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Austrians finally discover hyperinflation - in Diablo III

by Zwackus Mon May 27th, 2013 at 11:53:52 PM EST

I ran across an interesting link at one of my favorite gaming review and discussion sites, Rock Paper Shotgun, that I thought the community at Eurotrib might find amusing.

Peter C. Earle, a scholar <cough> at the Von Mieses institute, has found what hard-money Austrians have always feared was just around the corner - hyperinflation.  Unfortunately, for them at any rate, its not in a real world economy, but in a video game's virtual economy, Diablo 3.  A Virtual Weimar


As virtual fantasy worlds go, Blizzard Entertainment's Diablo 3 is particularly foreboding. In this multiplayer online game played by millions, witch doctors, demon hunters, and other character types duke it out in a war between angels and demons in a dark world called Sanctuary. The world is reminiscent of Judeo-Christian notions of hell: fire and brimstone, with the added fantasy elements of supernatural combat waged with magic and divine weaponry. And within a fairly straightforward gaming framework, virtual "gold" is used as currency for purchasing weapons and repairing battle damage. Over time, virtual gold can be used to purchase ever-more resources for confronting ever-more dangerous foes.

But in the last few months, various outposts in that world -- Silver City and New Tristram, to name two -- have borne more in common with real world places like Harare, Zimbabwe in 2007 or Berlin in 1923 than with Dante's Inferno. A culmination of a series of unanticipated circumstances -- and, finally, a most unfortunate programming bug -- has over the last few weeks produced a new and unforeseen dimension of hellishness within Diablo 3: hyperinflation.

The article goes back and forth, between a reasonable description of the Diablo auction house hyperinflation phenomenon, and Austrian hard money economics explanations to explain what's going on.  Thanks to the artificial and constrained nature of both the Diablo 3 online economy and the Austrian monetarist models, the explanations seem to work rather well.  In one way, this seems like a pretty damning indictment of Austrian economics, but of course that is not the takeaway for which the author hoped.

One also surmises, considering the level of planning that goes into designing and maintaining virtual gaming environments, that some measure of statistical monitoring and/or econometric modeling must have been applied to Diablo 3's game world. The Austrian School has long warned of the arrogance and naïveté intrinsic to applying rigid, quantitative measures to the deductive study of human actions. Indeed; if a small, straightforward economy generating detailed, timely economic data for its managers can careen so completely aslant in a matter of months, should anyone be surprised when the performance of central banks consistently breeds results which are either ineffective or destabilizing?

By no means does this analysis intend to equate the actions of virtual gaming firms with the policies of governments or central banks, or to malign their indisputably talented managers, designers, and programmers. While their actions may ultimately generate similar outcomes, central planners seek and wield power whereas the actions of commercial gaming interests are undertaken to compete with other online entertainment providers by delicately balancing opportunities for newer players with the need to continually challenge experienced players.

By all accounts Diablo 3 is a great game; one hopes that with this episode passed, it will reacquire its former glory. But while decision-makers at online gaming firms can and should be forgiven for not anticipating the perilous and unpredictable torsions of rapidly expanding money supplies, the events of the last week provide a stark reminder of the power and inescapability of the laws of economics.


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Yannis Varoufakis actually works for a similar gaming concern known as Valve Software.

Check this out: http://blogs.valvesoftware.com/economics/arbitrage-and-equilibrium-in-the-team-fortress-2-economy/#m ore-128

Also, I ran into this article a while back:

http://www.washingtonpost.com/blogs/wonkblog/wp/2012/09/28/the-economics-of-video-games/

Amazing that such huge collapses occur.

by Upstate NY on Tue May 28th, 2013 at 11:08:12 AM EST


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