At the Ludwig von Mises Institute blog, Peter Earle looks at the “virtual Weimar” economy of Diablo III:
As virtual fantasy worlds go, Blizzard Entertainment’s Diablo 3 is particularly foreboding. In this multiplayer online game played by millions, witch doctors, demon hunters, and other character types duke it out in a war between angels and demons in a dark world called Sanctuary. The world is reminiscent of Judeo-Christian notions of hell: fire and brimstone, with the added fantasy elements of supernatural combat waged with magic and divine weaponry. And within a fairly straightforward gaming framework, virtual “gold” is used as currency for purchasing weapons and repairing battle damage. Over time, virtual gold can be used to purchase ever-more resources for confronting ever-more dangerous foes.
But in the last few months, various outposts in that world — Silver City and New Tristram, to name two — have borne more in common with real world places like Harare, Zimbabwe in 2007 or Berlin in 1923 than with Dante’s Inferno. A culmination of a series of unanticipated circumstances — and, finally, a most unfortunate programming bug — has over the last few weeks produced a new and unforeseen dimension of hellishness within Diablo 3: hyperinflation.
[. . .]
Two obvious solutions for managers of virtual economies include more vigilant bot restrictions and close — indeed, real-time — monitoring of faucet output, sink absorption, prices, and user behaviors. More critically, though, whether structured as auctions or exchanges, markets must be allowed to operate freely, without caps, floors, or other artificialities. Unrestricted (real) cash auctions would for the most part preempt and obviate black markets.
One also surmises, considering the level of planning that goes into designing and maintaining virtual gaming environments, that some measure of statistical monitoring and/or econometric modeling must have been applied to Diablo 3’s game world. The Austrian School has long warned of the arrogance and naïveté intrinsic to applying rigid, quantitative measures to the deductive study of human actions. Indeed; if a small, straightforward economy generating detailed, timely economic data for its managers can careen so completely aslant in a matter of months, should anyone be surprised when the performance of central banks consistently breeds results which are either ineffective or destabilizing?
Update, 24 June: It’s worth examining just who benefits the most from inflationary episodes like this, both in the game and in the real world:
Just as surely as if someone hit “print” on bonds at the U.S. Treasury Department and the Fed made more money of out thin air, the new gold in the game’s economy moved from the hands of its first owners — whose purchasing power was enhanced without contributing anything productive to the economy — to the hands of those who received it for the goods they offered in the “Diablo III” auction house. In so doing, the first holders of the new gold (the cheats) could buy more than they would otherwise have been able to, stimulating demand far outside of their legitimate capacity to do so. By bidding up items simply because they wanted them and could pay more for them, they caused the market to clear artificially high prices.
Reports from the “Diablo III” forums on Battle.net, one of Blizzard’s official sites, include complaints of people selling gems worth 30 million gold for 100–400 million gold; another participant on the forum griped that players “sold garbage for hugely inflated prices.” All told, only 415 out of the estimated three million subscribers who play every month actually exploited the glitch. But all it takes is a few rotten apples to spoil the barrel. In the real economy, the men and women of the Fed and the beneficiaries of their fraudulent money creation comprise a very small percentage of the total number of participants in the real market.
As the second holders of the new gold spent it on goods they desired in the virtual economy, they, too, stimulated demand far out of proportion to their productivity on the market. This raised the prices of what they purchased, just like the cheats who exploited the glitch to begin with. As this gold spread like a ripple on the surface of a body of water, each player’s purchasing power eroded further and further as prices rose higher and higher.
