Monetary Policy and MMOs

I keep circling this idea of monetary policy for MMOs and I can never put a finger on how applicable it is. A lot of the attention on it stems from the fact that monetary policy includes many of the activities we use to control inflation, and inflation in MMOs is something I’m interested in.

In a nutshell, monetary policies are the choices typically made by a central bank, such as the Federal Reserve Bank, that primarily affect commercial banks. Interest rates for loans from the central bank to commercial banks, the availability treasury bonds, and the amount of cash they require banks to have on hand (reserves) are the ones I’m typically thinking of. By manipulating these numbers the central bank can suggest, encourage, and/or require the commercial banks to change their behavior.

The net effect of these changes, especially the last two, allows the central bank to manipulate the amount of currency that exists within the economy. If they want to reduce (contract) the amount of currency, then they sell bonds or raise the reserve rate. Selling bonds takes money from commercial banks in exchange for a piece of paper, money they could have loaned out instead. The reserve rate is unique because it acts more like a multiplier.

I kinda talked about the reserve rate in a post over a year ago, Activision Lawsuits and Fractional Reserve Banking. Considering I had hadn’t taken any economics courses at that point, I’d say I did pretty good.

However, FFXIV, and most MMOs I can think of really, don’t have any sort of banking or lending industry at all. It’s because there’s no contractual enforcement, but that’s for another day.

The question then becomes, can monetary policy exist in an environment with no banks and no lending? They still have a monetary base, and decisions by the developer have an impact on that monetary base, but that’s it. None of the other mechanisms or agents are present.

I’ve been quite fond of saying that fiscal policy doesn’t apply, but I’m questioning that. An argument could be made that I’m getting hung up on the idea of the monetary base increasing to decrease in response to a tax. An alternative way to look at it would be like any other tax, but government spending is always nil. That is, the tax money is “collected” and never spent.

In a way, I’m not sure it matters which it is, either. Increase in tax, reduction of the monetary base, either one is effectively contractionary. I think, all things being equal, if it looks and sounds like fiscal policy it makes more sense to call it fiscal.

The other huge question is how does one measure this kind of thing? I think pinning inflation down is reasonable enough, at this point. I feel confident that if I sat down and developed a solid plan I could probably measure inflation, it would just take several months to get the required data. Alternatively, I could try to find a third party site that already has it. The items I’m thinking of are probably updated frequently.

GDP or monetary base, though, are a much different animal. Given how much work goes into finding those in the real world, it seems impractical to measure from the outside. Even if I had a decent estimate, what practical value would that have? Think I’m going to let it simmer some more while I focus on the task more immediately at hand.

Y’all take care. Get plenty of sleep. That sort of thing. I should go take my own advice.

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