Neopets Economy: an excellent article and debate

[leverhelven]

So I've stumbled upon this article just yesterday and found it really, really interesting. It talks about how Neopian economy is a typical example of savage capitalism and how it has been difficult for TNT itself to control it.

 

I find it interesting that, some time ago on these forums, someone said they believed Neopia to be an example of Socialism, to which I got surprised because I always thought the exact opposite. Of course it's a matter of points of view, so I'd love to know what you guys think!

 

Please read the article first! :)

 

 

[Angeló]

i agree that it's a perfect example of capitalism gone wrong , but i'd love to hear the other person's argument.

[SillySilenia]

Some of the described issues are not so much a result of savage capitalism by itself, but rather, savage capitalism in an essentially closed economy* lacking many of the complicating factors of a real-world economy while adding others. It's something you see commonly in nearly every online community with virtual currency and some form of economy, though pet-sites like Neopets, avatar communities like Gaiaonline (and MMORPGs such as Runescape and World of Warcraft) are most heavily predisposed towards it.

This tends to be a combination of several factors:

• A lack of attractive sinks (scarcity attracts, but those items are scarce because they do not frequently appear, which means that most people will buy said items from other people, which means the NP stays in circulation); it does not help that the great majority of items that get used up sink less neopoints than a single player could make in a few minutes, or have alternative options in that price-range;
• A tendency towards making the more attractive potential sinks real-world-money items instead (NeoCash in Neopets' case, Gaia Cash in Gaiaonline's case, etc.) which does not work as a sink for the normal currency at all (and indeed even makes the other sinks less attractive to some degree);
• An endless supply of new money to enter the economy, limited only by the number of players active x time willing and able to spend. In the real world, money changes hands, but there are strong limits on the amount of new money to enter an economy (by coins being minted and bills being printed), which may as well not be present at all in Neopets' case. (One could say there is some limit on the amount of new money a single player can make in a short timespan, but with a long list of different possible ways in which said player can make it, essentially the only limit is the time said player has and the amount of effort they're willing to make. Of which in some cases, not much is needed at all.)
• Essentially unlimited storage of items and money, meaning that people are extremely unlikely to throw away an object they have simply because they now have something better;
• In Neopets' case, random events and dailies adding items and money to the economy. (Yes, there are also random events that take away things, but with a bank to keep one's money safe and a SDB to do the same, I dare say a lot less is lost that way than is added)
• Items with an actual limited number (as opposed to items that are rare but still in some form supplied to the economy, however little) staying on abandoned and frozen accounts or ending up with people who will not consider selling under any circumstance, constantly decreasing the number and thus driving the prices on said items higher; resulting in a top-down inflation at first, followed up by a deflation of the lower-rung/common items resulting in what is essentially a break in the economy between a large group of cheap items and a small group of very expensive items with very little in between.**
• A lack of actual necessities. Your pets may not exactly be happy about being left untrained, disease-ridden and starving, but they won't die. Nor will you. There quite honesty are very few consequences to such a thing beyond the risk of a random event making your pet red or blue (if that one even happens any more), which isn't even much of a risk if your pets aren't painted. This means people can spend practically every single neopoint they have on luxuries. Heck, it's even possible to keep your pets well-fed, free from disease and happy without ever spending a single neopoint, long as you're willing to hop by the giant jelly and omelette daily and hang around the healing springs when your pet catches a disease. As a result, pricing makes very little sense and you get things like certain pencils being more expensive than a chair or bed.
• A lack of fees on transactions between players, meaning that it's a reasonable choice to buy an item from a fellow user for, say, 597NP rather than pay 599NP for it in the shop. This makes the already ineffective sinks even less effective.

 

*One could make the claim that Neopets is not so much a closed economy as an autarky, though it certainly has strong traits of both. Indeed, there is outside influence on Neopets albeit indirectly (in the form of holidays, for example, which influence to some degree which items are popular--Christmas/winter-themed items as we're nearing Christmas, romantic items as Valentine approaches, etc.--but also in the form of (not allowed, but nonetheless happening) offsite trading/account selling, to name just a few) but far less than would be the case in a real-world economy; and furthermore, the influence is indirect rather than direct. An object made in Belgium can end up in, say, China. An item on Neopets will stay on Neopets or be destroyed on Neopets, but will not ever enter a different economy/site. Neopoints are the same; they exist on Neopets or stop existing, but will not enter a different economy/be ported off-site.

 

**People want those items; they get more expensive; they try to sell their own items for higher prices at first or sell expensive items they otherwise would not have sold; for the rare items, this new higher price likely stays; however, because there is now an influx of common goods on the market, not only does the inflation not stay, the prices decrease to likely a price lower than before

[missmon93]

Wow yes i agree that economy is very messed up, but the is the most complex and well argued way I have ever heard it worded before! :)

[leverhelven]

Oh my, SillySilenia, are you an economist? I just loved your text! <3

 

Yes, I'd love to remember the person who said about Neopets being Socialist, hope they stumble upon this post! But anyways, certain specific things that happen on the site disturb me, like the ridiculously crazy inflation of useless items that happened during the Coincidence event. To me that was borderline anarcho-capitalism. Prices were running out of control as 1np items were starting to become unbuyables!

[Hert123]

I agree that the economy of Neopets has had it's up and downs. Like the Coincidence; at first the items were 1 to 5 NP, then they became over 15.000 NP. Which is ridiculous. Good thing they dropped in price now. I don't know why, but TNT is releasing more and more Pirate Draik Morphing Potions, dropping it's price from more to 3 million, to less than 1 million NP at the current time.
The economy of Neopets is heavily influenced by the amount of items and the desire for a certain item. If it's rare and many people want it, the prices will rise. If it's not that rare and many people want it, the prices will drop. If it's giving out a lot and nobody wants it (DUNG!) the price will drop to 1 NP.
The economy of Neopia is a very interesting subject to study.. I certainly think it's easier to earn NP now than it was 8 years ago, when I first came into Neopia..

[SillySilenia]

Leverhelven: not an economist, no, but I have a strong interest in economy and around twelve years of experience with online communities with a mostly-closed, virtual, economy and after you see half a dozen of them derail in the near-exact same manner, the patterns become extremely clear. When some of these patterns showed remarkable similarity to patterns easily detected and commented upon in the string of real world economical crises in the same timespan, it became even more easy to detect the more subtle patterns and determine in which ways a closed virtual economy differs from a real life open economy.

 

The "mechanics" mostly; your comparison with anarcho-capitalism is rather apt in some ways, though in other ways it's as far from truth as can be. Frankly speaking, the Neopets economy at this point is an extremely strange mixture of traits one would find in a state-ran communistic autarkic closed economy* and an ultra-liberal free market ultra-capitalistic economy. (Yes, there are some socialistic/communistic traits, but more on that later)

 

I don't remember when exactly I noticed the first patterns, though it was while I was pretty young. Maybe 13 or so? Would probably be around 04 or 05, as I noticed them on Gaiaonline and that was the first time I was truly active there. I do remember which patterns I did first notice, however.

• "Prices are predominately influenced by supply and demand but can be disturbed by other factors; artificial scarcity or demand can be created and the economy can be manipulated as easily--if not more easily--when it's a virtual closed economy as opposed to a real-world open economy" (artificial deflation and de-scarcifying items can in certain circumstances also be done--when a popular item is scarce because one person is hoarding a large amount of them or aggressively buying up those available; said person can accidentally or on purpose flood the market, oversaturate it and trigger a deflation that reaches at least slightly beyond the item itself, given the proper circumstances--but is less common, depends on a good many more factors than artificial inflating/increasing demand/decreasing supply, and more difficult);
• "To keep a virtual economy from spiralling into out-of-control inflation, the amount of virtual currency brought into it should be roughly balanced by the amount taken out of it" and
• "The release or re-release of one or more items into the economy has effects on the economy reaching far beyond said specific item; and if done badly, can collapse a good part of the economy or cause sky-high artificial inflation reaching far and wide."

After noticing those, not only did other patterns become more clear and easy to spot, but I actively went looking for them. Even ran some statistics, and kept track of the prices of certain items, tried to predict some things (failed miserably at first, got somewhat better with it later on provided no unexpected situations occurred. Such as a mass re-release of a moderately rare item that was standing to increase in price due to its theme matching up well with the season). I did notice that every site with a virtual economy has its own quirks, depending in part on the actual mechanisms in place and in part on its userbase, predominantly taste in items, accepted etiquette and in amount of time and effort willing to spend on site earning currency.

 

I could continue on about this for a fair while, but let's not make my post novella-sized, eh?

 

*As to my above remark regarding socialism/communism:

I do understand some of what the person who said "socialism" is coming from; there are some characteristics that would normally signify socialism, or rather, certain variations of communism. While the virtual economy itself is a blatant liberal capitalist economy, by means of being a closed economy and lacking some of the factors of a real world economy--items and money being created from thin air, for one--it does share some key characteristics of communism or gives off the appearance of sharing them, especially if you presume the site's side (TNT, non-user shops, etc.) as "the state".

 

• The state does have full control over which goods ("items") are produced and which price they are--initially, in any case--sold for.
• All economic resources are in the hands of, or originate with, the state.
  • The money has to come from somewhere; and since there is no way to bring outside cash into the economy to be converted into neopoints, it must by definition have originated from the state;
  • The items, since(no item is created or brought into the economy without the state; for even items bought from other users must have at some point come from the state;
  • All "jobs", if defining job as neopoint-granting activities, are either while "employed by the state" (games, battledome, stocks, foodclub, other betting) or have the state as major player/supplier (restocking).
  • Full control over what people can do to earn money. That shop you run? Remember paying them for every upgrade? That trading post? It's theirs, and if they decide to shut it down, well, let's wave it goodbye, and no, there isn't a way for you to create your own trading post. Or your own auction house. Or your own factory to produce goods you know people want. Or... well, you get the picture.

Still, while this means that TNT is in a prime position to mess up the economy (something they have proven to be really, really good at, too), it is the mixture that makes it such a strange mess.

One or the other would be plenty of mess enough, if viable. (Which it isn't, in case of a virtual community; at least, not without total anarchy. Since it's practically impossible to have an online open economy, that one's hardly viable. If it's online communism, the userbase will be pretty small, because one of the thrills for many people is becoming--virtually--rich, or collecting items.)

Both means that the flaws of the one amplify those of the other.

 

For example, one major part of the inflation comes from the scarcity of certain items because TNT does not release more of them and/or because they decide which "goods" are "produced" in what "amounts". (Read: they code the shops. They decide which items stock, for how much, how often, and how many of them) That would match a whole lot closer with communism than free market capitalism.

Another major part of the inflation comes from the freedom to set your own prices on goods and the essentially endless supply of neopoints a user can have, provided they have the time/skill/determination. Which is definitely a capitalistic trait.