Maybe stipend isn't why the Linden$ is devaluting

Perhaps the underlying problem is over-production. If you are creating content in SL, you have to cash-out through the exchange or just sit on the Linden. If there is more production than folks want to pay for, all that Linden going on the market just drives it down. The traditional RL solution to this problem has been to go to war. A good war has the ability to use up a crap-load of production; just how do we get one started in the Metaverse? I don't think flame wars will work... talk is cheap.

I'll add that over-production would also explain the failure of prices to rise in the face of the declining Linden.

Hadn't thought about that too much... perhaps because of the rise in population at the same time that currency is added?

Inflation is only measured by the consumer price index in Neo-Keynesian economics, but it's a valid point. Anecdotal evidence is suggesting that prices are staying static even while the currency steadily devaluates. Here's one way to look at it:

In 2004, there may have been three really good shoe outlets. Due to there only being three good places to buy shoes, demand was high and competition was low. This creates healthy profits for designing shoes in 2004 in SL.

In 2006, as more people become aware of the game and more professional graphic designers and 3D artists enter the fray there are now lets say 25 really good shoe designers, and each of these designers is selling through multiple outlets that are competiting against each other. Increased supply, lots of competition, recipe for lower prices.

BUT, people don't care whether it costs $25 or $2500 Lindens to purchase a shoe. The value of the Linden is based on it's exchange rate to the USD (or some other real-world currency), where someone might be willing to pay $3 USD for new SL shoes, whether that means a dollar or a thousand dollars in game money. So when the sellers hold steady on their prices in these conditions the market adjusts by devaluing the Linden dollar. If I had more time available I could link to a study in the real world where this happened with a third world country that's economy was based on the dollar of a first world country, same idea.

I think there's a few things here you're not allowing for:

- There's still a fair number of designers, even successful ones, who only design because they enjoy doing it. In fact a friend who's a fairly big designer with her own island mentioned to me the other day that she is actually still in the red on her tier, so rather than getting her land free, her sales allow her to have an island for an affordable monthly fee which is worth it for the entertainment value she gets from SL. So the competition isn't necessarily as strong as you make it out to be - that's part of why SL managed to avoid the dreaded 90% failure rate for new RL businesses.

- A fairly high number of new players have no desire to purchase L$ at all. This means that L$ prices do matter to them, because they're living off their stipend and how much they gather from trees or win at Tringo. The amount of "free money" moving about is again another factor that makes the SL business environment nicer than the RL one - and that's essential (what would the "platform" be doing for you if that wasn't the case?)

- Remember that money paid for premium stipend does not help the value of the L$ because no L$ is removed from the sale market when a premium stipend is paid.

Not my concern. I'm getting what I paid for, and I never asked for a good sell value.

All you have to look at is the sink versus Stipend number:

17,785,205 59,277,885(stipend) that is alot of free money entering the game

If I am given a stipend, that is $500 free money weekly. I am less likely to convert real cash into $L for game purposes. That means There will be less demand for the $L side of the exchange. This will cause the exchange rate to widen or devalue the $L.

and as the exchange rate widens, there may be a dump of $L by players holding $L causing an over supply.

The stipend though, does something that makes Linden Labs happy. It helps ensure that new players that pay the monthly fee will be happy because each week they are getting money to spend whether or not they earn any. Without this stipend, some players may get bored or frustrated with the game and stop paying the monthly fee.


As I said before, I do not really disagree with the stipend. Linden Labs purpose is to make and keep happy customers...free money tends to do this.

I guess this problem could be countered by having more sinks. The less money players have in-game, the more likely they are going to want to exchange real money but that is a fine balanceing act.

Just my take...

I think there's a few things here you're not allowing for:

- There's still a fair number of designers, even successful ones, who only design because they enjoy doing it. In fact a friend who's a fairly big designer with her own island mentioned to me the other day that she is actually still in the red on her tier, so rather than getting her land free, her sales allow her to have an island for an affordable monthly fee which is worth it for the entertainment value she gets from SL. So the competition isn't necessarily as strong as you make it out to be - that's part of why SL managed to avoid the dreaded 90% failure rate for new RL businesses.

- A fairly high number of new players have no desire to purchase L$ at all. This means that L$ prices do matter to them, because they're living off their stipend and how much they gather from trees or win at Tringo. The amount of "free money" moving about is again another factor that makes the SL business environment nicer than the RL one - and that's essential (what would the "platform" be doing for you if that wasn't the case?)

- Remember that money paid for premium stipend does not help the value of the L$ because no L$ is removed from the sale market when a premium stipend is paid.

Let me fix this quite, changes in all caps for clarification.

The premium stipend isn't free money. I pay for it.

Hehe, that is what you find if you google for the term but that is not the case. Being an economist I can assure that the proper term here is depreciation. Devaluation is what happens when it is an endogenous event. Such as intervention. If is exogenous, such as "the invisible hand" playing its magic to use and Adam Smith term, it is depreciation.

Devaluation is however very commonly used as a term for both, however faulty.

On another note - inflation-wise you are correct, that is not the issue. We are talking linden dollars vis-a-vis USD which has nothing to do with inflation in this sense.