THE UNIVERSAL ECONOMY UNIT XVIII: LESSONS FROM MONOPOLY
Most of us (especially elders like myself) have played the board game “Monopoly.” Interestingly, in spite of huge growth in electronic gaming, sales of “Monopoly” continue to do well. The face to face social interaction in board games is regaining its appeal. But the game of “Monopoly” also provides many lessons in understanding the current state of economic affairs. It is a microcosm of a macrocosm – specifically, macroeconomics.
A quick review. . .
The “Monopoly” board has various properties, utilities, railroads and other locations where players land as a result of a shake of the dice (die). In other words, luck controls player outcomes as they go around the board. If a player lands on a property that has not already been purchased by another player, they can purchase the property and thereafter any other players who land on that property are required to pay rent. By buying houses and motels the owner of any of the properties can raise the rent on the location should others land on it. To win the game a player must bankrupt all of the other players and essentially own everything and all of the money.
But what is the first thing that must happen before the game (the economy) of “Monopoly” can begin? Someone must create and issue the money. Think of the “bank” in “Monopoly” as the U.S. Government Treasury and Federal Reserve Bank (the Fed). The “bank” – in effect the government of “Monopoly” or the United States – must create and issue the money. The government must spend the money into existence.
But, let us assume for a moment the almost universally held belief in the United States that “taxes fund government spending and the government has no money of its own,” is true. Then the first thing that must happen in “Monopoly” before the game can begin is that the “bank/government” must tax the players to get some money that it can give back to the players so they can start the game!
Obviously, the players in “Monopoly” have no money of their own before the game begins so the bank/government couldn’t tax them to get money to start the game. So, by definition the bank/government must create “Monopoly’s” money and spend it (give it to the players) into existence. But, also by definition, this means the bank/government must operate in a deficit. If the bank/government of “Monopoly” taxes back as much money as it gives the players in “Monopoly” in order to end the deficit and “balance the budget,” the game will be over because no one will have any money.
So, the first lesson we can learn from “Monopoly” is that taxes do not fund government spending. In fact, just the opposite is the case. Government spending funds taxes. In the real economy of the United States of American (and any other sovereign nation with a sovereign fiat currency) there are three real reasons why the government collects taxes: 1) It enforces the legitimacy of the dollar as the nation’s currency. 2) Taxes can be used to help control inflation if there is excessive money in circulation. 3) When applied progressively, taxes can be used to reduce gross economic inequality.
Note. . . none of the above reasons for collecting taxes is to pay for government spending. The government doesn’t need to collect taxes to pay for its own spending. Just like in the game of “Monopoly,” the government created the money people use to pay their taxes in the first place.
Of course, all of this applies only to the Federal Government since the Federal Government is the sole creator of the nation’s money. State and local governments cannot create their own money. However, there is nothing but ignorance and self-serving political/oligarchic manipulation preventing the Federal Government from doing far more “revenue sharing” with the states than is currently the case. This would eliminate the enormous debt burdens crippling state and local governments.
Critically, what we must learn from lesson one of “Monopoly” is that, at the national level, each and every time we personally make statements like “we taxpayers funded this” or accept from the pundits that “our tax dollars supported that,” we are perpetuating a falsehood that cripples our entire society. The moment we accept that tax dollars pay for any Federal Government spending, we open the door to the “how are you going to pay for it trap.” And, as soon as we allow ourselves to be caught in this trap, social security becomes “underfunded,” national single-payer public healthcare becomes “impossibly unaffordable,” infrastructure repair can “never be paid for,” and student debt relief becomes “out of the question.” We dig our own grave by accepting a falsehood.
The second lesson we learn from “Monopoly” is that the game is largely the result of luck – a roll of the dice:
Where were you born? In the United States? In Yemen? In Afghanistan?
Who were your parents? Lawyers? Business owners? Doctors? Educators? Drug addicts? Alcoholics? Poor whites? Poor Blacks? Kurds? Muslims? Migrants seeking to save your life? Who were they, your parents, and what incredible obstacles did they face because of their own economic situation, color of skin, or place of birth?
When were you born? Did you live before the efforts of thousands of people over thousands of years led to the development of the transistor, printed and integrated circuits, and the computer? Did you live before the U.S. Treasury created the money to publicly fund the National Aeronautics and Space Administration? Did you live before communications satellites orbited Earth? Because if you lived before this time Microsoft Windows would have been useless, Facebook and Amazon would have been impossible, and three of the richest men of the planet couldn’t have been. When were you born? Because anything you might have accomplished, no matter who you are or what you did, was built on the backs of those who went before.
There is a lot of luck – good and bad – in life.
The third lesson we can learn from “Monopoly” is that when all of the wealth is concentrated at the top, the game is over, the society is dead. “Monopoly” is the perfect model for a failed state. This is the path the United States of America is currently following. It seems an important lesson to learn.