Second Life: Ponzi Scheme, or Mayberry Gold Rush?

Everquest II
It’s a bit like Alan Greenspan walking into an Econ 101 class at San Francisco State University, picking up a guy’s term paper, and saying, “Dude, WTF?” There’s been a lot of blogosphere back-and-forth on the question, “Is Second Life’s internal economy a pyramid/Ponzi scheme?”— launched by analyst Randolph Harrison here, Slashdotted here, with my take here— and finally, Indiana University professor Edward Castronova has weighed in on Terra Nova, here.

To say Castronova is an expert on virtual world economies would be an understatement— he practically invented the field with a groundbreaking academic paper which analyzed the gold-and-precious item economy of Evequest in terms of gross national product. (That was back in 2001, when EQ was by far the largest online roleplaying game in the US, with several hundred thousand subscribers. Dang, do times change.) Greatly aided by the momentum of that paper, the academic field for studying virtual worlds has grown from a tiny niche to a multi-disciplinary field evident in the many professors and intellectuals who contribute to Terra Nova, and in the yearly State of Play conference hosted by Harvard’s Berkman school and other big guns. (Full disclosure: I’m a regular SoP speaker, and regularly intimidated by the giant minds who show up there.)

So Castronova’s take on the SL economy is decidedly different:

Imagine Mayberry, in isolation, with the occasional Don Knotts figure setting up a bank… It’s not a con game. It’s a village-sized market. In fact it’s a tourist attraction-type village: the big numbers of the people you see are one-time visitors. Newcomers are arriving in droves. Land speculation is rampant. But it’s not thick; it’s tiny. Not a ponzi scheme: a little mini gold rush.

Read it all here. Harrison himself has, and in the post’s comments, weighs in. Right now, the conflict really seems to be one of expectations and actualities, with excessive media hype depicting Second Life as if it were a vast metropolis of unlimited opportunties for incredible wealth, while in reality, as Ed suggests, it’s still a large town with a small-but-energetic market.


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