[In this, the second part of a three-part series, MMO economy expert Simon Ludgate examines the concept of faucets -- how money comes into the game and goes back out again, making some surprising revelations about what's truly crucial to a healthy game economy. You can read Part 1: Fairness here.]

In part one of this three part series, I addressed the issue of fairness in MMORPG economies -- specifically in regards to buying and selling equipment on the in-game market (versus locking equipment to bind on pickup). In part two, I want to address another MMORPG F-word: faucets.

Back in part one, Ultima Online creator Richard Garriott was talking about how economies are controlled in single-player games because the developer sets the rate at which players get money.

In multiplayer games, this constraint is still mostly maintained, because players choose the other players with whom they play. However, in MMOs, all that goes out the window, because you're playing with everyone else whether you want to or not. The basic economic structures look something like this:

These depict a game's MIMO model: money-in, money-out, the faucets and drains. This flow of money, while fairly simple to govern in single player games, remains a serious and poorly understood issue in MMORPGs. Many developers focus on trying to balance the creation and destruction of currency in their games lest their economies suffer destructive inflation.

"The faucet is the continued injection of 'currency', such as gold being acquired killing monsters or completing quests," explains Lance Stites, when discussing the economy of NCsoft's Aion. "That influx continues and fills the tub, so without the drain, the inflation would be extreme -- creating a world difficult for new players to ever break in to."

The problem with inflation is that "inflation" is a poorly understood term. Trust good ol' Wikipedia to clear it up: "The term 'inflation' originally referred to increases in the amount of money in circulation, and some economists still use the word in this way. However, most economists today use the term 'inflation' to refer to a rise in the price level."

Thus, we need to use two distinct terms:

Increase in price means that the prices of goods have gone up. This means that, if an NPC vendor changes his prices from 300G for a horse to 400G for a horse, or average prices for a stack of potions on the auction house go from 10G to 15G, price inflation has occurred.

Increase in money supply means the amount of money in circulation. If the total amount of gold on your game server was 1000G yesterday and is 1100G today, money supply inflation has occurred.

In the real world, these tend (with a big scary disclaimer on "tend") to go hand-in-hand. When your government stops printing one dollar bills and starts printing one trillion dollar bills to pay for everything it wants, you know your $50k a year salary isn't going to cut it anymore.

That's because in a society with a fixed amount of goods and services, the price of anything is a fixed percentage of the total wealth in that society. If the whole society has 100 loaves of bread, and prints 100 dollars (and you make the rather absurd assumption that loaves of bread are the only good or service) each loaf is worth one dollar. As soon as you print 100 more dollars, each loaf becomes worth 2 dollars, so it's a good deal for the person printing money (he gets 50 loaves now) but it's a bad deal for everyone else, whose one dollar is now worth half a loaf.

However, this isn't true in games, for one big reason:

The "society" in a video game has no fixed amount of goods or services. In the real world, there's only so much land to farm, so much oil to be drilled, so much iron to be mined. Plus, you have property ownership that prevents any random person from acquiring those resources. But in the game world, that doesn't hold true. There's an infinite amount of resources: they just keep respawning as players gather them. So, in a game, whenever you want something, you don't have to buy it... you can go get it yourself instead.

Inflation is a problem in the real world because most people cannot obtain loaves of bread without paying money anywhere (assuming they don't steal). They can't just farm their wheat and craft their tools and, voila, loaves. Because there are limited means of production in the real world, real people have to buy loaves.

In the real world, loaves don't grow on trees or drop from goblins. But in video games, they do. Although I'm stretching this analogy rather thin here, there's an infinite number of "loaves" in a video game and every player has the right to gather them, provided they play the game correctly.

In addition to the infinite resources to gather and craft, video game NPC vendors have infinite supplies of the goods they sell, too. No matter how many times you right-click on the loaf icon to buy it, there'll always be another loaf. And, even better, the prices never change. No matter how many loaves you buy, the prices never go up.

This means that, for every good available in a store, there is a fixed ceiling price for that good. "Ceiling price" is a fancy economics term for saying "the price will never go higher than this." So, no matter what happens in the game's economy, players will always be able to buy that good for at least that price.

Likewise, NPC vendors have an infinite amount of money at their disposal with which to buy junk from players. No matter what it is, as long as the devs flag a set sale price on it, the NPC vendor will buy any number of them. If you have a billion toad leather thongs for sale, the NPC has the cash for them (though I daren't imagine what he does with all of them). This means that, for every good that can be sold to an NPC vendor, there is a fixed floor price for that good. Did you guess that this was a fancy economics term for saying "the price will never go lower than this?" Good on you if you did!