The Second Life Economy

Western civilization is dealing with a crisis over intellectual property. The fact that any digital medium can be easily copied with perfect fidelity ties our legal system into knots, leading some, like Cory Doctorow to call for the outright abolition of Copyright law. However, DMCA et al is a harbinger of what is likely to become a much more serious problem. Over time, as technology and production efficiency has increased, the “cost” of physical goods has become less and less based on the actual stuff it’s made of. Right now, for most products, the “cost” is mostly tied up in things such as production, marketing, and distribution. And as we move toward on-demand fabrication, and possibly on-site fabrication (a kiosk that burns you a brand new Metallica CD at the local Tower Records while you wait) both production and distribution trend toward zero. . .

What happens when everything has effectively zero cost to manufacture and distribute? When the only value an object has is the creative energy expended to design and market it? What happens when you can download a Rolls Royce from Napster? While this resembles some versions of Utopia, it does pose a rather important existential question: Can an economic system exist without scarcity? (aka “How does Starfleet get paid?”)

Interestingly, there is currently a model of this sort of “Replicator Economy” in existence. The designers of the “game” Second Life have created a laboratory in economics or intellectual property. In a nutshell, within the game the only resource of any scarcity is land, and to play, you really don’t “need” land; you can just dive in and walk around. Like any other RPG, there’s a currency, and you can buy stuff. Unlike most RPGs, everything for sale (except land) has been created by other players, (including financial services) and when you buy something (except land) you’re buying it from another player. i.e., almost all goods and services for sale in Second Life have a cost derived only from the “creative” input and marketing involved. There’s no material cost, and no distribution cost— in Second Life it “costs” as much to create one Naughty School Girl outfit as it does to create 1,000 of them. One of the consequences of this is the recognition that ALL products are intellectual property.

“But, Mr. Swann, it’s only a game— there’s no connection between this and the REAL world”

Actually, there’s an exchange rate between the in-game currency and the US dollar. It floats and, as of this writing, is hovering around 260 Linden dollars to the US Dollar. So those 1,000 Naughty School Girl outfits at $L1500 a pop represent about fifty-five hundred dollars. That’s pretty real.

So, despite what many inhabitants of this intellectual bubble called the internet have predicted, the first truly virtual economy is not only solidly capitalist, but extremely conscious of IP rights.