The Value of Virtual Economies

I see a lot about how great virtual economies have been doing over the past year or so – especially the economy of Second Life. And I’m not questioning the idea that those economies are doing well. But an article by Tateru Nino in The Metaverse Journal is making me think a little more critically about the economics of virtual worlds and cyber-economies.

The premise of the article (Alice has a dollar) is simple enough. If Alice has a dollar and she gives it to Bob, most virtual worlds would report that as a dollar’s worth of economic activity. But in the real world we’d try and decide why that dollar changed hands. Because the movement of money in and of itself isn’t economic activity unless it reflects some valuable exchange of goods and/or services.

As Tateru points out, when we measure economic activity in the real world there’s a complex set of estimations and educated guesswork that goes into deciding what it means when money moves. But in virtual worlds we just kind of count the money and call it a day – forget the estimations and guesswork.

My question is this… Why does what happens inside a virtual world get described as though it’s real economic activity? Isn’t it more realistic to measure the economic activity of a virtual world (like Second Life) in terms of how much money moves through it? If I put a dollar into Second Life and, as a result, get something I want, that’s economic activity. If I make a million Linden dollars in Second Life and I move some of it out of Second Life and into my bank account, that’s economic activity. But if I just spend my money inside Second Life, is that economic activity? I’m not sure it’s the same thing as when I buy bread at the grocery store.