Edward Castronova had hit bottom. Three years ago, the thirty-eight-year-old economist was, by his own account, an academic failure. He had chosen an unpopular field—welfare research—and published only a handful of papers that, as far as he could tell, “had never influenced anybody.” He’d scraped together a professorship at the Fullerton campus of California State University, a school that did not even grant Ph.D.s. He lived in a lunar, vacant suburb. He’d once dreamed of being a major economics thinker but now faced the grim sense that he might already have hit his plateau. “I’m a schmo at a state school,” he thought. And since his wife worked in another city, he was, on top of it all, lonely.
To fill his evenings, Castronova did what he’d always done: he played video games. In April 2001, he paid a $10 monthly fee to a multiplayer online game called EverQuest. More than 450,000 players worldwide log into EverQuest’s “virtual world.” They each pick a medieval character to play, such as a warrior or a blacksmith or a “healer,” then band together in errant quests to slay magical beasts; their avatars appear as tiny, inch-tall characters striding across a Tolkienesque land. Soon, Castronova was playing EverQuest several hours a night.
Then he noticed something curious: EverQuest had its own economy, a bustling trade in virtual goods. Players generate goods as they play, often by killing creatures for their treasure and trading it. The longer they play, the more powerful they get—but everyone starts the game at Level 1, barely strong enough to kill rats or bunnies and harvest their fur. Castronova would sell his fur to other characters who’d pay him with “platinum pieces,” the artificial currency inside the game. It was a tough slog, so he was always stunned by the opulence of the richest players. EverQuest had been launched in 1999, and some veteran players now owned entire castles filled with treasures from their quests.
Things got even more interesting when Castronova learned about the “player auctions.” EverQuest players would sometimes tire of the game, and decide to sell off their characters or virtual possessions at an online auction site such as eBay. When Castronova checked the auction sites, he saw that a Belt of the Great Turtle or a Robe of Primordial Waters might fetch $40; powerful characters would go for several hundred or more. And sometimes people would sell off 500,000-fold bags of platinum pieces for as much as $1,000.
As Castronova stared at the auction listings, he recognized with a shock what he was looking at. It was a form of currency trading. Each item had a value in virtual “platinum pieces”; when it was sold on eBay, someone was paying cold, hard American cash for it. That meant the platinum piece was worth something in real currency. EverQuest’s economy actually had real-world value.
He began calculating frantically. He gathered data on 616 auctions, observing how much each item sold for in US dollars. When he averaged the results, he was stunned to discover that the EverQuest platinum piece was worth about one cent US—higher than the Japanese yen or the Italian lira. With that information, he could figure out how fast the EverQuest economy was growing. Since players were killing monsters or skinning bunnies every day, they were, in effect, creating wealth. Crunching more numbers, Castronova found that the average player was generating 319 platinum pieces each hour he or she was in the game—the equivalent of $3.42 (US) per hour. “That’s higher than the minimum wage in most countries,” he marvelled.
Then he performed one final analysis: the Gross National Product of EverQuest, measured by how much wealth all the players together created in a single year inside the game. It turned out to be $2,266 per capita. By World Bank rankings, that made EverQuest richer than India, Bulgaria, or China, and nearly as wealthy as Russia.
It was the seventy-seventh richest country in the world. And it didn’t even exist.
Castronova sat back in his chair in his cramped home office, and the weird enormity of his findings dawned on him. Many economists define their careers by studying a country. He had discovered one.
I first met Castronova at a piano lounge last summer at the Caesar’s Palace casino in Las Vegas, where he was attending a high-tech conference. We talked over a few drinks, though our conversation was soon drowned out by the bar’s syrupy Frank Sinatra impersonator, belting out a version of “New York, New York.” Castronova winced. “Where better in the world to talk about virtual worlds than Las Vegas?” he said. “This place invented the idea of virtual life.”
Castronova is a natural role-player. He’s a short, nebbishy guy with a neat goatee and horn-rimmed glasses. When he lectures he radiates charisma; he is the cool professor you wish you’d had when you were trying to grasp the dry mechanics of price theory. Until recently, he acted in a Shakespearean troupe, and in his spare time he explores the world of “multiple-user domains”—Internet chat environments where people assume different personae as they hang out together.
Castronova suspects his eclectic background is why he never made the powerful connections necessary to secure a good academic job. “I’ve always been an outsider. I’ve just been floating around outside communities, sort of flitting from topic to topic,” he said.
With virtual worlds, he had finally hit upon a subject that was exploding into the mainstream. Experimental online worlds had been kicking around for years but they took a leap forward in 1997, when Ultima Online—a medieval fantasy world similar to EverQuest—launched, and quickly amassed a hundred thousand users. The idea of having a second life online suddenly didn’t seem so geeky or, at the very least, it seemed a profitable niche; companies like Sony and Microsoft swarmed online. Today there are more than fifty active games worldwide and anywhere from two to three million people playing regularly in the US. The games range from Star Wars Galaxies (where you can wander around as a Wookie and fight the Dark Side) to There.com (where you can wander around Disneyfied islands as an attractive Gap-style model and admire your hot new body). In Korea, a single game called Lineage claims more than four million players.
To figure out precisely who was playing EverQuest, Castronova persuaded 3,500 users to fill out a survey. As one might expect, the average age turned out to be twenty-four, and the players were overwhelmingly male. The amount of time spent “in game” was staggering: over twenty hours a week, with the most devoted players logging six hours daily. Twenty percent of players agreed with the cheeky (if alarming) statement “I live in Norrath but I travel outside of it regularly”; on average, each of these “residents” possessed virtual goods worth about $3,000. “When you consider that the average real-life income in America is only, like, $37,000,” Castronova tells me, “you realize these people have a non-trivial amount of wealth locked up inside the games.”
When he finished his research, Castronova assembled it in a paper called “Virtual Worlds: A First-Hand Account of Market and Society on the Cyberian Frontier.” He submitted it to an academic website, the Social Science Research Network, that distributes working papers, free for anyone to read. The site has 43,982 papers by more than 37,000 authors. He didn’t expect too much. “I thought maybe seventy-five people would read it,” he recalls, “and that’d be great.”