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Economic epiphany : EVE's gold standard

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Akita T Caldari Navy Volunteer Task Force	Posted - 2008.05.03 01:36:00 - [1] I was recently arguing with somebody over the whole "minerals are free" issue (you know the type), and I got carried away in the argument. And then, as I was discussing the basic concepts of value and profit, and arguing how money (in this case, ISK) can be considered a good in itself rather than the absolute indication of value, and how you can make a profit or incurr a loss even if 100% of your assets are in form of liquid ISK (due to inflation or deflation)... and then it hit me slightly... the concept of the gold standard, where did it come from (or better said why). In real-life, the only type of "thing" that never actually increases nor decreases in value significantly is gold (and precious metals in general). The price of gold usually reflects the state of the economy, my mimicking the influence of inflation... currencies can valuate or devaluate, the actual value of gold remains (barring the natural ups and downs of a trade market) relatively stable even if the "price" in a certain currency can change wildly. The REASON is that most of the gold in existance is already in circulation, and that only a negligible quantity of "new" gold is being generated from mining new gold ore (compared to the quantity already in circulation). It doesn't matter what practical value gold actually has (it was simply used for luxury products a long, long time), it's all a matter of scarcity. I was just about to say that we simply do not have such an item in EVE, one that exists in ample supply, yet significantly limited... and has some kind of economic value, but not a great economic value. And then it hit me again. WE DO HAVE such an item. Actually, we have plenty of such items. EVE's gold standard exists. EVE's gold is T2 BPOs Just think about it for a second. It all makes suddendly sense. The reason why T2 BPOs increase in value even if there's a risk they will be "nerfed" in the future, the reason why the profit margins for T2 BPO purchase-and-use are smaller and smaller... it all makes sense once you start considering that we have (subconsciously) created the EVE gold standard, without even realizing it
Siigari Kitawa Gallente The Aduro Protocol	Posted - 2008.05.03 01:43:00 - [2] I've said it before- ISK grows on trees in EVE. It really does. Rats just give it to you. The money comes from nowhere. There is no exchange where an individual loses money by paying you a bounty for blowing something up. Similarly, tech 2 BPOs are only as valuable as the materials to make them. Depending on the amount of resources that there are at any given time to produce all the tech 2 BPOs can influence the price. So you're half right. But I don't think t2 BPOs are creating a standard. They were perhaps quite some time ago.
Shadarle	Posted - 2008.05.03 01:45:00 - [3] Except T2 BPO value has changed drastically over the past two years. It's not nearly as stable as gold. But from my knowledge of history the gold standard was not used simply because gold didn't change it's value much... but rather gold was something that was desired anywhere and everywhere. It had value throughout the world. Paper money had no actual value, it had value if the organization printing it was trusted to stand by it in times of trouble. Because early on the US didn't have that trust, gold was used as a method of backing all the money. Meaning anyone could go to the government with money and get an equivalent amount of gold. Thus the paper was really the same as gold, only easier to carry and sort out correct values. So, in short, I don't think T2 BPO's really fit this in any shape or form. But since it's you Akita I'm willing to see you try and convince me
Akita T Caldari Navy Volunteer Task Force	Posted - 2008.05.03 01:51:00 - [4] Edited by: Akita T on 03/05/2008 01:55:14 Well, it's the closest thing we have to a "gold standard", that's all I'm saying Not quite the real-life gold standard, but close enough ...and coincidentally one of the better arguments against changing (removing) T2 BPOs from the game. Like Shadarle put it, the most important thing about the "gold standard" was that gold was universally desirable. T2 BPOs universally desirable ? Check. Sure, they might not have the same value as they had before, but they're still universally desirable. The second part of the gold standard was the fact the supply is limited, almost completely fixed. The closing of the lottery (and introduction of invention) has provided the "fixed supply" condition, while significantly lowering the value. Still, the price of T2 BPOs hasn't plummeted to the level where you'd have expected them to plummet given their potential ROI. And the only reason that huge price drop hasn't been seen is we have actually turned T2 BPOs into EVE's version of gold
Ava Santiago Minmatar	Posted - 2008.05.03 02:04:00 - [5] I would argue that Morphite or Dysporsium would be better candidates for a "gold" standard. BPO"s which will be rendered obsolete by the introduction of tech 3, are not exactly what I would call a long term store of value.
Siigari Kitawa Gallente The Aduro Protocol	Posted - 2008.05.03 02:09:00 - [6] Edited by: Siigari Kitawa on 03/05/2008 02:09:43 Originally by: Ava Santiago I would argue that Morphite or Dysporsium would be better candidates for a "gold" standard. BPO"s which will be rendered obsolete by the introduction of tech 3, are not exactly what I would call a long term store of value. And half of what you said is right. T3 will not phase out tech 2. Tech 2 will still be heavily in use. Take it like the new tech 2 battleships. They're specialist tools. People still buy Megathrons and Tempests, same as they always used to. Did tech 2 battleships make tech 1 battleships obsolete? No. The real "gold standard" if you were going to apply it here can only be measured by something you have a steady and consistent amount of. In this case, it is things such as high-end moon minerals. They cannot be mined at any faster a rate than they can now, and that is where the definition of a "standard" comes from. However the value of ISK is not dependent on these moon minerals. Because of that, there is in fact no "gold standard" in EVE. Thousands of people can use ISK and never see/touch/buy a tech 2 bpo or moon mineral.
Akita T Caldari Navy Volunteer Task Force	Posted - 2008.05.03 02:09:00 - [7] The problem with using consumables (Morphite, Dysprosium) as gold standard is the fact they are... well... consumables. You wouldn't want to have a "chicken egg" nor a "loaf of bread" economic standard, would you ?
Treelox Amarr Market Jihadist Revolutionary Party	Posted - 2008.05.03 02:22:00 - [8] shuttles were the "gold standard" till last patch....... :P Seriously though I get where your heading Akita, and I would agree with to an extent that yes T2 BPO's are about as close a thing as a gold standard as we have in game.
Treelox Amarr Market Jihadist Revolutionary Party	Posted - 2008.05.03 02:24:00 - [9] Originally by: Akita T The problem with using consumables (Morphite, Dysprosium) as gold standard is the fact they are... well... consumables. While I agree that morph and dysprosium would make lousy "gold standards" in game, I would like to point out that gold in RL is used as a consumable.
Shadarle	Posted - 2008.05.03 02:41:00 - [10] Originally by: Treelox Originally by: Akita T The problem with using consumables (Morphite, Dysprosium) as gold standard is the fact they are... well... consumables. While I agree that morph and dysprosium would make lousy "gold standards" in game, I would like to point out that gold in RL is used as a consumable. We consume gold? Not really in any quantity. We use gold as a manufacturing product... for jewelry... but that's because people think it's pretty. That's why gold has a value anyhow, because it is pretty, shiny and rare. I personally don't think you can argue that the majority or even any sizable quantity of gold is "consumed" as in, removed from the world. When you make something out of gold you can usually smelt it to get the gold back at some point.
Akita T Caldari Navy Volunteer Task Force	Posted - 2008.05.03 02:48:00 - [11] Chatlog slightly trimmed and rearranged. No use in re-making the same point all over again in different words Siigari Kitawa > it's more like, why such a large post over such a small issue Akita T > oh... well, it's a fresh "pro-keep-BPOs" argument :p Akita T > even if I personally have none :)) Siigari Kitawa > i'm all down for keeping t2 bpos Siigari Kitawa > but the thread should have been thought through a bit more Siigari Kitawa > tech 2 bpos do not create a gold standard for the simple fact that they can be copied Siigari Kitawa > you can have any number of tech 2 blueprints in existance, however you cannot have the materials in a gross number Akita T > so.. SK.. what else do you propose is closer to the "gold standard" in eve if not T2 BPOs ? :) Akita T > you can't have consumables be the equivalent :p Akita T > not in EVE anyway :d Akita T > we don't "need" one... we got one accidentally :p] NeoNeTiC > Why do we need a gold standard at all? :\| Akita T > the only benefit of a gold equivalent would be a proper track of inflation/deflation Akita T > not much more Siigari Kitawa > moon minerals are not consumables Siigari Kitawa > they are static Akita T > the potential supply is static Akita T > the actual supply is dynamic Siigari Kitawa > ok akita look Siigari Kitawa > if nobody is mining moon minerals Siigari Kitawa > what happens to demand Siigari Kitawa > the simple fact is Siigari Kitawa > gold in the united states treasury is never consumed, it just sits there Akita T > in real-life, gold is mostly unused... it just sits there as jewelry or gold bars in some safe deposit, etc Akita T > in EVE, highend moon minerals only have a value because they're being used up :p Siigari Kitawa > right Siigari Kitawa > same with the moons that produce the material Siigari Kitawa > they just sit there. Siigari Kitawa > but they represent what makes tech 2 bpos have their value Akita T > and the demand for them increases the more people get in :p Akita T > the demand for gold in real life is minimal compared to the supply Akita T > and it's mostly reusable Siigari Kitawa > you have the right idea but the wrong implementation NeoNeTiC > I don't need a gold standard in EVE and I don't want one either.Things just work the way they do and it's either fun or not.My simple-minded view on economics in EVE.Have a nice day. :3 Akita T > we don't need one, we don't have one, it's just that T2 BPOs are the closest to one :p Akita T > and the only benefit of them being close to that is to track inflation/deflation Well, that was the gist of it anyway
Athre Minmatar The HIgher Standard	Posted - 2008.05.03 02:52:00 - [12] while I agree that BPO's can hold value like a gold standard, I was thinking of something a bit more simplistic than Treelox stated. Trit, it doesnt change much and tends to reset itself, even with shuttles off the market, it did not change much.
Akita T Caldari Navy Volunteer Task Force	Posted - 2008.05.03 02:55:00 - [13] That would be pretty much the "steel standard" right there
Shadarle	Posted - 2008.05.03 03:06:00 - [14] Originally by: Athre while I agree that BPO's can hold value like a gold standard, I was thinking of something a bit more simplistic than Treelox stated. Trit, it doesnt change much and tends to reset itself, even with shuttles off the market, it did not change much. In the past year alone trit has gone from ~2.5isk per to 3.5 to 2.75 to 3.5. Very stable indeed!
Athre Minmatar The HIgher Standard	Posted - 2008.05.03 03:09:00 - [15] *** USA dollars are not backed by gold. Anyone know if Knox even has a bar left? The Federal unit that prints the money are not even a Federal. Back to the thread - steel standard :D hehe.
Akita T Caldari Navy Volunteer Task Force	Posted - 2008.05.03 03:19:00 - [16] Oh, real-life countries have abandoned the "gold standard backing" of their currency a long time ago, decades ago for most of them. Going back to the "gold standard" would be completely unfeasable, since there's simply not enough gold to back up all the fiat money, let alone all the "virtual" currency that's floating around. Still, the price of gold remains a steady indicator of a currency's "power", with gold prices in a certain currency almost perfectly reflecting economic ups and downs, inflation and deflation periods and so on.
Treelox Amarr Market Jihadist Revolutionary Party	Posted - 2008.05.03 03:25:00 - [17] Originally by: Athre Anyone know if Knox even has a bar left? yup unless ofc you believe in the consipracy theory
Shadarle	Posted - 2008.05.03 04:21:00 - [18] As per wikipedia: Quote: The United States Bullion Depository holds about 5,037.5 tons (4,570 metric tonnes) of gold bullion (147.3 million ounces[1]). It is second in the United States only to the Federal Reserve Bank of New York's underground vault in Manhattan, which holds about 5,000 metric tons of gold in trust for many foreign nations, central banks and official international organizations.
Segge Bolled Caldari Dirty Sexy Pilots New Age Solutions Amalgamated	Posted - 2008.05.03 04:36:00 - [19] Originally by: Shadarle We consume gold? Not really in any quantity. We use gold as a manufacturing product... for jewelry... but that's because people think it's pretty. That's why gold has a value anyhow, because it is pretty, shiny and rare. I personally don't think you can argue that the majority or even any sizable quantity of gold is "consumed" as in, removed from the world. When you make something out of gold you can usually smelt it to get the gold back at some point. Well, we don't just use it for jewelry. We use it dentistry, embroidery, as a coloring agent of glass, it has many applications in electronics, medicine, biology and materials science, we even use it as an additive in food and as an insulation material. The problem in many cases isn't so much removing it from the world, but removing beyond our ability to recover it in an economically viable fashion.
Durente Galaica Amarr Fortunate Few	Posted - 2008.05.03 04:39:00 - [20] Quote: Written by Heideran VII, the Amarr Emperor himself, Pax Amarria is the most remarkable book published in the last century. In it the Emperor writes about his hopes and dreams for peace throughout the galaxy; a vision that has propelled him into becoming the champion of improved interstellar relations. His relentless strive for these goals has brought unparalleled harmony in the relationship between the empires; his constant search for peaceful solutions to any problem having many times becalmed brewing storms of hostilities on the horizon. His determination and powers of persuasion have compelled his own people and others to sacrifice many things they thought sacred to ensure that tranquillity will prevail, now and forever. This is the reason isk has value today. Placing your faith on the value of isk in anything other than the Emperor or the Almighty will only lead to dissapointment...
Jinx Barker GFB Scientific	Posted - 2008.05.03 05:59:00 - [21] Originally by: Shadarle We consume gold? Not really in any quantity. We use gold as a manufacturing product... for jewelry... but that's because people think it's pretty. That's why gold has a value anyhow, because it is pretty, shiny and rare. I personally don't think you can argue that the majority or even any sizable quantity of gold is "consumed" as in, removed from the world. When you make something out of gold you can usually smelt it to get the gold back at some point. I am sorry, maybe you got by with EVE economy and all that, but Gold has well surpassed the jewelry boundaries in the modern world. Gold is used for making: High Quality Glass, In Aerospace Industry, Electronics, Medical Field, Dentistry, just to name a few. Furthermore, about 2,600 - 3,000 Tonnes of Gold is mined/produced each year, while consumption of Gold averages at about 3,800 Tonnes/Year. So, Gold has its value, primarily due to the Industry consumption and - as you have mentioned - it's scarcity. But certainly not due to jewelry manufacturing alone. Actually, the Gold Jewelry manufacturing has seen a steady decline when compared to the industrial uses of Gold. As an interesting tidbit, the most rare and expensive "precious" metal in the world is Rhodium - average price is above 6,000 Dollars/Troy Ounce. Less than 20 Tonnes are mined each year. But, more on the topic, I agree that EVE does not really have a monetary standard. per se, more like a guideline of sorts. Almost any "item" in EVE can be used as means of preserving ISK value, provided that it was acquired at low enough price.
Shakuul Caldari Extreme Addiction Atrum Tempestas Foedus	Posted - 2008.05.03 09:02:00 - [22] Originally by: Akita T I was recently arguing with somebody over the whole "minerals are free" issue (you know the type), and I got carried away in the argument. And then, as I was discussing the basic concepts of value and profit, and arguing how money (in this case, ISK) can be considered a good in itself rather than the absolute indication of value, and how you can make a profit or incurr a loss even if 100% of your assets are in form of liquid ISK (due to inflation or deflation)... and then it hit me slightly... the concept of the gold standard, where did it come from (or better said why). In real-life, the only type of "thing" that never actually increases nor decreases in value significantly is gold (and precious metals in general). The price of gold usually reflects the state of the economy, my mimicking the influence of inflation... currencies can valuate or devaluate, the actual value of gold remains (barring the natural ups and downs of a trade market) relatively stable even if the "price" in a certain currency can change wildly. The REASON is that most of the gold in existance is already in circulation, and that only a negligible quantity of "new" gold is being generated from mining new gold ore (compared to the quantity already in circulation). It doesn't matter what practical value gold actually has (it was simply used for luxury products a long, long time), it's all a matter of scarcity. I was just about to say that we simply do not have such an item in EVE, one that exists in ample supply, yet significantly limited... and has some kind of economic value, but not a great economic value. And then it hit me again. WE DO HAVE such an item. Actually, we have plenty of such items. EVE's gold standard exists. EVE's gold is T2 BPOs Just think about it for a second. It all makes suddendly sense. The reason why T2 BPOs increase in value even if there's a risk they will be "nerfed" in the future, the reason why the profit margins for T2 BPO purchase-and-use are smaller and smaller... it all makes sense once you start considering that we have (subconsciously) created the EVE gold standard, without even realizing it As people have pointed out, gold does have use. Also, gold fluctuates a LOT. People tend to like it during recessions and crises and so forth, so it is a hedge against that. However, it is not a hedge against inflation, as the following links show: Linkage Linkage Linkage I really think T2 BPOs are in many ways a luxury good. Some certainly have plenty of manufacturing usefulness, but lots of people probably pay a premium for the ability to make T2 stuff easily. I thought that fairly recently, the price of T2 BPOs has gone from 1 years profit to over 1 years profit. Wouldn't that mean they are inflating or are a luxury good?
Akita T Caldari Navy Volunteer Task Force	Posted - 2008.05.03 09:29:00 - [23] Edited by: Akita T on 03/05/2008 09:30:38 Originally by: Shakuul As people have pointed out, gold does have use. Also, gold fluctuates a LOT. People tend to like it during recessions and crises and so forth, so it is a hedge against that. However, it is not a hedge against inflation, as the following links show That was a very interesting read (the posted links I mean). Observe the following section in your second posted link: "Notice that in 1930 inflation since 1913 was up about 64% ... is it any coincidence that FDR raised the Gold price 69%? NO! That one time adjustment just brought it in line with inflation. But that didn't solve the problem permanently. It just postponed it. By 1970 inflation was up 306% and gold was still officially $35 an ounce. Once again the price of gold needed adjusting." However, take a look at the very end of the second link, to discover another little gem : Linkage Quoting from it: "Gold is a high profile metal that acts almost as a Government Report card showing how well a Government is doing managing the economy and risks of its citizens. This high profile turns out to be a disadvantage for Gold. No one likes a "bad" report card least of all Governments. So rather than clean up their act, they will go to great lengths to eliminate the report card itself." In other words, if the world governments wouldn't expend great effort to "correct the gold price", and if everybody would be allowed to own gold (like nowadays pretty much anywhere on the globe), barring a situation of crisis (when gold prices snap), the price of gold WOULD follow inflation quite nicely.
Danari Viper Squad Triumvirate.	Posted - 2008.05.03 14:25:00 - [24] Pretty much all of you are in over your head. Gold consumption is currently exceeding production, primarily because it's used in dental work. Its currently high price reflects that more than anything. Gold is also a commodity that can be used to hedge a portfolio that includes stocks and real estate, because it doesn't track either of those markets. Gold as a standard disappeared decades ago, and the world is now managed by monetary policy, where money is created and destroyed depending on how the economy is doing. Eve is also managed by monetary policy of sorts. BPOs have become collectors items with some small utility, and are no more the gold standard of eve than are the contents of the Louvre.
Moran Trayga State War Academy	Posted - 2008.05.03 14:47:00 - [25] Edited by: Moran Trayga on 03/05/2008 14:47:59 As much as you may enjoy this thought experiment, there is no gold standard equivalent in EVE, or even a need for it. Tech II BPOs and gold are vastly different and obviously play such different roles in their respective realities that any comparison isn't really very useful and similarities arn't particularly valid.
Block Ukx KDM Corp Firmus Ixion	Posted - 2008.05.03 16:30:00 - [26] What about insurance pay out? I fixes mineral value to a fix isk amount.
Akita T Caldari Navy Volunteer Task Force	Posted - 2008.05.03 16:47:00 - [27] Originally by: Block Ukx What about insurance pay out? I fixes mineral value to a fix isk amount. It only bottom-caps the basket price of minerals to little over 70% of "base price", the top is free-floating and subject to normal supply/demand rules... but each individual mineral is free to fluctuate according to its own individual supply/demand (mostly based on ore/compound/loot reprocess ratios, and ratio of people "working" in that specific area).
Salvo Brunel	Posted - 2008.05.03 17:34:00 - [28] There is no equivalent to the gold standard in Eve because there is no reason to have one. The gold standard existed for a simple reason: to convince people that this intrinsically valueless paper stuff was a reliable store of value. In the early days it acted as a guarantee that that you could get something of value even if you didn't trust the issuer. As time progressed that changed slightly into a sa*uard against the government printing money recklessly. In Eve ISK is just as real and intrinsically valuable are all other commodities. (They are all just database entries.) So there is no gold standard. Sa*uard s a f e g u a r d Is f e g a naughty word in Icelandic?
Shakuul Caldari Extreme Addiction Atrum Tempestas Foedus	Posted - 2008.05.03 18:56:00 - [29] Originally by: Akita T Observe the following section in your second posted link: "Notice that in 1930 inflation since 1913 was up about 64% ... is it any coincidence that FDR raised the Gold price 69%? NO! That one time adjustment just brought it in line with inflation. But that didn't solve the problem permanently. It just postponed it. By 1970 inflation was up 306% and gold was still officially $35 an ounce. Once again the price of gold needed adjusting." However, take a look at the very end of the second link, to discover another little gem : Linkage Quoting from it: "Gold is a high profile metal that acts almost as a Government Report card showing how well a Government is doing managing the economy and risks of its citizens. This high profile turns out to be a disadvantage for Gold. No one likes a "bad" report card least of all Governments. So rather than clean up their act, they will go to great lengths to eliminate the report card itself." In other words, if the world governments wouldn't expend great effort to "correct the gold price", and if everybody would be allowed to own gold (like nowadays pretty much anywhere on the globe), barring a situation of crisis (when gold prices snap), the price of gold WOULD follow inflation quite nicely. The guys argument that gold is an inflation hedge doesn't seem very good: (from your link) " So although Gold is not directly correlated with inflation it looks like this time around it will once again be traveling in the same direction as inflation. Therefore, it looks to me as we enter this inflationary cycle for the next ten years Gold will be a good vehicle to ride to protect against the ravages of inflation." A hedge against inflation (supposedly, gold) would have to make you less susceptible to large amounts of inflation. If inflation occurs, the gold price should change to counter it. But it doesn't. All this guy is saying is that A) gold prices will go up and B) inflation will occur. He is just speculating on the price of gold; if his speculation is wrong, gold might not make money/cover inflation. A better hedge against inflation might be a basket of foreign assets, but I'm not sure on that. I would imagine that if inflation occurs in your home country, it devalues the currency relative to all others. However, since you own foreign assets they will appreciate relative to your currency (since it is now worth less), thus acting as a hedge. Additionally, since you can own foreign bonds or real estate or whatever, you probably expect to make a lot more than just sitting on gold.
umah	Posted - 2008.05.04 02:13:00 - [30] Edited by: umah on 04/05/2008 02:16:58 Anything with a fixed NPC value is a "gold" standard in EVE. Tech II BPO's are not, because their value is set by the players.

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