Adam Smith in New Britannia

Adam Smith in New Britannia
by Baron Drocis Fondorlatos

Adam Smith's, The Wealth of Nations was first published on Earth in 1776. Here Smith argued that tariffs created inefficient economies that produced high inflation over long periods of time. It's my belief that would Adam Smith visit New Britannia today, he would see the same economic problems.

Tariffs are defined as taxes imposed on goods or services, usually imports or exports. But for our purposes, we'll just call them a straight tax as that fits this conversation better and it's easier to understand.

To test my theory, I stand in the center of the New Britannian economy, the Owl's Head market place. Anything can be bought or sold here, crafters can get supplies, warriors can buy new weapons, and traders can bring their raw materials and finished goods to be sold right here at the public vendor.



Today I'm going to be focused on the price of arrows. It's an interesting discussion because the local traders (the static looking individuals you see staffing the various shops around town) will buy arrows for 1 gold piece, and sell arrows for 2 gold pieces. This means the expected profit margin for a single arrow is somewhere between 1 and 2 gold pieces. But here I am at the vendor and someone is selling 2000 arrows for 2500 gold pieces. That's 1.25 gold per arrow, which is well within our expected range of profit. However, it's unclear if this is really a good deal for the seller or not.

How much gold did it take to create those arrows? This is actually a very difficult question to answer, but I'll try my best.

2000 Arrows
Sold at 2500 gold (at a rate of 1.25 per arrow)
Public Vendor Listing Fee: 300 gold

This gives a potential profit of 2200 gold before we factor in the production costs.

Fixed Cost of Making 100 Arrows
Bundle of Feathers (x10): .4 gold
Coal: .12 gold
Chemicals: .04 gold
Crafting Supplies: .01 gold
Total Fixed Costs: .57 gold

This means the total fixed cost for making 2000 arrows would be 1140 gold. The variable costs of making arrows is bit trickier to calculate. Iron and Copper Ingots are not sold by "local" traders. So Avatars need to either get these materials themselves, which takes time and resources, or they need to buy them from another Avatar. For the sake of argument I'm using the lowest possible cost for all variable items so we can see the best case scenario for producing arrows for sale.

Variable Cost of Making 100 Arrows
Iron or Copper Ingots: .01
Wooden Boards: .01
Labor: .01

This means that the total cheapest cost per arrow would be approximately .60 gold. If we combine our total fixed cost and total variable costs our new total production cost for 2000 arrows would be 1200 gold. There's also a public vendor listing price of 300 gold, making the total cost 1500 gold. This leaves the seller of these arrows with a possible profit of 1000 gold.

But does this answer the question of, was it worth it? I don't think it does, but that's really beside the point. You see, this exercise is not about how much money an individual Avatar can make off selling arrows. Nor is it about what's a fair "local" price for selling arrows. The reason this is important is much more complex than that.

While travelling in Owl's Head, I was approached by an interesting fellow named, Mark. Mark made it a point to express the current state his local economy when he said "I don't want to raise the prices on the food I sell, but if we keep bringing in less, it can't be helped."

Indeed Mark! This is called supply and demand, something Adam Smith discovered many years ago.



Smith believed that all economies had what he called an "Invisible Hand" that guided buyers and sellers together organically. So that in the case of our arrow example, there would be no need for an arbitrary fixed "local" price of 2 gold per arrow. I believe, Smith would've called this a tax. The "local" traders are not setting the price of arrows based on the principles of supply and demand. So the arbitrary fixed price of 2 gold represents either a tax on buyers or a tax on sellers.

In this case, sellers are still able to make a profit somewhere between 40 and 50% compared to if they sold to the "local" traders. Not bad!

But this is also assuming the lowest possible variable pricing! If we look at the very same vendor that is selling Iron and Copper Ingots, a key requirement in making arrowheads, we'll find that Iron Ingots are selling for 450 gold an ingot! While Copper ingots are selling for 140 gold. Another important requirement for arrows is Wooden Boards, that can be purchased here for anywhere between 80 to 417 gold per board! Goodbye profit margin if you're not making these items yourself.

Iron and Copper Ingots on sale at the Owl's Head Public Vendor:


Maple Boards on sale at the Owl's Head Public Vendor:

I created 500 arrows using resources I collected myself over many hours of exploring the world.

500 Arrows
Sold at 750 gold (at a rate of 1.5 per arrow)
Listing Fee: 85 gold

Potential Profit: 665 gold
Production Costs: 300 gold
Total Less Production Costs: 365 gold

Is it worth it to sell my 500 arrows for 365 gold in profit? I don't know that it is. But again that's not really the point. The larger picture is what Adam Smith was talking about in the Wealth of Nations. Economies that have arbitrary taxes will produce higher prices as seen in Iron and Copper Ingots, and Maple Boards.

This is why I believe that "local" traders need to stop selling crafting supplies and other finished goods so that Avatars can use supply and demand to find the true price of each item. I believe this will be better for the long term health of the economy.

To find this book in-game, please visit your local public vendor.

 

I assume then that you don't support artificial barriers to trade such as control points which will purposefully and inevitably distort free-market pricing of goods and services?

 

HA! Good one.

That's a different animal altogether (more about world building). If you want to discuss that, you should make a new thread.

 

Way better.

What happens when there is nobody currently selling arrows?

Should we all cancel a PvP tournament and go craft arrows instead? You yourself have a PvP city. With currently no looting do you recommend that hardcore PvPers take crafting breaks mid battle?

Should all archers be required to make arrows in basic self defence of having ammo?

The big difference with our world on Earth and SotA is that I can't log out on earth. Requiring a player base to provide essentials when there is no guarantee that player base will craft essentials or even be online will cause problems.

I currently loot about 4-5k per 1500 arrows I shoot. I wont pay more than 50% of my take home in ammo. 25% would already be insane.

The best fix currently would be to let the arrow price fluctuate as repair kits do.

Also, adding birds with harvestable feathers would also remove a 400gp tax that is another current problem.

I believe that your post is accurate but it does not solve the "where do I get arrows if no Avatar sells arrows and no NPC sells arrows"?

Would you make reagents only available through players? Do you think there are enough flower pickers to supply the entire player base to the point that you would remove the reagent trader?

The 300gp of the public vendor is avoidable on personal vendors (where I bought 10k arrows).

 

Thanks but I've had enough economics this week to last the whole year.

 

You're asking a lot of perfectly reasonable questions. And you're right, the economy is not fully functioning so there would be some very odd and difficult lapses in supply and demand that would not be fun.

I'm not saying that what I'm proposing would "fix" things in pre-alpha. I'm saying that if we found some parts of the economy to test, like arrows, we might learn quite a bit about how the players react to these types of questions.

Personally, I think you'd see tons of arrow makers get rich! Just like we saw when certain resources were required for Tour Guide Hats. Remember? That's how this works.

But we won't know that unless we test it.

 

If NPC's quit selling arrows I think all archers will become crafters before all crafters become rich off of arrows.

We are loot capped with what we can actually pay as opposed to what the market wants us to pay.

I do think the economy needs lots of work but I think during pre-alpha when some people only log in for a few hours that the Dev team should be careful to not alienate 1/3 rd of the play styles by removing essential items only to be able to confirm it was a bad idea to do so during pre-alpha.

Furthermore, having the market flooded with gold because of the Tower of the SE is worse for a stable market then NPCs with fixed prices (id still like the arrows to fluctuate)

Requiring base crafting materials be purchased off a vendor (in this case feathers) with no gatherable option is also more ruinous than a fixed arrow price.

I'm aware we are using arrows as an example.

 

Adam Smith and Wealth of Nations is really more of a Renaissance work and SOTA seems more like Medieval Fantasy, at least to me. I'd think the work of Thomas Aquinas would be more appropriate. I know that Mercantilism is more familiar to RPG players, but some players might appreciate playing in a world that isn't such a thin veneer over the modern world with 7/11's dressed up as merchants and gun shops relabeled Blacksmiths.

As to the Baron's point, fixed pricing for anything that isn't infinite in availability (i.e. crafting recipes and the like, assuming "Scribing" doesn't become a skill) is undesirable as it shackles the invisible hand of the free market. Unfortunately, it is quite a valid point that unless the player base with access to a given market is large enough, the that market would be incapable of operating efficiently and nobody would be happy with it.

 

I'm not totally against your logic, so, more than a rebuttal, this will be a critique -- addressing the pros and cons of your position.

- Since you're bringing up Adam Smith, to be fully accurate, he actually supported protective tariffs and thought they could be beneficial to the economy. Read Part II of Book IV of the Wealth of Nations, "Of Restraints Upon the Importation from Foreign Countries of Such Goods as Can Be Produced at Home." I just wanted to point this out to start off with with since a lot of people don't know this about Smith.

- However, there's a point in saying that low prices from NPCs can affect inflation, though I don't think you illustrate it correctly. The issue isn't that its a "tax" on sellers, its more like a "subsidy" for buyers. Its a different thing, but with similar results. If player wealth increased, and arrow prices increased with it, that would mean archers would have to spend more money as their wealth increased. So increased wealth would lead to increased gold sinks, which would be a constraint on wealth growth. On the other hand, if prices on arrows don't increase, then the wealth of archers grows without the gold sinks growing. They have a lot of excess, disposable wealth. Player sellers cater to that by selling items that are un-available at high prices, to match the disposable wealth of buyers.

- There's another point you're not making, which is that if NPC merchants didn't sell anything, then I think players might specialize their shops nore, making the vendor system less of a mess. Right now, any given vendor is just carrying a bunch of random items that the player thinks will sell. However, I think if NPC merchants sold no items, players would start opening specialized shops, like blacksmith shops, or fletcher & boyer shops, just to advertise what they carry. So there's an argument that getting rid of NPC merchants would make the vendor system less of a mess. I think though that this would require selling to vendors also, since another reason why the vendor system is a mess is because players who own vendors simply want to get rid of excess items they collected and don't want to sell them for NPC prices. If a bowyer & fletcher player could discard his excess stock at a blacksmith vendor at a good price, it would help this.

- However, IMO, its hard to say that the game can simulate real life economics. Because the world is very small and players don't have the same concerns as in real life, if killing one wolf permanently killed a wolf spawned in the world, all the wolves would soon be dead, as seen in early UO ecology simulations. Because players can't always be assumed to be protected from PKers -- because the anti-PKers might happen not to be playing and be on vacation -- we need NPC guards. Because players can't always be assumed to be producing basic goods or selling them at reasonable prices -- because earning a living isn't important to survival like it is in the real world -- IMO, we need NPC merchants. Immersion is the goal, but immersion also means making the game feel like a real world, not a world where arrows cost 100 gold one day because crafters decide not to make arrows. The game and the real world are different things. I'm looking out from Owl's Head, and there are a lot of trees (for wood) and a lot of birds (for feathers). As long as there are a lot of buyers, arrows should be available at a reasonable price. Supply and demand won't guarantee this IMO, because I don't think players will be have like they would in real life. If the game doesn't represent this, the immersion is broken. If you can convince me that players will choose to always produce and sell to reasonable prices, and not inflate the prices, you can change my mind on this.

- A different type of example that concerns me is the availability is not arrows, but bags and pouches. They're really hard to find right now, because no merchants sell them. A handful of players are selling through vendors, and those vendors are difficult to find. It doesn't necessarily mean bags are useless -- although they are more useless than they should be, because the freeform bag mode doesn't work as well as they should and they're useless in list mode. The fact that they aren't being sold dis-incentivizes anyone trying to use them, and causes more people to turn off the freeform bag mode and turn on the list mode. So the game market is catering to factors other than immersion.

- I've played the markets in some games, for example, Star Trek Online, which also have purchasable items from vendors, and have watched the markets over periods of months. The prices for a given good seem to stay more or less stable. The prices for non-purchasable goods were higher than the ones for purchasable goods, but they didn't seem to have constant inflation. They increased for a while, then the bubble collapsed and they were lower, then increased a while, etc.

 

To be more fully accurate, Smith was greatly in favor of free trade. While he unquestionably encouraged development of domestic industry, he was absolutely against protectionist measures that created unnaturally high prices for inputs. So yes he'd favor a regional economy but only to the extent that the inputs building that economy were efficiently priced. Pure protectionism, where industry creates inefficiencies and passes them on to the consumer, he viewed as destructive to ..... the wealth of nations.

So in SOTA, if control points force local merchants to effectively have a higher cost of production, Smith would looked at control points unfavorably.

 

Yes, but he supported tariffs that balanced against burdens placed on domestic industry because of domestic regulation or taxation. So there were certain situations where he thought tariffs made sense, he was just very skeptical and thought they had to be deliberately applied, with a lot of conscious thought, rather than just to accede to the selfishness of certain industries.

Anyway, the point later on in my post was Smith didn't write a treatise for game economics, he wrote one for real world economics, which is a different thing.

 

Well... to me this started as an "arrows are cheap" argument in another thread...

I must say it's a pleasure reading such well written opinions regarding the topic on thread. I feel like the topic is discussed way above my knowledge, so i'll be brief. If i recall correctly i remember the Devs saying that NPC prices (buy and sell) will be influenced by the state of the market; the way i understood it prices should change with the amount of objects players buy/sell/carry, the amount of gold distributed along the world, and some other stuff. I'd like to know if this kind of system oriented for "game economics" may avoid the potential problems discussed here?

Oh and regarding control points, i'd like to think that in MPO they will be controlled by guilds and they may ask for a tax of passage, so that's when smugglers come in

 

I sense a disturbance in the force... as if millions of economists suddenly cried out in anger and were silent...

This is somewhat of a moot point because the current arraignment (being able to buy most mats/tools at the crafting pavilion) is merely a convenience for pre-alpha testing and not the final balanced economy.

 

i feel that the public vendors should be location specific, what i mean is, if you put something on the public vendor in owls head it is only available to those who access the vendor in owls head. there should be a pot option for a public vendor as well.

 

I was producing lots of backpacks and small bags but stopped because I couldn't get a sense of the demand. I also had to use the public vendor (house is no where near player activity) which is a bottleneck right now. We need better in-game communication systems to expose market forces. For example, an ordering system would tell me what is needed. Middlemen could gauge market demand and place wholesale orders with crafters to resell at a centrally located vendor. This type of specialized economy requires high levels of coordination and very active players. Maybe have a wholesale auction that would provide information about bids/asks? Volume and spreads would say a lot about market needs--supply and demand, that then could be acted on by players and crafters. Players could see that something is scares and crafters could calculated whether it's worth it to supply certain types of items.

 

Yea, if we didn't have two forms of inventory and bags were actually useful I think there would be more demand. So supply and demand does play into this definitely, I agree. But its still frustrating from the POV of immersion that things are unavailable or at high prices simply because of the game design. I think its possible some items might be definitely useful but either completely unavailable or hard to find simply because people thought they could make more money selling other things or didn't feel like making them.

I think definitely players being able to put up shop signs will be extremely helpful, because it would advertise a certain type of good, and players in a certain region will know what they're competing against. They could easier decide if they want to compete against the same good, or cater to a different market, even a niche market. And buyers would be directed where to go to buy certain things. This would also help create specialized shops.

An ordering system might be helpful, too. I think it would be cool if there wasn't just one generic public vendor, but ones that specialized in certain trades, like fish mongers, silver peddlers, etc. This would also help provide easier information, and those public vendors could better serve as resellers.

I think the more people actually feel like they want a flow of money in the game, due to gold sinks, the more balanced the market will be also. I'm watching things like item repair costs, the nutrition system that will come into the game, etc. to see how balanced it would be.

Another concern will be how easy it would be to re-spec crafting skills and what impact this has on the economy. As long as there's some pain in re-spec'ing (skill decay and training), I think that will also help provide diversity on the market.

 

Well, that did escalate quickly.

I can tell you how that price happened. (Guess how I know? Yeah. That's right. Hi there.)

1: I'm still rather new, having started in R20, and hadn't tried archery or buying arrows yet. So I had not actually checked the price, nor how many you can buy at one time.
2: I had nevertheless managed to acquire quite a large amount of harvested materials. Oh look, people on the forums are talking about arrows. Maybe I should make some.
3: I had the mistaken idea that the "value" we see in inventory was twice what NPCs would pay and half what they would charge (modified by damage, which arrows don't have). I was certainly wrong, and I think I've seen that it's not even always the same multipliers for different things. (And I think I noticed that the realtor NPC in Solania charges twice as much for lot deeds than the one in Owl's Head?)
4: I did a little of the math in my head, realized just how much feathers alone cost (and we can't harvest those!), but not all of the math (coal, etc.), and I knew that I had to make it worth the time it took to farm all those ingots and wood, and craft it all. I think I kept trying to do the math as if arrows cost 1 each from the NPC, so I thought the feathers were 40% of the price, when they were actually 20%. I guess I should actually write it down next time.
5: I was being lazy and trying to ham-fistedly feel out the price, under an incorrect assumption of the NPC price, and another assumption that maybe you couldn't buy that many in one go (after all, you can only buy 99 feathers at a time!) to make it more convenient. Well, yeah, the NPC does sell up to 2000 per transaction.

So basically, I like playing the economic game (which I have done in FFXI, though I missed its most interesting years, starting on the back side of heavy deflation after a crackdown on RMT) and I was trying to get a feel for prices without checking the NPC prices. I am definitely familiar with what NPC prices can do to auction house prices, I just got the numbers wrong through laziness, and decided to plod along and do something. This economy may be completely un-tuned, but one of the things I'm here for is to challenge myself to do the best I can in it as it is, and adapt when it changes.

And here's the crazy part. I'm pretty sure that I sold one stack of 2000 arrows for 2500 a few days ago, and another at 2000 a few days before that. Barnum's Law at work.


But back to the original argument. Sure, there's a need to have a lot of arrows be available, especially at the rates people are using them with the recent skills change. But there's also a need to make crafting worth the effort for more than just making stuff to use yourself and save a few gold. Yes, under construction indeed, but in some ways as important as the skills situation.

Right now, one of the problems is that NPCs have an infinite supply of stuff to sell and an infinite supply of money to buy "junk", which imposes a high limit on what crafters can sell for, and a low limit below which it's not worth trying to sell to other players. Supply and demand doesn't work so well when supply is infinite at a particular price. It's worse than Wal-Mart selling a bunch of stuff made in China, because at least in China someone somewhere still had to make it.

One way to handle it is to have vendors do flex pricing or have limited amounts of stock per day. That's not entirely bad, but I've seen in FFXI what happens when you have vendors that do that. People wait until the flex price goes down a bit, then buy all they can, which empties the vendor and jacks up the price the next day, then sell it on the auction house for a profit. And the NPC price swings were really severe, too. This flex pricing was only used for crafting materials, some of which were hard to get by other means, but that made a big difference in the cost (and profit) of crafting.

Limiting it to a fixed number purchased per player per time period might help, but then you'll just get people who don't use the item (or have multiple accounts) buying their daily quota and throwing them right on the public vendor. Adam Smith didn't have to worry about people with multiple accounts, or Chinese gold farmers!

Another idea would be if you could craft arrows that were somehow inherently better than what you could buy at the NPC. The NPC sells infinite "generic" arrows at a fixed price, but if you want something better, you have to buy it crafted. By simply having them be better quality, the price ceiling goes away. This actually feels like the kind of solution that would fit in with SotA. Maybe after they get more important stuff working first.


I think one big problem is that there just aren't that many places to "live" right now. If the NPC selling cheap arrows was in another city, you'd either have to go to that city, craft them, buy them locally crafted, or someone carries them over from a different city (aka merchant caravan). But with the "big cities" we have now, why wouldn't those have an arrow maker?

Despite new characters being dropped in Novia, Owl's Head is still the main city in the game, and it's too easy for people to go there, if only because of the people who never leave Hidden Vale. The Novia overworld map is BIG, I went around it the other day, and there were PoTs everywhere, even far from any NPC cities. Sure, there is apparently some kind of ability to warp to your house, but I wouldn't know, I'm still saving up for a lot deed, ha ha, which is kind of the point. Would or should arrows be a higher price in smaller, more distant towns? There's potential here, but it's farther in the future than the golden release launch. Right now it just means that if your house isn't in a high-traffic area of a high-traffic town, a personal vendor isn't nearly as useful.


One other thing that makes the "economic game" more tricky with SotA vs FFXI is that FFXI lets you see the price of the last ten sales of an item (the UI makes you select the specific item type first, so it's just a sub-menu option to get there), and there's a web site that scrapes all the price records that your client sees (using third-party plug-ins that players voluntarily install), so you have even longer sale records, without even having to log in to the game.

Right now the SotA public vendors are like ebay without the sold listings. You know what price somebody wants to get, and how long it hasn't sold, but there's no way to tell what people actually paid for an item. That makes setting the prices more difficult, though not impossible. But at 10% fees per try, you want to get it right as quickly as possible.


And then there's the issue of money supply. Money paid to NPCs to buy equipment (and listing fees, and lot rents, etc.) is money taken out of the economy, just as money taken from NPCs by selling junk and looting gold from mobs is money that goes into the economy. I'd rather see that 2000 gold go to someone who will buy something else than to an NPC who just takes it out of the economy.

Again, still new here and having mostly seen barren empty PoTs, there's no public vendors in PoTs?

 

At the same time, it might not work that well if there were no NPC merchants at all, because only a fraction of the players are selling things, and there are more people buying things than producing them. I could see the stock of certain items deplete pretty quickly if there were no NPC merchants, depending on the amount of players that were active in the game on any given day. And its hard for NPC merchants to adjust to player prices, which may possibly be arbitrary.

And that's where the problem is I think. I think it would be great if we could have a self-functioning player driven economy, but I have doubts about that.

I don't know why that's happening. But to continue on thoughts earlier in the thread, I think for a healthy player shop system in the game, having some tools would be helpful,

- Shop signs, to show what wares are being sold in a certain shop.
- Unique merchant appearances to reflect the trade they're selling in would help the same thing.
- For a similar purpose, ways to display goods the vendor is selling on a table. Could be just the ability to place all objects as decoration, but I still like the idea of tying sales to a certain table which is "stocked" with the items, and they get removed as the vendor sells them.
- Town notice boards on which to advertise shops. You then could even advertise a shop in Vengeance on a town board in Owl's Head. That would influence people in Owl's Head to travel to Vengeance. Maybe also some type of directory.
- Public vendors specialized for different types of goods; fishmongers vs. silver peddlers, etc. These could be thought as wholesalers, and could also help player sellers with other information about the market or handle orders.
- Vendors buying items.

 

So I just double checked the prices of arrows all over again. Somehow I had misunderstood that OPs post was implying you could buy 2000 arrows from the NPC for 2000 gold. Nope, the point was that you can sell them for 2000 to the NPC. My math had been basically right from the start, that there was enough headroom below the price that the NPC sells for, which is 4000 gold for 2000 arrows. My 2500G for 2000 arrows was simply a very good example to work from.

My original (apparently correct) thinking was that people were making arrows and selling them for 1G each, but that they might run out of stock at 2000G for 2000 arrows. Plus, I had to consider the 10% listing fees from using the public vendor, since I'm still an un-landed plebian without my own personal vendor. That would have been pure loss over simply selling to a random NPC at the same price. So I have to sell for at least 2234G just to break even vs selling to an (infinite demand) NPC.

That is the lower limit on what you can profitably sell 2000 arrows for on the public vendor, regardless of what they cost to make, because NPCs will buy everything you throw at them. Below that price, someone can simply buy your item (that you paid listing fees for!) and sell it to an NPC. There may still be a profit at producing arrows to sell to an NPC for 2000G, which matters when producing arrows for your own use, but not when you're going to sell them. And it goes against the idea of having players craft equipment for other players.

And the people that are selling arrows to other players for 1G each? They're effectively doing it as a free service, making no more profit than they would have otherwise.

So the choices are:
- sell to an NPC for 2000, and nobody gets to use those arrows
- sell via a public vendor at a price between 2234G and 3999G, competing with landed people who (I presume) don't have the 10% listing fees overhead*, but who still have to actually produce each and every arrow, and thus a limit to supply
- take up archery

But no matter what, I can't sell for more than 4000G (at least not to a sensible person), because the (infinite supply) NPC never runs out at that price.

*though aside from the current anomaly of early backers with tax-free deeds and rent not yet implemented, there will still be lot rent to pay!

 

"The expected results of our decisions and actions are maximized only in light of the actions of others."