Sophus' Theory of InflationFollow

Sophus' Theory of Inflation

I know that you have seen the prices raise dramatically lately and wondered "Why the heck is inflation hitting us so hard?" Our economy has been uncharactaristically stable for so long--why now?

We've all had our own theories. Most have blamed the gil sellers. Some have blamed greedy players. Others blame the lack of gil sinks. There's a million different reasons as to why we can blame x for inflation...but here's a good reason that I think sums it all up.

Please, keep in mind that this is only my theory. It is not sanctioned by lead economists, SE, or the Federal Board of Reserve. The opinions that I am about to state are only said because they make sense. Be warned, it is a long read.



The Truths

Before discussing my theory, I would like to set the scene by mentioning five facts. Hopefully, these are facts that we all can agree with:

1) FFXI has been around for almost 3 years in the US, and almost 4 years in Japan
2) Shiva is (I believe) the second oldest FFXI Server
3) It takes time to make money
4) The longer you've played FFXI, the more likely you are to have a lot of money
5) The more money you have, the less it means to you (ie, 1mil gil is a lot when you just start the game and only have 200 gil...but nothing when you've been playing for years and have 300mil)




The Assumption

Our server is old, there's no denying that. And more likely than not, we still have some players on Shiva who have been here since day 1 of the JP launch. We also have many of the players from the NA launch.

Though we add new members every day, the people from the original JP/NA releases have been part of our community (and our economy) for 3-4 years. If fact #4 is true, it stands to reason that these players would also be among the richest members of Shiva. That isn't to say that they have the most money, but they probably have just about every single item that they want...and a lot of money left over in the mog house.

The same could be considered of those members who joined shortly afterwards, but the chance that they have as much money declines in proportion to the time spent playing the game and how many mules/accounts they own. The only deviance for this pattern would be if a)they got lucky (opportunists and casinos would fall into this category), or b) they levelled a craft such as Goldsmithing.

If you'll notice, gil sellers do not necessarily fall into either one of these categories. The reason for this is that gil sellers do not retain gil. In fact, only a small portion of their earnings actually goes to improving their gear. They will always want money, because once they stop earing it, they get fired. Though they may make a lot of money through camping, they can never become one of the richest members of Shiva. It would be bad business for places like IGN to keep gil on players instead of selling it before the gil market drops.

Now, imagine yourself as someone who's been playing FFXI since it was released. For some of you, this may not be much of a stretch. You've been here for ages. You've killed all the mobs you've wanted to kill. You've beaten all the Zilart and CoP missions. You are Rank 10 in every nation. You have all the items that you want. You are also overly comfortable in your financial situation.

Save the commnity and friendships that you've made, what else is there for you to do in this game? The answer: not a lot. So let me ask you then, if someone gave you 500mil gil and you had already done everything the game had to offer...what would you do with it? Well if you are like most people, you'd say "I'd buy xxx."

You already have everything you need, there is practically nothing for you to spend money on anymore. Though one million gil may have sounded enormous when you first started, having 500mil gil makes it sound like a drop in the bucket. Because of that, you have no problem purchasing things like Royal Cloaks or Scorpion Harness +1. Even if they cost you 50 million gil (which they don't), that is only 10% of money that you would never spend otherwise.

It won't always be items that you desire, either. Some would choose to upgrade their relic weapons. Because this represents the top-down model at its finest, let's use this as an example. By top-down model, I mean that this will analyze the flow of gil from the top (oldest/richest) to the bottom (new/newer/poorest). I'll do it this way because the people at the top have more of an effect over the game than those who are just starting.



The Top-Down Economic Model


1) Oldest Player -- You have 500mil gil and have decide to upgrade your relic weapon. You have determined that this will cost you appx 300 mil gil. You know that the items you need can only be found in Dynamis. However, they can also be purchased through bazaars. Because you have more than enough money (and there are no other items you need nor want) you opt to purchase these items from bazaars rather than go through Dynamis numerous more times. It takes you 300 bazaars until you find every item you need.

2) Old Players -- You have just done a several dynamis runs and are trying to sell off your currency. Player #1 was looking to upgrade his/her weapon, and has purchased all (or most) of your currency. You have now saved up enough money to purchase that expensive item you always wanted.

3) Newer Players -- You have just sold your really expensive item that you crafted or won from an NM to Player #2. After splitting the profits appropriately, you now have enough money to level your crafting. Maybe you'll even buy that expensive item that you have been wanting, but it probably won't be as expensive as the one purchased by Player #2.

4) New Players -- You have just sold your items or drops on the ah/bazaar to player. They were raw materials, so player #3 needed them to level crafting. You now have enough money to upgrade your equipment (coincidentally, probably from player #3 as well), or begin your own craft.


5) Newest Players -- You are just starting, but your inventory has been getting filled with crystals and basic materials (bee hive chips, lizard skins, etc). You sell them to player's #4 (and #3). With the money you raised, you are now able to buy your first sword, shield, earring, or cape. Coincidentally, those items were probably made by player #4.



The Money Flow

1) 300 mil gil is inserted into the economy between 300 players. Once the items are "traded" to upgrade the weapon, they are obliterated from the server. Even though the gil is in the economy, the items are not.

2) You have received a portion of 300mil gil from player #1. Most (or all) of that money has been used to purchase an item/items from player #3.

3) You have received a portion of player #2s gil, which he acquired from player #1. Some of it is then sent to player #4 through purchases, but some of it will return later on.

4) You have received a portion of player #3s gil, which he got from player #2, which he got from player #1. It's not as much as they got, but it seems like a lot to you. Some of it will also end up going back up the food chain.

5) You have received a portion of player #4's gil, which he got from player #3, which he got from player #2, which he got from player #1. It's barely anything, but it's enough to get you more than a few pieces of equipment. However, it seems like a lot compared to a 50gil adventurer's coupon. The money you spend also goes back up the food chain.



The Analysis

It's a money cycle. The money starts at the top, and is broken down exponentially and to more people the farther you go down the chain. The money travels down the chain until it finally hits the bottom. Then, it slowly starts to trickle back up. But before it gets there, everyone winds up with more gil overall...even the newbies.

What you need to remember is that the 300mil gil spent by player #1 was not previously "there" (for all intent and purposes). After the player got everything they wanted, they horded the gil. In other words, they took it out of the economy...much as the federal reserve takes money out of the US economy to curb inflation. As they did that, our economy adjusted by making things worth "less" gil. When that gil was spent, it wasn't just "spent"....it was "inserted." That's money that wasn't in the economy before that time. Sincere there's more money floating around, all money is now worth less. The more that is inserted, the less each gil is worth.

Don't think that it actually costed us less back then, though. In contrast, gil was actually worth more back then. It's no different than if the government gave us all $1mil. Sure, we'd finally have $1mil...but so would eveyrone else. The market would have to adjust accordingly. It wouldn't be long until you start finding eggs for $3,000 an milk for $12,000 at the super market. Those would be the values "adjusted for inflation."



The Good

Just because money is worth less now, that doesn't mean that we're worse off for it. Think about it this way. Back when most of us started, we were happy to sell a stack of fire crystals for 1k gil. Today, new players can sell that stack for 4-5k gil. When we started, a stack of silk thread sold for 5k gil. Today...let's just say that it pays to start in Windurst and kill crawlers.

Another way to examine it, think about vendor costs. The vendor costs have never changed. It may have taken us 4 stacks of fire crystals to buy a lizard jerkin from an npc then. Today, it takes us 1 stack. When people first started doing dynamis, 1mil gil was a LOT of money. Today, a person can make that in one round of BCNMs. If you go strictly by vendor costs, we are actually way ahead of where we used to be.




The Bad

If you kept gil on you, your gil is now worth a LOT less. You know who these people are. They are the ones who say "I FINALLY saved up for xxx, and now it costs xxx more!" Unfortunately, our economy is shifting greatly right now as it tries to find a happy medium. Gil is not the best way to invest your money. In layman's terms, it's no better than sticking it in a shoe box and hiding it under your moogle's mattress.



The Ugly

Our economy isn't going to return to the "glory days"...ever. It will keep shifting and keep moving until it finally finds a place to rest. This could take weeks, months, or even years. No one really knows when that will be, or what that "place" is. When it finally gets to a stable point, the smallest thing could set it off again. Unfortunately, no one really knows what lies ahead.





So there you have it. There's the reason that money is worth less and items cost more. There are other factors (like greed) that affect the price of items, but this is what I believe affected the price of gil. It's not because people are selling gil, it's because people who had "stored" their gil are finally spending it. Each gil they spend puts 1 more gil into our economy. The more they spend, the less each gil is worth.

edited for typos

Edited, Sat Dec 10 14:10:33 2005 by SophusTehNewb

The other thing that helps drive inflation that's less present in other games is the fact that you can level multiple jobs on the same character. Since players with 4 jobs to 75 that have been playing for 3 years and have tons of gil are still leveling low level jobs, the gear prices are driven up across the board. It also means that there's unlikely to ever be a fall-off in demand on items, as new people are always switching into the jobs.

Sophus, what you're observing is similar signs that lead to the United State's Depression.

Very good.

So Shiva's economy, probably all servers if hasn't already happened, have been compared to:

1.) The Great Depression

2.) Fall of Soviet Russia

3.) ????

By Christmas next year it'll be interesting, if not scary to see what the economy will look like... >_>

that post sucked. i dunno why. probobly because you used big words like "the" and "and"... i feel so illiterate ; ;

Hehe, pretty good :P

Hello all! I missed you, so I came to visit.

Technically Sophus... you are right. But even if SE sanctioned a way for gil to be paid back into the server... I doubt that it would be a great enough rate to match that which is being created.

Even if they created a ton of rare/ex equip that could be bought at absurd prices, they would have to create new items which was covered in my post. There are 3000 players logged on to shiva at any given time. There is already a huge amount of gil being stored (as you pointed out) those players would just toss that money into those rare/ex items instead of hoarding it. Which still wouldn't affect the economy. The players who raise the money just to buy those items probably won't raise it themselves at a greater rate than new gil is created.

I like your idea of SE purchasing a ton of gil, then deleting it, then deleting the chars who moghouse mail that gil. But I don't think SE logs that kind of activity. It might be temporarily saved, but lets be real. There is no way possible that SE has logs of every action, transaction and text since the game opened. They are probably limited to only being able to view logs for the last so many minutes. IF those logs are even kept.

The reason I doubt that is because SE would have probably already used that technique. OR... they know that if they do, the gil sellers will simply start laundering the gil. Yes it is possible.

OR SE gets enough money from gil sellers accounts that they aren't all that interested in getting rid of them. Think about that.

If you owned a retail store that sold a certain product for $1. Then another store came in and bought that product out, giving you a 10% increase in sales and turned around and re-sold that product at $1.10. You would be pretty happy to get the sales. Especially if they came in and did that every week. You'd be guarantee'd a 10% increase every week. After a year you'd order more of that product because now you want more of an increase... and you're wanting more of that product sold because you know it is for sure going to be there every week.

Then your other customers tell you that they want you to limit the quantity that you let that store purchase from you so they can have a shot at it. You oblige and immediately lose 10% in sales every week.

If you think about it, you really aren't losing 10% in sales. You just aren't gaining that 10% extra. But who in sales and business really thinks that way?

SE likes money...

Sophus... I'm saying maybe they don't track any type of transactions. Which is why they don't track the transactions of the accounts that sold the Gil.

I used to be an admin on a site that allowed users to send messages back and forth to each other. The admins were able to see the messages being sent (thanks to a page I coded... we had to track a few members), but once the person it was sent to read the message, it was deleted. I'm betting that is how SE has it coded also.