All of this creates an unwelcoming environment to new players who either leave the game or grind excessively to compete in the current market. Either way, this puts the currency in the hands of those willing to print enough money to compete and as already examined, players are more than capable of doing.

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Hyper-inflation is a real world problem and for MMOs, it has a real world solution. The system of reserve currency is too complicated to cover in great detail, but a quick explanation goes something like this: “If your currency is worth more than my currency, then I keep some of your currency in the bank to keep my currency from falling below a certain level of value.” This translates in games like World of Warcraft or Eve Online to being able to buy your subscription with in game money. Because a subscription has a set value in the real world, the in game currency has a matching value and it’ll generally hold true to those numbers. Players can trade those subscription tokens among themselves for currency, but the tokens themselves can only be used in a specific capacity. The take away is that if a token enters the economy, it must eventually be spent. The amount of money used to buy those tokens then vanishes. It’s important to note that this system falls apart entirely if players can use those tokens to buy anything else from players, as the tokens would simply replace the in game currency as the preferred form of transaction.

“A weak currency is the sign of a weak economy, and a weak economy leads to a weak nation” – Ross Perot

For all of the problems stemming from in game economies, there’s something positive to be said for engaging gameplay opportunities. Players like myself enjoy finding ways to make as much money as they can and that’s rarely through defeating enemies and collecting their loot. Auction houses and other player to player markets are still the playground for the digital rich and ignoring any long absence from the market, those individuals tend to survive the inflation cycle of games much better than the rest of us. Companies like Valve and Blizzard have already begun hiring economists to oversee the development of their markets, signaling that these companies are taking the challenge head on. It’s a difficult balancing act and one that’s been overlooked by most thus far. What gamers need is a new approach to in game economies all together. The industry has grown exponentially and yet players are still surrounded by ideas that haven’t changed in fifteen years. Until they do, all future MMOs will suffer the same circular fate as those that came before them. It’s a death clock that ticks down one copper coin at a time.

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