Stabilization Of L$

Just curious, but who is really bringing the value of the $L down?

The content creators who are lowering their asking price for $L in order to sell quickly?

The small time seller who has saved a lot of $L through inactivity and just wants to sell some, so they set low and everyone follows?

The Land managers who just want to get US$ out to pay their tier charges so they sell low so they don't have to wait?

Seems to me that the content creators are the ones complaining loudest about the falling value. Why aren't the land managers as upset or are they?

It is my understanding that these two groups obviously represent the majority of $L sellers in the market. Maybe they should just set higher prices and wait for people to buy. Once the "others" make their sales, (relatively few in comparison, and with smaller blocks to sell) then theirs will sell for the asking price. I think the $L is droping in value because the majority $L holders are settling for less...don't settle, keep your standard high!

Am I way off? If so explain to me. I don't buy or sell $L but I couldn't sell if I wanted to, and I havn't bought because I havn't needed to, and I make things I really need. If you can, leave the "too much $L floating around SL" out of the explanation for now, because how much $L people get from LL does not determine how much people are asking.

*so obviously not in economics in RL*

Part of the issue is that people don't want to wait. Also, basic economics says that as the price increases, the demand will decrease. If you have a set price, say, 4.00$/kL$, you will have 900KL$ sold per day. If the price drops to 3.90$/kL$, then you can sell 1,000KL$ per day. This is how the basic supply and demand works. If you have sellers of L$ wanting to dump 1,000KL$ per day, if they all stick the price at $4.00 then only 900KL$ will be sold, that leaves 100KL$ unsold for the day. On day 2, you will need to sell 1100KL$ just to unload all that is in que. You compound this day after day, you will soon be waiting weeks to sell your L$. But if you lower the price, everyone sells their L$, and all the buyers that wanted L$ buy. So, as the amount of money that is sold increases, but the demand does not increase at a fixed amount, then the price will drop.

So, as the amount of L$ to be sold increase, but demand does not increase at the same rate, you will have dropping values of the L$.

Ok I think I actually understand all that! (amazing even though my brain is fried right now with music theory homework) This explanation helps me understand why bonus and stipend $L cause the value to drop.

Theoretically what would happen if all the sellers voluntarily stuck within a set range or set value, or were forced to do so by some power that be?

There would be a whole bunch of buyers that say "I'm not paying that much.." and trade volume would fall. (in theory)

Then next week a new user brings out the best product SL has ever seen (again), everyone wants one (or three) and rushes to the exchnge. The sellers then complain that they lost out on a fortune because they were not allowed to raise the price to match consumer demand.


Ulimately the price of anything is set by what the market can stand.

LOL....Catch 22! Don't set the value and take the risk of it falling...set the value and miss out on a big pay off when it could have risen. This makes me very glad that I don't have a financial interest in SL beyond my membership fees and tier fees. I'd have quit a long time ago if I had to stress about how the market was going...no fun! (for me anyway)

Then the first thing that would happen is that L$ would start just sitting, not being able to be sold. This would create a backlog of L$ to sell, and as more L$ came to be sold, this backlog would just grow in size. Soon, you would be waiting weeks before you L$ sold and you would get paid.

Also, this could have negitive effects on economy as a whole. If it takes very long to cash out, then why try and make money? You are not going to buy that big piece of land to build your store because you will not be able to cash out quick enough to pay for your tier. Without a store, you can't really sell well, so why bother even making anything new? With nothing new to be buy or see, why spend money, and why buy more money? Now the demand is dropping even more, meaning longer wait times. This cycle will just repeat until there is no ecocomy to speak of.

All this assumes that there is no other way to sell L$, and that the rate of L$ sold to being bought is static, and a bunch of other things that would not happen just this way. But this gives a general idea of the negitive effects.

Alternatively you just end up creating a thriving black market for currency. If people are desperate to sell they may just decide to do a quick trip down some back alley to meet a dealer who is willing to take on your L$ but at a cost.

Yep, then the whole price fixing idea goes out the window. The market will always detemine price.

**Pulls down brim of hat and cautiously opens one side of her long coat**
**whispers** 'ere, Mister... look at these. Need some L$? I've good line in L$10 notes, only a few left, never used... much...

What's that? You want to sell? Ooooo I don't know, they're pretty hot merchandise since the Linden Regulator came to town... well ok then, I can give you $4.50 for them..

No... $4.50 for ALL of them... Thank you


**melts silently back into the shadows**

Hair, a very intelligent and educated post.

Yes, you're correct. As with ALL forms of economy, even a stabilized economy can go sour if not operated correctly. One scenario that you mentioned (and the most likely one) is when there get to be more sellers than buyers. We've mentioned that in such a case, Linden Lab already has a machine in place to take care of this: L$ "sinks" and withholds. You mentioned this yourself; I think it's a pretty effective way to control economy.

You also mentioned them banning those who use third-party systems to obtain L$. I'm not sure I agree with the ethics, but there is indeed precidence in other gaming systems that have done so (one game in particular.. was it WoW? I forget)... that didn't want their game$ converted to real $ at all and made it a permanent banning offense to sell/buy them in any manner.



L$ sinks would seem the most effective method of controlling a fixed L$ value.
Which would, I think, make such a fixed system work very well.

The #1 complaint in this thread seems to be from people who are under the misimpression that this would somehow limit their "freedom" in determining their economy. In actuality, this is not true. It would in fact INCREASE their freedom. Land renters and merchants would have a stable base on which to base their prices (rather than trying to second guess what some market manipulator is going to do to that value next week)... and would thus have greater freedom to price their goods in a TRUE open-competition form. So rather than hurting SL commerce, it would lend to more active and productive commerce.

Actually, I can't really show you an example (maybe Hair can), because for the most part, currencies are controlled by the greedy rich who earn their money by controlling an unstable market, and they by no means want a stable market.

That doesn't mean it would NOT work if someone had the ethical and moral fortitude to try.

I would have to question the statement that a stable currency value leads to inflation. This can only happen if two circumstances both occur:

1. Buyers are so stupid they'll pay anything for what they want (which can in truth, happen)

2. There are no sellers who decide to undercut others in order to get more sales (and that rarely if ever happens. There's always someone willing to undercut someone else).

So I don't really see the inflation scenario happening. If inflation has occurred on other games, I think it would be tunnel-visioned to blame that on a stabilized currency; there are almost certainly other factors causing that inflation (such as mismanagement of stabilized currency-- ie, too many game$ floating around without any in-game sinks).

Yeah, way off, but not your fault. Unless one is well acquainted with how SL works, it's not immediately discernable.

SL economy is based on land sales, plain and simple. Land is expensive, so landowners have to make their land fees back somehow. This is most often done by renting land, and renting merchant space. The cost of merchant space (as well as buyer demand) is in large part what influences merchandise prices on SL. But something even more important determines those prices: the conversion value to the US$.

The "pro" merchants actually use SL to make part or all of their RL living. So their bottom-line paycheck is greatly influenced by the conversion value of the L$. So when something-- whatever it is-- drives the value of the L$ down... merchants and landowners have to compensate with raising in-game prices. Since this is very difficult to do on SL (takes a LOT of work to reprice a hundred items in multiple vendors all over SL)... the result is landowners and merchants getting irate when some clown drives the value of the L$ down.

This is what happened recently. Someone with a LOT of L$ dumped them on the market... driving the selling price from about $4/1000 to less than $3.50 / 1000. There are many reasons this might be done, but the most likely is that this person wanted to artificially drive the market down, buy tons of L$ low, then catch the market on the rebound and make 50 cents/1000 profit.

Unfortunately, this profitable-but-selfish dump hurts just about every single landowner and merchant on SL-- thus hurting the economy in general. Thus the reason of this thread. The now-defunct GOM allowed a stock-market type system without any restrictions or regulators, which made the system ripe for just such manipulation. So we've been discussing alternate systems that would work better.

What's amazing is that so many people seem to want to stick to a system that has ALREADY PROVEN TO FAIL. The market was manipulated, it became unstable, and GOM is out of business. Seems to me folks would want to try something different. But throughout history alas, the majority has seldom taken the logical course.

Let me say this as simply as possible, because you keep thinking that those who are objecting to your idea are saying they don't want a stable linden, or that they are greedy (as if anyone ever made that much money trading the linden on GOM).

Your system will not work. That is the objection.

*sigh*

Sigh. PROVE it. I challenge you. Present me with ONE scenario that stands up to think-it-through scrutiny. We're at 14 pages on this thread, and so far, not one person has done so. So you do it. You make the statement a stabilized economy "will not work". PROVE it.

The only game I can think off where price fixing has had success is Project Entropia where the one US Dollar can buy 10 Project Entropia Dollars (PEDs) and the development company handles the conversion. It has a different business model to Linden Labs and this causes its own problems, it is for example a closed economy with every single piece of currency backed by its corresponding US$. You could say its a form of Gold Standard style policy. Its other disadvantage is that to main this currency fix, you have to buy PEDs to play and so this causes large class differences between the poor and the rich.

If we were to take a real life success then China and its Yuan has helped it survived many global economic shocks and has allowed it to grow its economy rapidly. Its not exactly a pegged currency with a definite corresponding value in US$ for example, but it floats within a very narrow margin against a basket of other currencies. This is unlike the Argentinian Peso which was pegged at 1 Peso to 1 Dollar.

It does cause problems elsewhere in the global economy, hence the US general discontent and view that the Yuan is undervalued enabling China to compete much better by flodding US markets with cheap imports.

This is the point! You are saying what what I think everyone can agree on. A stable currency is wanted by ALL. Players, traders, and even Linden Labs wants a stable currancy. The problem is that there IS too many L$ floating out there, with not enough buyers!

Your solution of pegging the L$ to USD won't work because of this imbalance. The only ones that can really fix this is LL and not 3rd party sites. The market system did not fail, it was just a relfection of the true economy of the game. If anyone failed the economy, it was LL and their lack of economic control.

I think the best solution to prevent this would be to lower the cost to trade and allow speculators to come in. They would be able to soak up the huge sell orders quickly which wouldn't allow the problem you suggested come about.

One question, what did the PED do? Could you give it to other players? Could you sell it back to the company for USD? If you can give it to other players, and you can't sell it back to the company, then a secondary market could open based on supply and demand.

What's odd with this philosophy is that it's in reality saying, "The price of money will vary according to the market."

Now agreed, this does happen, but my basic question is: "How sane is that?"

It's kind of like saying, "I'll give you apples for your apples" and trying to get the other person to give you more apples than you give him.

It's a greed-based system that has no concern for fellow-man. For every gain, someone else loses. It would seem the world entire is immensely lacking in concern for fellow man; that concern only comes out when a major catastrophe happens... and even then, the Halburtons are always right in the middle of it.

-- End of soapbox for this message -- LOL

Very valid points. Makes you wonder why people can't just be satisfied with making an honest buck for an honest day's wage.

PROVE your system will work. Show me HOW this can work and not create opening for others to come and undercut the market. We are on page 14 and you still have not been able to show me how pegging the price will work, and not have other come and undercut the value just to make a quick buck.

Dnate, I cannot understand your still making this claim after it has already had holes blown in it MULTIPLE times on this board, many of them in response to the prior times you made this claim.

Yes, this MIGHT happen IF:

1) There were inherently more sellers than buyers (nothing guarantees this would happen).

2) Linden Lab had no way to remove excess L$ from the market... WHICH THEY ALREADY DO.

These points have been made and discussed and remade. So why do you still insist there would be an excess of sellers sitting around unable to sell L$? Man, time for a different tune.

It is not apples for apples, it is apples for oranges. If I really want your apples, I will offer more oranges for the apples so you will sell to me instead of someone else. Apples for apples is like trading L$ for L$.

Actually, not really. While there is always a black market under ANY enconomic scenario... in practice the majority of buyers will take the easy buy. In other words, they're more ready to buy L$ with an established, easy-to-access no-hassle merchant than hunt around for black market sales. The black market sales, being limited both in scope and in quantity, ordinarily do not seriously effect the main market.

EVIDENCE: Where do most folks buy their cigarettes... from the store, or a back alley somewhere? Do back-alley sales significantly impact mass-market sales of cigarettes?

You can use the PED to trade with other players for goods and services. Or you could sell it back to the company for USD. There use to be a secondary market for currency conversion a year or so ago but it has since died. Project Entropia is infamous for having some of the most expensive gear in game, it was in the news a year ago for the most expensive virtualreal estate in the world which went for close to US$26,000.

PEDs use to be traded on GOM before it shut down all currency's except SL, in fact it was what introduced me to GOM in the first place. But as I recall it would only trade with a very tight margin because if it went too low you might as well sell directly to the company at the official rate.