A Virtual Weimar: Hyperinflation in a Video Game World

Actually, a huge influx of gold probably would not affect our economy today that much, because the total amount of gold is quite small relative to the size of the world economy, and gold is not used as a currency anyway. It would obviously destroy the price of gold, though.

That's really one of the two main problem with inflation scare mongers: they don't usually talk about the scale of things. A gigantic influx of new money would certainly cause inflation. However, when the Austrians come out of their holes, one is usually talking about low single-digit percentages of GDP in spending, which is really not that much.

The second main problem of Austrian inflationistas is that they deny the possibility that economic production can increase in response to an increase in spending.

There is a difference between inflation and hyperinflation. Hyperinflation is not too much money or not enough money to spend. Hyperinflation is a loss of confidence in the currency (ie, people immediately exchange the currency for something real). Money’s component as a store of value is what prevents inflationary episodes from happening. Imagine, if everyone believed that whatever cash that they hold would lose 50% of purchasing power by the end of the year, they would more than likely go ahead and spend it now instead of when 50% of the value is lost. That's the nature of hyperinflation.

The other component necessary for hyperinflation is a competing currency. In Zimbabwe the locals switched to dollars when their native gov’t currency failed.

From the article: Most of the gold generated by the ruthlessly productive, rapidly adapting bots found its way to third party vendors in a black market which undercut the prices in the sanctioned, in-game auction houses.

I think you're misunderstanding the point because it's badly stated. Basically they say that inflation happens when money increases but the things paid for with money do not. For the lattery they use specie as a proxy - you need the exchange rate between money and something to actually measure inflation, but specie is a somewhat confusing choice because it's often considered (and sometimes defined) to be money.

"Austrian economics is tad stupid" is the more correct choice. Austrian economics does not correspond with reality and is rightfully marginalized and ridiculed by the vast majority of economists.

In the 19th century we thought of inflation as the change in ratio of money to goods. Inject more money in the economy without a commensurate increase in the amount of goods and you get inflation. Take money out of an economy and deflation occurs. Now we know this isn't really accurate. Inflation happens not when there is more money in the economy but when more money is competing for the same goods. If money just sits in a bank account (or virtual bank account in the case of Diablo III) it doesn't really affect the economy and no inflation occurs. There is the same economic activity but a few rows in a database somewhere contain larger numbers.

This is also why in the real world the fed can triple the size of the money supply without causing inflation. Of course the austrians predict, over and over again, that runaway inflation is going to happen Any Time Now. But it doesn't and it won't.

Of course in a completely healthy economy you would expect an increase in the money supply to lead to an increase in economic activity and inflation, because in a healthy economy people spend and invest the money they have.

Austrian economics is about digging gold up from the ground, then smelting it into ingots and then burying those ingots again in a vault somewhere. Only through this mystical process can you get Real Money. Otherwise the money is "fiat money". It's so silly.

Also, the focus on "the money supply" is a red herring. What matter for real world prices is supply and demand of real world goods.

When you seriously study hyperinflationary periods, you realize that - unlike the story of this Diablo auction house bug - it's basically never a case of governments going crazy with printing money. There's always an underlying cause that came before the hyperinflation - usually a combination of a collapse of production capacity (in Zimbabwe, caused by drastic and ill thought-out economic reforms) and crushing foreign-curency denominated debt. See this paper, for example: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1799102

It is true that excessive spending by anyone can lead to inflation (not just by government, since most money is actually "created" by private banks). However, what Austrian-types like the Mises people blind themselves to is the fact that the economy has two possible reactions to an increase in demand: There can be price increases, and there can be increases in production.

To end up at their stated position, Austrians have to completely deny the possibility of production increases. It's no wonder they got basically all of their inflation-related predictions wrong for many years. They are unfortunately closer to religious dogma than serious economic analysis.

s/here's are/here are/

You can see the join where I changed the sentence :(

(Okay, I'll bite). Von Mises was the mentor of Hayek. You know, the one who won the Nobel Price?

F.A. Hayek... he has also led the way in attacking the mathematical models and the planning pretensions of the would-be "scientists," and in integrating economics into a wider libertarian social philosophy.

Perhaps one reason is the evident and galloping breakdown of orthodox Keynesian "macroeconomics," which leads even the most hidebound economists to at least consider alternative theories and solutions.

Everybody is drowning in debt, but hey let's just print more and we'll all get wealthy.

http://mises.org/daily/4082

Presumably you resort to grade school-level name-calling because you don't have an actual intellectual argument.

> incredible track record of dead-wrong predictions

The Austrian School economics methodology does not allow for making predictions. See e.g. the note at the beginning of http://wiki.mises.org/wiki/Austrian_predictions It provides certain tools and models that one can use for explaining events and reasoning about policy options. These reasoning can be used as a basis of predictions (along with the other, non-economics-theoretic assumptions), but the predictions themselves will fall outside of the economics science in the Austrian School sense.

Basically, if your analysis manages to reason away uncertainty of the future, you're not following Austrian methodology. And no, the Austrian methodology won't even let you quantify that future uncertainty in probabilistic terms: that would only be possible if it used causal explanations of human action; instead, it relies on teleological, goal-oriented explanations.

Now, questioning and disputing the value, coherence and real-world applicability of the Austrian methodology is perfectly OK. (Personally, I find the Austrian economists' disregard for formal notations very unfortunate, as I've mentioned in another discussion: https://news.ycombinator.com/item?id=1647747) Your comment, however, seems to be simply misguided, based on a flawed understanding of the issue, and the sarcastic tone is unlikely to facilitate a constructive discussion.

(Edited: spelling.)

Exhibit A for why a lot of economics articles are poisonous and should be flagged for removal. Comments on this thread include lots of name calling and other inflammatory rhetoric that does not make for very good discussion. Also, people have pretty much already made up their minds about this stuff... Austrian True Believer types are not going to be swayed by being called weirdos, and the rest of us aren't going to be convinced by 'praxeology'.

> successfully balance

You could try to balance faucets with omnipresent unavoidable sinks aka. taxes. But how fun would it be to pay taxes in a game? "You loot 100 gold. Minus 30% gold drop tax. 10% dungeon upkeep tax and 15% financial transaction tax." :)

So the thing is: As soon as you try to model a "real" economy (possibly with real money exchanges) you can't have artificial faucets and sinks. Even Eve Online - which has the most advanced game economy - struggles with inflation as there are too many faucets. For such an economy to work you need to have a steady amount of money circulating the economy. And the only source (and destination) for money for players has to be other players.

But then you get a lot of other problems. Like what if a player hoards all the gold? Or if players just deactivate their accounts with significant gold sums on them? How do new players get their first gold? etc.

There's one good way: binding.

You allow players to add an after market effect to an item to greatly increase its value. However, doing so makes it bound to your account, and you can't sell it on the auction house anymore.

This can serve as both a tremendous sink of resources that players can work towards and a removal of valuable items from the market. (Because when the player eventually upgrades the item, the original item cannot be resold.)

I don't even understand why there are in-game economies. It's not as if the goods are scarce, so just distribute them as dropped items from random encounters and such.

Eve Online is the MMO that has got this closest to right. The economy has been running for 10 years now and inflation, whilst existing, has not been rampant.

Interestingly, there is not a RMAH, but there is a system to exchange ISK (gold) for subscription time that someone else bought. In other words the conversion of cash to ISK is facillitated - but not ISK to cash.

The experience of a friend and myself when we returned to D3 about three months ago was that for a relatively small amount of money (250k gold perhaps) you could get gear good enough to play on some of the lower monster power levels of Inferno. Inferno is the hardest difficulty level, and there's 10 settings of monster power to tailor the difficulty to your preference / gear. I think that he played on MP3 or 4, but I usually stuck around at MP 1-2.

However, I stopped playing because I couldn't even begin to afford the gear to go higher. I figure if I wait a few more months then the gear that I'd need for MP5 shouldn't be so expensive anymore. As such, even though my gold is technically becoming worth less in terms of top tier items, it's becoming worth more in terms of decent low-mid level items. As such, I think that the D3 situation is more complex than just hyperinflation.

valve hired an economist do do something like that. http://blogs.valvesoftware.com/economics/it-all-began-with-a...

>> Worse, the article is not just inaccurate, it's dishonest: it hides the data that contradicts it, despite being publicly available on a day-by-day basis. [1] is a wonderful resource.

What do you expect from mises.org?

It has an agenda to push, and is relentless in doing so.