A Fantasy Economy

Please print out this article, find a quiet 10 minutes, and read it.
Economics is full of sophisms (common errors) and several notable ones are straightened out by the Walrus Magazine.
It tells the tale of down and out economist Edward Castronova, who was visited by genius. A seasoned player of online fantasy games, his insight came from discovering that players sold items which they'd earnt within the game, over eBay, for real money US dollars.
Here we go: what is "real money"!
And another: how can we keep creating wealth?

Castronova soon calculated the Ever Quest exchange rate, it's GDP (making it the 77th largest "country" in the world - further: what is a "country" - an economic entity defined by arbitary political boundaries?)

He'd done what mortals can but dream of, he'd stumbled across a research field, and created a "real" study where economic activity can be measured in an experimental setting. A functioning laboratory, ripe for analysis.

He also looked at Ultima Online and Lineage 2, to name but two similar games.

And how did the economic community respond? Rejection after rejection.

One reviewer wrote a snippy note saying he preferred "to stick with things that are real rather than virtual.... One can appreciate the economists' confusion. Even the most highly valued virtual goods do not seem, in some essential way, real. An Axe of the Heavens may be great for killing virtual orcs, but it cannot be enjoyed in the physical world. You can't eat virtual food to stay alive. But that distinction shouldn't matter — at least not in economics, which is, as Castronova never tires of pointing out, the study of the entirely arbitrary values that people ascribe to things. "Most of a diamond's value is virtual, too," he adds

The article draws on Adam Smith, and Marx, and if teaches you anything let it be this: economics is not only more curious than we think, but more curious than we can possibly think.

Thank you to Faith for sending me the article, and to Nick Schandler for alerting me to Alex Tabarrok's prior treatment of the issue.