[Dave Birch] I got a nice surprise in my inbox: someone sent me an e-mail telling me that my guru rating just went up substantially.  I followed the link and found something fun.  It goes back to when I made a presentation to a client, a couple of years ago, that included a mock-up of a Blizzard Entertainment Visa card with World of Warcraft rewards instead of "real" world rewards, suggesting that this might be a good first step toward linking real and virtual world strategies.  Well, guess what.  It just happened.  Naturally, I won’t be publicising any of my really bad ideas.  To be honest, nine-tenths of guruhood is hindsight bias anyway.  But on this one, I expect to dine out for some time.

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You’re only getting gametime back as the cashback substitute, not actual WoW Gold, which would have been much better, but it’s only a matter of time before WoW Gold is showing up on credit card statements and delivery elves with Visa and MasterCard logos become as familiar as 60th level Paladins.  And getting your kids to use up some of that WoW Gold could be a good thing.  I wrote an article in SPEED this month arguing that (amongst other things) virtual worlds might be co-opted to educate kids about financial services and it was far from fanciful.  There’s no better way to learn about the supply of and demand for money than to fight a dragon for its gold hoard and then see what happens to the price of the magic sword that your friend has been dangling in front of you.

I remember (in paraphrase) Andrew Hilton of the Centre for the Study of Financial Innovation remarking that virtual worlds seem to come with capitalism built in.  As with most of his rather wise asides at the various CSFI roundtables I have been invited to, I don’t really appreciate the accuracy and value of his comments until I come across something in a story, or newspaper, or conference or web site that forces me to reflect on them.  A recent example was the (entirely predictable if you understand economics) impact of real government regulation on virtual prices.  Basically, the Chinese government announced that it was going to limit the time that children are allowed to play in games such as World of Warcraft (so Visa cards with cashback gametime will have suddenly become less interesting in China).  The result was that the price of most online game virtual items increased by nearly a third overnight, according to the Chongqing Economic Daily.  This is because the kids have less time to play and therefore fight monsters (and so forth) to acquire the items that they want.  They are, as a natural consequence, more willing to pay to get them.  Since the supply of the items has not increased, there’s only one outcome: inflation.  This isn’t the first time that government action has caused inflation, but it may well be the first time it has happened in the virtual world rather than the real one.

Anyone with a passing familiarity with history and economics can easily make the next guru prediction in this space: sumptuary laws, which I’ve written about before.  Chinese parents will start complaining about game item inflation and an economically-illiterate mandarin (non-pun intended) will pass a law to regulate how nice your armour can be in WoW or what the best sword in Lineage II will be or, if they have absolutely no knowledge of history and economics at all, what the maximum price for a loaf of bread might be.  Remember how well that worked out for the economic central planners in Rome?

The price control laws then resulted in prices that were significantly below their free-market equilibrium levels.  According to Rostovtzeff and Mises, artificially low prices led to the scarcity of foodstuffs, particularly in cities, whose inhabitants depended on trade in order to obtain them. Despite laws passed to prevent migration from the cities to the countryside, urban areas gradually became depopulated and many Roman citizens abandoned their specialized trades in order to practice subsistence agriculture. This, coupled with increasingly oppressive and arbitrary taxation, led to a severe net decrease in trade, technical innovation, and the overall wealth of the empire.

The "depopulation of the cities" and the abandonment of specialised trades will undoubtedly manifest first in students leaving their studies to spend their time conniving with Internet cafe owners to get more time online, but it’s the same thing, isn’t it.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

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