War spikes in the Eve Online universe: A political economist’s account

Screen Shot 2014-01-30 at 10.07.38 AMVicious, 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’.[1] 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 elsewherethe 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…


[1] 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!

16 thoughts on “War spikes in the Eve Online universe: A political economist’s account

  1. Pingback: This Link Drag is Ellen Paged « Electron Dance

  2. As a matter of fact, meta-gaming has already skewed the economics in Eve-Online beyond the point where it will be an interesting environment to study from an economic point of view.
    Through diplomacy, some group of players have managed to monopolise a big chunk of income sources.
    This could well represent how capitalism morphed into corporatism where the concentration of financial resources have more weight in driving the market than the “invisible” hand.

    Another point: all the virtual assets lost were military in nature. From that regards, they don’t participate in the growth of the economy. Their only purpose is to be destroyed and replaced.
    In that sense, the virtual economy of EVE was not at all impacted by this war.
    The production means remained essentially untouched and their assignment have been left unchanged.

    The arms race bubble have deflated somewhat but that’s hardly an economic issue.

  3. Pingback: War spikes in the Eve Online universe: A political economist’s account | Disaster Response Team of America

  4. Economy of a game can also be a dynamic system just as the real economy, just as any dynamic selfsustaining system.
    Selfsustaining systems include feedback loops and stock/flow relations. I see it as 4dimensional system where time is also included.
    Economic theories are most often used in a 3D manner without time elapsing, time that has influence on feedback loop and changing stocks into flows and flows into stocks. The economy of a game is also affected by dynamic system rules, just as real life economy, and we can learn dynamics of one system (game) and impress it onto another system that seems much more complex in order to understand it better. That is why game economy is attractive to many.

    Would it not be easier to learn structure of system dynamics that are well described in some science fields or nicely explained in theories and apply it to analysys of a real life systems, wether social, economic, physics, biology, sociology, astronomy, medical systems?

    http://en.wikipedia.org/wiki/System_dynamics

    The future is in merging all sciences and discovering that all are under system dynamics, even matter as quantum physics are discovering and trying to prove today. But it seems that physics proof starts from excluding time in order to deduct the structure or the logic of the matter so it is having dificulties. Those thinking in 4D are still on the margin of accepted norms.
    The structure of dynamic systems is very complex and hard to comprehend since we have been trained in 3D or even 2D since our childhood but life is in 4D and having look at game economics is a slow learning tool of looking into simpler systems and applying it onto more complex ones.

    It is a long road ahead of us till we tap into the understanding of 4D dynamics. It seems that ancient generations knew how to apply system dynamics into their lives, judging by I Ching (yin and yang), star of david, flower of life and pyramids all over the world that apply structure of everything (theory of everything), or for us more comprehensive wording of stock/flow and feedback loop dynamics of energy.

    It was just recently that i discovered that there are pyramids in Bosnia (even tough i am right next door in Croatia) and even the ruins in Daorson that look like Machu Picchu walls that led me to connect all i wrote above to the economy which i study and analyse. It was the realization that all this time i was trying to understand economy in terms of stock/flow and feedback loops which look like geometric torus in 3D with time or Flower of life. And led me to the connection with I Ching (tetrahexahedron /torus) as stucture of everything or living selfsustaining systems and also matter.
    Yin-yang is acctually a 2D picture of a transparent 3D torus (doughnut) from an angle of 20* with dots as entering and exiting vector points in 4D. The lines and half lines in I Ching point to 3D image and 4D significance. This flowing torus describes feedback loop and stock/flow as geometric shape. It also describes magnetic flow of a magnet from N to S and from S to N. Also describes electromagnetic flow and gravity of the Earth or any object, even electrons, protons, quarks, planets, solar system, Milky way.

    Differing POV about game mechanics discused here and on any blog is due to position of the viewer on the torus of a dynamic system.
    While physics is advancing far ahead of other sciences it seems to me that it will not be aplicable untill economic science does catching up and get over 2D view with neoliberal theories that is in today. Keynesians are more like 3D while we have to start thinking in 4D way with stock/flow and feedback loop analysys like MMT. It is not that it is something new, never been described, just that it was barely ever applied.

  5. “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.” I ‘m afraid that, what you describe here is… the real world. In reality we spend time and money and co-exist with people we cannot trust. People turn to video games in search of fun and excitement. That’s what they get in exchange for their time and money in the digital world. The real world is a totally different story.

  6. Pingback: Yanis Varoufakis: War Spikes in the Eve Online Universe – A Political Economist’s Account | naked capitalism

  7. Interesting read, but you’ve made 2 mistakes I’d like to point out.

    Firstly, I’m not sure where you got ” Destruction and murder ‘for its own sake’ is not allowed” since in the vast majority of cases it (there are a few ToS exceptions to prevent certain kinds of harassment).

    Secondly, ISK, the in-game currency, does not enter the game buy being bought from CCP games. CCP makes money only from the ~$15 dollar monthly subscription fee for the game, as well as a handful of vanity items. ISK is only created “out of thin air” in game from player actions such as collecting a bounty for destroying non-player enemies. What allows ISK to be bought and sold is that instead of purchasing a month subscription for oneself, one can purchase a token (called PLEX) that can be redeemed for game time, as well as traded on the in game market for ISK. What this means is that ISK is not purchased from CCP but from other players who have the time/ability to earn excess ISK in game (who then do not have to pay the real life fees), and players who would prefer to spend less time ‘grinding’ in game currency, can pay real money for it.

  8. No physical assets were destroyed (unless a player tops himself as a result of stress)
    It was a mere transfer of notes was it not ?

    In that sense the computer world can never be REAL.
    The internet is a giant bullshit machine and there is no getting around that fact.
    If anything it is net negative as it drains power / fuel from real world activities………..from wine women and song.

    The home computer world is a mere offshoot of the bankers loose credit / hard money ecosystem.
    It is no accident that its use exploded during the deflationary 1980s as the excess energy released from imploding domestic economies / internal trade followed this technological cul de sac into this pointless electronic ether.

  9. I’m sure Mr. Varoufakis already knows what I’m about to say but this is for anyone whom doesn’t play MMOs in reference to the final appended note [1]: There is a term for ‘”destruction and murder for it’s own sake” – MMO-ers call it “Griefing”. Pretty much every online game company prohibits and tries to police it with a Ban Hammer since unrestricted Griefing causes any gaming population (ie: customers) to leave in droves.

    Mr Varoufakis, are you aware of the Economist Ramin Shokrizade’s blog over at Gamasutra? He’s made analyzing in-game economies and how they succeed or fail (and separately – the monetization strategies of game companies) something of a specialty.

    He has some really interesting entries (and White Papers) on how and why in-game economies don’t work the way the “real world” economies do. One of his blog entries even dealt with the EU crisis and why they’re a “real world” example of many of the same mistakes he sees made over and over by game devs trying to design functioning in-game economies that don’t break down.

    You can check him out here > http://www.gamasutra.com/blogs/author/RaminShokrizade/914048/

    P.S. I love this blog! Thank you for keeping it going. I’m sure I’m not the only one who appreciates it.

  10. Very interesting, I have not followed this brand of games.
    Is anyone aware of any similar game that resembles more closely the real (“off-line”) capitalist macro-economy?

    • EVE Online is the closest I have encountered. The main problem with getting a game any closer to a real economy is that there is no real way to make contracts enforceable in a game, as people can opt to quit playing or switch accounts.

  11. Not allowing murder and destruction for its own sake seems like a huge flaw in the game, and makes it very unHobbesian.

    Also, I assume that if you/your character are killed in the game, you do not have to quit the game. This is also unHobbesian.

    • It’s not a game flaw for companies to make Griefing break their ToS. Players will accept death and destruction in an Full-Loot Player Vs Player MMO (which is what Eve Online is) for almost any purpose except Griefing. A Griefer derives enjoyment of the game specifically by making sure he/she is *denying* other players enjoyment of the game. That’s the Griefer’s sole motivation and gameplay strategy – to rob other players of their enjoyment of the game.

    • As an EVE online player of almost 3 years, I can tell you this is not actually the case. With a couple of exceptions (harassment of new players in starting areas, for example) one is free to attack, scam and lie freely.

    • It’s to discourage ‘griefing’ players out of malice. Combat should be a risk-reward gamble on both sides, not a form of bullying or stalking players.

      If your ship or your character are destroyed you suffer various degrees of economic setback. You can also pay to insure against this to various degrees.

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