Fighting the L$ downward spiral – a solution

The L$ falls, and there is nothing we can do about it

Readers of these pages know that I have no formal training in economics, and a one-semester-course in macro-economics definitely does not qualify me to talk about the economy of Second Life. Thus, I’m no Castronova wannabe 🙂

But it’s hard to escape the reality of the times. When I joined Second Life, you could get US$5 for L$1000. Since a Premium account costed US$9.95 per month, you would actually receive in stipends the same amount that you spent in monthly fees, so this was a great encouragement to upgrade to a Premium account. I have used that argument in the past quite often for people who were reluctant to sign in.

The day I write these lines, the ratio has dropped to US$3 for L$1000, and naturally, the old argument is not valid any more. And every week, it seems, Linden Lab announces further measures to cut the amount of L$ in circulation (thus hopefully reducing inflation, and keeping a better US$-to-L$ ratio) ? first, by abolishing extra stipends from ratings, then abolishing dwell/traffic, then giving basic accounts no stipends at all, and so on. There has been some serious effort going on to staunch the flow of “minted money” into the resident’s pockets, and one can only assume that this will continue. In fact, for the past few days, the L$ has been remarkably stable ? until something else hits Second Life, and it’ll drop further, no doubt.

Why was the L$ so high in 2004, and why has it dropped over time? The answer is rather simple, and was hinted somewhere (I apologise in advance if I can’t remember the origin of that quote). Around 2004, the ratio of consumers-to-producers (ie. content creators, vs. people that only buy content but not produce it) was 1:1. This mostly meant that consumers did want a L$ as low as possible, while producers would like it high enough to earn the most revenue from their own products (creating amazing things take dozens, sometimes hundreds, of hours!). Since the number on each side was about the same, the Linden dollar held for a long while at a stable value.

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