Not Zero Sum

Adam Reuters is asking for responses to the Capitalism 2.0 prediction that the Linden dollar will collapse – here’s mine.

While there are certainly interesting numbers to consider here, the conclusion depends on a faulty premise:

Unlike economies in the real world, the Second Life economy is strictly zero-sum. Therefore, every real $1 USD extracted from the game comes from someone who put a $1 USD in, whether directly from new users buying L$, or indirectly through internal “sinks”, which amount to little more than the redistribution of players’ future $USD redemption potentials.

The problem here is that is Second Life IS a non-zero sum economy. In the simplest case, if $1 buys you 270 Linden in the morning but at some point during the day you notice a spike in the exchange rate and cash out that $270L for $1.05, you’ve made a nickel net gain. Nobody had to put in $0.05 for that – the difference could have come strictly from non-Linden Lab, in-world fluctuations. Beyond that there are lots of complex transactions mixing currencies and barter that shatter the notion of Second Life as a strictly zero sum economy.

We need to study the numbers because change will happen but that’s no surprise. What’s surprising to me is that people continually fail to realize or choose to ignore that the Linden board of directors has some really smart, wealthy people who have a pretty good track record in figuring out money flows.

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