The Coming Second Life Industrial Revolution?
In the field of macroeconomic theory, the Austrian view is distinct from other schools of economic thought due to its emphasis on the role of capital. In attempting to extend the application of Austrian economics to virtual economies, it will be a worthwhile exercise to explore the nature of capital that exists within Second Life and observe how it is evolving.
In the real world, one example of a capital good might be a bulldozer, which is not itself consumed, but is used to improve land by making it more suitable for human use. Analogously in Second Life, someone could use a scripted object to automate the shaping of virtual terrain. The object would only be capital, however, if reshaping the land were not an end in itself. FULL ARTICLE
Comments (10)
Just some quick comments for the beginning. It'll be good to meet inworld and discuss this issues. It's a pity Austrians have no meeting place in SL. Libertarians have a whole continent, objectivists have their institution!
The last model described as a future development is already in place. People produce scripts and textures for sale, there are plenty of shops around. Scripts and textures can be consumed only as parts of other objects.
There is another way to lengthen production cycle and increase capital consumption. Production of a complex environment in SL requires Real Life investment in a full-scale software and/or 3D design company, with office space, computers, broadband Internet and full-time employees. This "hidden" part of SL economy should be taken into consideration.
Really it's much easier to consider SL as a part of RL economy.
Published: March 21, 2008 11:19 AM
It's good to see that you support the idea of virtual capital in a microcosm of a virtual world. My article (http://www.gigstaggart.com/blog/?p=13) also introduced this concept, but from a slightly different angle.
What I call "platform capital" in my article is at a higher level than the object/tool level. This "metacapital" is the platform features that allow capital to be created. For example, a plug-in architecture on the client side of Second Life, similar to what Firefox has, does not currently exist. This "platform capital" would allow entirely new classes of capital to exist, for new productive tools to be created.
The LSL programming language within Second Life is a good example of this platform capital. This sort of thing is more akin to "natural resources" in the real world economic analogy.
I assert (with some fuzzy mathematical basis) that the social and economic benefit is maximized when the platform provider concentrates their efforts on platform capital, rather than providing features that are useful, but that are not tools for creating additional capital assets.
Published: March 21, 2008 11:22 AM
"a complex of goods that originate in a previous process of production, and are destined, not for immediate consumption, but to serve as means of acquiring further goods."[1]
"[...]Similarly, a real world bulldozer would not be considered capital if it were used strictly for entertainment purposes."
Is not entertainment a good?
Published: March 21, 2008 12:43 PM
Nelson,
Entertainment is a good. Therefore the bulldozer used for entertainment purposes would be a consumption good. Not a capital good.
(A capital good in this case would be the bulldozer factory)
Published: March 22, 2008 3:41 PM
I was just saying the other day that SL is still a news story because it is leaving the Golden Age, and entering the Iron Age, the age of replication, but I think I reached this conclusion for different reasons than you. The replication will happen both inside and outside of SL per se, both in other worlds to be made, between worlds, and at the grid level of a different level of customers than Linden Lab has been serving. I'm predicting this will cause some big dislocations.
As an avid participant in the SL economy, I feel I have to mention some correctives.
1. There is a very deeply-ingrained, widespread notion among theoretical commentators on SL that there is "zero cost to production" or "near zero or zero costs to replication" (it's deeply satisfying as interesting as theory, and therefore hard to let go of)
But...of course there are costs. You do have a very practical limit on how many copies of an item you can copy *and* display. Displaying 100 copies of an item all set to sell with permissions enabling them to be purchased but not transferred, costs tier money to tier the land (square meter metaphor of server space) under the displayed item.
If I make a candle, and put the permissions to sell "no copy/no modify/transfer" it can endlessly copy all day to those buying it, and I have "0" cost in a way, except for that cost I must maintain of tier to hold the land under the display.
But if I wish to go to another level in the economy, and make it more complex and sophisticated, and commission my idea for a design to someone more skilled than me, who would like me to be able to copy his design for me to sell copies of it, but not have his design copyable in general by anyone, he will set it so, and I will have to rez out each and every item I sell, or else put in warning notecards that people cannot copy the item (and of course, that doesn't work, they do, they re-sell it, and it becomes the stuff of lawsuits).
So I'm hampered and restrained in the next level of production, as is the artist, precisely by the inability to technically set better protection of IP (and in fact hacks are far more widespread than you seem to realize), and precisely because we don't have these better permission feature sets, for him and me, I have to pay more tier to rez out more individual copies, say, to sell 20 candles I need 200 prim spaces, not just 20 prims spaces, and that means more expensive tier.
2. I agree that the real estate industry is a cottage industry. I could tell you lots about just how it is exactly that. The Lindens very ideologically deny this, and put land purchased, even by land dealers, as an asset, and don't call the land businesses even "businesses," as arbitrage bothers them ideologically as an activity.
However, I do think it can easily be shown that the real estate business does not have the most income. That pride of place belongs to animations, and then other kinds of content. Buying all the animations to animate the avatar -- whether dancing or speaking with hand gestures for a presentation or romance -- this is a huge business, in which fortunes like $60,000 US a year are made. Once that artist has created his wares, it's true that if he only sells the poses by themselves, he can put on their permissions and go and play WoW if he likes and just listen to the cash register ring. However, if he wants to work with a furniture maker or house designer, he now has problems of permissions and how to sell the thing etc. Display becomes important again, and tier.
3. The capital came and went, the banks were closed. There was a time when the capital accumulated from the early animations, content, real estate businesses began to be used to create more sophisticated financial institutions then to finance the formation of more complex businesses -- advertising, management, consulting, office assistance, logistics, etc. -- but a lot of this began to crash when first the casinos were closed (some financial institutions invested in them to make a profit) and when banking was closed unless holding a RL license (none did). So that was that...The capital then had to hurry up and plough back into land, clubs, malls, building, etc.
4. The outworld process of course is where the economy now faces either destruction or radical transformation. The companies consulting for big media and business corporations make real money and some of it is used inworld for local help or products but most of it happens outside of SL. And that may be a large component of the future, separate grids where there is no longer an attempt to make a centralized user economcy anywmore, and SL is merely part of the real-life industries of gaming or educational software.
5. The Lindens print the money and thereby devalue the payment of labour, but that's only part of the currency exchange, most of the volume is residents selling to other residents.
Published: March 22, 2008 10:45 PM
This is pretty much what I was saying back in the mid-90's when I was pitching the original innovation of online worlds -- and the banksters pretty much ignored me.
Published: March 23, 2008 12:19 PM
"Entertainment is a good. Therefore the bulldozer used for entertainment purposes would be a consumption good. Not a capital good."
To even create a distinction seems very un-Austrian. For what do we care what the bulldozer is for so long as someone values it? It does not matter if the bulldozer produces units of roads or units of entertainment. Value capital goods based on their expected or realized lifetime (discounted for time of course) income producing qualities, but don't try to pretend income can only come in the form of what others are willing to pay. Happiness (entertainment) is also an income as it raises the standard of living.
Published: March 24, 2008 11:15 AM
Another online economy you might want to take a look at is EVE online. The EVE economy is mostly part player run. A few upper level items are rare in appearance, and some cheap items are used as a sort of price check. (those are sort of the only items that that are directly controlled by CCP the company that created and maintains EVE)
The application of Austrian capital theories might also be a bit easier, because there is currently an economist that does quarterly reports for the game's economy. One of the reports focused heavily on mineral prices (minerals are the building blocks of just about all items in the EVE economy).
Here are some links to information about the EVE economy:
http://www.sciam.com/article.cfm?id=virtual-world-economists-on-real-economies
http://ccp.vo.llnwd.net/o2/pdf/QEN_Q4-2007.pdf
http://ccp.vo.llnwd.net/o2/pdf/QEN_2007Q3.pdf
Published: March 26, 2008 7:00 PM
Another online economy you might want to take a look at is EVE online. The EVE economy is mostly part player run. A few upper level items are rare in appearance, and some cheap items are used as a sort of price check. (those are sort of the only items that that are directly controlled by CCP the company that created and maintains EVE)
The application of Austrian capital theories might also be a bit easier, because there is currently an economist that does quarterly reports for the game's economy. One of the reports focused heavily on mineral prices (minerals are the building blocks of just about all items in the EVE economy).
Here are some links to information about the EVE economy:
http://www.sciam.com/article.cfm?id=virtual-world-economists-on-real-economies
http://ccp.vo.llnwd.net/o2/pdf/QEN_Q4-2007.pdf
http://ccp.vo.llnwd.net/o2/pdf/QEN_2007Q3.pdf
Published: March 26, 2008 7:01 PM
I am continually astounded by the number of otherwise intelligent people who get sucked into the "academic" explorations of a place like Second Life.
Those explorations, while perfectly appropriate companions to thought-experiments, should not be mistaken as being analogous to real-world observations.
First off, Second Life is not an open system. It's economy and very physical existence depends on two, separate third parties...Linden Lab...and PayPal. Without Linden Lab, the very structure of the "virtual world" ceases to exist, and there would be no economy without Linden Lab's agreement to sell its "Linden dollars" as a currency.
There would be no effective engine for this economy without the ability to exchange the in-world token of the "Linden dollar" for a unit of real-world currency.
There are also incredible problems with the platform itself. It's instability is notorious, and the management of the system has encouraged the reverse-engineering of its technology, leading to problems with data security. In addition, experiments with "virtual banking" have been less than stellar. More often, than not, they seem to lead to an inevitable bank-run and collapse of the institution, thanks to a complete lack of regulation.
Linden Lab's unwillingness to act as any sort of "government" for the virtual world, while at the same time not allowing for any other parties to do so, has created a completely unstable, undependable, and unpredictable environment.
Second Life should never be viewed for anything more than what it is...and that is a beta-test of server-hosted, interactive virtual environments.
Anything else is a non-sequitor.
Published: March 28, 2008 12:07 PM