I’m going to completely ignore how the first dollar was ever created. If you are truly interested, there are plenty of books on money supply. This is a giant simplification of how money supply works. It will have to do. For now, assume the entire world consists of 5 people named Adam, Betty, Chuck, Doug and Ed.
One day, Adam decides that he’s going to take the $1,000 that his mom paid him to move out of her basement and put it in the bank. So Adam goes to the only bank that exists in the world, the First Bank, owned by Betty.
Adam deposits his money, and Betty promises to pay him 5 bucks a month as long as Adam keeps the whole $1,000 in the bank. Adam is ok with this, since he doesn’t need the money anytime soon. Betty likes this arrangement because she thinks she can make more than 5 bucks a month off Adam’s Deposit.
Amount of money in the world:
Adam = $1000 (in his pocket)
Betty = $0
Chuck = $0
Doug = $0
Ed = $0
Total = $1000
Chuck decides he’s going to open a business selling moonshine. In order to start this business, Chuck needs to borrow 900 bucks, so he goes to see Betty. Betty lends Chuck 900 bucks on the condition that he pays Betty 7 bucks a month in interest plus 20 bucks a month in principal until the loan is paid off. Chuck agrees, and borrows the money.
Chuck takes his newly borrowed $900, runs off to his house, shoves it under the mattress, and begins to plan out his new moonshine business.
Amount of money in the world:
Adam = $1000 (in his savings account)
Betty = $100
Chuck = $900 (in his mattress)
Doug = $0
Ed = $0
Total = $2000
A month goes by. Chuck pays Betty his $27 payment, and Betty pays Adam $5 for the interest on this deposit.
Amount of money in the world:
Adam = $1005 (in his savings account)
Betty = $102 ($7 bucks in interest on load – $5 she pays to Adam)
Chuck = $873 (in his mattress)
Doug = $0
Ed = $0
Total = $1980
Chuck realizes that he’s an idiot just sitting there paying 27 bucks a month while sitting on his ass. He doesn’t know how to make moonshine, so he hires Doug to build a still for him. Doug charges him $500 bucks for the job. Doug, being the saver that he is, goes to see Betty. He makes a deal with Betty. Betty will pay him 2 bucks a month in interest as long as he keeps the $500 in the bank starting next month.
Amount of money in the world:
Adam = $1010 (in his savings account)
Betty = $604 (Another month of payments)
Chuck = $346 (paid Betty 27$ and Doug $500)
Doug = $500 (in his savings account)
Ed = $0
Total = $2460
A month goes by...
Amount of money in the world:
Adam = $1015 (in his savings account)
Betty = $604 (she’s just breaking even now)
Chuck = $319 (paid Betty 27$)
Doug = $505
Ed = $0
Total = $2443
That same day, Ed decides he wants a loan. Betty has that $604 sitting around. She lends Ed $400 and rapes him with a 10$ a month interest charge.
Amount of money in the world:
Adam = $1015 (in his savings account)
Betty = $204 (she’s just breaking even now)
Chuck = $319 (paid Betty 27$)
Doug = $505
Ed = $400
Total = $2443
A month goes by...
Amount of money in the world:
Adam = $1020 (in his savings account)
Betty = $214 (she’s just breaking even now)
Chuck = $292 (paid Betty 27$)
Doug = $510
Ed = $390
Total = $2426
Now this cycle of lending goes on forever. Now what happens when Adam wants his Cash Back? Hopefully, he only needs a few bucks, which Betty will have to give to him out of the Bank Reserves ($214.) At this point, if you are still reading this, you are probably thinking that this system could collapse the moment Adam and Doug take all their money out of the bank. This is known as a Bank Run, and our country’s history is full of them.
In the modern world, the government carefully monitors the money supply and makes changes the rate of growth of money using tools I won’t get into here. A key factor in this whole mess is that the money supply needs to keep growing with the economy. If the money supply grows too rapidly you get excessive inflation as too much money chases too few goods.
Now let’s look at how money is created in a MMORPG:
First, a key concept: THERE ARE NO BANKS IN MMORPGs. There are only storage facilities. All that time you spent in Freeport lagging horrible as you withdrew your plat was actually spent at “Brad’s Self Storage.” If you can’t borrow money from it, it’s not a bank.
Money in MMORPGs comes from thin air. Players camp mobs for gold, or they do instances and loot chests, sell items to NPCs, or whatever. Money flows in like water from a garden hose. The only thing that controls the amount of money created is 1) How fast players can loot mobs and chests and 2) How many players are engaging in activity #1.
Money disappears out of the system in a MMORPG when players purchase goods or services from the game via NPCs. These are the money sinks that everyone talks about. Every time a newb buys a rusty sword from an NPC, that money is gone from the world forever. There really isn’t any other way worth talking about since players click the “destroy” button on gold stacks about as often as I get laid.
A key concept here is that transactions between players does NOT translate into an increase in the money supply. In the “real” world, the money Doug made doing service for Chuck results in a $500 deposit in the bank, which then gets lent out and increases the money supply. If the same transaction happens in a MMORPG, 500 gold simply transfers from one storage unit to another storage unit.
Developers consider a MMORPG economy balanced when the rate of new money coming into the world is reasonably close to the amount of money that leaves the world. Seems simple enough right? Over time, players hoard gold, Chinese farmers run their macros, and the amount of gold in the game world continues to grow. Since you have more money in the world and inflation kicks into high gear as Maxed out players are willing to pay more and more for items.
So what’s the point?
1) Inflation in a MMORPG and inflation in real life are NOT caused by the same thing. Developers cannot try to mimic real world solutions for their in game economic problems. The best way to counter inflation in a MMORPG is to create HUGE MONEY SINKS. Or you can turn down the gold drops (I bet your players will love that.) That’s it.
2) RMT makes inflation in a MMORPG worse. Chinese Farmers increase the rate of money creation in a MMORPG through endless farming. Not a good thing for your in-game economy.
3) MMORPGs that want to recreate a real world economy are doomed to fail in a spectacular manner. It’s just not possible to create a banking system in a MMORPG. Players will simply borrow money and never pay it back.
We'd like to thank community member "daslog" for the preceeding article. He's an old man that works for a huge financial institution, so pay attention to what he says. Now get the hell off his lawn.
