Their value is in their use.

In 1E D&D you get 1 XP per GP value of treasure you haul back to town – except magic items. With those, if you keep it, you get a small XP value (generally about 15% of the GP sale value, higher percentage for low-value items like potions and scrolls), but if you sell it and don’t use it you get the full value. I recall a quote something like “when retaining magic items, the full XP value is not awarded, as their value is in their use” but I can’t actually find that quote anywhere.

I’ve thought about that for a long time and it finally clicked.

Imagine a 2nd level Fighter who is lucky enough to locate a magic Sword +1 that will award him 2000 XP if he sells it, or 400 XP if he keeps it. He’s just hit Level 2, so he has 2000 XP and he needs another 2000 XP to level up to 3rd. His choice to keep the sword or sell it makes a huge impact on his next delve into the dungeons.

If he keeps the sword, he will have +1 to hit and damage, it’ll be slightly quicker in a close initiative match, it’ll cast some significant light so he doesn’t have to carry a torch, and some monsters need a +1 weapon to hit. He’ll also get 400 XP, but that’s not enough to change his level.

If he sells the sword, he gets the huge XP bonus and can train for a new level (in 1E, spending all the proceeds from the sword’s sale and then some to pay for training costs! In fact, he probably just hands over the sword to the master plus some coin). That’s 1d10 HP, +1 on his THAC0 (so effectively +1 to hit), his saving throws improve by +1, he can “sweep” three 0-HD monsters per round instead of two, and he’s less affected by Sleep spells (friendly fire or from the enemy).

There are tradeoffs here, but one could argue that whichever he chooses, he’s just as able to take on the greater challenges of the deeper dungeon levels.

There’s also an element of gambling. Let’s say he locates a +2 Sword in his next adventure. He will naturally want to trade up, keeping the +2 and selling the +1 if he kept it. But by keeping the +1 until he finds a better one, he loses 1600 XP. When considering that gamble, he hopes that any magic item he keeps will be one he uses a lot and for a long time, ideally in at least one situation where the magic item bonus makes a difference (such as dealing a monster’s last HP of damage and taking it down so it can’t deal damage next round, vs. leaving it at 1 HP and taking damage from it next round).

This is obscured in a non-perfect scenario where the magic item has limited uses, or you don’t get enough XP from the sale to level up until you’ve sold off several magic items. But I think the interesting decision and the gamble are both still there.

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