Ls Magazine Blog Have You Play : Second Life ? Economy ?

Have you play : Second Life ? Economy ? - ls magazine blog

The second coming of the life cycle of business
By Matthew Beller
Posted 8/2/2007
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Matthew Beller Second Life avatar,
designed to look like Ludwig von Mises
Ludwig von Mises wrote that the economist "in mathematics, physics, biology, history must be paid and the case law, not just the tasks and methods of the theory of human action to be confused with the tasks and methods of one of these other branches of knowledge . In modern times, with the growing popularity of computer-based interactive virtual worlds may soon be necessary for economists to make themselves familiar with the intricacies of virtual reality is not to be confused with the functions and methods of economics in the real world with which they are applied to virtual reality.

Some economists might dismiss virtual worlds as an application for the economy because not all resources that are traditionally thought to be rare (wood, steel, oil, etc.), but included a closer look shows that some of the world's genuine brand include VirtualFull and economies with limited resources, property rights, entrepreneurship and trade. Moreover, the real people who can behind the residents of virtual worlds, then we analyze their economies through the Austrian economy and is the science of human action.

A virtual world, which is currently very popular called Second Life. Second Life, created by San Francisco-based company Linden Research, Inc., and opened in 2003. It is an Internet-based three-dimensional virtual world where its 8 million unique can interact with each other. [1] Residents can create virtual clothes, hairstyles, houses, airplanes, concert halls, video games, and a number of other functions by an unlimited number of "primitive", the objects are that the shape, color can be, combining fragmented and programmed so that in a certain way to behave. Residents can present their creations and sell copies for others to reproduce all of you set the price.

Second Life has attracted the attention of Wired magazine, The Economist and other media with stories of a booming economyaa entrepreneurs, their income solely from the sale of virtual goods and services. Therefore, economists from the real world and Second Life residents alike can enjoy a look more on the actual functioning of the economy and the impact of economic interventions.

The economy of Second Life is comparable to that of a small country dependent on foreign tourism. Consumers are inhabitants of the real world, take, take take part in what is essentially holiday to Second Life, perhaps new people in a nightclub, a virtual clothing store, at a conference or playing in a casino. As genuine tourists, as consumers, their real exchange dollars for the currency of Second Life, the Linden Dollar (L $), generally run in a currency of Linden, the Lindex. Then use their L $ to goods and services created by other Second Life residents buy and they have extra L $ when you are done, they can sell their L $ U.S. dollars in Lindex.

Linden, mainly representatives of the state in the economy of Second Life, I usuallynterfere economic activity. "The Economist" on the views of Linden, the founder Philip Rosedale of intervention

"Second Life, Mr Rosedale prefers, with the invisible hand of Adam Smith" the rule. For what it means treating every resident the same as Toyota passes or "a 80-year-old from India. Two are charged the same price for their country [virtual] what they are doing it with them."

Proponents of private property and no doubt the praise of non-intervention policy. If the goal of Linden is to provide a stable framework for the growing economy, that the greatest satisfaction, provides the most residents, avoid the pitfalls of interventionism that establish the real impact economies in the world. Have shown Ludwig von Mises and others, an interventionist policy means that should be determined by the interventionist policies that lead to problems that require more intervention and so on, until the state controls all aspects of the economy.

Unfortunately, despite Mr.. Rosedale rhetoric of free markets, a look at the current practice shows that Linden has already begun to intervene the way into the economy. A critical example of the intervention Linden was attributed to the possibility of manipulation, the main product of the economy: money.

With respect to service that is offered to the L $ as "a limited license right to purchase or free distribution is defined at the discretion of Linden Lab, and is not redeemable against a monetary value from Linden Lab." By defining the L $ in a way that Linden has claimed the power of the central bank to manage the equivalent of a Second Life currency. Linden, new L $ and all he wants when he wants and spend it or give it up to them remains. Also, because Linden maintains an approximately L $ 270 = U.S. $ 1 stick on the Lindex, giving the impression that the L $ as well as money in the real world.

Currencies trustees are subject to much criticism, especially by the Austrians. However, there is criticism, because they cAUSE may cause undesirable economic distortions. Instead, they are criticized because, unlike commodity funds, such as gold, which can be created from scratch, so they are very sensitive to expansion and artificial manipulation. This extension, as the Austrian theory of the business cycle shows us the source of distortions in the economy has lead to an unsustainable boom followed by inevitable busts.

To determine whether there has in fact manipulating Linden determine the L $ supply and whether Second Life is likely to bust, we can examine historical economic statistics released by Linden signs of artificial growth in the supply of L $. The following table shows Second Life L $ supply since September 2005 and consolidated the two sources from month to month after month, the money supply.


The eye is attracted by the sudden acceleration of growth of L $ will be the end of 2006, which coincided with a marked increase in sales of Lindex (Linden, is the creation of new L $ and sold for U.S. $), but this is not necessarily a bad thing. Ignore the problemP $ with the United States, sales messages Lindex the true wealth in Second Life. When residents purchase L $ on the Lindex with dollars they earned in the real world, pre-consumption in the real world, or to spend their newly acquired L $ to invest in Second Life.

In fact, it is small, permanent budget deficit, which revealed something strange. Unlike L $ sales on the Lindex, which does not reflect a flow of real wealth into Second Life. Instead, they are created by Linden, to represent prosperity, but economic performance has been involved in its preparation. These deficits occur when the weekly L $ Linden benefit pays the premium residents exceed their income from rent and other administrative services for the residents of charge. To finance the deficits, Linden creates new L $ and injects them into Second Life.

Increase in the United States, the most important mechanism for the U.S. Federal Reserve to supply U.S. $ to purchase debt securities issued by the U.S. Treasury. Linden process is slightly different in the early establishmentSpirit L $ as much as necessary to offset the budget deficit, without having a debt. Every time Linden has a deficit, the L $ is now offering the same amount.

Linden monthly budget deficit may seem insignificant in the graph, but in reality the money supply Linden 6% on average per month has increased in this way. For the year as more than doubling each year. During the past year and a half, Linden created L $ 876 million by the deficit, which represents over 33% of today's L $ supply. These figures suggest that certainly Linden artificially increased supply of L $, but it is an argument put May on knowledge.

Premium members receive scholarships weekly L $ M Linden will pay $ 9.95 per month for the privilege. One could argue that this U.S. $ 9.95 a river of true wealth in Second Life, the L $ created by deficits, but this argument is weak. This U.S. dollar sales are expected to be used by Linden to pay employees to keep their servers and pay or otherperating and financing costs, the remaining profit or loss passed on to shareholders. Unfortunately, as the graph below, it has been months in the Linden U.S. $ revenues were not adequate to the new L $ creations.


In September 2005 Linden gathered up to U.S. $ 98,000 [2] Members of the premium, corresponding to approximately L $ 26 million to R $ 's current exchange rates. But this month, was created L $ 36 million to finance the budget deficit. This means that even if Linden had incurred not provided a single dollar to their employees or their cost in the real world, it is not yet gathered enough dollars to the newly created $ match L.

$ 25
"The residents of Second Life could come from a closer to the actual functioning of the economy benefit, and the effects of economic intervention.

Given the strong evidence that the supply of Linden L $, teaches us that Austria's economy there are a few of the possible results that may occur has driven up. In the firstLinden will stop running significant deficits at some point. With L $ to spend less, fewer people demanding goods and services, leading to lower prices and reduced profits. Previously, profitable companies destined to leave the company and the wealth of many residents will be reduced, slowing overall economic activity.

The other possibility is that Linden will continue deficit, as it is a sufficient number of residents and speculators recognize the L $ 's frailty. Ludwig von Mises as a "crack" to a boom-up ", everyone should redeem his L $ for" real estate "that is, in the case of Second Life, it is likely that the United States. $.

As more and sell more to their L $ on the Lindex, Linden can choose to keep their L $ 270 = $ 1 U.S. fixed exchange rate, a certain amount of time, but which operate under the assumption that is not maintained 100% reserves of dollars, the execution time of U.S. $ or decides to sell more and to them, and lose the L $ in value too quickly. Explore what ever the outcome, the people they were less frequentor what they earned during the period before the accident.

In summary, it seems very likely that Second Life experience of at least one kind of economic recession. Depending on the severity could, in Linden loses many of his customers. If Linden wants to prevent, this, and to promote stable growth in Second Life, you must learn the lessons of the Austrian economy in order to apply its policy: the abolition of restrictions on content, strengthen the ability of residents to enforce their property rights and what is more important, with the L $ in real money, supports global stocks of products by 100%.


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Matthew Beller is a former employee of the Board of Governors of the Federal Reserve and currently works for the Securities and Exchange Commission in Los Angeles. Send an e-mail. On comment to the blog.

The Securities and Exchange Commission does not accept any responsibility for any private publication or statement of an employee or SEC Commissioner. This article gives the author & #039; s views and not necessarily those of the Commission, commissioners or other officials.

Notes

[1] SecondLife.com /