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Virtual Deflation

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by Felix Salmon
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Nov 15 2007 12:00am EDT

Virtual Deflation

Can you think of an economy where the money supply is increasing but consumer prices are falling dramatically? Eyjólfur Guðmundsson can: it's called EVE Online. Over the course of the third quarter of 2007 – which is equivalent to about three years IRL, money supply rose from ISK75 trillion to just over ISK90 trillion. At the same time, however, both producer and consumer prices have been falling.

Aaron Schiff asks the natural question:

What aspect(s) of the game’s design have lead to breaking the relationship between increasing money supply and inflation?

Since we don't have numbers for GDP in EVE, nor for the velocity of money, it's hard to get a good answer. But maybe Guðmundsson will address the question in his next quarterly economic newsletter.

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