A deflationary downer: the game of Monopoly

On Saturday, I had a game of monopoly with the family for the first time in a decade.  To make a long story short: (a) I won; and (b) I decided I will never again play by those depressing, deflationary rules—concocted in 1936, presumably by the same genius economists who sucked the money, and life, out of the US economy at about the same time. 

The game took more than two hours.  Four of us started with $1500 each.  Ninety minutes into the game, my mom's railroad monopoly succeeded in bleeding my dad down to $18 cash and three undeveloped (green) properties.  Shortly afterwards, I finished him off: he landed on Illinois Avenue with 4 houses (...he'd been trying to hide in jail, but he rolled doubles, had to come out, then hit Illinois). 

It gets even better.  Two rolls later, I slew my near-penniless brother when he landed on Indiana Avenue with 4 houses.  My mom held out longer.  She kept getting my pass-go money with her railroad monopoly, but the assets I'd soaked up from my dad and my brother gave me enough cushion.  At last, I bankrupted her when she hit New York Avenue with a hotel. 

Hooray!  What fun!  I turned my dad into a pauper, then bankrupted my mom, too!  The dice had been smiling on me that day!

In theory, I was the victorious conqueror.  In reality, I was experiencing deja vu: that same, sick feeling I'd had as a kid, as a teenager, and as a young adult, whenever I'd won—or lost, or tied—the game of Monopoly.  Fifty years' worth of the same, recurring experience. 

But this time, I thought about it a little harder as I looked at the money in front of me.  It was the only money left in the game: about eleven hundred bucks and change.  Wait a minute; the Monopoly economy had started with $6000 ($1500 each); the money supply had shrunk by 82%! 

That's when it hit me: Monopoly's so-called Bank is in reality nothing more than an evil, malevolent Treasury Department.  Instead of recirculating all the money we'd been paying in for deeds, taxes, houses, and fees, the Parker Brothers' EvilTreasury had the net effect of hoarding most of the money, thereby deflating the currency, and driving the whole economy into a murderous deflationary depression.  Result: an economy that ground inexorably to a halt, ending with the most unequal distribution of wealth it is possible to inflict via deflationary malevolence and stupidity.  Coincidentally similar to what the combined actions of the Fed, Treasury, and Congress had done to the American economy in the early 1930s—around the time somebody was thinking up the rules for Monopoly. 

I apologized to my mom and dad (...although I told my brother he got what he deserved).  I also promised that, if we ever play Monopoly again, I'll be ready with some rule adjustments that will keep the money supply from deflating so murderously.  I'm a growth-economics guy.  Deflationary depressions aren't my cup of tea. 

==========
End note:

A few rule-improvement ideas: Five hundred bucks for landing on Free Parking; multiply all Chance and Community Chest rewards by ten, divide penalties by ten; two hundred bucks for landing on a Chance or Community Chest square.  All such awards paid by the EvilTreasury.  Other ideas are welcome.  [Bank loans would be nice, but probably difficult to implement and administer.] 

Easiest option: Never play Monopoly again; fifty years' worth is enough for one lifetime.  Play bridge instead.  (I'm leaning towards this one.)

Comments

[Steve Dalton]

I am still laughing. I felt like I was right there playing with my family.

rule modifications: implement annual rent increases to encourage purchases of property, implement annual property maintenance costs, allow a player to pay to sit tight on a property they own for one round.

[Jeremy]

Unfortunately a growth policy would have one bad result(one non-growth oriented folks seem to forget) the game could go on FOREVER! Monopoly takes long enough thank you.

[aurelianoli]

I usually agree with your insightful analysis, but I have a little issue with this one.

So when you started the game, each of the 4 players has $1,500 in cash and NOTHING ELSE.

By the time you emerge victorious, you have a little over $ 1,100 in cash but you also own a large number of assets, ranging from real estates to utility companies to train stations. All together, these assets have a net present value of a great deal more than $6,000. Furthermore, the $6000 generates no cash flow and presumably erodes in value over time as result of inflation. The assets you own, however, are the geese that lay golden eggs which will guarantee you an infinite stream of incomes in years to come.

There are many aspects of Monopoly that differs completely from a real world free market economy (e.g. the Monopoly universe is zero-sum and hence completely devoid of innovations), but generating deflationary pressure is not one of them.

[muirgeo]

That's funny. Will the new rules allow for sub-prime loans?

[Neocon Spin Master]

B.S.

America went through something called an INDUSTRIAL REVELUTION under a mildly expanding money supply of gold standard. That is china like growth rates. For 130 years CPI was steady to mildly falling, until of course the creation of the biggest market manipulator of them all - The Fed.

http://one-simple-idea.com/InflationHistory1800-2003.gif

[Jon Thompson]

Steve:
Wonderful post. My only point would be that the deflationary 30s actually saw a decrease in wealth inequality.

aurelianoli:
It is true that the wealth level increased, but the money supply (that is, the supply of some place holder that can be used in exchange for goods and services in an economy) did decrease. This creates a deflationary tendency, except that, in monopoly, most prices are fixed perfectly by the rules of the game.

Neocon Spin Master:
I would point out that deflation or a stable price level isn't horrible, and that the Fed clearly inflated the currency too much until th 1980s, and has begun to do so again in the last five or so years. However, that said, the deflation of the post-Civil War era led to significant underemployment, and the worst labor troubles this country has ever had. Other countries moving through similar economic conditions have usually not experienced the problems that we did during this period, simply because they had more inflation than we did.

[JorgXMcKie]

"That's funny. Will the new rules allow for sub-prime loans?" Only if the game has a Progressive who insists that it is immoral not to loan money to people who can't afford to pay it back, or who have no intention of doing so.

"Wonderful post. My only point would be that the deflationary 30s actually saw a decrease in wealth inequality." Yup, if only we could all become totally impoverished, think how little wealth inequality there would be. For a really good example, visit non-Tourist Cuba or North Korea. Practically no wealth inequality there. (Unless you count Fidel or Kim)

[aurelianoli]

Jon Thompson:
I am not sure why the money supply must necessarily shrink over time in the Monopoly universe.

Everytime a player lands on/passes by GO, 200 dollars is added to his/her pocket, hence expanding the game's overall money supply. Depending on the course of each match, it is entirely possible that the amount of cash infused into the system in this manner matches or exceeds the amount of money that is taken out of circulation.

In any case, it is extremely unlikely that by the money supply would shrink by 82% as Steve suggested in his original post. What shrunk by 82% in his post is the amount of CASH in the remaining player's pocket, which is not quite the same thing as total money supply of the entire Monopoly economy.

[Crashex]

We always set up a kitty in the center of the board that became the prize for landing on Free Parking. The kitty accumulated all fees or taxes normally paid to the bank. Only the money for purchasing properties went to the bank. In some games we would agree that the bank had to antey up a $50 or $100 minimum.

I thought everybody played that way!?

[Bob]

Yo, Steve! It's called Monopoly for a reason. You know, the Rockefellers and Standard Oil and the original AT&T.

Monopoly, my man. As in crush, pillage and burn the competition so you're the last man standing. BTW, will all that cash on hand you could have loaned your poor Mother some. Isn't that what a money market is?

Shame on you for being such a ruthless competitor. ;>)

[Jon Thompson]

aurelianoli:
I'm not trying to be rude when I say this, but you are wrong. Because there are no transactions accounts in the game, and the cash ends up in the bank to sit in a vault, the only money in the game is cash in the hands of players.

In Monopoly, there is only cash in the bank (which just sits there), cash in the hands of players, and assets. Thus, the only money in the game is cash in the hands of players, which is what Steve was measuring.

[Gil]

Interesting. Wasn't that was the same accusation of people towards the gold standard? It was all too easy to hoard the gold and have little incentive to spend or invest? Similarly weren't people surprised when the gold standard was temporarily dropped in times of war people were also surprised to see flourishing industries and fast economic growth?

Though you did make a bigger telling point about monopolies and a zero-sum circular economies - how many people would like to be at the top of a zero-sum economy where nothing much happens and the children of a family invariably do what their parents did?

[Neocon Spin Master]

Similarly weren't people surprised when the gold standard was temporarily dropped in times of war people were also surprised to see flourishing industries and fast economic growth?

Horse Hockey.
Wars destroy capital and not the other way around. There was only one major war as America was industrializing - civil war. Even according to Monterist King Milton Friedman, Second half of 19th century was a period of unprecedented growth and prosperity. Only interuption was the civil war. On top of the destruction inflicted by war, Inflation had a devastating effect on the economy during the civil war. Though GDP was not measured in those days, America was moving millions of people from subsistence level to middle class in large numbers. Growth was kinda like the growth in China now, except ofcourse, consumer prices were falling.

[Jon Thompson]

Neocon Spin Master:
You still haven't answered my question about serious underemployment and labor problems in that period. Also, your characterization is, at best, questionable. Annualized GDP growth was roughly two percent between 1865 and 1900, and per capita GDP growth was less than one percent a year. This is hardly an extraordinary level of growth.

Look, fundamentally, the state can alter the exchange rate between gold and scrip under a gold-standard, right? So, we are assuming a good-faith effort to do what is right rather than what is easy. Given that, I'll put up the 1982-2000 period against any eighteen-year period you'd like to name under the gold standard.

[Neocon Spin Master]

in the last 60 years, unemployment was lowest during the 50s and not 80s or 90s. We were still on Brettonwoods fixed exchange gold standard.

http://en.wikipedia.org/wiki/Image:Us_unemployment_rates_1950_2005.png

Between 1970( approximately when U.S officially went of Bretton-woods standard ) and 2006, per capita GDP in the U.S grew by 100.5%.

Between 1870 and 1906, the percapita GDP of teh united states grew about 121.76%. More over there was no inflation back in the 1800s, so the system was fairer. We were borrowing to invest back then. Now we are borrowing to consume.

We have the cart before the horse now. Consumption doesn' drive the economy, production does. Consumption is the reward for production. 70% of the economy today is consumption. There was no income taxes back then. Individuals and families were responsible for larger share of the GDP.

There was a reason why the late 1800s was called the gilded age.

37 million people arrived in teh united states between 1840 and 1920. That is an incredibly enormous number considering the fact that population backthen was only a fraction of what it is now. We were able to absorb all those immigrants.

[aurelianoli]

Jon,
This has been a very good discussion.

The bottomline is: Deflation as defined by economists refers to the general reduction of price level in an economy. The reduction in general price level in the real world is invariably caused by shrinking money supply. However, the Monopoly universe is different from the real world.

In the monopoly world price level is fixed by the rules of the game.You have pay the same amount of the same service and get the same reward and salary regardless how much cash is in circulation.

A more elaborate look into the price level dynamics among the players can be done through the following decomposition:

By definition,
Current Property price= Mortage price + ?

Or since mortage price is always half the origial purchase price according to the rule of the game,

Current property price = 1/2*original purchase price + ?

Where ? denotes the amount in cash that the other players would be willing to pay player A in exchange for his/her mortgaged property alpha.Obviously the exact value ? that each players assign to alpha depends on their own real estate portfolio as well as the amount of cash they can get hold on.

If ?>Mortage Price, then there is price inflation
If ?< Mortage Price, then there is price deflation
We can also compute the magnitude of in/deflation by calculating the absolute value of
1-?/Mortage Price

This forum does not have the appropriate format or interactivity for this kind of deeper analysis. Hopefully one day we will meet in a research seminar/boardroom setting where we can discuss this fascinating matter in greater detais.

[pawnking]

The real problem with Monopoly was it's inability to convert real estate into cash and still enjoy the benefits of owning it. Whenever you mortgage the property, you lose the rights to it. Same with houses and hotels.

A simple rule change would allow the mortgager to still enjoy the wealth created by developing property by mortgaging it while still being able to charge rent.

Of course, if that happened, Monopoly would last virtually forever. Maybe the object could be changed to whomever reached a net worth of at least $1 Million?

[pawnking]

The real problem with Monopoly was it's inability to convert real estate into cash and still enjoy the benefits of owning it. Whenever you mortgage the property, you lose the rights to it. Same with houses and hotels.

A simple rule change would allow the mortgager to still enjoy the wealth created by developing property by mortgaging it while still being able to charge rent.

Of course, if that happened, Monopoly would last virtually forever. Maybe the object could be changed to whomever reached a net worth of at least $1 Million?

[pawnking]

The real problem with Monopoly was it's inability to convert real estate into cash and still enjoy the benefits of owning it. Whenever you mortgage the property, you lose the rights to it. Same with houses and hotels.

A simple rule change would allow the mortgager to still enjoy the wealth created by developing property by mortgaging it while still being able to charge rent.

Of course, if that happened, Monopoly would last virtually forever. Maybe the object could be changed to whomever reached a net worth of at least $1 Million?

[Jon Thompson]

Neocon Spin Master:
Please supply any data set showing per capita GDP growth of over one-hundred percent between 1870 and 1906.

Also, if still being attached to Bretton-Woods is the gold standard, then I get to claim that the Great Depression and the sixty years of inflation between 1913 and 1973 as faults of the gold standard.

Finally, when people called that age gilded they were insulting a period they considered to be without any real value. That is, it only had the outward trappings of real wealth-it was an empty gilded box. I disagree with this sentiment, but you should realize you are actually insulting your poster child for macroeconomic stability.

[Neocon Spin Master]

Brettonwoods is not real gold standard, and it was bound to fail. But it was better than having no restriction on inflation. Inflation between 1913 and 1970 was relatively mild compared to the inflation that happened since 1970.
http://one-simple-idea.com/InflationHistory1800-2003.gif ( source: Minneapolis fed )

Now coming to the real data -

Didn't I mention that we added a tremendous number of people to the economy? that actually dilutes per capita GDP. Now let's look at the total GDP of the nation, it went from 100 billion in 1870 to 475 billion in 1906. That is a 375% growth in real GDP (adjusted for inflation).

Now lets look at what happened between 1970 and 2006. In 1970, the real GDP was 3771.9 billions. And in 2006, that figure was 11319.4 billions. We all know that during the clinton years, they rejigged the CPI calculation, I personally think the CPI is currently underreported, but leaving that aside, the growth in real GDP was 200%. That is no comparison.

Data is from here
http://en.wikipedia.org/wiki/Economic_history_of_the_United_States#_note-2

They have taken it from Bureau of economic analysis.

[Neocon Spin Master]

If you look closely at the same data from Bureau of Economic analysis. You will find that from 1801 to 1900 the GDP grew about 5373% under a gold standard.

Between 1901 and 2000 the GDP grew about 2372%. Is there a comparison at all?

Remember back in 1800s, they didn't even have assembly lines, let alone computers and automation.

[Jon Thompson]

Neocon Spin Master:
Alright, good points, well made.

However, I would reiterate the massive labor troubles we had in the Gilded Age. The American Knights of Labor, the Homestead strike, the Railroad strike of '77, etc. Also, look at your data set: recessions lasted for years when they hit.

What do you say to that?

[Neocon Spin Master]

Jon,

The relative shallowness of last 2 business cycles have come at a cost- slower growth and higher inflation. This relative shortness in the business cycle recently need not necessarily be a long term trend. But it may not have anything to do with the success of the central planners at the fed. It is just that we have tremendous ability to rapidly spread information. THere are just in time inventories. These factors help keep business cycle shallow during a corrective phase.

[Dan J]

Wow, all of this from a Monopoly Game? Once you've mastered the art of financially decimating your opponents, you're ready for RISK, the game where you build an emotionless military to conquer the world.

If we mixed these two games, we might actually end up with an historically-accurate portrayal of the Soviet Empire.

[Zephyr]

Interesting that the % growth of GDP was stronger in the late 1800s. However, for the average man it was growth from nearly no wealth to very little wealth. It doesn't take much progress to get a high percentage off of a dismal base. Much better to have a smaller percentage of growth on a much larger base.

[Nom de Blog]

**I'm violating the non-anonymity rule so if you delete me, so be it. I have strong reasons for wanting to avoid an on-line reputation.

As a kid we always paid all fees (income tax, poor tax, getting out of jail, et cetera) into the center of the board and paid that money to the person who landed on "Free Parking" so the bank only got the money for buying properties. We had great piles of cash at the end of our games.

Another idea: Play the game "Stock Market" as an alternative.

[Loren Howe]

Good topic. I think it is easy to overanalyze and rationalize the effects of an inflating currency under a central banking system. In the end, there is no free lunch. The economy depends on production no matter how much funny money you pump into it. The ability to create cash from thin air certainly does stir things up and benefit some people (banks and borrowers like corporations) but that is at the expense of anyone trying to save or work on a fixed wage(middle class).

[Kamran Jamil]

Wonderful Post! very exciting to read. Monoply is the game of slash and burn as soon as possible, and that is exacly you did.
If I whould change any rule, I will alow people to sell their properties though bargain. THis way supply and demand rule applies, and if a player is defaulting, then that player should expect lot less for any property. But if it is a prime peroperty, such as utility companies, then they whould expect to get lot more then the face value. !!!!