Since the late 1970s, people in networked online environments have created, owned, and traded persistent digital things that have value for them. These activities – production, ownership, and exchange – meet every reasonable definition of economy. By the late 1990s, persistent online environments came to be labeled “virtual worlds” and hence the economies within them were called “virtual economies.” This was a labeling misstep. A 3D depiction of a car is (perhaps) usefully labeled as a virtual car – a car that is not quite real. But it is not as clear that an economy in a virtual world is not quite real. The “real” economy deals with things that are intangible all the time, as people buy, sell, and trade URLs, images, software, and ideas without second thought to the reality of the product. The items in a virtual world are not different. They are intangible, but they are also useful, scarce, and persistent.1 In the context of a virtual world they have real value.

One of the more interesting aspects of virtual worlds is that they can be readily manipulated by changing the code. The rules (physical, social, or laws) of a virtual world can be defined more extensively and easily than the rules of the real world. Changing the properties of the game or world can alter the very nature of a virtual economy, often with profound consequences for players. For example, the developers of multiplayer online games occasionally take actions that raise all players’ base level of productivity in the game.2 When that happens, the value of the marginal productivity provided by many items falls, leading to a substantial reduction in virtual wealth. This change can reverberate into the real world, where virtual items are often bought and sold for real money. Thus, an increase in the base productivity may thus drastically improve a player’s productivity in game, while simultaneously resulting in a (potentially) substantial financial loss in both the real and virtual economies. As this example illustrates, the designers of virtual economies are policy makers in a very real sense, and their decisions affect life both inside and outside of the game.

To players, “code is law” (Lessig, 1999). The power of designers to affect the in-game lives and wellbeing of players, in particular, far outstrips that of their real-world counterparts: the law-makers and enforcers of the real world. Contrast the merchant operating an intergalactic freight business in the virtual word EVE Online versus with a merchant operating an intercontinental freight business in the real world. Yes, the consequences of policy changes – at this period in time – are generally less severe for a merchant in EVE Online, than a merchant in the real world, but the developers of EVE Online control much more than just the laws and rules that bind the merchant. They control the weather, the number of pirates, and the size of the waves.