Virtual Economy

Corresponding to “real economy”.

Economic activity that is independent of the real economy, underpinned by the financial system, which seeks profit or remuneration through dealing in fictitious assets.

Virtual economy is a concept that arose in recent years; it was derived from the concept of fictitious capital put forth by Marx in Capital.

Virtual economy is a product of a highly developed market economy. Virtual economy includes not only the securities industry and securities market, but also the banking industry and foreign exchange market. The foundation of the virtual economy is asset-based products, which are priced in a way that depends to a large extent on people’s psychological expectations, as distinct from the cost-based pricing of products in the real economy. Virtual economy does not have to go through the circuit of capital (M–C–M') to make profits, which is the biggest difference between the virtual economy and the real economy. The process of development of the virtual economy has largely gone through the stages of capitalization of idle money, socialization of interest-bearing capital, marketization of securities, internationalization of financial markets, etc., and has now entered the stage of international financial integration.

The features of the virtual economy are: (1) High level of liquidity. Virtual economy is the activity of holding and trading fictitious capital, and is highly liquid compared to the real economy. (2) Instability. The price of assets in the virtual economy is determined by the expectations of asset holders and traders, and such expectations depend on factors beyond the control of enterprises such as macroeconomic and sectoral boom conditions, and many non-economic factors such as the political environment, which increase the instability of the virtual economy. (3) High risk. Fictitious asset prices have an uncertainty and high price volatility, which increases the riskiness of the virtual economy. (4) Parasitism. Virtual economy is generated by and dependent on the real economy, and its cycle of operation broadly coincides with that of the real economy, on which it is parasitic.

An appropriate development of the virtual economy can create a certain amount of additional capital for society, which is beneficial to the economy as a whole. However, the excessive or abnormal development of the virtual economy brings great instability and danger to the social economy. Once there are any changes in the socio-political and economic situation that cause the securities market to surge or plummet, or even form certain storms, it will bring disastrous consequences to society as a whole.