Giff Graphs the L$
Giff Constable of the Electric Sheep Company (sponsors of this blog) has cooked up some nice graphs of the L$ currency used in the virtual world of Second Life, based on a new release of data from Linden Lab. The graphs clearly show things like the dip in value in May of last year, around the time Anshe hit the cover of Business Week, which kicked off a flood of press and new users. Around the same time, Linden Lab CEO Philip Rosedale was also speaking about SL’s economy, and the lab was hit by a lawsuit that got a lot of press. The Lab also went live with SL economic data on May 9. I think there were also a few Grid attacks and perhaps a change to stipends around the same time. What’s more interesting about the graphs, though, is that they clearly show the exchange rate having been more or less stable through heavily rising trading volumes and the increase in sign-ups over the last year. Interesting stuff. Next up: someone start the SL Bureau of Economic Statistics I’ve wanted to see since I got to SL more than two years ago.
Feeds
Robin announced the end to stipends for basic accounts and they were discontinued, then of course 6/6/06 they had the unverified accounts started.
The reason the rate stays “stable” is because LL prints and sells and increasing number of Lindens.
Prok > “The reason the rate stays “stable” is because LL prints and sells and increasing number of Lindens.”
That’s kind of my point. Though the SL money supply is rising, the Lindens seem to be doing a fairly good job gauging how much cash should be sloshing around in the economy versus how many users. Indeed, that’s why the US dollar or most other real-world currencies remain stable: because there’s a central bank managing the money supply.
Walker,
Then how to explain this: the number of sign-ups is huge, as you know — a subject of enormous controversy — hundreds of thousands in a matter of months.
The current concommitant log-ons are 20,000.
There are lots and lots of new real people as I know from seeing 200 new real tenants and roomies in just 2-3 weeks.
So…if there ARE all these real people coming on and spending, then why in the hell would Supply Linden have to sell 100 million more Lindens than he sold last month? Makes NO sense.
If anything, new growth and more people buying and spending should get Supply to get his thumb off the money-printer.
It actually makes perfect sense. To keep the exchange rate stable, the money supply has to grow at a rate that’s similar to the rate of growth of the population (assuming all other things — like the velocity of the L$, inflation, etc. — being stable). So if there’s a huge population growth, I’d expect to see lots of new L$ coming online.
Put another way: Where velocity and inflation are stable (as they seem to be in SL), you need to keep the ratio of population to money supply stable as well in order to maintain a stable exchange rate. Now of course this is a radical simplification of how things work in practice, but it’s close enough for our purposes. The end result is the same: population growth would probably result in money supply growth.
The problem with what you’re saying, Mark is that you appear to forget that sure, there is this volume of the money supply that has to grow as more people come in and need more money to buy, but those people then buy stuff with that money they bought, and then those merchants and landlords cash out — and it’s capital flight, becaue many of them cash out, pay tier, take payouts further to PayPal or check, and it never comes back to the Second Life shores again.
With all those people getting paid from all their new customers, their desire to keep selling on the LindEx with all their cash, and the eagerness of newbies to buy their cash, should theoretically more than enough.
So all that’s happening is that Supply Linden, that wily socialist, is deliberately keeping the cost of game currency down, and he’s doing it by driving down the cost of the labour of designers and landlords.
When they come on the Exchange, they can’t sell their hard-earned dollars to really page themselves a living wage, because Supply has beaten them to the 267 mark and laid out millions — a whopping 100,000,000 more in a month to keep the price low for newbies.
It’s fine for population growth to result in money supply growth, Walker, but that money supply comes from circulation — the very velocity of which you speak.
If the world were more stable, the performance was better, the prospects of SL were better for people, there wouldn’t be the capital flight. People like me who invest in a build, let’s say, have to weigh whether they want to keep, say $50,000 Lindens inworld and use it to pay a builder in stages over a week, or keep improving properties, buying homes, hiring labour, etc. or whether the next grief ball attack will force all those builds either back to inventory or into a black hole in cyberspace, and thus the smarter thing to do is to exit with the $50,000 immediately to get out before the thing takes another crazy dip due to some external political event.
If it is kept in world, sure, the builder has it now, and she may opt to immediately cash out to pay her remittance fees back home to real life. Or she may opt to expand to an island, or buy some clothes, or tip a live musician, or rent a home or whatever, too. Each time someone has more to do and more people to pay and more layers, that velocity is slowed down on the trip out to the remittance, and that’s a good thing.
There are obvious different theories and schools of thought over how to play this. You could say that the Linden should strive to an equilibrium of real-life wages so that people’s time on line is monetarized for what they really are worth.
But the whole socialist capitalism (it’s a new invention) of Second Life is that people are willing to work hours and hours for free for the sheer joy of being online in a virtual world, they don’t know as the time flies, and they are willing to take depressed wages just to be at this unfolding miracle of humankind, not unlike the building of the pyramids.
Then they’re willing to let Supply Linden keep depressing their wages and making the velocity faster for newbies not to bitch that the play money is too much like real money, you see?
I think that Supply Linden’s mountaing and alarming and even riotous spending sprees are covering up an actual unstable velocity and inflation.
And btw in RL, when governments resort to the printing press to cover their debts (in this case the real cost of wages and then the real cost of goods) they are creating hidden inflation — and it’s never considered a good thing as far as I understand. Yeltsin begin printing up rubles, for example, and it led to the infamous ruble crash of 1998.
The Lindens made their announcement that they’d be printing money, it crashed the Lindex (trying to find the date for that now, I remember it took a horrible beating). That’s because experts and wily businessmen understood that printing money is not a good thing for an economy. Everybody rushes to tell you at this juncture that all governments print money to replace worn dollar bills, etc. but that’s not the point — you don’t have these fantastic ratios happening, with the differential between sinks and sources so astounding and volatie (there’s where the instability lies) and with figures like $77 million Lindens one month and $177 million Lindens the next being sold, without really the hard log-ons inworld buying stuff to justify it.
“when governments resort to the printing press to cover their debts (in this case the real cost of wages and then the real cost of goods) they are creating hidden inflation”
That’s true, but the Linden economy is not as complex as a RL economy: in RL, there are other ways than printing money to increase the money supply; in SL, there are not.
If there’s inflation in SL, I have yet to see it. Have your rents risen wildly over the last year? Have clothing prices? I don’t have good figures for velocity.