Archived

This topic is now archived and is closed to further replies.

usser

Economics of MMO, avoiding inflation

Recommended Posts

This question relates to the economy of an MMO. I have some limited experience of Ultima Online but not enough to judge how they solve this problem. If anyone has any design suggestions how this has been solved in the past, by all means, please post. Imagine you have a trading-centered MMO, to make trading simple you want your players to be able to carry out transactions between themselves with money. To avoid money to be created out of nowhere all players start with zero money. The players can then extract various natural resources and eventually trade it with other players for money. As more and more players join the game more wealth will be created and there will be a steady flow of money entering the game, depending how much people play, more wealth will be created over time. BUT, where does this money come from in the first place? Do all MMO''s have to have some sort of central bank that regulates the inflow of money into the game, i.e. by buying resources from the players in exchange for money (and by selling resources to decrease money supply)? But in this case how does the central bank know what exchange rate to set for natural resources to avoid inflation? And a follow-up question, is there any current MMO where money has been rendered useless due to hyperinflation? Best regards, Nick

Share this post


Link to post
Share on other sites
There was a thread just a week ago called "Economics" in which we discussed some of the fundamental ideas behind an economy. The simplest way to prevent inflation of currency is to create a static amount of resources. What this means is that you pick a number out of the air, and that number represents how many resources are in the game, resources such as gold pieces.

However, I''d like to reiterate just what the concept of money actually represents. Paper currency is a representation of a unit of trust. By exchanging paper money for goods, we are in fact exchanging a promise. Holding the money means that we performed some useful capitalist labor to achieve it, and that the purchase of goods has been warranted.

In a ye olde medieval setting, money is not trust, money is a representation of resource. A queen''s coin would represent a collection of treasure given to the queen. I''m generalizing and simplifying, but it was usually the case that official currency was created as part of a banking system, in which they bank away wealth and give a smaller and lighter currecy to represent the wealth.

Stepping backwards even further, currency is the literal resource. Gold Pieces were melted down to make the goods.

Hope this helps.

Share this post


Link to post
Share on other sites
Why do you want to prevent inflation? Now I understand why you want to LIMIT / REGULATE it, but not prevent it. It is inflation that encourages reinvestment of money into usefull endevors.

In a system that has small levels of inflation, large wealth holders are encouraged to INVEST to money, to bring back returns which keep up with inflation, in a system with deflation, wealth holders are encouraged to HOARD their money, and watch their wealth grow. Obviously a static system would have neither of these effects, and simple allow each person to decide what they wanted to do with their wealth based on personal feelings and goals.

The idea of having a FIXED amount of resources does not model ANY real world system and does not work correctly with an increasing number of players. A FIXED amount of resources means each player eventually must take those resources from other players, as they would all be owned by someone (WAY INTO THE FUTURE) ... this does NOT correctly model the fact that each year new fruit and tree grow, and each generation animals breed. In this (the real) system, the total USEFULL wealth of the world in almost always increasing, as humans do things like improve farming skills, setup mining operations, etc ... we MAKE usefull weath, by consuming the less usefull natural resources.

Oh well, gotta go back to work ... i''ll be back

Share this post


Link to post
Share on other sites
See, the fundamental assumption you make when you state that people "trade goods for money" is that people trade for some arbitrary unit which you have defined as money. This is not necessairly true. As Inmate mentioned, the money (or gold, as it is commonly known) is not some Godlike super commidity. The fact is that is is merely an adopted commodity that exhibits three characteristics:
1) Staticism: The commodity must have a relatively static supply, such as a precious metals. Thus, the value of currency will not rapidly vary over time, making it a "constant" that other commodities are valued against.
2) Portability: It must be able to be both mined easily and produced in a form that is easy to carry. "Currency", as we know it is merely a pre-weighed form of a commodity. The British "pound" was originally equal to one pound silver upon exchange.
3) Commandability: it must be possible for a given istitution, like the state or a bank, to stockpile this resource. Thus, the commodity can then be detached from itself, and "bank notes" (i.e. bills) can then be issued which can be exchange for an equal amount of that commodity. Thus, the vast stockpiles of gold at places like Fort Knox are really used to fix the value of the US Dollar, by backing it with a real good.

So, inflation is simple. It is merely the rate at which the commodity that you have based your economy on is being produced. Over time, prices rise as more gold enters the market. More to the point, this is a necessary evil. As Xai pointed out, inflation helps the economy move. Inflation causes people to take their money out of storage and spend it, as the money is worth less and less each year. For example, if I told you that the interest rate on your bank account was -2%, you would remove it and spend it elsewhere. However, that is what it actually is. When people save, their REAL interest rate is equal to the rate charged by the bank minus the inflation rate. Thus, the intelligent investor will invest instead in businesses, moving the economy forward.

The essential problem in your argument is that you refuse to let the free market determine the prices of goods. Inflation tends to arise when a central agency, such as a bank, fiddles with the value of commodities. The best way to solve your problem is to adopt one commodity as a currency, set a production rate for intoduction into the market, and let the rest work itself out. I''m sorry, but there''s really no way that doesn''t involve either a command structure wherein prices are "set" by the GM (and hence is not an accurate trading simulation) or a painful growth period wherein bartering is tedious and widespread.

The economy is a dangerous thing, and not one you can easily just ''create'' for an MMO.

Cheers,
-Operator

Share this post


Link to post
Share on other sites
Guest Anonymous Poster
quote:

1) Staticism: The commodity must have a relatively static supply, such as a precious metals. Thus, the value of currency will not rapidly vary over time, making it a "constant" that other commodities are valued against.
2) Portability: It must be able to be both mined easily and produced in a form that is easy to carry. "Currency", as we know it is merely a pre-weighed form of a commodity. The British "pound" was originally equal to one pound silver upon exchange.



These two points are at odds with eachother. If something is easaly mined, why would it stay static? The harder to find/mine metals are the ones that are worth more.

quote:

3) Commandability: it must be possible for a given istitution, like the state or a bank, to stockpile this resource. Thus, the commodity can then be detached from itself, and "bank notes" (i.e. bills) can then be issued which can be exchange for an equal amount of that commodity. Thus, the vast stockpiles of gold at places like Fort Knox are really used to fix the value of the US Dollar, by backing it with a real good.



In 1968 the gold backing requirement for Federal Reserve Notes was eliminated.
This means that if you go into a bank and hand over 10 us dollars you will get exactly that back (assuming no fees of course). This is why some people will hord gold coins.

As for inflation causing people to take their money out of storage and spending it..... Last time I checked people invested money to make more money, inflation is only another reason to invest.

Share this post


Link to post
Share on other sites
Whats the system of needs driving your economy?
In other words why do people need or want money in this game world?
Whats is it used for?
What purpose does it serve?
If the sole purpose of the game is to aquire money, then how do I showcase my supieor wealth to rivials?
What regular expenses do players have?
You said all players start with 0 money so where does money come from?
Are NPC to trade with?

-----------------------------------------------------
Writer, Programer, Cook, I''m a Jack of all Trades
Current Design project
Chaos Factor Design Document

Share this post


Link to post
Share on other sites
Can players purchase services, or somehow MAKE wealth? If I''m a blacksmith, and I buy a bunch of iron ore and turn it into fine short dirks of poking, then I''ve increased the net wealth of the world. If I''m a hero, and I run off a dragon in exchange for the Shiny Gold Helmet of Psionic Healing, then I''ve gotten something for nothing, if you discount the risk and effort.

So trade isn''t the only way for wealth to move around.

As to inflation, I''d say that in a barter system there''d only be fluid value, based on geography, supply and demand. But I''m no econ guy.

Share this post


Link to post
Share on other sites
Okay, here are some clairifications on essential turn-of-the-century economic theory:

Number 1:


These two points are at odds with eachother. If something is easaly mined, why would it stay static? The harder to find/mine metals are the ones that are worth more.


Okay, the "easy to mine" relates to the relative simplicity of producing large quantities of a resource, i.e. gold, in a sort amount of time in order to create enough currency to allow the economy to function. The "static" relates to the fact that past this first short "boom" the supply of that resource remains either constant or grows very slowly. For example, gold was amoung the most easily mined (and minted) metals for a long period of time, thus it made a perfect currency, as gold deposits, although easy to exploit tended to be rare. So, a static supply ensures a set value for the resource in relation to other resources, and in no way contradicts portability.

Number 2:


In 1968 the gold backing requirement for Federal Reserve Notes was eliminated.
This means that if you go into a bank and hand over 10 us dollars you will get exactly that back (assuming no fees of course). This is why some people will hord gold coins.


Yes, this is true. The vast majority of currencies today are no longer tied to the gold standard. However, the US still retains gold supplies as a hedge against inflation, and they can be sold in order to prop up the American dollar by strengthening the American economic situation. However, the sheer complexity of this situation is such that it is probably undesirable in a MMO, as it would involve rather nasty currency flux due to GM tweaking.

Number 3:


As for inflation causing people to take their money out of storage and spending it..... Last time I checked people invested money to make more money, inflation is only another reason to invest.


You''re precisely right. Inflation is a way to force people to invest - however, where you go wrong is in the nature of investment. Static investments, like hoarding money or buying bonds, tend to pay small dividends for little risks (I mean, when was the last time the US decided "not to pay" for it''s bonds?). However, with inflation the set level of these investments is so low that they actually lose money on them! So, they are forced to go in for riskier investments, by buying into companies that they feel are valid. Thus, it encourages saving being placed in companies hands or in productive uses like upgrading machinery or other capital.

So, I hope that clears this up a little.
Cheers,
-Operator




Share this post


Link to post
Share on other sites
Someone pointed out in a similar thread somewhere (I did try to search for it) that in the real world metals used as currency (or to prop up a non-precious metal currency) had utility beyond exchange for goods and services. Useful objects (well, useful as the symbols of wealth and royalty) can be fashioned from all the raw materials (renewable (silk) and otherwise) valued in such an economy. In any game that I have played, cp/sp/gp/pp are only used as currency; players that have everything that they otherwise need (good armor, weapons, health/mana potions, whatever rations they might need, some amount of currency used to buy things at NPC driven shops) have no use for the currency. Thusly, it is of little/no value to them.

Perhaps if currency could be fashioned into other items (enchantable rings, weapons, decorative (status symbol) clothing) it might be valued more by players.

Better yet, if it works within the game''s setting, have players exchange something like mana for spells, ammo for weapons, etc. The economics of using (needful) expendable goods for exchange of other goods and services might get rather odd; however, I think players play games to immerse themselves in a world different from reality.

Share this post


Link to post
Share on other sites
Well, the real world aspect seems to already have been exhuastively dealt with. The summary being that in the real world wealth IS created as more people joins the system, mine resources, manufacture products or provide services.

From a game perspective a game perspective as well you need to consider the effects of limited wealth.

quote:
Original post by Xai
A FIXED amount of resources means each player eventually must take those resources from other players , as they would all be owned by someone (WAY INTO THE FUTURE) ... this does NOT correctly model the fact that each year new fruit and tree grow, and each generation animals breed. In this (the real) system, the total USEFULL wealth of the world in almost always increasing, as humans do things like improve farming skills, setup mining operations, etc ... we MAKE usefull weath, by consuming the less usefull natural resources.



On one hand you might consider it a way to encourage conflict, ''cuz if anyone wants to get something he has to either buy or steal it.
But from the perspective of a new player just joining who has nothing to buy resources with and isn''t strong enough to fight or steal from anyone else the best option will prolly be to log off.


---------------------------------------------------
There are two things he who seeks wisdom must understand...
Love... and Wudan!

Share this post


Link to post
Share on other sites
Lets drop all the discussion about what money is for a while and put that to the side. Lets just assume that we have a resource that meets all the requirements set up by the macroeconomists to function as a currency. As Xai pointed out my intention was to LIMIT /REGULATE inflation, not to avoid it completely (thanks for the correction).

So, to avoid hyperinflation and periods of bartering, how should this resource be introduced into the world?

Share this post


Link to post
Share on other sites
I have a number of more or less connected points below, which may be or may not be of use. Feel free to criticize the content.

The most important thing of course to solve the problem of hyperinflation, is to limit the influx of money/items into the world. For example I dislike the way one may earn a lot of money simply by going out into the nearest forest to massacre orcs or pidgeons. I believe the retrieval of cash from random creatues is a great source of inflation in most MMORPGs.

Another obvious action that should be taken to prevent excessive inflation is to make players spend their money, volunterily or compulsively. Preferably to spend it into non-profitable investments, that won''t add more money into the game world. Naturally this is hard, but there are options such as tax and apartment rents. Tax on excessive wealth by the way can be very effective when implemented properly and in a fair way.

NPCs are a great source of inflation as well. When the inflation increases with 1000% in a lot of games, why does the blacksmith continue to sell his swords for the same price? A solution then is to adjust all NPC item prices by a certain value based on the current inflation rate.

Even though inflation is hard to calculate, I do believe the inflation rate could be defined as the total value of all items and money in the game world minus some base constant, divided by the number of players there. The value obtained could then be transformed into some percentage for inflation with few additional calculations. Thus as people would get more rich in general, prices would increase.

The problem with this approach to inflation is that there cannot be separated economies in the world. In many games there are newbie zones, regular zones and veteran players'' zones. Usually the prices in NPC shops vary greatly in these zones, as do players'' personal wealths. As the ratio of veteran players/total number increased and the wealth with them, prices would increase in newbie zones as well, thereby effectively ruining all beginners who would no longer afford to buy their necessary stuff as quickly as before.

Perhaps a formula can be added though to effect items with cheap base prices less by inflation than expensive ones. The reasoning for this is that veteran players are the ones to increase inflation. Newbies essentially don''t increase inflation; they simply transform into higher level characters as they acquire more wealth and experience. It follows that veterans who cannot upgrade anymore are a problem however...

Share this post


Link to post
Share on other sites
quote:
Original post by SteevR
In any game that I have played, cp/sp/gp/pp are only used as currency; players that have everything that they otherwise need (good armor, weapons, health/mana potions, whatever rations they might need, some amount of currency used to buy things at NPC driven shops) have no use for the currency. Thusly, it is of little/no value to them.


That''s the point where money becomes (can become) power. When a player has every object he/she would ever want or need, there should be other things that a player can do with that money.


Share this post


Link to post
Share on other sites
Rather I''d say you just need to learn the basic stuff. During the economics classes I take, only 20% of the stuff can be considered to be important concepts, and there really aren''t that many. The rest is just learning fancy ideal-world formulae that usually can''t be used in real life (and have a hard time in a game). A decent programmer with a basic knowledge of economics should be able to design a working system within a week or two (though implementation may take longer of course).

Share this post


Link to post
Share on other sites
Okay, here''s the deal - inflation CANNOT exist without money. It is DEFINED as being the overall increase of prices in a given market over a period of time. Ceteris paribum, it thusly measures the value of a given currency versus some incalculable "worth" of an object - i.e. the intrinsic value of a commodity. However, in a market, intrinsic value does not exist, rather the price of a good is given by the supply and demand for that good. Thus, inflation measures on the relative flucuation of the value of money versus some arbitrary level of demand and supply held static.

Thus, there is NO WAY to detach inflation from currency. However, there are two ways to manage inflation, which are dependant upon the type of currency chosen.

1) If the currency is FIXED, i.e. it corresponds to some real good and is the equivalent of a promissary note for a set amount of that good, inflation is simple - it''s equal to the rate of growth of that particular commodity in the market. As more, say, gold is produced, the overall level of prices rises as the supply of gold in the market goes up. This results in inflation. However, it is necessary for TWO reasons in a growing market - first, if a market is expanding, more people will need currency, and only a growth in currency supply can provide that. Also, it is a necessary stimulant for economic growth, for reasons I''ve already detailed above.

2) If a currency is UNFIXED, like the current US dollar, then it is (in reality) only ensured by the government that issues it. Since the government can issue as much as it wants, it is merely reflective of TWO factors. One, the overall performance of the economy and the stability of the nation. If a nation cannot guarentee that money will still be worth something in the future, it will experience huge levels of inflation - as people refuse to spend any amount of money to buy commodities and instead switch to other currencies. This is the classic "hyper-inflation" of the Wiemar era. Also, it depends on the level of currency published - too much dilutes the value and causes inflation, too little hampers commerce.

I would *strongly* advise any MMO to go with the first, as it is easily managed from a GM''s point of view and is much simpler to set up and maintain in working order.

Cheers,
-Operator

Share this post


Link to post
Share on other sites
Guest Anonymous Poster
I personaly belive that mutli-level system is the best idea.

For example a game that illustrates this the best is World of Warcraft.

100 bronze = 1 silver
100 silver = 1 gold

Now if you make gold rare enough from loot. You can get a great economy without MUCH inflation on this. Yes eventualy people will get lots of gold but then we have things like certain skills need gold to purchase and certain items require gold. Also adding things like having gold as a craft recipe item can highten the length of the value.

Share this post


Link to post
Share on other sites
well the bronze - silver - gold idea is a great starting point but also what can the players do with money? can it be used to persuade political conflicts or is it just for buying stuff? money''s place in your game requires you know how people would trade labor for goods or labor or what not. the more important money becomes the less likely you''ll have problems with inflation because people will be using more of it as more comes in. also make it removable from the world(ie: a king pays to settle a new piece of land the moeny is now gone save if people would aquire it for materials or what have you) have soem fraction of a purchase removed as to keep the money floating around lower for instance say potion X costs 2 bronze to make and is sold for 5 bronze. you give the player 4 bronze and delete one when he sells potion X. this could also generate a Taxing system so that in game governments can aquire money.

Share this post


Link to post
Share on other sites
Let''s not get too involved with real-world economics. In a MMORPG, there''s a lot of things that just cannot happen in the real world. For example, there often IS an intrinsic value for a good...the buy/sell price of the NPC shopkeeper.

At any rate, to keep inflation under control, you have to make sure that the wealth being generated is not too much larger than the wealth that is leaving the game. So, you basically need methods that remove this wealth from the game. The two big ones are taxes and decay.

Players tend to dislike taxes unless they''re hidden. They''re more accepting of something like "to own this big mansion, you have to pay 1000 gp a week to keep the place clean, and 1500 gp a week for a town guard to patrol nearby to help prevent thieving." One time costs are a tax, and are by far the most popular form. The cost to join a tradeskill guild is an example of one.

Decay is one of the most effective methods of reducing wealth. It also tends to earn a lot of griping from the playerbase. But from a "realistic" standpoint, decay makes sense. This tends to come in two flavors: repairable and irrepairable. Repairable decay is a kind of tax, especially if there''s more than just skill involved in repairing your items (and there should be if you use this method.) Irrepairable decay should only be used selectively unless you want a revolt. A wand with limited charges that shatters when used up is an example that players are willing to live with.

But remember that it''s very hard to balance a game economy...you will probably end up tweaking it for the life of the game.

As for an example of a MMO where money is rendered useless, look at online Diablo II...they developed a Stone of Jordon (a somewhat hard to find ring) economy because of hyperinflation.

Share this post


Link to post
Share on other sites
Sources and sinks makes for a reasonable way to create a game, but not to create an economy.

If you want your online economy to work as well as the real economy, you have to make it exchangeable to the real economy, meaning that you can "cash out" to US dollars, and also "buy in" with real US dollars.

Yeah, that means Mr Moneybags can get his full Rubicite for the price of a credit card swipe. Economies are like that.

The corollary is that you have to be able to back all your gold pieces in US dollars. Makes you think twice about the design of the resources system in your MMORPG. And puts a real price tag on duping bugs :-)

Share this post


Link to post
Share on other sites