I’ve been kicking the idea of inflation in virtual markets around in my head for quite some time now. Not exactly questioning the basic premise of inflation in virtual markets as much as some of the implied assumptions.
A lot of this started upon seeing the age-old question “why are market-board taxes a thing?” The stock answer, often given as though the question itself is a dumb one, is “to counter inflation.” At some point, I began to ask questions of that answer though.
How do we know inflation is happening? Are we sure it’s a bad thing? Are market-board taxes an effective way to counter inflation? You get the idea.
- How do we know inflation is happening?
This is really the first question I set out to answer. I wanted to know, above and beyond all other concerns, if any of the other questions were even relevant. Based on my reading and a little personal research I have come to the conclusion that since virtual markets are driven by human actors or sometimes bots acting on behalf of humans, that they behave in a manner consistent with real markets. As such, I cannot come up with any good reason why inflation wouldn’t occur if the required conditions were met.
Part of my problem was that MMO economies aren’t quite like real economies. When you complete a quest or bounty in a game, the currency that is paid to you generally came into existence that very moment. It didn’t have a chain of custody and there likely isn’t a system behind the scene adjusting the amount you receive to account for the fact that it can essentially generate “infinite money.”
The older “monetarist” view of inflation is that greater money supply leads directly to inflation. If you have more dollars you’ll pay more money to get what you want and in doing so driving up prices. The easy answer then is that you must remove some of that excess currency via “gold sinks.” Those activities effectively delete currency in the same way that rewards create it.
It was while driving this particular train of thought that I happened across Wilhelm’s The November MER and the Surge in Outer Passage, a post regarding EVE Online’s rather frequent posts containing a variety of economic data. I figured they might have a graph of the Consumer Price Index, a common measure of inflation, and stopped by to take a look.
Of immediate interest to my question is overall money supply. As one might expect, this seems to trend upward for the most part. This indicates that the total amount of currency in the market does tend to increase over time. As a result, monetarist theory would suggest a slight inflation increase over the same time. Obviously, the methods of extracting money from the economy are slower than the ones generating it.
If we look at CPI over the last few years, it seems to trend along with total currency. I may come back and do a statistical regression of their data at some point, but at a glance it seems to agree, though it’s not nearly as neat an incline as the currency supply.
As a final thought, their data on where currency is being generated and destroyed is also provided. Marketboard taxes make up the majority of the money sink. The tax rate was changed right at the end of July, rather noticeable here. Of specific interest to me was the fact that market taxes are the number one currency drain in the economy. Regardless of where things end up regarding the effectiveness of currency deletion in combating inflation, it’s obvious that it does a decent job at removing currency in general.
It’s also interesting to see that the communication changes they made a while back, leading to a large drop in bounty payouts, seems directly correlated with a reduction in the money supply and the price indices. With bounty payouts close to their pre-change level the other charts seem to have levelled off but not returned to their previous levels.
Guess I should bring this to some manner of conclusion, though I would like to emphasize that it’s a conclusion, not the conclusion. At least in the case of EVE, it seems to hold generally true that an increased currency supply leads to inflation, at least in the “short” term. When you expand it out over the last decade the CPI actually seems to balance itself in a sort of equilibrium that helps protect basic goods like T1 ships from inflation.
And now I want to play EVE again.
Y’all take care, and be careful which rabbit holes you look into. “If you gaze long into an abyss, the abyss also gazes into you.” – Nietzsche. Why is it always Nietzsche?