Monopoly Money of the World!

A recent announcement made by LukeConnell Vandeverre regarding the continued closure of the World Stock Exchange certainly got my attention. He announced that the WSE would be abandoning the Linden dollar as a trading currency in favour of the World Internet Currency (WIC).

Mr. Vandeverre asserts the position that both of these currencies are "fictitious", simply meaning that they are a "limited licence product" and not real money. In contrast, IntLibber Brautigan of the Ancapistan Capital Exchange takes the interpretation that at least the Linden dollar is a valid currency. The question becomes who is right.

In my mind, and I worked this out even before coming to SL, was that money is whatever concept is accepted by two or more parties to be a means of storing value. The reason that I say concept is that most of the money in the United States today is virtual, existing in the electronic stream of financial institution servers. This is a long way from the original idea that money was some semi-rare metal or an object based on it.

By this basic definition, the idea of what money is extends beyond national currencies. For example, airline miles are a form of currency, which customers can redeem for flights. Not free flights as they are paying for them. Maybe bonus flights might be more appropriate. Similarly, the old S&H greenstamps were a currency as well, since they could be redeemed for products.

One of the major differences between a national currency and a private one is that the later usually invokes a provision stating that the value of their currencies can become zero at any time. In that sense, they are temporary stores of value. However, what if a country's economy collapses? Then it is likely their currency would collapse as well. This happened in Germany in the 1920's, when the Mark became nearly worthless and it could a wheelbarrow filled with notes to buy a loaf of bread.

With that stated, the Linden dollar is somewhere in-between airline miles and national currencies. With airline miles, they are simply created and destroyed by the airline. Linden Lab creates their money, but most transactions are trades between two users, which makes it more like a nation's currency. However, it only has value as long as LL is operating or decides to abandon their currency.

Getting back to the WSE, the basic issue is that the WIC currency is pretty much limited to the exchange itself. I suppose that one can buy and sell WICs with RL currencies, but it appears that the value within the exchange can only be changed by WSE itself. In a sense, it is fictitious as it resembles Monopoly money, of which there is a limited amount.

In contrast, the amount of Linden dollars can change over time. As premium members are afforded stipends, this is one method of increasing the amount available. LL can also decrease the amount of Lindens by selling land. In either case, Second Life is large enough for a decent simulation economy to operate. WSE simply isn't.

One last thought. As the WSE will be operating with its own play money, how will capital raised by companies within Second Life be available? Maybe the idea that Mr. Vandeverre has is that the WSE is moving beyond SL to be its own play world. I suspect that companies that work in SL will simply ask that the lights be turned off before closing the door.

Some Afterthoughts on the Revolution

It's been a little while since I was in alarmist mode. From what I experience in Second Life, things have in many ways return to normal. True, there are still a lot of institutions that are keeping low withdrawal limits, but otherwise the new policy has been absorbed into the SL economy.

Was my alarmist disposition unwarranted? Perhaps to a small extent. However, there is still the little matter of intervention in what had been a truly free market. It seems that Linden Lab has simply exercised their power in how the economy is run.

This reminds me of the situation in 1763, shortly after the Seven Years War. Even though they were victorious, Great Britain was in a financial mess. Wars that span several continents are pretty expensive to fight. They reasonably thought that some of the places that were defended in that war should contribute to the repayment of their defence.

The result was a twelve-year struggle over the issue of how much authority that the mother country had over its colonies. After all, the colonies existed only because the Crown and Parliament either established them or allowed them to be established. Given the distance and the nature of many of the American colonies, there was a lot of internal freedom, including the economic system.

All the time did Great Britain have the right to interfere with the colonial economies. Yet they kept their hands off, even when it violated the few rules laid out by the government. It was when they decided to impose this power that the whole affair leading to the Revolution occurred.

In my mind, Linden Lab has performed pretty much the same action. It is indeed their world. They allow for a large amount of internal freedom for SL residents, but at any time of their choosing, they can revoke that in favour of some new limiting policy.

After Great Britain's first attempt to impose duties within the colonies lead to disastrous results, the taxes were repealed. However, the mother country did leave with a parting shot, an official proclamation that they could impose this again at any time.

I think that is the danger that has emerged. We residents have had it fairly free economically to create risky yet high yield investments. With that slapped down (at least in the form of interest), we now have a better picture of what Linden Lab could do in the future. That is the lesson we should take note of.