Matthew Beller of Ludwig von Mises Institute released an article today titled The Coming Second Life Business Cycle, which critiques Linden Lab’s execution and management of the LindeX and SL economy.

Beller states that SL’s intervention in society, by freely controlling the key commodity: money, will lead to some sort of recession for the SL economy. Beller writes, “[The sales of L$] do not reflect a flow of real wealth into Second Life. Instead, they are created by Linden to represent wealth, but no economic production was involved in creating them.”

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To my understanding, Beller is suggesting since Linden Labs can create as much L$ to make up for their “budgetary shortfalls without ever issuing any debt,” they generate an artificial inflation of the currency and thus point SL towards an unstable economy.

He offers two possible outcomes:

“In the first, Linden will stop running significant deficits at some point. With less L$ available to spend, residents will demand fewer goods and services, leading to lower prices and reduced profits.”

“[And in the second,] Linden will continue running deficits to the point that a sufficient number of residents and speculators will recognize the L$’s frailty…[and] everyone will scramble to redeem his L$ for “real goods,” which, in the case of Second Life, is probably the US$.”

Ultimately, Matthew Beller’s article does not offer a positive outlook for the SL economy, however he does tender his opinion on how to avert an SL recession. “If Linden wants to prevent this from happening and foster a stable, growing economy within Second Life, it should apply the lessons of Austrian economics to its policies: abolish restrictions on content, strengthen the ability of residents to enforce their property rights, and, most important, tie the L$ to a real-world commodity money backed by 100% reserves.”

Chronos Laval

[*http://www.makezine.com/blog/archive/2006/03/the_future_of_credit_cards_ear.html#more]