The Tip.It Times

Issue 17699gp

Mapping the New Economy: Part One

Written by and edited by Hawks

I. Introduction

This article serves as a follow up to NukeMarine's February 5, 2012 article "Rebooting RuneScape (On a Few Servers)". This editorial work wishes to delineate the possible paths a rebooted RuneScape economy could take in response to this idea. I hope this article can serve as a springboard for (hopefully) enlightened discussion on a range of topics, including how RuneScape's current economy developed, the effectiveness of mass self-organization and its role in economic development, and identifying the developmental stages that RuneScape's economy went through, if any.

II. Direct Accumulation: The Universal Starting Point

Imagine for a moment, if you will, that all the servers are rebooted, thereby erasing any previously existing data. You log onto RuneScape only to find that your account no longer exists. The account you had was only level ten, so it isn't much of a loss. You create another account and continue past the welcome screen. Two things are apparent as you log in to world one. The first is that no one you no longer see any maxed players around, given that the server has rebooted. The second is larger-scale: the economy itself has been erased. You see some players off to the side fishing by the River Lum. You look to the west and see some fishermen selling their catch to the general store for cash. It's clear to you by now that every player, it seems, is starting from scratch.

The paragraph above is just one example of the first stage of economic development called a self-sufficient economy, or what I call 'direct accumulation'. Every future economy, whether it be trade-based through the exchange of items, through monies, or some other sort, develops from this starting point. Indeed, it seems even RuneScape's economy started out this way: no immediate face-to-face trade between players. In its place, a sort of hunter-gatherer class takes root. Note how the raw materials came into existence. They were created through player effort, not circulated through face-to-face trade or the Grand Exchange. This economic stage is called 'direct accumulation' because raw materials are obtained through direct player effort as opposed to trade.

It should not take much effort to see why self-sufficiency is the first stage in a developing economy. In a world with virtually no capital in its infancy, trade cannot exist as there is no capital to use as a feasible means of exchange (items, coins, etc). With little to no trade then, it follows that players must look to their own strength in order to build upon the fledgling economy before looking to commence transactions with one another. Trade may technically exist between players and shops, but this is a misnomer as the transaction travels in one direction, not two: as currency paid in shops flows out of the game.

With no monetary capital to purchase wares, then, what currency will we use to commence transactions? Focus on what we do have: raw resources. We may have to rely on a barter economy to encourage any meaningful trade.

III. The Case for a Barter Economy

The barter economy is just one thread out of the several possible patterns to emerge out of the self-sufficient economy. In a barter economy, goods and services are traded for other goods and services. For a barter economy to necessarily emerge on any reasonable scale, we must assume the populace has jointly determined the value of a range of items and services. We must also suppose that the producers are willing to trade with each other rather than sell their goods to the store for cash. But how do you determine value? You might say, 'supply and demand, of course!'

In order for a barter economy to emerge, supply and demand must exist, with which players can assess a particular item's value. This scenario also supposes that the market is dominated by face-to-face trade early on. If face-to-face trade is already so prominent, it may be safe to assume that great amounts of these items exist in circulation at this point. This means that in this world, the economy has evolved much past self-sufficiency as a means of obtaining items we desire. We understand the defining features of a barter economy, but how does the barter economy develop out of primary accumulation, and how likely is it to emerge? This is what this section will examine.

I assume several conditions for the existence of a barter economy:

  • There exists a glut of pre-existing raw materials/items.
  • These raw materials/items were obtained through direct labor.
  • These raw materials/items function as a means of exchange.

This means at some point in the self-sufficient stage, it was decided there were enough raw resources deemed acceptable to use as currency on a large scale. They were deemed acceptable because they represented a given item's equivalent labor value (or the player's compensation for his efforts). It further means that the majority of players were ready to stop laboring and start trading.

This is very important because it means that an increased amount of goods will start to be circulated rather than produced; but consumption exists in either sort of economy. Goods will continue to be produced because there is consumption, and the production of goods must out-pace the rate of consumption in order to sustain each type of economy. Once circulation of goods drops below a certain point, a trade-based economy collapses. On the other hand, little to no circulation of goods bears nothing on the fate of a self-sufficient economy.

Now, why would people want to start trading (that is, circulating goods)? If a good portion of the populace no longer wishes to labor for what they desire, then it must be the case that there's a greater incentive to use a means of exchange to obtain an item rather than obtain the item directly through labor. This is an example of a cost-benefit analysis. Players say to themselves, "at what point is it more worth it to trade with others in order to obtain what I desire, as opposed to directly investing my labor into it?" There are several causes with varying degrees of interplay that could have brought about this scenario. Not intended to be an exhaustive list:

  • Introduction of a hard-to-obtain item that only the most skilled may obtain
  • Decreased supply of an item, leading to greater demand
  • Greater demand for usage of raw materials
  • Greater incentives to train a skill leads to higher demand for an item
  • Diminished incentives lead to diminished supply and either reduced or increased demand as a consequence

We have a historical precedent in the first case. When the abyssal whip was released in January 2005, only players with Slayer levels 85 and over could kill the Abyssal demons for the prized drop. Though face-to-face trade had already been in full swing, the point is that there is enough demand of a certain item to justify it as a means of exchange. In consequence, party-hat owners who otherwise would have only considered trading their cherished baubles for cash or other rares readily exchanged their pretty goo-gaws for the harrowed abyssal whip ... for the first few days. When supply increased and the initial shock of the release wore off, demand and price dropped accordingly.

In the second case, there is decreased supply of a particular item. Perhaps not many fishermen are fishing lobster for whatever reason. At the same time, there is increased incentive to train cooking because Jagex released an awesome quest that requires 60 cooking. Many mid-level players thus begin a cost-benefit analysis: do we want to fish lobster, train cooking, or do both? Due to the collective interest in efficiency and the initial shock of the quest release, players decide to train cooking as opposed to training both skills.

There is increased demand for lobster as a result, but diminished supply of it. Trade between players therefore increases. The lobster's value is increased: let us suppose five tuna to one lobster. But more aspiring fishermen hear of this profitable opportunity, so they join in on the fun. Thus there is increased supply, and at some point afterwards, most questers had finished the quest, so demand decreases. Thus, the lobster's value falls to two tuna for one lobster. Too bad for the fisherman.

You can use the third scenario in terms of raw production materials. Consider the fact that one iron ore and two coal are required to produce one steel bar. This means that logically, excluding monster drops and in-game rewards, there will be a greater amount of the raw materials present in the economy compared to the items produced from those raw materials.

The same goes for the next level up: steel bars are used to produce steel armor. Excluding monster drops and in-game rewards, there will be a greater amount of steel bars compared to the armor produced from it. The production of steel armor is two steps removed from obtaining the ore. Is the player more likely to purchase the armor or invest his labor into it? It's likely the first answer. What suffices as a medium of exchange? That depends on both the people involved and what the economy deems valuable as a whole.

The message I want to impart to you from these examples so far is that any item can function as a medium of exchange. No matter how rare or how common-place. No matter how low-level or high-level it happens to be. But it can only function as a medium of exchange for a select range of items. It's suitable for items that achieve similar goals for the player or have a similar price.

No one will accept twenty-five million bronze helmets for an Armadyl godsword. But someone will accept a piece of cheese for a bronze helmet because it's close enough in value on a one to one ratio. Likewise, no one will accept twenty-five million bronze helmets for a pair of Dragon claws. But someone might accept a pair of Dragon claws for an Armadyl godsword because the two are both useful as player-killing weapons and thus are close in value on a one-to-one ratio. It's deemed acceptable to trade because it properly compensates the other player's efforts. This is another example of equivalent labor value.

The fourth scenario on the list is much like case number two, where the supply is decreased, leading to greater demand. Whether or not the supply is diminished, demand is increased because of the greater incentive to train a certain skill, such as meeting a level requirement for a quest. Fewer people will choose to both directly obtain the item and train the skill that requires it. Thus, trade is increased on this account in the interest of efficiency and profit for the parties involved.

Case number five requires yet another cost-benefit analysis. We ask ourselves, "Is it worth it to obtain this item in spite of its diminished supply?" If not, I won't obtain it. If it's worth it, I will either obtain it directly or demand it from another player in exchange for my compensating his efforts. In the first outcome, the item's value falls because there is lower supply and lower demand; in the second scenario, there is lower supply but greater demand, so the price increases until supply can meet demand. Trade either increases or decreases.

It's not an exhaustive list, but each cause is a factor in determining whether the populace will continue to labor for their needs or instead choose to trade in order to satisfy those needs. At least one of these causes are at play in the development of a barter economy. The main idea I wish to impart to you here is that factors affecting cost-benefit play a major role in guiding the emergence of a trade-based economy. In consequence, certain goods are deemed useful as a means of exchange as opposed to their immediate consumption upon obtaining them.

Immediate consumption of the majority of raw materials is what separates a self-sufficient economy vs. a trade-based economy. In the former economy, most fish will be cooked and consumed for whatever reason. In the latter, at some point those fish - whether cooked or raw - will be traded to another player in exchange for something of equal value. In both cases, consumption exists. In the first case, the fisherman consumes his catch. In the second, an adventurer consumes it.

In either scenario, goods will be produced in order to sustain the rate of consumption. Two variables determine whether an economy is trade-based or self-sufficient, then. A higher rate of production in a given economy means the economy is primarily self-sufficient to varying degrees (as the difference between the two values may be minuscule). A higher-rate of circulation means the economy is primarily trade-based, again to varying degrees.

We have now outlined how a trade-based economy can emerge out of a self-sufficient one. It has a very high chance of dominating how players interact for an extended period of time. This is because the barter economy is not too different from one that uses coins as its primary means of exchange. Dependent on how accessible sources of hard cash are, and the needs of the current population, some economies may complete the transition to a monetary economy faster than others.

This is not the only path an economy may take. It may revert back to a self-sufficient economy, or it may adopt coins as the primary means of exchange (PME) and measure of equivalent labor value (MELV), thus becoming a 'monetary economy'. I don't actually know if a term exists for this sort of outcome. We're sticking with 'monetary economy' for now, though.

Naturally, the next topic is how a monetary (coin-based) economy develops out of a bartering one, and what its defining features are. How likely is it to arise? The next part of this series will examine this process. I feel I've breached enough material so far to jump-start a discussion on RuneScape's historical economic development. I hope you've enjoyed this read, or at least thought about the implications of what I said. Stay tuned for part two!

Do you have any thoughts or comments about this week's articles? Want to discuss these articles with your fellow RuneScapers? We invite you to discuss them in this forum topic.

Tags: Economics Grand Exchange and RS Market

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