Mises.org has a must-read article about monetary inflation in video games. Video games, especially massive multiplayer online video games, serve as mini experimentations in economics. When free people are able to transact (to create wealth) in video games, then an economy is created. To see an impressive market economy, one has to look no further than SecondLife. Some people have full time real jobs playing the SecondLife video game.

Sometimes game designers fall for the same human errors as world leaders. Hyperinflation has always and forever been caused by governments printing money. Where money is rapidly increasing, prices rapidly increase faster. Queue Diablo III.

Some games, however, accidentally create thriving economies. RuneScape is a game in which trader markets were not built into maps, but spontaneously formed. In RuneScape, individuals can fish, mine, chop trees, cook, or pick from a dozen other skills to level. Each skill produces items which can be sold to a vendor or alternatively sold to other players.

Video games are notorious for underpricing objects being sold to computer players. The intent is usually to try to sink player money, but in a market economy the result was a thriving player to player auction house. Players quickly realized that they had more items than they needed and other players were willing to buy those items for more money than the computer was willing to give. They began selling to other players.

Although not designed as a market, the storage bank soon was flooded with players bartering their wares. People had easy access to a place to store their wares, and could retrieve items to sell very easily. Hundreds of players would stand in groups outside banks to do business. Markets, in turn, spawned players who would forgo traditional work (like mining and wood chopping) and instead focus on selling and buying. I was one such individual. They would watch the market for chances to buy low and sell high.

Each item gravitated to a natural market price. For example, Rune Scimitars could be sold at $25k each, but often people would be found selling them at $20k each. Myself, I started specializing in Rune Scimitars before moving onto Coal, Iron Ore and other resources. The middle man created value. Whereas I would buy Rune Scimitars (an item I could not even craft) in bulk for $20-24k each, I would sell them to adventurers at market price, $25k each. I benefited, the crafter benefited, and the customer benefited.

At one point I was in the business of commissioning miners to retrieve resources for me to resell. Sub-contracting!

Price inflation was present in the initial RuneScape as well. On every holiday there would be a special “drop”. One Christmas drop gave players a Santa Hat that would never be distributed in the future. Because the game creators did not understand inflation they made this hat tradable (future special items were made to not be tradable). Because of this, the amount of Santa Hats was fixed, although the number of players in the game were increasing (in turn creating more bidders on the scarce resource and driving the price higher). When I quit playing Runescape, the Santa Hat was at $30 million and is now at $150 million.

Where the game designers also undervalued items, players quickly capitalized on the developers’ mistake. Some players spent all their time logging into different servers to check the local computer operated stores to buy out all the items of which the store was priced less than the market price. Those players would turn around and sell their items in the ad hoc markets.

Like all markets, a sub-culture of scammers rose up, switching out iron ore for bronze ore during trades and iron scimitars instead of rune scimitars. The developers gradually built in checks to ensure this didn’t happen. But once in a while scammers would steal money from the unsuspecting.

My time playing Runescape was a beautiful thing. It showed markets in action. It allowed players to be free, to bid, negotiate, set prices, sub-contract, and otherwise have fun. But all good things come to an end, the market dissipated after the developers instituted market houses that automated trading (impersonal and controlled).