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I guess everyone has noticed the depressed prices for most goods, low wages, and higher exchange rate. This is not necessarily a bad thing, though having prices for weapons set lower than the cost of raws to produce them is madness. So long as income is reduced at a similar rate to prices we're all just as well off, and the reduced exchange rate for gold is great for anyone who isn't a gold buyer.

Most of the analysis of reasons for this that I've been hearing has focussed on the market supply/demand dynamics. Demand for currency is higher due to offers, demand for goods is lower with the absence of the mystery shopper, supply is higher as citizens continually buy/upgrade companies. I'd like us to consider money supply as a contributing factor.

Money supply in RL is difficult to describe, in eRep it's dead easy as there are no financial instruments to worry about. It's simply the amount of CC held in citizen accounts, exchange market offers, government orgs and treasury. Also unlike RL, money supply is global as there is only one global currency.

We know that money can disappear from the game. Every day disillusioned citizens shuffle off this mortal coil with CC in their account never to be seen again. Every day citizens buy Q1, Q2 and Q4 raw materials companies with the proceeds disappearing from circulation. Money supply must constantly be shrinking.

So currency disappears from the game, but how does it get created? I'm glad you asked, for that is one of the more intriguing questions out there. There is no way in official game mechanics to change the money supply. There is a legacy law that can be proposed to print money, but in practice no country has done that for longer than I've been alive. If we follow game mechanics then, M must be constantly decreasing by the amount of money held by dying citizens and Q1, Q2 and Q4 RM companies purchased. We can buy gold from admin but we can't buy currency.

What happens when money supply decreases? Let me introduce you to an old friend of mine, the equation of exchange. It goes like this:

MV😛Q

Where:
M = Money Supply, the total amount of currency in circulation in an economy
V = Velocity of Money, the frequency in a given time period that each unit of currency is spent
P = The nominal price level
Q = The quantity of goods sold

There isn't anything particularly clever about this equation, it is an identity in mathematical terms and a tautology in common language. It essentially tells us that the amount of money spent on stuff must equal the value of stuff bought. Duh!

My old friend here is a nice framework for describing the current economic conditions.

To see what happens when M decreases let's rearrange my old friend as follows:

M = PQ/V

The 2 sides must be equal, so PQ (the product of goods prices and quantity sold) is reduced and/or V (frequency of currency turnover) must increase.

Now I don't know about you but I'm not spending money more frequently than I used to, and even if I did the velocity of money is still limited by the number of times a day I log in, so I'd expect the larger effect of lower M to be borne out in lower PQ, lower prices will give this result.

Basic exchange market supply/demand dynamics will also tell us that when CC is in short supply it becomes more valuable, and the CC/Gold exchange rate will increase.

Both of these results are evident today. Even if it's not the only force in play, I believe reduced money supply is playing a part in the current economic trends.

So if money supply is dwindling away and this is driving down prices and driving up the exchange rate, where will it end? Will we run out of currency? Left on its own that's exactly what would happen, but it won't be left alone because the game would end.

Of course there is one supreme ruler who can change money supply, our dear friend admin and his divine incarnation Plato. New money can be created 2 ways:

* When admin uses newly minted money to buy goods from the market (the mystery shopper)
* When admin uses newly minted money to buy up gold offers on the exchange market (the mystery speculator)

Exactly why admin has chosen to change money supply is unknown, nor are the grand surprises awaiting us when the era of the new equilibrium dawns. In the words of Paul Simon:

"God only knows, god makes his plans
the information's unavailable to the mortal man.
We work in our jobs, collect our pay
believe we're gliding down the highway when in fact we're slip-sliding away"

I hope you found this tedious, TL😉R article somewhat interesting even if it only served to remind you why you don't worry about the economic module anymore. If so, I'd appreciate a little vote.