That Time a Video Game had an Economy Almost as Strong as Russia

Author: Karl Smallwood / Source: Today I Found Out

In late 2001 an economist called Edward Castronova made tsunami sized waves in the world of economics when he published a paper claiming that an isolated place called Norrath had a currency stronger than that of the Japanese Yen- an especially bold claim considering Norrath had less than a million inhabitants, had only existed for about two years and didn’t exist physically.

Yes, Norrath was entirely virtual and populated exclusively by players of the video game EverQuest.

Released in 1999, EverQuest is an immensely popular and influential massively multiplayer online role playing gaming (MMORPG). Set in the magical fantasy world of Narroth and boasting an impressive (for the time) near half million subscribers at the apex of its success, EverQuest came to the attention of Castronova at first much in the same way it came to the attention of anyone- he just thought it sounded like a fun game to play.

However, as he became more familiar with the game, he noticed some rather fascinating things about how the virtual economy had developed within the game. This all culminated in him publishing on the Social Science Research Network a humorous but excellently researched, and ultimately groundbreaking, paper titled, Virtual Worlds: A First-Hand Account of Market and Society on the Cyberian Frontier. By his own admission, Castronova stated, “I thought maybe seventy-five people would read it and that’d be great.”

Instead, it quickly received over 16,000 downloads (and today is sitting at closer to 50,000). While this might not seem like much, let’s remember context here- this was an academic paper published on an online academic journal.

Needless to say, that number of downloads made it the most downloaded paper in the history of the Social Science Research Network, which at the time featured almost 50,000 academic papers, including many dozens written by Nobel laureates.

Why was this paper so fascinating to the world of economics? As economist Yanis Varoufakis noted, “Economic theory has come to a dead end — the last real breakthroughs were in the 1960s. But that’s not because we stopped being clever. We came up against a hard barrier. The future is going to be in experimentation and simulation — and video game communities give us a chance to do all that.”

What Castronova had stumbled upon was essentially an economist’s dream- virtual worlds the researchers could use to analyze in a scientific manner various concepts in their field using large data sets and real people populating those worlds. Or as Washington Post journalist Brad Plumer succinctly stated, in virtual worlds, “The data is richer. And it’s easier to run economy-wide experiments in a video game — experiments that, for obvious reasons, can’t be run on countries.”

In short, economists in academia were intrigued with Castronova’s paper and its implications for future research.

So what did Castronova find? After painstakingly pouring over the available data surrounding the world of Norrath, he was shocked to discover that in real world dollars Norrath had the 77th highest GNP per capita, placing it squarely between Russia and Bulgaria at the time.

How was this possible for a virtual world with only virtual currency?

At the height of EverQuest’s popularity, sale of in-game items ran rampant and at one point in time a player could pretty much buy anything they wanted in-game, regardless of how rare or powerful it was, so long as they could flash the cash to make it happen.

Although Sony, who published the game, would make several attempts to quash this practice, claiming amongst other things that all of the items for sale were their intellectual property, as well as outright banning players they caught doing this, the sale of in-game items and avatars became a thriving industry on sites like Ebay.

In fact, former child actor Brock Pierce (perhaps best known as a kid for his roles in Mighty Ducks and First Kid, and as an adult for his work in crypto currency) even started a surprisingly successful company, Internet Gaming Entertainment Ltd (IGE), which dealt in these virtual goods in exchange for real money. The company maintained a rather large staff of low-waged workers who worked in Norrath and the real world, doing things like meeting to exchange goods, as well as building up…

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