08 November 2006

The Simulated Economy

The economy is normally one of the biggest voting issues for presidential elections. Anyone will tell you that. But have you ever thought about our economy? And the global economy as a whole, for that matter?

Look at a dollar bill, or whatever piece of currency you have laying around. What is it worth? Can you take it to the government and get a dollar's worth of gold or silver or anything for it? Not anymore. Our currency is entirely theoretical. The dollar's value is derived from faith that when you give it to someone, you get something back for it. Dollar in soda machine, Coke out of soda machine. Five dollars to cashier, cheeseburger from cashier.

Bonds are based on the idea that you give money to the government and you get it back. A currency of currency, in a sense.

Stocks are just the same. The value of stock (non-prefered stock, that is) is dependent not only on how the company performs, but also (and more so) on the supply of the stock. How many people are buying it? How many people are selling it? You give money to a company, and assuming that the company does not fail, you can sell it to another person, assuming that that person is willing to pay for it.

Keeping this in mind, it makes sense that the currency in the game Second Life should have an impact on the currency in the "real" world. Currency in Second Life is a currency of currency as well. You give the Second Life makers your money, assuming that you will get Second Life money back. You use the cyber SL money assuming that you will get SL goods. You sell those goods, knowing that you will get SL money. You transfer the cyber bucks to "real" bucks, assuming that when you give the "real" money to someone, you will get something back.

In short, this cyber economy is every bit as real as the US economy.

Rock on.

Edit: It has been brought to my attention that this is the nature of economy. The point was made that gold has an assigned value, just like the dollar. After pondering it for a while, I realized that gold was used as a currency because it was a commodity, just like salt. A gold-based currency is a version of a barter system.

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