I came across this old thread in the Austrian Economics forum, and I thought some of the older folks who read this blog (but not the forum) might be interested in this description of what happens in a “Massively Multiple Online Role-Playing Game” (MMORPG) when the setup allows for injection of monetary units whenever someone’s agent kills a monster and (I think) the computer randomly picks an amount of money that the monster had. (The point is, there’s not a fixed amount of money at any given time; when a player’s character kills a monster and finds money on its body, that is like an injection from the Fed.)
As someone obviously more familiar with it than me put it: (and other online games with currency, such as Diablo 2) have already shown the impact of rapidly devaluating currency on people’s willingness to use it. Short version is, most people don’t. Longer version is that usually a currency is rapidly devalued when some players figure out a way to generate tons of cash, usually through programs that have a character doing high profit activities even while the player is away or asleep. The basic format for a “farming bot” follows: “Select weaker monster, attack until monster dies, heal self, loot monster’s corpse, repeat.” If this is done nonstop, day and night, the player using the bot makes a fortune for basically no effort. If the game company hosting the servers can’t stop players from using bots, the economy is flooded with cash and everyone (except those who are using bots) switches over to some other in-game commodity. Pretty soon the only people willing to deal in cash are the players who use bots, and prices adjust accordingly (while the market shrinks) until they, too, switch over to something else. Usually at that point the botters will write programs to accumulate large amounts of the new medium of exchange, and the process repeats itself. Most people are unwilling to exchange their stuff for a devaluing currency, even if they plan on spending it quickly. Fewer people are willing to accept the currency, which has a snowball effect on its undesirability.
