Inflation is "the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling."
Inflation affects anything that can be bought or sold. It affects volatile markets the most. An mmo developer can enact various measures to slow inflation, but due to its nature, an MMO existing in the state they do today, will experience inflation in one way or another. Some faster than others.
In Chronicles of Elyria, the world is composed of a finite amount of resources. They will not inflate over time. However, we will still experience inflation due to discovery of resources. We will then need to gather the resources and refine them, but we will experience a level of inflation due to increases in the supply of certain goods.
Inflation is usually a slow, steady process, but sometimes periods of unusually high inflation occur. This is called “hyperinflation”. This is usually the result of a massive influx of supply. For example, if we were using gold doubloons as currency, and someone minted hundreds of thousands of gold doubloons, the value of a doubloon would crash. This would cause a period during which, gold doubloons lose a large percentage of their value.
Hyperinflation may occur naturally in the economy. For example, if several duchies in a kingdom decided to start massive stone quarrying efforts and poured all their research into mining tech for gathering stone, they may end up with an extremely large surplus of stone. This would cause the price of stone to plummet. Thus temporarily causing hyperinflation of stone and decreasing its value.
Typically in an MMO the developers’ choices increase or decrease the speed of inflation, but a player’s choices generally cannot. In Chronicles of Elyria, while the developers do have a great deal of power over the economy, they don’t directly control the NPCs actions, so in reality, the actions of the player base as a whole will shape the direction in which the economy goes. The NPCs will react to our actions, so we can cause them to do certain things in the economy as a result of what we do. In that way, we affect the ways in which our economy changes.
The question is: “How can players respond to inflation, in order to best protect themselves?”
The answer parallels the real world… “By moving their wealth into the items of the highest value and lowest volatility.”
In the real world, civilizations had four criteria that helped them choose a currency:
Malleability (ease of distributing and dividing)
Lack of danger to possessor (no acidic or radioactive compounds)
Longevity (it can’t rust or corrode when encountering common elements)
Rarity (rare enough to be valuable, but common enough to allow widespread use)
Ancient civilizations settled upon one primary element as a currency: Gold.
It could be melted and divided easily
It was innocuous, posing no risk to owners
It wasn’t easily corroded and could survive contact with common elements
It was relatively rare, but found in many places
In video games, these criteria can be applied, but in a different fashion. The criteria affect us differently in a digital world.
Ease of division and distribution is still a factor in Chronicles of Elyria. We have to carry currency with us to use it. We can mitigate problems through banking services though.
Dangerous materials less so, but there are still materials to be avoided.
Longevity may be a factor as well. Depending on the level of detail implemented, this may or may not be very important to us.
Rarity will definitely be a factor. We need something recognized as valuable, but also available in some capacity in the areas in which we reside.
If we apply those criteria and look for a resource with low price volatility, we can use it as a “currency” to safeguard (to some extent) ourselves from inflation. The right “currency” to safeguard value over time, may change significantly as the market changes and new resources are found.
If we can find good long-term stores of value, it allows people to stash away funds to be used later, without worrying about changes in the value of the currency or materials being stored.
What are your thoughts about inflation and how it might affect us? Do you have any ideas for maximizing the efficiency of currencies and minimizing losses?
By the way, if you are interested in discussing Elyrian economics, game mechanics, or just hanging out, come visit us at the Duchy of Vitalis discord server.
here is a good vid explaining currency systems, inflation and banking in simple easy to understand methods.
why it dose not show it in the video the first currency was actually setup by ancient china in the form of all things Stone axes.... i was quite surprised on that one but ha not all currency's were gold and sliver and for the longest time china when by the Jade standard.
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Posted By zimmah at 02:31 AM - Wed May 16 2018
Posted By Kaynadin at 4:55 PM - Tue May 15 2018
Remember to also account for periods of large deflation pressure. When the US still used the gold standard, inflation ranged between -14% inflation to 17.8% apr (I ignored the brief period during the civil war where the gold standard was dropped). So kingdoms/duchies will need to figure out how they will handle markets where your best bet is to sit on your money and do nothing with it as well.
"sitting on money and doing nothing with it" only works if you have the luxury to not need to spend money.
In reality you need to pay for housing, food, taxes, clothing, tools, etc. and probably won't have much, if any, left after all that.
They make deflation sound bad, because inflation is in the governments and banks best interest, but I don't think deflation is inherently bad, because it promotes saving, and more responsible use of resources. Which is exactly what we are lacking right now. Because an inflation based economy promotes economies of exponential growth, which is by definition unsustainable.
It's the people who possess lots of currency who can most likely defer spending it until prices of other commodities drop to what they are comfortable with. They will need to spend some on living expenses, but may choose to avoid spending on anything but essentials. This acts to shrink the general money supply, which in turn tends to suppress economic activity. Deflation and economic depression tend to go together.
The first thing people are concerned with is that the king and his nobility may have a lot of control of the currency when they mint their own. For the most part most kingdoms need to manage this. For the sake of reality and the sake of how much easier it is to use a currency than pure barter. While some people may take advantage of the system. The local nature of the game will understand what to do and how to do it.
Competition in currencies might have to be a thing. Although that will mostly be regulated as it wouldn't be the tax currency. However there will be likely a good exchange rate for the flawed currency the current king or queen mandates as tax money.
Monetary policy is going to be as infantile as it was a several hundred years ago, People will strive for goals to have a Central bank, and enable things with that that the current governments do. However, do they have enough enforcement to make sure their currency is what is called the "legal" tender?
Inflation will only ever happen if people grossly underestimate the demand for said currency. You need to first create a demand, or have some type of demand to have it. The interest rates will likely fluctuate. Holding on to money has to also have an intrinsic value that people hold dear. I almost wager most people that are going to do the banking and minting of coin will not be able to keep up with the demand in most places for the "legal" tender within their domains.
There will be stability within currency within a few months. People will need to mint and create a steady supply to fill the demand. But not too much that it makes the gold or what ever that is backing it worthless.
Just about the only thing that I could see that would cause inflation to an insane degree. Is that if some one finds a gold mine, and then mints that whole gold mine for coin, the surge of money within the market will raise first the prices locally then the rest of the domain, then farther up the food chain till it evens out at a slightly reduced price to hold onto the money.
Posted By Poldano at 06:09 AM - Sun May 20 2018
Posted By zimmah at 02:31 AM - Wed May 16 2018
Posted By Kaynadin at 4:55 PM - Tue May 15 2018
Remember to also account for periods of large deflation pressure. When the US still used the gold standard, inflation ranged between -14% inflation to 17.8% apr (I ignored the brief period during the civil war where the gold standard was dropped). So kingdoms/duchies will need to figure out how they will handle markets where your best bet is to sit on your money and do nothing with it as well.
"sitting on money and doing nothing with it" only works if you have the luxury to not need to spend money.
In reality you need to pay for housing, food, taxes, clothing, tools, etc. and probably won't have much, if any, left after all that.
They make deflation sound bad, because inflation is in the governments and banks best interest, but I don't think deflation is inherently bad, because it promotes saving, and more responsible use of resources. Which is exactly what we are lacking right now. Because an inflation based economy promotes economies of exponential growth, which is by definition unsustainable.
It's the people who possess lots of currency who can most likely defer spending it until prices of other commodities drop to what they are comfortable with. They will need to spend some on living expenses, but may choose to avoid spending on anything but essentials. This acts to shrink the general money supply, which in turn tends to suppress economic activity. Deflation and economic depression tend to go together.
Yeah, we all know the keynasian propaganda, I just don't think that's actually a good system, and it's just propaganda to make inflation seem less bad.
Count LizenÇace VeLeîjres of Mydra's Crossing, VII of the order of the IX.
Posted By zimmah at 08:41 AM - Sun May 20 2018
Yeah, we all know the keynasian propaganda, I just don't think that's actually a good system, and it's just propaganda to make inflation seem less bad.
It's so easy to dismiss anything you don't agree with as propaganda, isn't it?
Posted By YukiAkuma at 08:53 AM - Sun May 20 2018
Posted By zimmah at 08:41 AM - Sun May 20 2018
Yeah, we all know the keynasian propaganda, I just don't think that's actually a good system, and it's just propaganda to make inflation seem less bad.
It's so easy to dismiss anything you don't agree with as propaganda, isn't it?
It's not rational to hold onto money, when investment makes more money than having a bank hold on to it collecting 0.5% interest. There is a ton of mistakes in Keynesian models. The only thing it's good for is expanding the power of the state. Which is only good to some people. MMT for example is at least honest with how they think the money would retain value in the system. Rich people don't hoard money. It's not in their best interest to do so, unless of course is a security they've bought from what ever country. I will tell you right now, this game is every bit a RTS when it comes to making war, holding or hoarding money, will keep you behind the competition thus making your whole domain under threat. Holding on to resources and not having your resources make you more resources is bad for any business.
Keynesian model is all about currency manipulation to help the government's best interest, increase the GDP. Government spending only helps the rich in this age, or the government. which is one thing they do to try to soften the business cycle in the systems they have in place. When things are going up they are supposed to increase taxes and increase interest, the opposite is true when your GDP is going through a contraction phase. We also don't have nearly enough information in the game to know if the kingdom GDP is growing or shrinking. People that think they can handle this game using Keynesian models, well best of luck to you. but that's not how it works till there is a fiat currency and a central bank. As well as a good and simple way to know how much people are making in the given domain.
Deflation for what it's worth is a good thing for the lowest of people. Deflation is only bad when they see that their sexy GDP numbers are lower. They want them in the middle and going in the average.
Posted By Gunghoe at 01:53 AM - Sun May 20 2018
Monetary policy is going to be as infantile as it was a several hundred years ago
Several hundred years ago money and monetary policies were already a millennium old.
Here is something to read for the ones who really care about te subject:
http://eprints.lse.ac.uk/87152/1/WP275.pdf
It's from the London School of Economics and Political Science. It's a good read :)
There is no need to invent the wheel again.
Posted By mickdude2 at 5:44 PM - Sun May 20 2018
Posted By Gunghoe at 01:53 AM - Sun May 20 2018
Monetary policy is going to be as infantile as it was a several hundred years ago
Several hundred years ago money and monetary policies were already a millennium old.
Practically my point, There has also been some help in the 18th century when it comes to our school of thinking. Going back a thousand years, basically can get rid of things we take as granted and common knowledge when it comes to economics. Going too modern, where strong enforcement is needed. Going to far in the past is going to basically be roll-playing. That we haven't learned anything in economics.
I encourage everyone to follow Keynesian economics in game. Just like modern Japan, spend yourselves silly, change nothing, accrue massive debt. Please! Please do this! It is a wonderful policy, I promise.
And, don't worry about the debt either. Everyone knows governments don't have to worry about debt. That's why when Spain was a colonial empire they declared bankruptcy a number of times, and also why they were totally able to keep paying for the military to maintain their empire, which is why the Spanish Empire survi... no wait... Well, that's not important. The important thing is don't let anyone get in the way of your spending money, especially other people's money, especially taxpayer money!
"Never interfere with your enemy when he is making a mistake." - Napoleon Bonaparte
Posted By Barleyman at 10:25 PM - Sun May 20 2018
I encourage everyone to follow Keynesian economics in game. Just like modern Japan
You mean end up with the third highest GDP in the world, ranked as the greatest investment opportunity, and consistent economic growth since 2012?
K.
Posted By mickdude2 at 11:17 PM - Sun May 20 2018
Posted By Barleyman at 10:25 PM - Sun May 20 2018
I encourage everyone to follow Keynesian economics in game. Just like modern Japan
You mean end up with the third highest GDP in the world, ranked as the greatest investment opportunity, and consistent economic growth since 2012?
K.
When almost everyone is doing it in the modern age, no government is held accountable to their debts. For the most part if we just pay the interest on the debt all is good. It sucks for the future generations that are now owned by banks but we have had an awesome run.
Most of this is well you pay the interest or bust. In other cases it's also a reason to enforce your currency of choice that you've leveraged heavily on. Next to currency manipulation (which this isn't, it's damned close) it's just the status quo of most modern governments, accumulate debt and then hope that as long as you remain in contract you'll be fine.
There is a intricate web here woven in modern society that makes this possible. Now if there is going to be an area where you are able to take loans out, and then just pay the interest keeping the bankers happy. This will have an effect that most other games wouldn't be able to simulate. However, it is possible to run off of just paying the interest rate to the bank that you've taken a loan out of.
If you do it right, with out worrying for the future. Holding off balancing the debt or heaven for bid getting some independence in what you've gained from taking all these deals from various banks. And hope that these banks aren't as corrupt as they could be, and will be.
There is a strong possibility of creating an organizational bank that is so large that could compete with this games nations. That is of course if there is indeed the option to look at and take advantage of in the game. Most of this stuff will likely not come to pass, and people will not be able to take out loans and more loans from the same credit line, soon enough the banks in the game will have a vested interest in one or the other falling to which who it benefits the most.
People attempting to create this web, Only few people in this transaction will benefit. Hopefully those are the people you like. If you don't the things may become hard to compete with others that have the generous bank's back in their time of need.
Creating a society based on debt is a dangerous game to play that we are all forced into. Why replicate that?
Boy lots of gold-buggery and freshwater nonsense being thrown about. Kudos to MikeDude2 for pushing back.
I've played games in which players have to actually MAKE the currency units out of rare metals they themselves mined, rather then have them drop from the cascaras of rats. And I tell you actual coinage is RARE.
Most trade takes to form of psudo-barter in which a merchant will produce a table of buying X, and selling Y all with prices denominated in coin. People wishing to get some Y bring some of the X and basically get store-credit that they immediately spend. So you have currency being used a a measure of value even though neither party actually exchange any currency. Nor to they store any significant wealth in currency.
This is very similar to the real middle ages which were characterized by a chronic shortage of currency (which was universally silver NOT gold). This is why you saw so much payment in kind, such as day labor for ones lord, military service etc. It was only later that a robust cash economy developed after increased precious metal mining in Europe and then the huge influxes from the new world.
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Posted By mickdude2 at 9:17 PM - Sun May 20 2018
Posted By Barleyman at 10:25 PM - Sun May 20 2018
I encourage everyone to follow Keynesian economics in game. Just like modern Japan
You mean end up with the third highest GDP in the world, ranked as the greatest investment opportunity, and consistent economic growth since 2012?
K.
In 1985 Japan's GDP per-capita was about $11,600. At that point Japan experienced a period of rapid growth reaching a high point of $43,440 GDP per-capita in 1995. Which is just, truly, stupid growth. In only ten years the wealth of the nation well more than tripled and far surpassed the US, at the time, with a GDP per-capita of about $28,800.
Now, in 1995-1996 Japan experienced a severe recession and their government began to implement Keynesian policies.
From their high point in 1995 Japan reached one other high point in 2012 at $48,600 GDP per-capita. As of 2016 they are about ten thousand less than that.
Based on the intervening years their GDP (per-capita) has fluctuated without demonstrating any consistent growth whatsoever unlike nations like, for example, South Korea which, while having a smaller economy has experienced consistent and stable growth over the same period of time in which Japan was fluctuating wildly. Or, like say, the US, which is basically ditto to South Korea.
Assuming we can take GDP as a reasonable marker for economic success the Japanese have spent themselves into debt equal to 200% (or more) of their national GDP and have nothing more to show for it than status quo from 1995 if even that much. For two and a half decades, Japan has averaged just 0.9% a year in real GDP growth -- the worst among all the major developed nations by far.
The fact that they are a power house economically has more to do with high population, an otherwise free market, an industrious populace, and most importantly the growth which they experienced before their current policies were implemented. If anything the expenditure of their government, and the other policies necessary to sustain that expenditure, has actually held them back quite a bit from growth they might otherwise have experienced, and which nations like the US and South Korea have and are experiencing.
As for floating such massive loans. It's fine as long as interest rates are low, which currently they are. As long as interest rates are low and remain low then 200% of your national GDP in debt might seem sustainable. However, what happens when the interests rates rise? On a debt that size? If the interest rates begin to climb even just a tiny tiny bit the potential effects on the nation could be absolutely catastrophic.
Posted By zimmah at 12:41 AM - Sun May 20 2018
... Yeah, we all know the keynasian propaganda, I just don't think that's actually a good system, and it's just propaganda to make inflation seem less bad.
'Nuff said. We have irreconcilable differences of opinion that should not be discussed here. I'll remember to take your economic theories with an ocean or so of salt.
