This post is a continuation of the paper MMO Chartalism. The goal of this postis to take the observations from the previous paper, and to extract some general theories of development that can be applied to future MMOs.
The first and foremost problem with a MMO currency is the inflationary tendencies that arise from the nature of this game. A large reason for this is that the currencies to date have all been commodity currencies. That is to say, the players are able to extract and input the “good” from the world. As with almost all goods within a world, the supply is limitless. The faucet does not connect to the drain so to speak. And what happens is that faucet continues to flow faster than the drain can empty, leaving an ever-rising monetary level.
This, average income of a player will usually far outstrip that in which he pays out, because of this broken link. What will then happen is, because it is a commodity required for inputs, people will accumulate the good for said input as well as trade. The result is that the value of money deflates rapidly, and inflation soars.
I have argued many times before that this accumulation of currency and resulting inflation can be countered if the money becomes a fiat currency, and has a steady monetary supply, and have even proposed once a responsible central banking system to accommodate the current faucet-drain systems (Breau, 2003).
How can currency evolve?
The problem lies within eliminating the need for the current governing system to issue and collect currency, as well as eliminating the need for the currency to be also used as an input commodity for goods.
Lets take a look at the second condition first. There can be an argument said that the inputs that the currency is needed for can be considered as other tax collections systems for the game, it creates a double value for the good, which was mentioned above. The currency would now have a unit of account value, which is stamped upon it, and a value as an input for goods. In essence most of the gaming systems tax collections can be viewed as inputs towards finished goods, thus making the currency a commodity. Therefore we can say that gaming system itself changes a potential fiat currency into a commodity, just by the viewpoint of the players. In that sense, it is potentially the problem that the ruling body of collectors is wrong. In Online World Economies, I had described how the economic structure of the world was actually separated into two separate entities, the game and the players, that interacted between each other. The fact that the supplier and collector of the currency exists in the game economy, but the currency itself interacts in the player economy could be the digressing point. If, in fact, the players were the ones to issue and maintain currency, it would keep it’s value in a unit of account only. The currency would circulate through the one economic structure alone. This is much like the failed Trade note of ATITD, but can be avoided failing by structuring the currency to have similar laws in which the game systems enjoy now to keep their currency in demand.
Which brings up the first problem, of designing a way for the game system to not have to get involved after the initial startup. The reason that game system issued currencies has succeeded where player currencies failed was simple, the game system had the power of lawmaking and punishment, whereas players have not. Imagine that you have a loan at the bank. It is not the simple fact of your goodwill that will ensure that you pay your loan back, rather it is the negative effects of not paying it back. This includes bad credit, court action, and if taken far enough, jail. As it stands right now, there is nothing that permits players to collect owed loans. Some games, such as SWG, allow for player-cities to automatically collect taxes from citizens, but the framework is still primitive compared to the collection systems that are in place for the game system collections.
Solutions
There are a few general ways to tackle the problem and to make a currency that should run smoother than current situations do:
The Primitive “System” Solution
This approach is to basically sever any injections and drains from the currency that is deemed to be used by the game, while still enforcing all transactions to be paid through the system design to ensure that there are still demanded debts to be paid in the currency. Even without taxes, if players cannot create transactions to other players without involving the currency (via NPC vendors, etc.), the debtor qualification talked about in the earlier paper still exists, and the currency will simply float around the player economy only, never needed to be inputted into the game economy.
The easiest way to implicate this system is to imagine if the money supply already existed before the game began. In this way, every new player to the world would start with an equal endowment of currency to his or her name. Only jobs and/or goods made by other players would have payments in currency. Everything that the game pays to players would be in some form of commodity, which then could be exchanged to another player.
The stemming problem from this situation is a total loss of inflation. True, much of what went wrong has happened to games before and their economies was due to inflation, but small amounts of inflation is needed to spur growth in an economy.
There are many ways of approaching this to ensure a small trickle of cash is allowed in to continually boost the system up, but the safest would to probably have a game-run savings and loan banking system. It would just have to be a simple bank, mainly one that paid interest on savings held, but could also have a slightly riskier loaning system in place. The problem with the loans, of course, is how to punish those that cannot pay in such a way that it a) Deters cheaters from not paying loans and b) Doesn’t ruin the fun at the same time. The interest rate would also have to be well watched, as if the rate was too high, people would end up storing too much money and bartering goods instead.
The first apparent problem with this system is in the job circulation. At the beginning of the game, crafters need immense amount of inputs, usually from the hunters as they advance as well, later on in the game, the roles reverse, and crafters usually supply more to the high-end hunters. In a closed money system, there may be a large accumulation of wealth on either side of the jobs at given times. What would need to be done is balance the system such that there are still considerable inputs from hunters needed in the late stages of the game, and that new crafters have needed items throughout the games lifespan.
The Advanced Player Government & Banking Solution
This solution is a lot more complex and involving than that mentioned above, if only for the simple reason of the designing that would go into such a change of thinking. SWG has shown that player cities can be organized through the system and can involve taxation without displeasing the players involved. ATITD, while it didn’t completely work, had shown that players can and will at least try to make their own currency. This solution melds these things together, along with the observations of chartalism in an attempt to make a player-run fiat currency.
The first component to being able to make such a currency work is a running player government that encompasses a large area of play. It need not be the entire virtual world, but there needs to be a large enough population under the rule of the government such that the alpha variable from the previous paper is large enough.
Without going into much detail of how a government of such size should work (That’s another area altogether to talk about), I’ll try and cover the needs of such a government if it existed to be able to manage a fiat currency. For it to work, the government would need to be able to:
a) Create a money supply
b) Create Government Expenditures
c) Create Government taxes
d) Ensure enforcement.
Creating a money supply. - With a government in power, the state should be able to create a currency for use within it’s borders. However, at the same time, there should be some form of limitation designed within the system to ensure that the governments don’t overprint currency.
Creating Government Expenditures. - The government then needs a way to circulate the money. One way is to be able to create missions and jobs, much like those at mission terminals in SWG. Once a player signs up and completes a job, they are paid in the government’s currency.
Creating Government Taxes. - To keep the money demanded, the government must accept the same currency back in the form of tax dollars. This should ensure that any citizens of the area of the government’s rule would accept the currency in trade. The tax dollars are then recirculated into the economy via the expenditures mentioned above, creating a closed system.
Ensuring enforcement. - The game system needs to be able to graft the player currency on top of anything it enforces already within the game. If there are NPC merchants that work for players, those NPCs must be able to accept the new currency. If player-to-player transactions can include money, the new currency must be added as an option. Also, the game must automatically take the currency from players on a continual time basis for the taxes, and there must be punishment for not being able to pay (ie. if the player owns a house in the governments area, that house is re-deeded and unable to be built until taxes are paid).
The second part to the system would be a reliable player banking system. Much like the one mentioned above, but instead it is owned/run by the government or players under that government’s rule. The players could accept deposits and loans and set their own interest rate bands (High end of band is the rate to borrow, low end is the rate to save). The banks would only be able to loan out a certain portion of their savings (I would suggest a low rate to start), but this gives the ability to those that cannot attain the currency immediately to have access to it, and their debts to the bank will ensure that they have a continuing demand for the currency.
Player banks, again, would need enforceability. Once loans are due, the payment must be subtracted immediately from their account by the game system. If it cannot be paid, there must be a way for bankers to reclaim some of the lost wealth. Upfront collateral from loans is one way to soften this blow. Also, because most MMOs are combat oriented games, a bounty on a person’s head is not out of the question either.
The immediate con to this system is how would one arrive to this point from day one of a game? It obviously involves some development to get to the point of where a large government can rule over citizens. There has to be some form of bootstrap economy to begin with, or the whole community could face a situation of staying within a commodity currency, much like ATITD.
The easiest way to bootstrap would be to take the primitive solution from above, and then convert it to this current system, by demanding the initial currency as an input to print the player currency up to X amount (after that, they can print small amounts to inject to keep inflation rising slowly).
Optimal Currency Areas
Just as a little end-note to this paper, I wanted to tack on a definition of Optimal Currency Areas (OCA). This is more of a food for thought to anyone who considers creating a multi-currency world, maybe using the ideas above. Gregory Mundell came up with the OCA, and stated that it had 4 criteria:
1) Regions should be exposed to similar sources of economic disturbances.
2) The relative importance of these shocks should be similar across regions
3) Regions should have similar responses to common shocks
4) If Regions are subject to region specific shock, they need to be able to adjust quickly.
With that in mind, one could say that currency areas exhibit:
1) Free movement of labor within the region
2) An over-arching political regime
3) A single monetary policy
4) An agree-upon exchange rate
5) Common/similar industries in the region
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