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Diablo 3: A Case Of Virtual Hyperinflation

Tyler Durden's picture


Submitted by Peter C. Earle via the Ludwig von Mises Institute,

As virtual fantasy worlds go, Blizzard Entertainment’s Diablo 3 is particularly foreboding. In this multiplayer online game played by millions, witch doctors, demon hunters, and other character types duke it out in a war between angels and demons in a dark world called Sanctuary. The world is reminiscent of Judeo-Christian notions of hell: fire and brimstone, with the added fantasy elements of supernatural combat waged with magic and divine weaponry. And within a fairly straightforward gaming framework, virtual “gold” is used as currency for purchasing weapons and repairing battle damage. Over time, virtual gold can be used to purchase ever-more resources for confronting ever-more dangerous foes.

But in the last few months, various outposts in that world — Silver City and New Tristram, to name two — have borne more in common with real world places like Harare, Zimbabwe in 2007 or Berlin in 1923 than with Dante’s Inferno. A culmination of a series of unanticipated circumstances — and, finally, a most unfortunate programming bug — has over the last few weeks produced a new and unforeseen dimension of hellishness within Diablo 3: hyperinflation.


Austrian Economics and Inflation

In casual use, the term “inflation” is used in conjunction with price increases. From the perspective of the Austrian School of economics, though, that phenomenon is a secondary effect of increases in the money supply. As Henry Hazlitt wrote,

When the supply of money increase[s], people have more money to offer for goods. … Each individual dollar becomes less valuable because there are more dollars. Therefore more of them will be offered against, say, a pair of shoes or a hundred bushels of wheat than before. A “price” is an exchange ratio between a dollar and a unit of goods. When people have more dollars … [goods] rise in price, not because [they] are scarcer than before, but because dollars are more abundant.[1]

Furthermore, inflation is not simply an increase in the supply of money within an economy; it is the increase in that portion (if any) not backed by a commensurate increase in specie: most common in history, market commodities like gold or silver. Thus fiat currencies are, unless tightly controlled as to the amounts being created versus being destroyed (with the latter typically only occurring due to wear), notably susceptible to inflation.

As virtual currencies are digitally-created and not commodity-backed — therefore, not particularly dissimilar from real world currencies in this day and age — those such as Diablo 3’s gold are de facto fiat currencies.

Sinks, Faucets, and Inflation

In virtual economies, the primary instruments used to control the money supply are “faucets” and “sinks.” Faucets are ways through which game currency is injected into the game. This generally involve players receiving currency from the game system itself, as opposed to other players. In such situations, the received currency is created anew. Sinks are ways through which game currency is removed from the game. This generally involve players paying currency into the game system itself, as opposed to other players. In such situations, the paid currency is destroyed.[2] Examples of faucets and sinks in Diablo 3 are included below:


  • Drops — When a player defeats a foe, they often receive a reward of virtual gold or a good saleable into virtual gold;

  • Rewards — The game involves the player undertaking “Acts,” and within each act are a number of “quests.” For completing these, players are typically awarded virtual gold;

  • Buyers — Players can sell items to “in-game” (computerized, non-human) buyers, receiving virtual gold.


  • Repairs — Over time, a player’s equipment will become damaged in combat and suffers wear-and-tear, requiring periodic restoration from an in-game craftsman in exchange for virtual gold;

  • Forging — Players pay virtual gold to an in-game blacksmith for weapons;

  • Rakes — Using the gold auction house costs players both a listing fee and a transaction fee, removing virtual gold from the economy;

  • Consumables — Players can purchase potions, scrolls, and other items from vendors for virtual gold.

Diablo 3 was rolled out in May 2012, and there seem to have been early concerns among players that gold sinks within the game were insufficient. One site noted,

[M]ost of us (probably including Blizzard) assumed that the Blacksmith would be widely used — he was, after all, the only major gold sink in the game … but dropped items alone selling in the [auction house] have been enough to satiate the appetite [of players] and crafting is … a waste of [gold] when one could easily buy an optimal item from the [auction house] rather than pumping 50 to 170K of gold into [a Blacksmith-crafted weapon.][3]

The establishment by Blizzard of a real money auction house (“RMAH”) alongside a virtual gold auction house in the game provided players with an incentive to both farm the game for real world profits and to pursue arbitrage opportunities. The RMAH was also created, at least in part, to disincentivize players from patronizing third party markets outside the game. Nevertheless, bots — automated game participants whose sole purpose is to farm the game world for items to sell — quickly emerged.

Although its anonymity may make it subject to skepticism, several weeks after the game’s debut a source claimed that there were at least 1,000 bots active 24/7 in the Diablo 3 game world, allegedly “harvesting” (producing) 4 million virtual gold per hour.[4] Most of the gold generated by the ruthlessly productive, rapidly adapting bots found its way to third party vendors in a black market which undercut the prices in the sanctioned, in-game auction houses.

The combined effect of heavy bot activity and insufficient sinks immediately impacted the gold markets, and inflationary pressures were soon apparent. An exasperated player complained in August 2012:

I purchased most of my gear for around 5 mil [gold] early on. I’ve been farming for awhile [and] have saved around 30 million gold [but now] I can’t upgrade the gear I have ... Where is all this money coming from? Why is everything so expensive?[5]

And as in real world economies, the price effects of money inflation often arise unevenly. With gold prices falling, prices began spiking in certain goods. Another player noted with curiosity:

[Y]esterday Fiery Brimstone was 150K, now almost 300K. Each time I hit refresh it seems to be going up a bit[.][6]

Gold Floors vs. Black Markets

The RMAH had minimum and maximum dollar amounts for in-game gold transactions: $0.25 minimum, $250 maximum. Market participants were also limited to dealing in increments of a certain size, called a “stack.” The “stack” was initially set to 100K gold. But as gold prices fell owing to rapidly building supply, the stack size was changed in August 2012 to 1 million. This practice, known as redenomination, is a fairly standard (if cosmetic) method of addressing inflation, but was viewed by some players as tacit devaluation.[7]

If you’re changing the [price] of gold from 0.25 per 100,000 to .25 per 1,000,000 I would like to cancel my gold auctions before you do that. You’re completely shifting the market in less than a day, and those of us that have auctions listed that will be affected by this change cannot cancel them until after the patch hits, which is potentially too late.[8]

To be clear, at the time at which the redenomination was introduced, gold was still trading above the floor rate. But being artificial, caps and floors not only prevent markets from clearing, but give black markets a target to undercut, to say nothing of offering players an opportunity to avoid the 15 percent fee — another intended gold sink — levied upon transactions within the auction house. Another player predicted,

[T]his [change] will likely have 2 effects … [it] could kill the private 3rd party market for gold and hopefully discourage botting … [but] because the real money price of gold is decreasing on the RMAH … [g]old will become cheaper as botters flood the market in an attempt to unload their massive surplus of gold before it becomes absolutely worthless. … This decision will further destabilize the economy [as in the gold auction house] prices shoot from 100,000 gold to 1,000,000 gold … [or] 10,000,000 gold to 100,000,000 gold. … The same would happen if the [Federal Reserve] decided to suddenly release a flood of currency into the U.S. economy[.][9]

By early 2013, the gold price had fallen to the exchange floor set by the game managers — $0.25/million — and players began to show signs of concern. One asked,

[Are] there any plans of lowering the floor of gold[?] … It has been at .25 for about 2 weeks now … should I sell my gold now before it gets lowered?[10]

A Delirium of Stacks

Hyperinflation is the economist’s equivalent of an astrophysicist’s quasar cluster or a marine biologist’s dolphin “stampede”: a rare exhibition of a unique set of circumstances which arise infrequently and are closely studied when they materialize. Such events are exotic enough that they become legendary: many individuals knowing little about monetary policy are aware of the recent outbreak in Zimbabwe, or familiar with the defining instance in the post-WWI Weimar Republic.

Economically, the tipping point in the transformation of inflation into hyperinflation is characterized by a profound drop in the outstanding demand for money: when holders of money expect the supply of money to increase — particularly without any sense of timing, bounds, or other guidance — monetary demand in the present drops in favor of surrendering money for vendibles.

The focus of possessors of money, therefore, devolves into an effort to capture known, present purchasing power against the likelihood of its decline in the near future. Saving, in any event, delaying consumption, is chastened; and if a cycle of declining purchasing power and rapidly rising prices ensues, ultimately the propensity to hold money declines precipitously and may fundamentally disappear.

This was demonstrated when, in a message board entry prefaced by stating “Sell Equipment before Patch 1.0.5 Hits!” (a patch is a piece of software added to an operational program or application as bugs are found, changes desired, or ways of improving performance discovered), a player warned that,

Blizzard just announced that the drop rates for [certain] items are going to be doubled … if you haven’t already, you should consider converting your current gear to cash … since real $ [are] the best hedge against gold devaluation[.][11]

If historical cases of hyperinflation — real, and now virtual — have one thing in common, it is the instinct among its victims to blame the symptoms rather than the disease. The Austrian economist Hans Sennholz noted that during the German hyperinflation, “intrigue and artifice” were believed to be at work.[12] Similarly, a handful of Diablo 3 players, frustrated about the decimation of their purchasing power, expressed increasing suspicion of manipulation and conspiracy theories.

[W]hy [are] certain items priced [s]o astronomically high? Many of them are not even that good yet cost 100’s of millions of gold. … I have about 45,000,000 gold saved up [and] check every few days to see if I can get any upgrades that are worth the gold, but … everything is vastly overpriced … clearly controlled by the gold sellers.[13]

And, predictably, any number of baleful remedies were proposed.[14]

While RMAH prices for virtual gold rallied occasionally, the prevailing direction of black market prices for virtual gold was inexorably lower as third party sellers undercut the in-game gold floor. In February 2013, Patch 1.0.7 was rolled out, introducing a range of new gold sinks intended to sop up ever-increasing virtual gold; they included new weapons and items not eligible for sale on the RMAH. One month later, with gold prices continuing to decline, a player made the following diagnosis:

[A]dditional gold sinks [are] unfortunately comparable to spitting on a fire ... [they] do nothing to limit the core issue which is that players are earning gold faster than they [want] to spend it. Repairing is not a … good gold sink as it works best [for] players who are [dying]. … Crafting is the same, works well on players who can get the items to craft with … but leaves players with limited gold supply out of the picture. … The amount of gold that drops … needs to be nerfed, and not softly.[15]

The effort appears to have been futile, as the growth of the virtual gold supply continued to grow.

Several competing definitions for hyperinflation exist, with the strictest — an increase of 50 percent in one month — defined by economist Philip Cagan in his 1956 book The Monetary Dynamics of Hyperinflation. By his definition, the Diablo 3 economy appears to have entered hyperinflation between February and March of 2013, when the black market price of gold fell from $0.20/million to $0.05/million — a decline of over 75 percent in a few weeks. At around that time, a player commented that he was

watching the markets collapse and gold become worthless. … So you feel rich that you have a billion or two in gold[?] … [W]ell guess what, you aren’t … there is nothing you can invest in to hold value. The only thing worth anything has become $$$.

With a sardonic irony that markets sometimes display, real world currencies had assumed the role of commodity gold, and virtual gold had gone the way of all flesh and fiat currencies.

This, however, was still only the penultimate stage. On May 7th 8th, 2013, Blizzard rolled out Patch 1.0.8, which contained the seeds of the last, hyperbolic surge of gold superabundance. One change was the altering of the gold stack size from 1 million to 10 million per $0.25: a simultaneous redenomination and 90 percent devaluation (sitting, as the price was, at the RMAH floor) of virtual gold, targeting black market rates of roughly 4 cents per 10 million. In addition, a bug within the patch allowed users to cancel transactions in the auction house before completion, essentially allowing them to double their gold on demand.

In just a few hours, the already gold-swamped economy saw trillions more created: a mammoth deluge of, by then, worthless virtual gold chasing finite goods, driving prices upward in leaps and bounds. It was, at last, the hyperbolic blow-off characteristic of real world hyperinflationary episodes. Some of the price increases (in Diablo 3 gold) are shown below:

  2013 avg price 1-6 May avg price 7-8 May price
radiant star amethyst 17.4M 41.2M 85.8M
radiant square ruby 187K 260K 337K
flawless square topaz 491 5,170 8,700
star emerald 764K 1.1M 1.6M
tome of jewelcrafting 694 3,400 3,100

And in a noteworthy departure from real world hyperinflation, rather than resorting to barter (which frequently takes the form of food for skilled labor), as runaway inflation became hyperinflation, many chat channels — through which some measure of trade was consummated — seem to have fallen empty: without a need to eat or clothe oneself in the virtual world, some players simply appear to have turned away


Blizzard quickly closed the in-game auction houses and audited transactions which took place during the blowout, banning players who took advantage of the bug and donating the proceeds of certain sales to charity. The gold stack size was also moved back from 10M to 1M. One week later, on May 15th, the above-cited items were quoted at the following, approximate virtual gold prices: radiant star amethyst, 26.1M; radiant square ruby, 375K; flawless square topaz, 8,600; star emerald, 797K; tome of jewelcrafting, 1,350.

In May of 2012, the price of virtual gold was approximately $30/100,000 or $0.0003/gold. As this article was completed — and bearing in mind that these prices may be erroneous, stale, or merely indications of interest — one site showed Diablo 3 gold being offered by four third party sellers at an average price of $1.09/20M, or $0.0000000545/gold: one ten-thousandth its market price one year earlier.In the RMAH, virtual gold was priced at $0.39/1M.

Remembering that game economies are private and players are voluntary members, there’s no explicit mandate to ensure rigid inflation control as one often sees (however rarely pursued) in public economies. That said, knowing that gaming experiences can be upended by economic missteps, there is a clear business interest for gaming firms in keeping virtual currencies and the greater economies as a whole stable.

Frequently, hyperinflationary episodes have ended by substituting a currency outside the political and central banking control of a nation for the sovereign currency. During the early 1990s, during Serbia’s hyperinflation,

[t]he authorities could not print enough cash to keep up. On Jan 6th, 1994, the dinar officially collapsed. The government declared the German mark legal tender … [which] end[ed] the hyperinflation.

Two obvious solutions for managers of virtual economies include more vigilant bot restrictions and close — indeed, real-time — monitoring of faucet output, sink absorption, prices, and user behaviors. More critically, though, whether structured as auctions or exchanges, markets must be allowed to operate freely, without caps, floors, or other artificialities. Unrestricted (real) cash auctions would for the most part preempt and obviate black markets.

One also surmises, considering the level of planning that goes into designing and maintaining virtual gaming environments, that some measure of statistical monitoring and/or econometric modeling must have been applied to Diablo 3’s game world. The Austrian School has long warned of the arrogance and naïveté intrinsic to applying rigid, quantitative measures to the deductive study of human actions. Indeed; if a small, straightforward economy generating detailed, timely economic data for its managers can careen so completely aslant in a matter of months, should anyone be surprised when the performance of central banks consistently breeds results which are either ineffective or destabilizing?

By no means does this analysis intend to equate the actions of virtual gaming firms with the policies of governments or central banks, or to malign their indisputably talented managers, designers, and programmers. While their actions may ultimately generate similar outcomes, central planners seek and wield power whereas the actions of commercial gaming interests are undertaken to compete with other online entertainment providers by delicately balancing opportunities for newer players with the need to continually challenge experienced players.

By all accounts Diablo 3 is a great game; one hopes that with this episode passed, it will reacquire its former glory. But while decision-makers at online gaming firms can and should be forgiven for not anticipating the perilous and unpredictable torsions of rapidly expanding money supplies, the events of the last week provide a stark reminder of the power and inescapability of the laws of economics.


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Tue, 05/21/2013 - 22:39 | 3586459 Tinky
Tinky's picture

I'm afraid that my Pac Man experience failed to prepare me for this article.

Tue, 05/21/2013 - 22:52 | 3586487 ACP
ACP's picture

"Test your worth in fierce Central Banker versus Central Banker gladiatorial arenas, and sell and trade the currency you print in the CME auction house."

Tue, 05/21/2013 - 22:59 | 3586505 knukles
knukles's picture

Shades of Reamde and the Trilogy by Neal Stephenson.  :)

Tue, 05/21/2013 - 23:09 | 3586528 ACP
ACP's picture

I still think Fallout 3 is the most likely end result, either by nucular war or some other catastrophic event.

Because you actually have to, you know, work for bottle caps. And if you don't work, you die from radiation poisoning. Fair, no?

Tue, 05/21/2013 - 23:14 | 3586544 GMadScientist
GMadScientist's picture

A Libertarian wonderland.

Tue, 05/21/2013 - 23:32 | 3586580 disabledvet
disabledvet's picture Buck Owens really had a voice to go with that guitar.

Wed, 05/22/2013 - 09:27 | 3587358 gmrpeabody
gmrpeabody's picture

Is it the meds...?

Tue, 05/21/2013 - 23:34 | 3586584 Ignatius
Ignatius's picture

I'm working on my own, real version. 

I call it: Survival 101/Near Future

The organic garden of death.  Fruit trees in the dark food forrest.  Laying hens from hell.

Tue, 05/21/2013 - 23:18 | 3586550 SMG
SMG's picture

I really hope you are wrong about that nuclear war thing, cause I have kids and I really don't want to see them suffer like that, even though they might get a PIP-boy.

Why don't we hang the Elite now, before they start WWIII?

Tue, 05/21/2013 - 23:37 | 3586592 ACP
ACP's picture

Same here, but I sure would like that V.A.T.S. system...

Wed, 05/22/2013 - 14:19 | 3588766 toxic8
toxic8's picture

I'm here to kick ass and chew bubblegum, and I'm all outta gum... ;-)

Wed, 05/22/2013 - 09:01 | 3587272 jimmytorpedo
jimmytorpedo's picture

I'm always impressed by Neal Stephenson's prescience.

Cryptonomicon is a perfect harbinger for the gold/bitcoin/facist central bankers reality unfolding today.

The new William Gibson.

Wed, 05/22/2013 - 11:04 | 3587878 Herd Redirectio...
Herd Redirection Committee's picture

I'm actually about 300 pages into Cryptonomicon right now.  Read the Quicksilver, The Confusion, and the  System of the World, in the last couple years.

Wed, 05/22/2013 - 02:51 | 3586811 Silver Bug
Silver Bug's picture

WOW I can't believe I read that whole thing. That was surprisingly very interesting and just shows you how central planning can basically mess up any economy.

Wed, 05/22/2013 - 08:04 | 3587084 pmbug
Wed, 05/22/2013 - 03:44 | 3586845 Buck O Five
Buck O Five's picture

Then definitely dont contemplate EvE Online then...

FWIW EvE has had a relatively stable economy for over 10 years, could be due to its chaotic nature and as close to a free market you are ever going to get in a game...

Wed, 05/22/2013 - 10:34 | 3587721 Panafrican Funk...
Panafrican Funktron Robot's picture

MMO's really are a useful lab for determining "real world" behavior.  Eve really does have the best economic system I've seen regardless of whether you're talking virtual or real.  

For those unfamiliar:  

They have a small "starting area" where there is zero risk and very limited reward, and you have to work just as hard as anyone else for that reward.  

As you move away from the "zero risk" zones, your rewards increase more or less in line with the risk of loss you take on.  

There is a small fee on transactions if you decide to use the global auction market, otherwise trading between players is free of any external charges.  

You are allowed to associate with player guilds, which provide their own resources/advantages in exchange for fees determined by those guilds.  If you decide you don't like that guild, you are free to associate with another one.


Wed, 05/22/2013 - 11:01 | 3587833 MachoMan
MachoMan's picture

Star Wars Galaxies had the best player economy I've seen in a game (although EVE has had far greater longevity and ultimately proved more broad)...  It lasted a few years after launch and then SOE killed the whole damn game...  The equipment and fuel costs for mining and manufacturing as well as quick item decay (and player created items) ensured that inflation was low...  I still say it was the best game ever for the first year to two years...  Way ahead of its time.  Now every game is carebear friendly and allows everyone to be whoever they want, carry whatever they want, craft/fight...  they all tend to be grind fests now...  and less time sinks tend to ruin immersion.

Wed, 05/22/2013 - 12:21 | 3588241 Voicefather
Voicefather's picture

EvE does have a great economic system, but it is too bad the pvp combat is lame and routinely leaves you with blueballs. I wish they had done faction play only and never made playable dreads and titans.

Warcraft had a fairly stable auction/crafting market til they started tinkering with drop rates and new items. That ruined player activities that had previously been profitable and took enormous effort (a year or more) to skill up to. That's how I learned to hate government intervention in markets.

Wed, 05/22/2013 - 06:54 | 3586956 Agstacker
Agstacker's picture

Get back into gaming with Star Wars, The Old Republic-its free

Wed, 05/22/2013 - 08:26 | 3587139 tarsubil
tarsubil's picture

More thought is required to play Pac Man than any of the Diablo games.

Wed, 05/22/2013 - 15:53 | 3589196 Matt
Matt's picture

Memorizing the movements of all the ghosts for 254 levels is good memory work, but other than that, there isn't really anything else to think about. 

Tue, 05/21/2013 - 22:40 | 3586463 Mr. Poon
Mr. Poon's picture

Diablo 3?  Go back to Diablo 2.  The gold supply was so overwhelming that it literally became worthless.  Players had to barter to exchange anything of value.


If Blizzard hadn't shut down the Auction House and wiped out a big chunk of the gold generated after the fiasco of the last patch, D3 would be right back to the barter system that dominated D2.  The only reason gold has any value in game right now is because Blizzard intervened and took extraordinary, unpopular measures to support its currency.  I wonder if other decision-makers in the not-so-virtual world would have the courage to do the same in the face of rampant inflation.

Tue, 05/21/2013 - 23:00 | 3586507 MeMadMax
MeMadMax's picture

On the question of if what Blizzard did would happen in the real world.

It has happened before, and they WILL do it again.

Unfortunately, we are in uncharted territory now, anything goes.

Tue, 05/21/2013 - 23:38 | 3586594 DoChenRollingBearing
DoChenRollingBearing's picture

Hmm, I wonder if automtive spare parts made of precious 52100 steel (real or virtual) would suffer a similar fate?  Can you export from Diablo 3?

Wed, 05/22/2013 - 00:02 | 3586649 The Shootist
The Shootist's picture

You'd think the developers would consider a medium of exchange whose supply only grows about 2% a year, like that shiny yellow metal.

Tue, 05/21/2013 - 23:26 | 3586572 NoDebt
NoDebt's picture

Poon?  What kind of name is Poon?

Comanche Indian.


Wed, 05/22/2013 - 01:10 | 3586746 Mr. Poon
Mr. Poon's picture

"I'm sorry, who are you again?"

"I'm Frieda's boss."

"Who's Frieda?"

"She's my secretary."

Wed, 05/22/2013 - 07:40 | 3587024 monkeyboy
monkeyboy's picture

Dr. Rosenpenis


Dr. Rosenrosen

What's that name again?

Dr. Rosen.

Wed, 05/22/2013 - 10:40 | 3587748 Panafrican Funk...
Panafrican Funktron Robot's picture

Going off on a bit of a tangent here, it is worth noting that the traditional game currencies are as follows (from least to most valuable):





I would suggest that a copper or brass coin would solve the "discrete denomination" problem often cited as a reason not to go back to a metallic currency standard.  Copper is of sufficiently low value to appropriately handle very small denomination trading of goods.  


Tue, 05/21/2013 - 22:43 | 3586471 IndicaTive
IndicaTive's picture

OK. Thanks.

Tue, 05/21/2013 - 22:51 | 3586495 Golden_Rule
Golden_Rule's picture




Tue, 05/21/2013 - 22:44 | 3586475 espirit
espirit's picture

Whadayouknow, gamers are going to be our "new" eCONomists.

Wed, 05/22/2013 - 05:24 | 3586893 Acet
Acet's picture

This kind of thing has happened in other online economies like the one in World of Warcraft, where typically everytime a new expansion comes out (which allow for reaching higher character levels, which get higher rewards from beating monsters and completing quests) the value of it's virtual gold drops as the economy is swamped with new money. If I remember it correctly, Blizzard had a near hyperinflationary episode in the early days of WoW.

That said, this one is in Diablo 3 is pretty extreme.

The funny bit is that, having kept World of Warcraft going for many years now, Blizzard should've had the in-house knowhow to spot the trouble in Diablo 3.

Wed, 05/22/2013 - 07:12 | 3586977 debtandtaxes
debtandtaxes's picture

"The funny bit is that, having kept World of Warcraft going for many years now, Blizzard should've had the in-house knowhow to spot the trouble in Diablo 3."


Like our glorious leaders should have spotted the trouble. Everyone acts like they are inventing the wheel when it"s all been seen and done before. Not teaching history and economics ensures that the peasants have no idea what is happening as they are fleeced.

We must home school our kids history and economics if there is to be any hope for this planet!

Wed, 05/22/2013 - 11:24 | 3587964 Herd Redirectio...
Herd Redirection Committee's picture

If you look into it in detail, I wouldn't be surprised if the problem originates with (Activision)Blizzard, trying to monetize the process for their own benefit.  For e.g. you can buy virtual gold with USD.  Now, if you buy say $20m virtual gold, for $20 USD, whose bid gets accepted?  The fellow player, who is trying to sell his gold to you, or Blizzard, who will create $20m more virtual gold out of thin air?

That could only be offset if Blizzard was then willing to do the reverse as well.  That is, buy virtual gold out of the game's economy, for USD, and retire that virtual gold.

Stopped playing months ago, and never spent a cent in the RMAH.

Tue, 05/21/2013 - 22:45 | 3586477 FreeMktFisherMN
FreeMktFisherMN's picture

Wow the Mises folks continues to amaze. Enjoyed reading this; very comprehensive and in  the end just another demonstration of how hyperinflation takes off quickly.

Wed, 05/22/2013 - 15:57 | 3589206 Matt
Matt's picture

It also shows how the system was flawed to begin with, and the inflation was clearly seen way in advance, for those willing to see.

Tue, 05/21/2013 - 22:46 | 3586480 gimli
gimli's picture

They are coming out with a new version of Monopoly, no board, just an endless supply of cash and Get Out of Jail Free cards.

Tue, 05/21/2013 - 23:13 | 3586542 lesamourai
lesamourai's picture

And houses and hotels.  No need for streets to put them on because no one ever lives in them, they just 'invest' in them and flip them.

Tue, 05/21/2013 - 23:40 | 3586596 gimli
gimli's picture

...but this new version has much more transparency and a strict dress code:

Tue, 05/21/2013 - 22:48 | 3586485 Major Major Major
Major Major Major's picture

Why didn't Blizzard just add a Ben Bernank profile to manipulate the market forever?

Wed, 05/22/2013 - 06:58 | 3586963 resurger
resurger's picture

Kito and his Jewish clique is already negotiating with blizzard to open D3 Wallstreet in the heart of the Sanctuary... his objective is to keep the monetray policy in check.

Also i heard he's establishing a central bank and few banks in there... they will have DIEBOR rates as well.

JK Kito.


Tue, 05/21/2013 - 23:05 | 3586493 lolmao500
lolmao500's picture

Some guy made 373 trillion in gold in a few days due to an exploit...  Probably Bernanke in his spare time. Rehearsing for what he's gonna do to the US.

Wed, 05/22/2013 - 06:54 | 3586959 resurger
resurger's picture

damn, this guy is too stronk

Tue, 05/21/2013 - 22:56 | 3586500 GMadScientist
GMadScientist's picture

Gresham's Law in full effect.

Tue, 05/21/2013 - 23:03 | 3586516 NoDebt
NoDebt's picture

Daaaaaaayum.  Glad I misseed that blow-out.

Do they have virtual hookers-n-blow I could have bought with that virtual gold?

Tue, 05/21/2013 - 23:11 | 3586537 GMadScientist
GMadScientist's picture


Tue, 05/21/2013 - 23:31 | 3586578 NoDebt
NoDebt's picture


So, um, it's late.  Do they, um, like, DELIVER to my actual house?  This game might be worth playing after all.

Tue, 05/21/2013 - 23:22 | 3586565 Nue
Nue's picture

They would have all turned out to be dudes playing female characters anyway.

Wed, 05/22/2013 - 07:01 | 3586965 Balanced Integer
Balanced Integer's picture

I played a female toon on WoW back in the day, before I got bored with the game. Reason being: If I am going to stare at a toon's ass for long periods of time, it's going to be a toon of my prefered mating gender. };0)

Wed, 05/22/2013 - 09:59 | 3587513 Zerozen
Zerozen's picture

Yeah...and don't forget the elf ladies...with those dainty pointy ears

Tue, 05/21/2013 - 23:08 | 3586525 pragmatic hobo
pragmatic hobo's picture

check if ben bernanke is playing ...

Tue, 05/21/2013 - 23:09 | 3586526 lesamourai
lesamourai's picture

Hilarious.  'Virtual gold' is a euphemistic term for the currency of this game that Bernanke or Dimon would be proud of - so like the 'virtual money' they are whizzing off the printing presses and digitizing out of thin air with gay abandon.

Tue, 05/21/2013 - 23:12 | 3586538 TraderTimm
TraderTimm's picture

Nice article - it underscores a few points related to bitcoin:

1. The supply is constrained, and with the client in the "wild" with hundreds of thousands publicly available nodes scattered across nearly every country on Earth - good luck getting a consensus on changing it. (There are even more hidden behind encrypted proxies and Tor.)

2. Note how minting "MOAR" failed. I wish Bernanke was a gamer - he might even "get" it. (Or does, which is why he's hiding from Jackson Hole this year.) Anyone telling you inflationary currencies "work" is forgetting all those that failed. Enter bitcoin - the hybrid payment/currency network that doesn't play by the rules of sovereign failures.

3. China is a major force in the games they adopt and play - they were reselling virtual gold before anyone even considered virtual currencies to be worth anything. Oh, and guess what? They've got the most bitcoin nodes running, with the USA second. I think the Chinese are very aware that bitcoin means giving the middle finger to every existing banking/issuance system on the planet - and they're fine with that. Even their government allowed multiple spots on bitcoin to be aired on their state-sponsored TV channels.

The rest of the world has no idea what is coming, or how fast it will change. The deniers and clingers-to-the-old will keep reaching towards their backsides to throw some steamy brown rebuttals, but the truth of the matter is - change is coming, and you'd better be prepared.

(Public Bitcoin Node Data:

Wed, 05/22/2013 - 02:53 | 3586813 JimmyRainbow
JimmyRainbow's picture

it is not only botting that is used to generate virtual game gold.

in world of warcraft virtual gold is created by chinese gold farmers, sometimes by inmates in jail forced to play all day.

(there are links all over the net about it)

ever wondered that noone of the greedy elite had an idea about that being taxed or controlled or something

because it was and is an instrument to exchange real and virtual values between worlds.

and all that virtual currency stuff started in world of warcraft  long before bitcoin

all that western guys with desires that couldnt be satisfied.....

"slow train to dawn" the the

additionally i wonder that blizzard got trapped here because for 8 years "stability of game economy" was very important to them and world of warcraft is tightly monitored

Tue, 05/21/2013 - 23:20 | 3586561 Nue
Nue's picture

This acutally happened in World of Warcraft almost a year after the release. The only thing that could be done was to get rid of the Gold Sellers aka Virtual Central Bankers, trace all their money trades and then start deleting all the GOLD that had been created.

Wed, 05/22/2013 - 00:42 | 3586716 Arkadaba
Arkadaba's picture

There was also the corrupted blood epidemic where "Player responses varied but resembled real-world behaviors. Some characters with healing abilities volunteered their services, some lower-level characters who could not help would direct people away from infected areas, some characters would flee to uninfected areas, and some characters attempted to spread the disease to others"

Pretty interesting.

Tue, 05/21/2013 - 23:50 | 3586619 SpartanNihilist
SpartanNihilist's picture

My bet is most of the exchanges trace back to organized crime laundering money. The cut that's taken is peanuts compared to the restrictions banks put on "entrepreneurs" in the real world.

Tue, 05/21/2013 - 23:51 | 3586622 Schlomo Bergstein
Schlomo Bergstein's picture

US dollars are the only way to retain your value in Diablo? Sounds like hell to me, which I suppose was the point of the game anyhow. 

Wed, 05/22/2013 - 00:17 | 3586670 bill1102inf
bill1102inf's picture

There are so  many problems with this it is mind boggeling. First, there is not a single currency in the entire world 'backed' by anything other than the full faith and credit of that government to pay it back, let alone gold. Or is there. What exactly, other than the full faith and credit ARE currencies backed by? Well, for one currency, the US Dollar - what? 1,000+ Extremely Reliable, Deployable and accurate - nuclear weapons, vast resources of well practically everything tangible, vast resources of things not tangible, inventions, research, medicine and of course the largest and most trained and heavily armed military the world has ever seen - the US Civilian.  Whats 'Zimbabwe' got? Nothing - Shit - Bubkus!


Also, WHO has all the money in all hyperinflationary scenarios?  The people. That is how bread/water/milk/eggs/gas/electricity/etc etc pricing goes parabolic. Well, guess what? MOST of the people in the US? Aint got shit either.  Bread doesn't get to $1000/loaf if only the bankers have the 1000 to spend.


And WHERE exactly is bread or anything else for that matter going to go to $1000 per unit? At the local farmers market? Where the price of organic grown items are less than their gmo counterparts at the local supermarket because the farmers are typically generational and owe nothing on their land and only need X amount to get by, and the people just so happen to have X to pay them so that the farmer can get by and the person can eat.  Without the farmer needing more than X AND the person having more than X, the price stays the same.


BUT what about financialization? What about it? The two things financed in America (primarily) are houses (prices still in decline even with record low rates)(heading for a steep dive the second rates increase), and car (low rates and cars available for $15,000 and up). The only thing that IS financed that has skyrocketed is college costs (which are in a bubble and we all know what happens to bubbles).


ANWYAY, I dont give a shit about the state of Zimbabwe. BUT lets look at Weimar Germany. Their hyperinflationary period was followed by a giant RESET which THEN gave way to one of the MOST PROSPEROUS times for a group of people, in the history of the world (other than the US 1913-Present). 


Speaking of the US 1913-present, we have ALREADY hyperinflated along that timeline and have now stalled for all intensive purposes REGARDLESS of how much printing the gov has done or how much debt the country has accumulated.  Why are there not any articles about why THAT has occured instead of this fear mongering nonsense goldilocks troll posts?

Wed, 05/22/2013 - 00:27 | 3586688 Arius
Arius's picture

"ANWYAY, I dont give a shit about the state of Zimbabwe. BUT lets look at Weimar Germany. Their hyperinflationary period was followed by a giant RESET which THEN gave way to one of the MOST PROSPEROUS times for a group of people, in the history of the world (other than the US 1913-Present). "


I understand you dont give a shit about Zimbabwe, but thats not the point; when it is brought up it is to discuss hypeinflation and similar policies followed around the world which bring similar results - suprised?

On the prosperity following hyperinflation, I doubt that is in the card for the US ... more likely it will be the USSR model, and please dont tell us you dont give a shit about them, because it is not about them.

Wed, 05/22/2013 - 02:15 | 3586784 adr
adr's picture

My local farmers market sells organic tomatoes for double the cost of the supermarket.  It is also filled with vendors selling fresh salsa for $12. One guy was selling "organic" sweet corn for $1 an ear. It is complete bullshit.

The West Side Market in Cleveland sells fresh produce from mexico, columbia, etc bought from the same vendors that sell to the supermarkets. Idiots line up to buy fruit and pay double the price, because it's at a "fresh" market. There are dozens of places to buy fresh Ohio strawberries in season, but the berries there are mosty from California.

If there is no middleman, the price should be lower. But because the hipsters are willing to pay double the price at farmers markets, the prices are insane.

Wed, 05/22/2013 - 07:22 | 3586999 debtandtaxes
debtandtaxes's picture

People pay more for organic because they hope & believe that the produce they buy is:

1. not sprayed by pesticides so it isn"t covered with toxins that not only may be consumed by your kids but that get Into groundwater and out to the rivers & oceans

2. not grown with artificial fertilizers that are made from oil and that cause algae blooms when it runs off

3. not GMO with unknown effects over time

4. not harvested by low paid illegal immigrant labour

5. has not travelled thousands of miles thus wasting oil and polluting the countryside

6. is grown by small farms which employ many more people than large corporate growers

etc eTc.  You can eat GMO produce sprayed with chemicals to kill bugs and to ripen it on the way to market 500 miles away.

I prefer food.


Wed, 05/22/2013 - 08:40 | 3587185 Sean7k
Sean7k's picture

First of all, many nations have suffered from hyperinfltion: Argentina, Yugoslavia, Hungary, China, the list is extensive. All the result of fiat currency and MS growth. Second, the explosion in German growth was the result of massive debt financing, that was the basis for Italys' growth as well. This resulted from the crony corporate relationships that develop in fascist states. 

Because of the existing wealth (at the time, this debt could be carried for looooong periods of time and then slow paid to create the illusion of growth), but in both cases, capital was eventually withdrawn and their economies fell. 

However, this time is different, the large pool of wealth that had been created from hundreds of years of production has been depleted from debt creation and transfers. There is no collateral for growth, regardless of how much money is created. Thus, we have stagnation. Excess liquidity is being channeled into equities, in hopes of creaing some yield, as bonds are no longer capable of producing profits equal to the growing risk.

Once the bankers decide to withdraw the capital in equities, coupled with bail-in/new tax policies to recover what wealth they can, we will experience the joy of real depression, possible State collapse and the choice of community organization or complete oppression for our "safety". 

When will this happen? When the current rules cease to function. (This is further dependent on a thinking population). 



Wed, 05/22/2013 - 00:33 | 3586704 The Devil
The Devil's picture

I hear my royalty check is in the mail.

Wed, 05/22/2013 - 00:57 | 3586733 jonjon831983
jonjon831983's picture

People still play D3?  I played for a week or so and then had enough.

Wed, 05/22/2013 - 06:52 | 3586900 Acet
Acet's picture

I gave up before I even got it when I saw that they were officially selling game money for real money:

- That always creates an uneven playing field where people who can spend real life cash on buying game items get to progress faster and easier than those who have to do it on skill and work alone. In fact, very much like the rich-kid vs poor-kid in real life.

Why would I spend money and time on a game that wholesale imports real-world economic unbalances into the social bits of the game world?

PS: I have never spent a cent of real money in any online game items and I could easilly afford to buy my way up in the game.

Wed, 05/22/2013 - 11:45 | 3588043 Herd Redirectio...
Herd Redirection Committee's picture

Yup, same here.  Didn't spend a cent in the RMAH.   Blizzard wanted to sell customers virtual gold.  Bottom line.  I haven't seen it admitted anywhere, they always make it sound like when you buy gold in the RMAH it is from other players....  But its a fairly big difference.  Its like whether Treasuries and the S&P are being bought by Joe 6Pack or the Fed!

Wed, 05/22/2013 - 01:44 | 3586767 MeBizarro
MeBizarro's picture

Another Austrian idealogue who is so desperate to find a real-world example of his limited narrow view of the world that he is forced to resort to finding a video game (and frankly one that is way too long in the tooth) to attempt to make his point and say 'See, see, see' here this is how the world behaves according to his economic dogma.

Idealogues especially zealots are pretty universally worthless.  Whenever I hear some ramble on about hyperinflation and mention Weimar or Zimbabwe, you know two things instantly - one they don't crap about the details and circumstances especially the external ones that were key reasons why it happened and why it continued to happen, and they don't understand what is really going on with QE, money supply & velocity, and what frightens people who understand it is rampant deflation because the economic tools to shake it loose are largely theoretical or nonexistant.   Hyperinflation is bad but so would be a rapid deflation too especially in a world that is leveraged to the hilt. 

Wed, 05/22/2013 - 06:11 | 3586919 Quinvarius
Quinvarius's picture

How has that dogma been working out for you?  You are clearly the one with little understanding of what is happening or what you are looking at.

And BTW, velocity always drops when you print money too fast.  It is a mathematical certainty that if we double the money supply today, the velocity will be cut in half tomorrow.  That fact that you would use an indicator that clearly shows we are hyperinflating and insist it shows deflation indicates you are in need of understanding what is being observed.

Wed, 05/22/2013 - 02:03 | 3586778 adr
adr's picture

Blizzard needs to keep its master happy with micro-transactions. Having a few million people pay $.25 each for a lot of virtual gold adds up. Especially if it takes $5 to buy the fantastic sword that can kill a demon with one button press.

This is the point and the future of gaming. Many are talking about free to play, but costing hundreds of dollars if you want to actually win.

People were paying thousands of dollars for characters built up by Chinese players so they could kill other players without having to go through the tedium of reaching the level cap.

You saw in Diablo 3 tye exact same mentality that went into Bitcoin. A mad dash into something people thought would make them easy dollars. A Diablo gold mining bot, a bitcoin node, not really any different.

Wed, 05/22/2013 - 02:52 | 3586812 galis
galis's picture


diablo - cosma , the best trans artist who died in a motorcycle accident in goa , India

10 years ago , at the age of 24. before starting  a world tour. rip


Wed, 05/22/2013 - 03:01 | 3586819 The Abstraction...
The Abstraction of Justice's picture

Transvestite? He was into surealist cosmetics or something?

Wed, 05/22/2013 - 02:57 | 3586815 galis
galis's picture


another track.

diablo - cosma

rip man


Wed, 05/22/2013 - 03:00 | 3586818 The Abstraction...
The Abstraction of Justice's picture

I know nothing about Diablo 3, but it seems the best thing Blizzard could do is match virtual gold to real gold. One ounce of real gold for one virtual gold piece. Inflation solved.

Wed, 05/22/2013 - 07:18 | 3586995 auric1234
auric1234's picture

Their real problem is they can't avoid central planning. If they withdrew all central planner agents (sinks and faucets) from the economy, their game would be only driven by player-derived market forces and it wouldn't be fun to play anymore.

For example, instead of playing quests designed by Blizzard to obtain a gold reward, players would have to figure out their own quests.

Sure, it would be extremely efficient in economic terms, but not fun.


Wed, 05/22/2013 - 03:32 | 3586841 Debugas
Debugas's picture

the real problem here is that bots are more efficient than real players. That is why Blizzard can not reduce drops rates (because real players would suffer more than bots)


to lever the playing ground Blizzard has to give drops for only first couple hours of the gameplay per day

Wed, 05/22/2013 - 06:02 | 3586844 rastaman_management
rastaman_management's picture

My Female Demon Hunter called "Bernanke" is there so no worry, check here out :p

Inflation is mainly due to chinese selling gold at very low price (+boting ofc) 0.03€/1 Million gold when blizzard was selling it @ 0.26€, blizz adjusted there price now


Wed, 05/22/2013 - 07:13 | 3586985 auric1234
auric1234's picture

Inflation is mainly due to chinese selling gold at very low price

Chinese selling gold...


Wed, 05/22/2013 - 11:27 | 3587974 Arkadaba
Arkadaba's picture

LOL I once named one of my hunter pets in WOW "EndTheFed" - got some good call-outs with that one.

Wed, 05/22/2013 - 04:03 | 3586853 Tenshin Headache
Tenshin Headache's picture

Sorry, made a promise to myself to never again have anything to do with Blizzard and Activision shortly after the botched release. That economy has been a joke since day 1. Bernanke could do a better job.

Wed, 05/22/2013 - 04:37 | 3586863 css1971
css1971's picture

And there aren't even any fractional reserve banks to turn it into an exponential process.

Wed, 05/22/2013 - 05:20 | 3586891 Philippines
Philippines's picture

What a terribly sourced article.. gamerluck? That's a chinese spam site lol. The article sources don't even make sense. Why no one has mentioned in all of this story is beyond me as well, they've been making a lot of real money from this fake money lol!

Of course the games will have inflation as there are more players and the money supply increases, just look at wow gold. In the beginning of WoW it sold for something like $40usd/gold. Now its like $1 per 1000 gold... 

Wed, 05/22/2013 - 07:43 | 3586912 Quinvarius
Quinvarius's picture

The real world sink, also known as an inflationary reservoir, is the sovereign bond market.  A useless relic for superstitious people to sacrifice their wealth to. 

Wed, 05/22/2013 - 07:45 | 3587036 Ghordius
Ghordius's picture


Wed, 05/22/2013 - 06:54 | 3586958 resurger
resurger's picture

Excellent Article..

When the SHTF, ill be the barbarian with a dual cleavers chopping some fucking elites for REAL gold & silver.

Wed, 05/22/2013 - 07:11 | 3586982 auric1234
auric1234's picture

if you haven’t already, you should consider converting your current gear to cash … since real $ [are] the best hedge against gold devaluation

Ah, the irony.

Btw, gold in erepublik evolves very similarly. The game is full of faucets and virtually no sinks.


Wed, 05/22/2013 - 07:20 | 3586996 Moocao
Moocao's picture

This post is quite erroneous in its most basic assumptions. It does not indicate what are the reasons for creating the hyperinflationary process. It identifies some of them, using the sink and faucets example, but it misses something really big:




2. CRAFTING SUCKS, TOO MUCH Random Number Generation (RNG) FOR STATS


When you have too many bots "farming", it distorts the underlying economy per se. With massive amount of bots farming gold for cash, there is an insane amount of gold being farmed because it is infinite. On the other hand, items that have good stats are limited due to the % assigned for drops

This hyperinflationary episode is therefore quite simple: too much money chasing too few goods. The Market is distorted already: Blizzard drop rates are static, money is infinite. USD is inifinte. Hyperinflation of Diablo Gold is inevitable for items and USD. Gold is inifinite remember?

And therefore this post is stupid, because it wastes a lot of breath for something really simple.

If you want something resembling closer to the world economy, try World of Warcraft or Eve Online. Neither have market distortions unless you are in a low population server. High population servers do have a healthy enough supply/demand process. Neither are tethered to USD.

And to all the people who actually trust this post: WOW... don't be a fool

Wed, 05/22/2013 - 07:37 | 3587014 gamorck
gamorck's picture

Yeah so - I see that this story makes very little mention of the free gold hack that has plagued the economy in the last few weeks (i.e. "In addition, a bug within the patch allowed users to cancel transactions in the auction house before completion, essentially allowing them to double their gold on demand.").  This is of course the major root cause for the hyperinflation seen here.  I don't believe it's being given enough credit.  Though I appreciate the point Tyler is attemping to make in any case ;) 

Wed, 05/22/2013 - 07:47 | 3587042 Quinvarius
Quinvarius's picture

So you found some flaws in digital currency, eh?  Why does this not make me feel any better?

Wed, 05/22/2013 - 10:37 | 3587733 edifice
edifice's picture

Try getting anything decent at the Auction House that is under 500,000,000 (yes, I play D3).  The scary aspect of games like this, to me, is they have a real money side of the auction house.  People are actually paying for upgrades.

Wed, 05/22/2013 - 15:26 | 3589092 MeelionDollerBogus
MeelionDollerBogus's picture

I disagree with linking game cash to real cash in an unrestricted manner: the actual dangers of the real economy and real paper prices would import real-world instability into the game. What would in fact work better is if the drops were way down, and were adjusted based on the rate at which prices rise in the game measured over time, and if barter was built-in. That is to say that if you had items up for auction you could set what other items you'd take in exchange for your items so it wouldn't be for a game-gold cash-value at all.

I actually had some experience with this from a game called minecraft

In the game with various add-ons you could select a digital cash, a coin-item cash and further to sell/buy items for this digital cash.

The game got modded so that item-coin cash dropped from various activities, prices were not required to be the same to buy/sell, digital cash rather than coin-items in hand were the account used for buy/sell actions, and the coin-items were more than just dropped: you could make them. The game permitted making gold coins from gold bars, gold bars from gold ore, gold ore mined by hand & smelted using a furnace item you'd also make

The end-result is that no hyperinflation happened because the amount of coins never got too far out of hand and the buy/sell price of each item could be set independently to suck up digital cash or suck up items. Every player could set their preferred balance-rate. In the end an excess of one kind of item or coins or digital cash would happen only if all the players preferred it that way. Those items hardest to get would remain high in price to reflect their demand vs the rarity of them (supply). It took not much effort at all.

There was no short-cut to generate tons of items unless you were the system admin or tons of cash either, so it all falls to the central controller. If the controller opts not to interfere by permitting excess items or cash there won't be any.

Another mod permitted direct swapping of items between players too which is indeed barter. I didn't see a mod, however, for barter-stores so there wasn't anything like a pawn-shop where any person could offer one item for another, see if there's an acceptance and balance with cash and move on. The game is very primitive so there were no NPC's to gather desired items, sell them or buy them, or run anything resembling a store.

Wed, 05/22/2013 - 23:28 | 3590673 Artifice
Artifice's picture

Isn't the real problem that the resource is infinite and not the price paid for it? Infinite resources will eventually have a value of 0. Messing around with the price is just delaying the inevitable.


If Blizzard wants to fix it they will need to reduce the quantity of their gold in game. Offer excessively rich players a selection of unique items at ridiculous prices to eat the excess of supply. Chances are the really rich ones simply don't need that much as they have all the equipment they need, so give them something special - maybe a Radiant Bernank Masque. Severely limit the drop from monsters and put it on a feedback with the sinks, so the more people spend on sinks, more will be available as drops. That way if Blizzard needs to adjust the supply, they just turn the tap on this exchange rate.

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