A frequently-expressed dream of the libertarian, anarchist, and tax resister far-out fringe is the idea of a replacement for government money. This, for many reasons, including:

  • The “inflation tax”: “Governments are almost always net debtors (that is, most of the time a government owes more money than others owe to it). Inflation reduces the relative value of previous borrowing, and at the same time it increases the amount of revenue from taxes.” If the government has a monopoly on issuing money, it can use this monopoly to manipulate the currency supply and generate a stealth tax that tax resisters can’t easily avoid.
  • Basic anarchist principles. American anarchists like Josiah Warren, William B. Greene, and Benjamin Tucker challenged the government monopoly on currency, and Warren’s labor notes are an ancestor of the Time Dollars variety of local alternative currencies currently found in some areas of the United States (for instance Ithica Hours).
  • Privacy / secrecy. If you can remove yourself from the government’s money system, perhaps you can keep it from finding out about your earnings and spendings altogether. So much of the early cyberpunk sci-fi took for granted that in the future, anonymous, encrypted micro-payments were going to be flying invisibly through the wires faster than any government could track them. (The founders of PayPal were in fact hoping to turn this sci-fi dream into reality and fully intended their service to empower people and disempower governments.) John T. Kennedy, writing of what he called economic secession, put it this way: “Think of how much less profitable taxation would be if government didn’t know how much money you earned or how much money you had. The Leviathan cannot extract the revenue necessary to sustain itself at anything like current levels without knowing where the money is.… if the means of economic privacy are available they must choose between keeping their own money in their own pockets or voluntarily turning it over to government. Then you’ll see economic secession on a grand scale.”

But actual alternative currencies have not yet taken off in any revolutionary way, although they are frequently prophesied. None have proven to be anywhere near as widely-accepted, flexible, dependable, and safe as the good old Euro, greenback, Yen, and their other government-issued companions.

I’ve been keeping my eye on things like LETS and the Ripple system, which automates LETS and expands its boundaries. Sounds interesting, but I’ve never purchased anything with LETS, or with Time Dollars, or with any of the other occasionally-proposed emerging alternative currencies like pre-paid phone cards, frequent flyer miles, and so forth. Nor has anyone ever offered me any of this stuff for any goods and services I might have to offer. It’s still dollars in my neighborhood.

But zipping through the wires around me is an alternative currency I’m only really aware of through rumor and journalism — the currencies used inside the worlds of massively multiplayer online games to buy things within the context of the game.

These things are huge, and with players beginning to sell their hard-won (or virtually-purchased) game-world belongings on eBay, it became possible to exchange virtual money for real goods, real money for virtual goods, or virtual money with real money. In , an economist took the time to figure out what the exchange rate was between EverQuest Norraths and U.S. Dollars, and he concluded:

[EverQuest has] the 77th largest economy in the world. [It] has a gross national product per capita of $2,266, making its economy larger than either the Chinese or Indian economy and roughly comparable to Russia’s economy.…

The nominal hourly wage is about $3.42 per hour, and the labors of the people produce a GNP per capita somewhere between that of Russia and Bulgaria. A unit of Norrath’s currency is traded on exchange markets at $0.0107, higher than the yen and the lira. The economy is characterized by extreme inequality, yet life there is quite attractive to many.

Note that when he says that EverQuest had the 77th largest economy in the world, he means the real world, not just the virtual world. The IRS does not tax this thriving economy, though most of its transactions are (in theory at least) easily-tracable. Julian Dibbell at Legal Affairs wonders why:

If you haven’t misspent hours battling an Arctic Ogre Lord near an Ice Dungeon or been equally profligate spending time reading the published works of the Internal Revenue Service, you probably haven’t wondered whether the United States government will someday tax your virtual winnings from games played over the Internet. The real question is, Why hasn’t it happened already?

…if you look on online marketplaces like eBay today, you will find a thriving, multimillion-dollar market in Golden Runic Hammers, Ethereal Mounts, and similarly exotic items — all of them won (and anything found or wrested from another player is “won” in the context of a game) or bartered for in this or that MMO quest, and many of them fetching prices in the hundreds, even thousands of dollars.

Dibbell tries to figure out how he would declare income earned in the course of the game if he did decide to. After all, the IRS’s instructions include sections on how to declare barter, graft, and…

…every conceivable form of income known to accounting. To read it once is to realize that you know nothing about income. Here you’ll find a description of gains, ill-gotten and otherwise, so irregular that they can be taxed only according to that form of guesswork known as fair market value. Here are stocks, options, retirement watches, and stolen goods (“If you steal property, you must report its fair market value in your income in the year you steal it unless in the same year, you return it to its rightful owner”).

He determines that “items acquired either through barter or as prizes in a game” is the closest category. But now it gets sticky:

Goods taken in trade or won at play are taxable the moment they fall into somebody’s hands, even if they are not sold for money. The more I read, the more I wondered whether reporting the amount I had brought home from selling virtual items on eBay was enough to satisfy the IRS.

What about the assets I bartered for or won in the game but never sold in the real world, the suits of armor stashed here and there with their easily established fair market value? What if I traded those assets for their value in Ultima Online’s official currency, the Britannian gold piece, rather than for dollars? Wouldn’t it be easy to establish their value in dollars nonetheless and, if I owed American taxes on the exchange, put a number on the deal that the IRS could grasp and love? And what about all the other MMO players out there — how long could the IRS be expected in good conscience to leave the resulting millions of dollars in wealth untouched?

Hilarious. Imagine opening the treasure chest behind the recently-defeated balrog to find that it was one-third empty thanks to withholding. Is the armor your character bought a business expense, and if so, how should you handle depreciation? Can you imagine?

But it’s either an army of IRS accountants and lawyers coming up with just this sort of absurd regulation, or the government allowing a huge virtual economy at which many of its citizens fruitfully labor for hours and hours, to go untaxed.


For more on alternative currencies, time dollars and the like, see also: The Picket Line and .


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