SWG: SWG's Economy vs. Real-World Economy

Can SWG's economy (or the economic model of MMORPGs in general) be made more effective versus real-world economic systems such as that of the United States?

Before we start making value judgments ("better" vs. "worse"), it seems to me we ought to have a better idea what the differences are between SWG's economy and the US economy.

First of all, though, we need to consider an objection: SWG's economy is virtual, while the US economy is real.

Some very smart people disagree, arguing that the economies of virtual worlds like SWG are in fact quite real. In the first place (they argue), even inside SWG you've got people trading money and goods and services. They're assigning values to in-game objects and to their time, and making exchanges based on those valuations... which means that what goes on in SWG is a real economy that just happens to trade in virtual items. Even though the economic activity takes place inside a virtual world, the activity itself is real... so the economy is real.

The other response to the "it's not really real" objection is that since in-game SWG property (characters, objects, credits) can be sold for real money externally to the game, at real and quantifiable exchange rates (e.g. 100 SWG credits per 0.01 US dollar), these things are in fact "real property," making in-game economic activity perfectly real.

So for the purposes of this discussion, let's assume these folks are correct, and that it's not utterly ridiculous to compare a real economy to one that only exists on a few servers. What are the differences?

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An Astromech Stats article [2008/05/16: that article has long since been flung into the memory hole by SOE] illuminates how money is created and destroyed in SWG. The term "faucet-drain economy" is used to explain how money enters and exits the system.

Interestingly, this isn't terribly different from how the US economy works. When the developers set the rough amount of a particular mission payout, they're in essence letting players "print money." Watching the amount of money that gets created in SWG and tweaking the typical mission payout accordingly is not radically different from calculating M1, M2, and M3 based on the financial instruments actually in use and directing the responsible agency to print either more or less money within the next fiscal period, based on how the money supply is believed to affect key economic indicators (inflation and unemployment rates being the two biggies).

If we like, we can think of mission payouts being set by the Emperor's Exchequer. This isn't the direct control of the money supply that developed capitalistic nations use, but it's similar to a very socialistic system in which the government gives money directly to workers in return for performing certain tasks. (FDR's invention of the WPA, CCC, and other federal work-relief agencies to stimulate the US economy during the Great Depression is a good real-world example of this kind of economic system. Whether "FDR = Evil Emperor" is a question I leave to others.)
2. SWG has no central authority capable of taxing, borrowing, lending, and spending.
Although we might think of mission payouts as coming from the Empire, the Empire doesn't make those payments from an internal treasury whose contents come from taxation (or some other form of wealth appropriation).

In a real economy, the central government actually holds the money that it takes from workers (and from other sources such as tariffs) and redistributes that money through various projects ranging from the broadly applicable, massive and necessary (national defense) to the focused, small and trivial (a $20,000 grant to a private institution). In SWG, money appears from out of thin air, then goes nowhere when fees are deducted from specific in-game activities and economic transactions (maintenance fees, travel fees, etc.).

The main difference here is that there's no one person or agency in SWG setting economic goals that affect all players. In SWG, you're pretty much the master of your own economic fate -- whatever money you want, you can make it without "government" interference or even influence.

3. SWG has no central institutions to set lending rates and guarantee deposits.

If a government agency sets the goals, a central bank is what determines the specific actions intended to achieve those goals.

The US has the Federal Reserve Bank to set the prime lending rate, which is then used by other lending banks for setting their own interest rates... but SWG has no lending banks. Consequently there's no (relatively) easy way in SWG to obtain large amounts of capital as in the real world. That wonder of modern finance, the fractional reserve banking system, is unnecessary in SWG because banks don't hold player savings and make loans from a percentage of those savings.

4. SWG does not allow the creation of new intellectual property.

The only things you can create in SWG are those things the developers have explicitly built into the game. That's not a knock on SOE; this is just how things are. SOE has chosen a business approach that assigns real-world property rights (including the rights to this very message on SOE's official forum) to anything "created" by users of SOE systems (such as SWG). As a result, you can't make money in SWG by coming up with new content or a new idea (as you can in the real world).

The MMOG "Second Life" by Linden Labs, by comparison, explicitly asserts that players who create new in-game content (by using SL's script language to program new objects) actually own the real-world rights to that content. This is much closer to the way that developed nations legally protect a creator's copyrights and patents, and thus promote the creation of new forms of intellectual property.

It will be interesting to see if SL prospers economically as a result, where the SWG economy languishes because it offers no similar incentive to in-game innovation. Sure a lot of money gets made in SWG... but how much more could be made if invention were supported and encouraged?

5. Money is easy to acquire in SWG.

The main reason why we don't have or need S&Ls in SWG is because money is so ludicrously easy to obtain. Run a few missions, harvest a few desirable resources, and you've got the seed money you need to go up the appropriate skilltree to take even more lucrative missions or harvest even more resources. This dramatically reduces the degree to which participants in an economic system have to depend on and work with each other.

That's probably necessary in a MMOG, where most people want to play their game on their schedule without needing anyone else's support. But it does cut down on any reason to create the group institutions (corporations, banks, governments) that we develop in the real world to support and promote advanced economic activity.

6. SWG does not support organized labor.

By "organized labor" I don't mean unions -- I mean that all crafting in SWG can be done by one person. There are a very few items that as a practical matter wind up being "crafted" by two people: one fighter to get the schematic and any special components as loot drops, and one crafter to actually build the item. But by far most items in SWG can be built by a lone individual with the appropriate skills.

By contrast any advanced economy depends on organizing the labor of specialists. You can build hugely complex systems (such as the manned lunar landings of the Apollo program) if you properly organize the efforts of thousands of individuals with specialized skills. SWG's rules are "unrealistic" in that individuals can create certain complex objects that would (in the real world) require coordinating the work of many people. Despite this there are still many, many possible kinds of things that can't be crafted in SWG because there are no structural rules in place that allow players to organize themselves into business institutions (such as the corporation or limited liability partnership).

7. SWG does not support player contracts.

In the Real World, you and I can sign a contract that says you will give me X if I give you Y, and the legal system under which that contract is signed will support and require that both of us uphold our side of that contract.

Other than the Secure Trade Window, SWG has no such "general contract" feature. You and I might agree on some long-term deal, but because there's no in-game system that requires compliance with economic agreements, there's nothing to stop either one of us from hosing the other.

Consequently a huge amount of economic activity that might take place in SWG never happens, because players have no reason to trust that other players will hold up their end of any bargain.

A Player Contract system with automatic enforcement of terms would allow SWG players to trust each other (because they trust the system to uphold their rights under "contract law") enough to open up more in-game economic activity.

(For more -- much, much more -- on this subject, please see my Player Contracts essay.)

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OK, enough for now. Those are some of the biggest differences between the US economy and SWG's economy.

So do these differences make one of these systems "better" or "worse" than the other?