Is the MMORPG Currency Crash of ’05 Upon Us?
by Alphaville Herald on 03/08/05 at 8:35 am
Image source: WOW Gold Price Research
According to new (?) virtual economy site Game Money Price Research, the virtual sky may just be falling. GMPR has an alarming set of charts up tracking the dive of almost all major MMORPG currencies against the U.S. dollar in the first half of this year.
While GMPR’s methodology is questionable (the Linden dollar was definitely not at $5.01/thousand in the first week of the year), it seems there’s a real trend being tracked here. What to ascribe it to is another question. (See Walkerings for further analysis.)
Is it time to sell, sell, SELL? You tell us.
Prokofy Neva
Aug 3rd, 2005
No, buy. Then…that pushes the value up…then somebody else can sell because it’s a little better…lather/rinse/repeat.
I think inevitably these games’ currencies will crash as people lose faith in the ability of GameDev [this is going to be my new collective term for these people who behave like their God or the Catholic Church or something] to keep value in their worlds instead of just using them as sandboxes and resume-polishers. In the real world, currency has always been backed by precious metals, commodities, labour, etc. In SL, it’s just backed by Some Guy Named Phil or whatever. This Some Guy Named Phil values land at only $1/meter and gives it away, although people “in the world” value and pay more for it. That’s the kind of disconnect going on all the time.
I don’t think you have to be an economist to figure out that these game currencies are not a valid measure of commodies or services because of all the freebies and fake altruism flooding the world (“I’ll make kewl stuff and give it out to everybody but on no-mod and no-copy and whoops, Mom’s coming to pick me up from school now can’t do customer service bye”)
When the worlds get a little more real and less fake, a little more grown-up and less of a sandbox, the currencies will, too.
Also, wouldn’t that rise and dip be part of the normal business cycle of “Fantasy/Ecstasy/Reality/Search for the Guilty Parties/Reward the Uninvolved”?
Bam
Aug 3rd, 2005
It just looks like the prices are just reaching a stable position.
stable position=end of bubble
Walker Spaight
Aug 3rd, 2005
Real-world currencies *used to* be backed by precious metals, etc. No more.
alkali
Aug 3rd, 2005
“Linden $…: down 4.19 % — 28″
Yeah . . . we’re all gonna die. Come on, those are some pretty good numbers for having “virtual land” as its main backing. When compared to the other games it’s down right impressive.
Prokofy Neva
Aug 3rd, 2005
Walker, um, what kind of smartass comment is that? I didn’t notice they closed Fort Knox — which they would have done, if what you say is true. Of course real-world currencies are still backed by precious metals. Maybe they are backed LESS than they used to be by precious metals and MORE by electronic hot air than they used to be, but puleeze, bars of silver and gold still play a role, so don’t pretend they don’t, and make some bald New Age comment like “used to be”.
BTW, there’s a guy named Pendarren Zaftig in SL who rents one of my stores in Baileya who sells bars of gold in SL. Really. That is, prims called “bars of gold” that look like gold. Works for me! And you can redeem it later for more than what you pay. What’s not to like? He also sells coins for $48LL which he redeems for exactly $48LL. I wonder how many he sells.
Matthias
Aug 3rd, 2005
Prok, sorry to tell you this, but by far most of the world has moved to a fiat money system. If you do a google search on it, it’ll have plenty of info on it for you.
Gold and silver really don’t play a role in the value of the dollar anymore because the ratio of gold-to-dollars is extraordinarily low. I thought that was pretty common-knowledge (I believe I learned that my sophomore year of High School or perhaps earlier), but I suppose it’s not as common as I thought.
Urizenus
Aug 3rd, 2005
I thought the US went off the gold standard in 1933.
It still holds gold reserves of course, but these don’t really back the currency. They are just assets that the gov holds. I suppose it could buy and sell gold to affect the price of gold relative to the dollar, but that can be done with strategic oil reserves too.
Cocoanut
Aug 3rd, 2005
Well, Uri, but then wouldn’t that be the same thing? The government backs up banks to the tune of 100k, last I looked; may have changed now. They have gold, they have oil reserves, they have PROPERTY. The have all these fall-back measures to prop up the dollar. Without these real assets, a country’s currency would be pretty much worthles, no?
Basically nothing backs up virtual currency in a virtual world. Wouldn’t that be a true statement?
coco
Kiss
Aug 3rd, 2005
The USA went off the gold standard in 1933.
I do not know of a single real life country in the world whose currency is backed by commodities – gold or otherwise. To the best of my knowledge all (almost all?) countries in the world (including the USA) utilize what is called fiat currency.
Fiat money does not have any intrinsic value, nor is it backed by anything other than the confidence holders have in the economy which is covered by the government which decrees it to have value. Its value lies solely in the expectation of later use by the current holder of the money. The dollar is not backed up by gold or anything else except for “the full faith and credit of the United States”. Nothing more.
Yes, Fort Knox is still there. And yes, the gold is also. But the gold in Fort Knox has absolutely nothing to do with the money in your pocket.
Urizenus
Aug 3rd, 2005
Yes, if the federal reserve wanted to it could flood the market with dollars and make them worth less than Lindens by tomorrow morning. Having Gold in Fort Knox or strategic oil reserves won’t make a bit of difference if that happens.
Lordfly Digeridoo
Aug 3rd, 2005
The other games’ problems is one of what’s called “mudflation” — infinite currency generation within the world; Whenever I smack orcs/make chairs/trade ore I’m basically printing money out of nowhere. If there aren’t any “money sinks” (the RL equivilent of the US Mint burning off old US money coming into their hands), you’re going to get inflation. You have money sinks by money going to NPCs, into services provided by the game (mounts in WoW, for instance)…
SL’s troubling me because I don’t see any money sinks that would remove any excess lindens in the system, minus image/sound uploads. They haven’t answered my question twice in the Hotline forum either.
LF
Cocoanut
Aug 3rd, 2005
But that wouldn’t happen. Plus my point is, nowhere in the real world are all things literally virtual.
How stable can any economy be that is based on nothing whatsoever that you can actually put your hands on? Where everything is just an idea, a picture of an idea?
coco
Urizenus
Aug 3rd, 2005
I hate to tell you this Coco, but the US Dollar is precisely as virtual as the Linden Dollar.
Plus, much of the US GDP is based on virtual goods — think Bill Gates, whose whole fortune is based on making and selling virtual goods. Software, Television, Movies, Music etc are all virtual goods, as are the products of most forms of knowledge work. Teachers produce and distribute virtual goods — i.e. knowledge. When you buy books, you aren’t paying for the paper and ink but for the information they contain — more virtual goods. Then we have the kinds of value that are created by organizing communications systems and distribution systems. And so on. It’s true that not *every* contributor to the US GDP is virtual, but so what. Economies could certainly be based 100% on virtual goods (and services). There would be nothing defective about such economies.
That hyperinflation “wouldn’t happen” in the US is hopefully true, but it does happen to other economies. Look at Germany between the world wars. The US economy is one of the biggest and most stable in the world and the US dollar is also very stable. Many economies and currencies in the world are far less stable — in some cases less stable than the Linden — and in each case the stability of the economy depends on the good sense of the ruling government. The US dollar depends on the good sense of Alan Greenspan and whoever would kill him if he screwed up, and we depend on the good sense of Philp Rosedale, knowing that he will only be attacked by push guns if he screws up.
Urizenus
Aug 3rd, 2005
LF, I was wondering about money sinks too. They don’t need sinks if they cut back on the payouts (which they did a while back, as you recall). They could also raise rents I suppose. If needed, I suppose they could sell content in the game. Taxation on transactions is another option. Clearly they have lots of ways of controlling the money supply, and I assume this is something they are looking at. I’d like to know if they have a monetary target.
Kiss
Aug 3rd, 2005
Coco,
I’ll try not get into a long boring course on economics, but to make a long story short you are closer than you may think with “how can an economy be based on nothing”.
You’re close, but it’s not based on nothing, it’s based on “belief” or “faith” if you prefer. The dollar (and all fiat currency) have value for one reason only – the public believes it has value and that the dollars in their pocket will be accepted by somebody else tomorrow for goods or services.
From time to time the population stops believing that their fiat currency has value (wars, government printing to much money, federal debt, lack of confidence in economic policy, military weakness, etc) and guess what happens? The fiat currency becomes worthless or near worthless because of inflation. Monetary inflation (as opposed to commodity scarcity inflation) in the simplest of terms is nothing more than people having less confidence in the value of their currency than they did before – thus requiring a larger amount of it to equal the same purchases.
Recent examples of hyper-inflation include US greenbacks in the civil war, Continentals during the War of Independence, Confederate States of America currency, the Mark of Germany in the ’20′s, etc, etc, etc. There are thousands of now worthless fiat currency notes out there that people used to think had value and accepted every day for trade. The only value they have now is to collectors.
Walker Spaight
Aug 3rd, 2005
SL money sinks include upload fees, ratings fees, group formation fees, land purchases from Governor Linden (when made in Lindens, of course), and one or two other things that I forget what they are at the moment. All in all, they don’t have a lot to work with in terms of taking Lindens out of the economy.
I don’t know that they have a target for money supply (neither does the Fed), but they did for a while have an exchange target of $4/L$1,000. I don’t know if that’s still the case.
The problem is that LL doesn’t have well defined indicators of the strength/health of the economy. I do believe they’re developing some, and I know Philip wants to hire a kind of Federal Reserve Board to manage the economy at some point, but at this point all they have is the exchange rate, the money supply, the transactions that take place in-world and the land sales. I’d like to see them develop a CPI based on some basket of in-world goods.
And as LF pointed out, they don’t have any tools for adjusting the economy once they have those targets set. The Fed absorbs excess cash by selling bonds. LL has so far done more or less the same thing with its land releases. But that’s a bad tool for managing money supply. They need some kind of non-liquid investment vehicle (like Treasury bonds) if they’re going to try to soak up money from the economy.
They may not have to worry about it at all, since there are also very few ways for new money to be created in SL. It’s just stipends, isn’t it? (Can’t remember if it’s anything else.) So it’s always going to grow in some fixed proportion to the population, which takes away a lot of the danger.
Prokofy Neva
Aug 3rd, 2005
The notion that the US currency is “virtual” tends to be one that is socialist in nature LOL. There are differing views about this, but the main point is virtual or not, a good chunk of the world craves these dollars and countries get dollarized for a reason, and it’s not because they are just paper.
BTW, so what if the US went off the gold standard in 1933? (or wasn’t it 1929?) There were the silver certificatese at least until 1963. And frankly, the ‘full faith and credit of the United States’ in fact *means* that it has the precious metals and commodities and reserves to back up its currency. The US currency isn’t “virtual” because it buys real goods — in a very common sense way, whatever highfalutin theories about “fiat money” tekkies love to cite to fly in the face of the common-sense fact that dollars buy stuff — and Lindens buy dollars LOL. And what if it was only “virtual”? That’s not the point. The point is the US dollar, whatever it’s fall compared to the Euro, isn’t sinking like the game currencies. And THAT is what you have to analyze. And THAT is caused by failure to value land at its true value, and to free prices to find the value of land and goods. At least in the real world, land has value in many countries.
Walker, one of the problems with all the statistics of the “liars figure and figures lie” variety that LL throws at you is that they never answer the most basic questions and distract people with exoticisms. It’s not even little questions about money sinks. It’s questions like the REAL sales at telehubs (which they could access instantly). Or the REAL number of absolute non-Anshe buyers of land, and the patterns of land purchases after people get premium accounts. I asked Philip Linden directly about this. He talked about making a “histiogram”. Well..that remains to be seen. He did deliver the more full dump of economic statistics the next day after I (and many others) pressed after the town hall on the economy.
Ugh, hiring a Federal Reserve? I wonder when this “country” will have some democratic accountability. You know, we should just start a senate and start demanding some of this. Otherwise they’ll put it over on us.
Walker, I’m not sure why you say that it is only stipends as a way to create new money in SL. There’s buying on GOM and putting it into the world. Or that’s something else in your book?
Prokofy Neva
Aug 3rd, 2005
Kiss, you and your literalist manipulations of the “fiat” concept and the dredging up of non-relevant examples like Confederate dollars completely lose sight of the fact that it isn’t just “faith” or “belief” but money is worth something because of the actual assets that America has. It’s hard to admit, or something? Why?
Prokofy Neva
Aug 3rd, 2005
You know, many tekkies get their “facts” from their economics 101 in college, often taught by Marxists. So I find just as a rule of thumb that in looking at these kinds of issues, it’s good to go not just to Wikipedia.org which is almost always biased in the socialist direction because of the tiny feted core that runs *that* (a story for another day) and to look at a wide variety of sites, from the US Treasury to the Libertarians to just about.com which is not as heavily ideologically tilted on a number of subjects as Wiki can get.
http://economics.about.com/cs/neoclassical/a/value_of_money.htm
Interestingly, for all you eggheads talking about going off the gold standard in 1933 because you googled that or “learned” it in your 101 class, the about.com article actually explains that whatever “going off” happened, when the US president stopped *redeeming* gold was really at issue (1971). Not so long ago. And…the main point about.com will give you is that MONEY IS BACKED BY GOODS AND SERVICES INCLUDE GOLD AND SILVER.
Urizenus
Aug 3rd, 2005
Prok, there is nothing socialist about the idea that the value of a currency is the value that people place in it. It’s Adam Smith all the way. Apart from ideology, which doesn’t really interest me, I don’t see how any serious person can dispute the point after honest reflection. If people don’t want dollars, they are worthless — end of story.
Prokofy Neva
Aug 3rd, 2005
Yeah, Uri, that’s what I just said: the value PEOPLE place on it. So it DOES have value, and yes, I’m surely upholding Adam Smith. But the socialists blogging here are all saying it is “worthless” and “has no value” and is “just paper” and you and Walker seem to be chiming in, good socialists that you are, saying “oh, people put value into it therefore it is worthless.” But guess what, it’s not useless, we are not Confederates and not stacking up huge piles of zaichiki in Belarus. Dollars are backed by goods, services — and yes, precious metals, too. Labour. Theory. Of Value. You Marxists should appreciate at least that. People want those things. Dollars are symbols of them. It works, Uri. Don’t knock it, and ask me to reach for some putative “worthlessness” that isn’t really there, except in your mind.
Could we get on topic again with the game? The GOM has improved and gone UP. It is now 3.87 to 1000 LL, not 3.83 as it was just a few days ago. The in-world purchases are way up. I see all kinds of different “last thing bought in world now” and not just Tringo, casino, sex balls which is the usual menu. I see some more nesting. I think this is partly due to lower land prices, more people are getting land, and buying furniture and houses. That’s a good thing for the world.
Urizenus
Aug 4th, 2005
No one said dollars are worthless. Rather the point is that they have no *intrinsic* value. There is a kind of tacit agreement to what they are worth, and if that agreement falls apart then dollars are worthless — well ok, you can use the paper currency as toilet paper, wall paper etc. and you can melt down the coins. But the digits in your bank account go poof. Someone will get the gold in Fort Knox, but it won’t be you. Holding dollars doesn’t entitle you to that or any other strategic reserves.
Walker Spaight
Aug 4th, 2005
“And frankly, the ‘full faith and credit of the United States’ in fact *means* that it has the precious metals and commodities and reserves to back up its currency.” This is incorrect. Perhaps in some conceptual way it’s correct, but the United States does not have the tangible goods to exchange for every single dollar in circulation.
As to GOM: GOM is like a bank. Buying Lindens from GOM and putting them into the world doesn’t create any money, it’s like taking it out of the bank and putting it into circulation. When I talk about “money creation” in SL, I’m talking about it in the same sense as printing dollars in the real world.
I think what Uri and I are saying, Prok, is that people put value into it, therefore it’s *not* worthless.
Kiss
Aug 4th, 2005
It’s amazing how a person can talk so much and say so little. I’ll waste no further time with you and simply leave it to that well-known communist/socialist Alan Greenspan to explain fiat money to you:
To accept money in exchange for goods and services requires a trust that the money will be accepted by another purveyor of goods and services. In earlier generations that trust adhered to the intrinsic value of gold, silver, or any other commodity that had general acceptability. Historians, digging deep into the earliest evidence of human practice, link such commodities’ broad acceptability to peoples’ desire for ostentatious gold and silver ornaments.
Many millennia later, in one of the remarkable advances in financial history, the bank note emerged as a medium of exchange. It had no intrinsic value. It was rather a promise to pay, on demand, a certain quantity of gold or other valued commodity. The bank note’s value rested on trust in the willingness and ability of the bank note issuer to meet that promise. Reputation for trustworthiness, accordingly, became an economic value to banks–the early issuers of private paper currency.
They competed for reputation by advertising the amount of capital they had to back up their promises to pay in gold. Those banks that proved trustworthy were able to broadly issue bank notes, along with demand deposits, that is, zero interest rate liabilities. The profit that accrued from investing the proceeds at interest was capitalized in the banks’ market value. In the mid-nineteenth century, equity capital/asset ratios were often several multiples of today’s ratios.
In the twentieth century, bank reputation receded in importance and capital ratios decreased as government programs, especially the discount window and deposit insurance, provided support for bank promises to pay. And, at the base of the financial system, with the abandonment of gold convertibility in the 1930s, legal tender became backed–if that is the proper term–by the fiat of the state.
The value of fiat money can be inferred only from the values of the present and future goods and services it can command. And that, in turn, has largely rested on the quantity of fiat money created relative to demand. The early history of the post-Bretton Woods system of generalized fiat money was plagued, as we all remember, by excess money issuance and the resultant inflationary instability.
seldon metropolitan
Aug 4th, 2005
I have a couple thousand dollars worth of flaxscript if anyone wants to diversify their currency portfolio
Joe Public
Aug 4th, 2005
Hey! I’ve got a new fiat currency idea…it’s called a Prok and it’s backed by wind.
Prokofy Neva
Aug 4th, 2005
Kiss, when I was a child, and that was quite a while ago, I received a silver certificate dollar back in my change at the grocery store. And my father explained to me back then what it was, that it was worth more because it was a collector’s item, but how money was no longer backed by gold and silver bars literally as it once was, and it all depended on people’s belief in the currency system. He explained how people in Europe in World War II carried around wheelbarrels full of currency just to buy a loaf of bread, and he showed me a worthless confederate dollar. So, yeah, I understood this long before you might have even been born, dude, and I didn’t need Tekko Eco 101 Kewl College Course to understand it, because it’s a basic fact that many people learn in the world as they go along.
Still, learning that basic fact, I didn’t go tear up my dollar bills I had been saving forever to buy some winter uniform G.I. Joes.
As much as you’ve italicized everything, you’re only reading half the sentence, filtering it as you are through all your Chomskian world views. It says THE VALUE OF FUTURE GOODS AND SERVICES IT CAN COMMAND. It is a symbol, a means of exchange for GOOD AND SERVICES IT CAN COMMAND. Again, let’s repeat it now, Kiss, I know you are allowing your anti-Americanism and anti-capitalism to get in the way here, IT IS BACKED BY THE VALUE OF THE FUTURE GOODS AND SERVICES IT CAN COMMAND. That includes, among other things, precious metals, although most people don’t buy stuff at the Franklin Mint lol.
Now, let me clue you into something. When you take that “worthless paper dollar bill” to the grocery store, the clerk can give you…4 quarters. What are 4 quarters? Well, they don’t have the precious silver they once had in them, but they still have *some* metals worth something. Why does a country brother with making all those coins if it is just “fiat”? And why in metals? This is just a “vestige”? Why don’t they just issue plastic, which might last longer or get rid of change altogether? Because symbols and their actualities and partial actualities are important to people, and it is people who ascribe value and manipulate those symbols.
Just as I can take the worthless dollar and get back the worth-something little coins in actual metals — or go and buy a souvenir from the “fucking Franklin Mint” as the song says, and I can do all that still in our world that you’d like to pretend “went all electronic”. And by the sake token, I can take the pixel numbers from SL and translate it into actual electronic numbers in US dollars that pay actual bills, and not only the bills of this game *and even buy a Vietnamese restaurant meal for 4 which I just ate*. Some fiat!
I’m imagining that tekkies harp so much on fiat money and gloat so much on and on about it on this and other fora because they like to think that with money increasingly tied up in electronic forms and on the Internet, *they control it* and are *the real people to decide how it flows and what it is worth*. But we’re here to tell you *no you don’t* hehe.
Urizenus
Aug 4th, 2005
Prok, you should have listened to your dad. He was right. I sense too much unlearning on your part.
Cocoanut
Aug 4th, 2005
Well, while I appreciate everyone’s attempts to explain it to me, and agree with a lot of it, I still say there is a huge difference in virtual money and real money.
Yes, you can take Lindens and turn them into real money – as of this second. Ten minutes from now, that may not be possible.
And the only thing physical backing up Lindens is the building and equipment the Lindens themselves have, and that is exempt, I’m sure, from being used to repay people’s game losses should the Lindens go out of business.
There IS nothing we are buying or selling IN the game that is real. Maybe somebody could make a case about intellectual property, regarding a script, or a design, or whatever, so that they could then keep it to themselves to resell in the future – but there is no actual physical item to keep them warm at night if and when they lose all their Lindens.
It is undeniable, however that real life money is backed by precious metals, and is insured in banks. Lacking that, let’s say this country all of a sudden owed another country twenty kajillion dollars. Well, if worse came to worse, we could at least give them all our TV sets or let them have half our land, or whatever. We have STUFF.
While I understand about intellectual content and copyright and everything, I don’t believe you can say game money is in any way shape or form equivalent to real life money, because there IS nothing real backing it up.
And unlike the publishing company who rips off your entire novel, in which case you can sue them for everything they are worth, if our virtual items go poof in this game and our virtual investments and virtual money become worthless, we can’t sue anyone for anything.
Therefore, it’s not the same.
coco
Prokofy Neva
Aug 4th, 2005
Uri, I don’t see what I’ve “unlearned”. I think it comes down to the fact that I probably believe in the United States of America more than you do. But maybe after you’ve lived in a place like Russia, where in some factories they run out of cash and stuff to back it and start paying workers in washing machine parts or just don’t pay them anything for months on end, you might “get it”. Coco is right. We have stuff. Stuff is important.
Yes, there’s nothing backing up our world. The Lindens even rent the servers, did you know that? Talk about backed by nothing. Some other company leases them the stuff the game is on. So other than their building and the infamous hack saws and somebody’s old CD of Battle Bots or WTF, it’s all pretty worthless. And frankly, the “intellectual property” is worthless too, because most of it could only function and be of value within the game context. A vehicle scripted in LSL isn’t something you can sell on ebay to use in another game. Maybe some day they will work it so there will be enough uniformities of all the coding and whatnot that you could take the Helm of Runescape and bring it over to World of Warcraft, them maybe take it back to the shop in SL to be honed a little more and polished and reissued, and there will be some kind of big bazaar and a commodities exchange among all the different games and playspaces (I’ve decided this is what I’m going to call SL now, a playspace, you know, like the kind you take your toddler to lol).
I’m well aware that I SL is like a RL boat, about which it is said that “it is a hole in the water into which you pour money”. SL is a hole in the Internet into which I pour money. But it’s fun and interesting. I think it beats old Roseanne re-runs, most nights, don’t you think? Or having to read “The Economist” all the way to the back pages about German car production?
Still, they do a lot to devalue our stuff, constantly. Diluting the land value with dumping off the land auction constantly, diluting your faith in the game by announcing all the scripts are going to die one day, etc. It really takes a hardy game perennial to withstand all the slings and arrows of SL fate.
Zonax Delorean
Aug 5th, 2005
Coco: “I still say there is a huge difference in virtual money and real money.”
Okay, let’s go back to a few years ago (before the Iraq/Afghan war). Let’s say I give you a choice oh either having L$ 100 000 or Iraq or Afghanistan money of the same value.
Which would you choose? The “virtual money” or the “money that’s backed by land, oil, etc”.
Which would you choose if you knew the country will have war and then fall into chaos?
The L$ would still be worth almost the same USDs after those years.. while the old Iraqi/Afghan money is worth nothing. That’s what backed by land and valuables means to the average person. If you’d try to go to banks there, they’d probably laugh at your ‘old money’ and kick you out.
So yes, that’s how important is “stuff”.
Prokofy Neva
Aug 5th, 2005
Zonax, your point is idiotic. You are still yammering on, like Uri, about how valueless money is, especially in places like Iraq. But these countries didn’t have currencies worth anything even when they weren’t at war, they weren’t very convertible and were dollarized. And some of the “stuff” that countries have that have strong currencies include things like “bombs” and “soldiers” and “military might” that help them keep their stuff lol.
I don’t understand why you are mistaking the fact that some times in some places, cash gets worthless when governments collapse, with some extremist, tekki-wikian notion that all money is worthless then. It isn’t. It has value people ascribe to it because it commands goods and services. COMMANDS.
Urizenus
Aug 5th, 2005
No one is saying that US dollars are worthless, and no one here is even shorting them as far as I know. The point is very simple: the value of the US Dollar is not due to its being “backed” by gold or silver or platinum or anything else. That doesn’t make it worthless. We know what it is worth today — look at the currency and commodities markets to see what it is worth relative to those currencies (like the Euro) and commodities (like soybeans).
Coco, no one is saying that Linden Dollars are as stable as the US Dollar. That isn’t really a fair comparison — comparing Lindens to one of the most stable currencies in the world. There are many other currencies and the Linden Dollar compares very favorably to some of them in terms of stability and long term prospects, whether or not those “real word” currencies are “backed” by gold or not doesn’t make a lick of difference.
Prokofy Neva
Aug 5th, 2005
Uri, the problem is in your failure to say that in fact US dollars are indeed backed — even as fiat, they COMMAND GOODS AND SERVICES. That *is* backing, even if it isn’t by actual bars of gold in some Fort Knox. You just said yourself that there is “worth” compared to the Euro or on the soybeans market. That *is* being backed by “command of goods and services*. What I don’t like is this hammering on the idea that just because fiat isn’t a literal gold bar then we’re supposed to live as if at any moment, US currency can go into a huge dumpster to buy a loaf of bread after a war. That’s preposterous.
Linden dollars, despite all the social engineering from the Lab, do have their value too. People are funny. Even with all kinds of socialist interventions and atttempts to behave-mod them, they still ascribe value to what they really find valuable and find ways to pay for it in the currency they accept.
Urizenus
Aug 5th, 2005
“we’re supposed to live as if at any moment, US currency can go into a huge dumpster to buy a loaf of bread after a war.”
No one said that either. Like I just said, I don’t think anyone here is shorting dollar or hoarding gold and shiney stones. The point is just that a dollar isn’t backed in the sense of it being an IOU or a certificate that entitles you to gold or silver or anything else. It commands goods and services because it has value, but that value is determined by a kind of tacit social convention and the exact value relative to various commodities and other currencies is determined by the markets. This doesn’t make dollars worthless and it doesn’t mean they are going down the tubes. It is a perfectly acceptable way for something to come to have value, and the resulting value can be quite stable.
Joloky
Aug 29th, 2005
Prok, Uri is absolutely correct. The US dollar has a value determined by the price people are willing to pay for it relative to other currencies. That is what is happening on the FOREX markets daily. That is where the price is determined, by traders buying and selling dollars at prices they believe reflect the prospects of the currency relative to others.
The same can be said of the Linden dollar. The difference is that while the US dollar has been around for a very long time and many tens of thousands of economists have debated it’s true and representative value to the point that a very stable market has evolved, the Linden dollar is in its infancy and the market value is determined in large part by a group of gamers who are relative novices at FOREX speculation. The fact that the US dollar can currently be used in exchange for real commodities is a moot point, because the instant a currency, virtual or otherwise attains a market value which people are prepared to pay (in any other currency), that currency can be compared directly in value to the US dollar. This is the phenomenon which we are facing in the technology world today. If people are prepared to pay real cash for virtual land then the virtual land has a real cash value. If the game were to collapse or Linden Labs to go out of business then the virtual property would immediately cease to have any value and the Linden dollars would plummet to zero against the US dollar. However, if you bought real land with your US dollars and then the land you bought ended up underwater in ten years because of gliobal warming then you would find your very real land worth absolutely jack as well. Theoretically, the commodities which you say back the US dollar could become worthless tomorrow. They won’t, but that is only because the US dollar is a very mature currency with many many years of market driven growth and value analaysis. The Linden dollar is immature in the extreme in terms of currencies by comarison, but it cannot be argued logically that it does not have value based on the same economic principles as the US dollar. The point is that any commodity, real or virtual, has a market value determined in a capitalist economy by the people who are prepared to pay for that commodity. The fact that you can buy real stuff with US dollars and not with Linden dollars is irrelevant as long as you can buy US dollars with Linden dollars, which you will be able to do as long as people are prepared to pay real money for virtual property in Second Life.
Prokofy Neva
Aug 29th, 2005
Joloky, I’m baffled why you had to come on here and pour some water on Uri’s mill as if I wasn’t saying many of the same things. We all got it, like I got it when I was a child, as I explained. You’re stating the obvious. You don’t get credit for doing that. Like I said, the gloom-and-doom take on valuation always seems to hinge on worst-case-scenarious that don’t happen, so aren’t credible.