As virtual fantasy worlds go, Blizzard Entertainment's Diablo III is particularly foreboding. In this multiplayer online game, witch doctors, demon hunters, and other character types duke it out in a war between angels and demons for control of a dark world called Sanctuary. The world is reminiscent of Judeo–Christian notions of hell, complete with fire and brimstone and the added elements of supernatural combat waged with magic and divine weaponry.
But between February and May 2013, various outposts in the world—Silver City and New Tristram, to name two—had more in common with Berlin in 1923 or Zimbabwe in 2007 than with Dante's Inferno. The culmination of a series of unanticipated circumstances—and, finally, a most unfortunate programming bug—produced a new and unforeseen dimension of hellishness within Diablo III: hyperinflation.
This chapter is outlined as follows: I begin with a literature review and exposition of the concepts of inflation and hyperinflation within the ambit of virtual economies—including a review of the means by which virtual monetary policy is conducted. I then briefly describe the method used to analyze the case of Diablo III. Finally, I offer a full account of the hyperinflationary saga.
AUSTRIAN ECONOMICS, INFLATION, AND HYPERINFLATION
In orthodox economics, the term “inflation” is used to mean a general rise in prices. In this chapter, though, we use the term in a different and more useful sense. The Austrian economist Ludwig von Mises (1924) described inflation as an increase in the supply of money in excess of the demand for money (that is, an increase not “offset” by an increase in the demand for money), resulting in the reduced purchasing power of money. Price increases are thus a direct result of this process, not its essence. From a practical perspective, as Henry Hazlitt (1964) wrote,
[w]hen the supply of money increase[s], people have more money to offer for goods … Each individual dollar becomes less valuable because there are more dollars. Therefore more of them will be offered against, say, a pair of shoes or a hundred bushels of wheat than before. A “price” is an exchange ratio between a dollar and a unit of goods. When people have more dollars … [goods] rise in price, not because [they] are scarcer than before, but because dollars are more abundant.