It's the economy, stupid!

This is obviously a deeper look into the economy of larp systems prompted by the post on the National NERO boards about the value of coin. Let us begin with the definition of an economy, just so that we are all working from the same starting point. An economy, for the purposes of this discussion, is a system of exchange of goods and services within a limited scope. Economics is a diverse field, we will focus on the micro economic concepts associated with game economies and we will do so without fully modeling the system. This means that I am essentially going to define the currency in play, define the consumable services and then explain how we can make the flow of the in game economy more efficient and realistic feeling.

It is important to remember when dealing with a system like NERO, that there is not a real economy. The currency in play is a few denominations of coins that are made available by the event runners. The amount of coin that is available at any given game is directly proportional to the number of players at an event. The amount that is put into game is based on player level and max out cost, so the economy grows by a fixed percentage at every event and continues to grow at a semi constant rate as long as events are run. The services that are consumable have partially fixed prices, max out, production costs and guild costs are all fixed, they do not adjust with the inflation of the economy. Only player to player and auctions sales are free supply/demand curves. Player to player sales do not remove gold from the economy. So the value of gold will constantly inflate against these supply and demand curves as more and more gold is available. Meaning that a power component purchased from a player may have a value of five gold now, but in 2 years the value may be 10 gold because of the additional gold in the economy. This is the situation as it stands, as long as gold is put into game with no free supply and demand curves that actually remove gold from the economy inflation will continue.

In a standard free market economy all costs are free, meaning that they can move based on the amount of money in the economy. If Country A is unable to pay its debt to Country B, Country A will print more money to pay that debt, which lowers he value of Country A's currency. The cost of printing more money is inflationary prices on goods. The cure for this in a real economy is that the government, or some semi independent agency, purchases money off of the market and destroys it, causing a decrease in the availability of funds and hopefully deflating costs. The NERO economy has been inflating since its inception, it literally has gotten to the point where no amount of lower denomination coins will buy you anything outside of fixed costs. A power component costs 500 copper, that is more than most chapter have at any given event. There are real world equivalents to this, post communist Russia had currency that literally could be exchanged by the cart full for a loaf of bread. NERO needs currency destruction, but not actual destruction, just reclamation. This is where concepts like magic item auctions become very fruitful. Everyone has way to much gold, everyone wants magic items, in our system magic items are a consumable good meaning that they go away, coin is not, it absolutely makes sense from an economic standpoint to sell as many magic items as possible.

I have heard complaints that magic item auctions tend to centralize the items in the hands of the long time players. This is true and is also the way that economic theory works, wealth accumulation leads to economic superiority. Allowing some magic items to be available via random treasure drops maintains the windfall feel that is currently present in the game. With the advent of a more free flowing economy the player who finds that item may be able to sell it to someone else and buy an item at auction which better suits their character, allowing more customization of character concepts.

There are other options beyond auctions, any use for money that is not fixed will remove money from the game. The utility that is provided by a magic item and its durability (Semi durable) make it ideal for the purpose of reducing the economic inflation in the NERO economy.