Yves here. I must admit to being mystified and intrigued by Eve Online, which I have to confess I’d never heard of before today. First of course is the large number of people who find it appealing to spend significant amounts of leisure time in a realm designed to be ruthless and savage. Don’t they get enough of that at their day jobs? It used to be the most common narrative of entertainment was the hero’s journey. We now see rising popularity of amusements that celebrate ruthlessness and a breakdown or lack of social norms (such as the Game of Thrones)
The second curiosity is that 500,000 people have spent real money in meaningful amounts and invested time in a pseudo-economy where the funds are stranded (Varoufakis states in the post below that that participants transfer funds into the game currency but it cannot be converted back out). Gambling has never had any appeal to me, but as any activity, that makes more sense to me than this does. The odds only slightly, as opposed to completely, favor the house.
By Yanis Varoufakis, a professor of economics at the University of Athens. Originally published at his blog
Vicious, intense war broke out the other day. Hundreds if not thousands of people, in New York, in Chicago, in the great capitals of Europe, in China, rushed home on the news that hard-earned assets they were keeping in an inhospitable far away place had been placed under sustained, brutal military attack. By the end of the day, or more like it in the wee hours of the morning, exhausted by the battle’s intensity, the defenders took stock of the material damage: it amounted to hundreds of thousands of dollars.
The fact that the physical damage was of the digital variety, and confined within Eve Online, a multi-player game, does not mean that it was not real. The destroyed starships, outposts and mines cost real dollars and took months and months of dedicated, skilled labour to put together. Make no mistake dear reader: these were real losses.
They took place in a far away sector of Eve Online’s digital universe; the exquisitely designed multi-player game unfolding in real time in a cosmos that is modelled as the ultimate Hobbesian inter-stellar ‘state of nature’. Eve Online has purposefully created a universe in which life is “solitary, brutish, nasty and short” and where Machiavelli’s advice to the Prince, that “a necessary war is a just one”, rules supreme.
Unlike other multi-player games, Eve Online both tolerates and encourages players to loot, defraud, undermine, even to murder the avatars of other participants as long as such acts are carried out for ‘economic and material gain’. This ultimate laissez faire universe, in the absence of a Leviathan to keep everyone “in awe”, is what motivates players not only to be ruthless but to seek out alliances, to forge cartels, to pay protection money to powerful gangs of other players. It is what makes Eve Online fun to play. And what motivates players to spend large wads of money to purchase ISKs, the Eve Online in-game currency, so as to invest in the starships, the materials, the rights to mineral extraction from far-away asteroids, the bribes; on everything one needs to build up a respectable presence in a universe where ‘might is right’.
The recent spike of violence that ruined so much property, worth up to half a million dollars (according to some estimates) was due to the accidental de-stabilisation of an unstable truce. In that part of the Eve Online universe, some forgetful player merely neglected to make the usual, periodic payment to the cartel that protected his ‘assets’ from other cartels. One thing led to another and an assault that was intended as a ‘lesson’ to the forgetful subservient triggered off major warfare.
Very soon journalists, some from respectable newspapers and media organisations, started emailing me, seeking my views on the economic significance of this incident, and of the destruction that it caused. I find this fascinating in itself. For when such media outlets take an interest in the way a video game is developing, and pose economic questions about it to an… economist, one knows that something is afoot. As I have written elsewhere, the social economies that have evolved within video games have acquired meaning and importance for the offline world that most of us live in. And vice versa, of course: it is not uninteresting that the good folks at CCP, the Icelandic company that developed and runs Eve Online, were the first video gaming company to have headhunted an academic economist (Eyjólfur Guðmundsson, formerly dean of the faculty of business and science at the University of Akureyri) to study and ‘manage’ the game’s social economy.
Turning to the economic consequences of the latest war, on which the aforementioned journalists were asking me to comment, the facts are plain: Eve Online’s economy has two inputs: economic ‘power’ brought into it (as players convert dollars, euros and yen into ISKs) and assets that are manufactured through hard work, cooperation and cunning within the game. The distribution of this value depends entirely on in-game behaviour. Participants will try to make their ISKs go further by populating far-flung parts of the galaxy where mineral extraction and property rights are cheaper but come at the hefty cost of the greater insecurity caused by the fear of rogue, brutish predators who prey brutally on the newcomers.
Many make the mistake to think that the Eve Online economy is a fully-fledged market economy ruled over entirely by the tension between demand and supply. Not so. If the terms demand and supply bring to one’s mind the neat diagrams of Econ101 textbooks, one’s mind has been misled. For these curves to make any sense at all, we need to presume an economy where no seller and no buyer have any power over the price of goods and services. The whole point about Eve Online is to corner markets, to forge cartels, to maximise one’s power over price. And unlike Adam Smith’s fiction, where such aspirations cancel each other out, leaving everyone with zero market power, and thus enabling the ‘invisible’ hand to perform it magic, in Eve Online power rules OK. Which means that none of the orderly models of microeconomics are applicable – at least not in a manner that is mathematically defensible.
Turning to Eve Online’s macro-economy, here things are straightforward. Since there is no labour market (even though there is a great deal of labour and of sub-contracting) and there is no endogenous money supply, none of the macroeconomic features of offline capitalism apply to Eve Online’s Hobbesian economy. Moreover, as the value created in, or imported into, the game cannot be transferred back to the offline universe (CCP bans the conversion of in-game currency to dollars), the economy’s growth is a function of the joy people get from playing the game and, thus, their readiness to invest more dollars, more time and cleverer strategies into it. Period.
Conclusion: What Does a Flourish of Destructive War Mean for This Economy?
If a spike in destructive violence, like the recent incident, puts players off, Eve Online’s economy will suffer, as participants shall invest less in it. Only this is highly unlikely. Judging by what the victims of the latest episode in the Eve Online saga say in various message boards, their resolve seems to be holding. Indeed, they “shall be back”, they tell us. They shall invest fresh time, energy and real world money to re-build their starships, to re-furbish their mining outposts, to re-jig their uncertain alliances, to give themselves a chance to take revenge upon those that sought heinously to eliminate them. After all, this is what they signed up for: a game that transports them to a world where no one can be trusted and where dangers lurks behind every smile, every handshake, every seemingly lucrative deal. The only real similarity with the offline world is that their macroeconomy, just like ours, benefits from destruction. As for the main difference, Eve Online’s economy, unlike ours, does not suffer from a tendency toward permanent crisis. But that’s another story…
 Quaintly, the game’s developers, CCP, will not tolerate destruction or violence that does not have the purpose of personal gain on the part of the perpetrator. Destruction and murder ‘for its own sake’ is not allowed!