04 April 2015

Monopoly games teach about The Deficit

The board game monopoly was originally designed to educate people about the dynamics of rentier capitalism with a view to advocating measures like a land value tax to control the worst excesses. The designer, Elizabeth Magie:
... hoped the famous game company would turn her “beautiful brainchild” into a popular way of disparaging greedy monopolists. The company had other ideas. Elizabeth Magie and the true origins of the board... - Austin Kleon
I have a dislike of Monopoly as I've blogged before. But recently it's occured to me that it could be a way to help people to think about the deficit and government spending which is more accurate and therefore helpful than the current austerity discourse which picks up Maggie Thatcher's misanalogy* to a household budget.
In the household spending misanalogy, the Micawber lesson ("Income 19 shillings, spending 20 shillings. Result, misery") seems obvious when applied to the 'tax and spend' idea of government deployment of money. There is an aspect of the game that is far more helpful in giving us a productive analogy for a body like a national government which is in charge of issuing money (and leaving aside, for the moment, the matter of the role of private banks in money supply). In many games in the latter phases, a cash crisis can often develop: the banker runs out of notes to enable transactions to take place. The rules allow the banker, at that point, to create their own notes. Informally, some players in some games come up with other solutions: iou's or ledgers are the most obvious and probably frequent.

It's the role of the game's banker in that situation of cash-undersupply that I want to focus on. Basically, in such a situation, we have money being created and injected into the game. The game-banker has not gained that money through tax. It is simply that the economy of the game at that point needs more cash for the economy, that is the game, to continue. We can see clearly here that the role of the game's banker is simply to make sure that there is enough money for the transactions that make up the game's economy to continue. That money does not need to be earned or pulled out of the game by tax. No, rather the point of the money is that it represents the economic activity going on round the board and facilitates exchange and further development of the game.

So now the analogy to government spending can begin to be made. Firstly by noting that the government is more like the Monopoly-game's banker than Dickens' Mr Micawber: the government issues money for the whole economy to use for settling payments and debts (or at least it can do, caveat as above). To picture the government as one of the players in the game who can only pick up £200 when they pass go and has only that and rents to play with is a fundamental mistake**. As the issuer of money, the banker's /government's role is simply and basically to make sure that there is sufficient money in the economy /system /game to keep exchanges flowing and the game going.
That's the main thing to get hold of. When you have taken that in and can basically see how the banker is not like an ordinary player and how a household budget is not like providing a medium of exchange, we can complicate a bit.

Making the analogy more model-like

If we take it that an analogy is a simple comparison and a model is like a bunch of analogies all tied together in a single theme or comparative object, then we can move the analogy we've just noted towards being a simple model by noting some other analogues. A model is a kind of allegory for the purpose of making sense of something.

So what other analogies does Monopoly offer to understand The Deficit***? Well, let's think about some situations that could arise in the game and match them up with an actual economy.

There are times in the game when, as mentioned already, the game's banker needs to issue more money to facilitate the continued exchanges (that is to keep the economy going). If the game's banker were to refuse to do so and insist that only money already present in the game could be used then there would be two or three (related) things that could happen.

One thing would be that there would be stagnation. Having no money to settle debts or to spend on land, houses or hotels, players would have to stop buying and selling in part or totally.

Another thing might be that there could be inflation of the value of money. This would, in the case of the game have to be by explicit mutual consent of the players (corresponding to the evolving mutually defined valuation that takes place through markets and experience of buying and selling that takes place in the real economy). The point is that the players could agree to revaluing the currency: say, £1 now means £10 and so on^. This is something that can and arguably does take place in the real economy in some circumstances^^.

And still another thing might be that a further development of the banking system could take place to get round the lack of liquidity, the gamers could issue each other IOUs but this would be increasingly inconvenient as the economy of the game continued to grow. IOUs could be improved by keeping ledgers and clearing funds every so often. This would be inventing a mini peer-to-peer banking system. Another trick would be for the game's banker to take in the 'savings' of the players and to write IOUs for the money that players have stashed away. This would, in effect, be a commercial banking system^^^.

That latter tactic would be a little model of the basics of the banking system where deposits formed the basis for loans. But we shan't go into that here because we need to get back to the main topic.

The point that I'm now moving us towards in this post is that a government with powers of sovereign money issuance is not restricted to the Austerity method of Micawber-Thatcher bookkeeping. The fact that at a national economy level the issue of money is 'backed' by the whole economy makes a difference. It means that restricting the supply of money (and this has several dimensions to it) throttles back the ability for exchange to take place. The converse is also the case: increasing the supply of money (and again, this can take place through various mechanisms) can, in appropriate circumstances and handled rightly, call forth more exchange and in turn this can encourage further production of goods and services.

To illustrate that latter point, in the game of Monopoly, increasing the supply of money would enable players to buy more land, houses and hotels more quickly (to a limit). A lack of money slows and stops the game unless more money is created and somehow fed back into the game's economic system. The game's banker does not need first to 'earn' that money, say through tax or fines from the players, they just need to supply money to support the current and immediately potential exchange activity. In these circumstances, to do the Austerity thing, ie restrict the money supply, would slow and crash the game.

This indicates that in a crash / crunch situation, what is needed is to make sure that money is put into the economy to call forth or maintain exchange potential. This is basically what John Maynard Keynes saw in the early 20th century and which has covertly been recognised with the use of Quantative Easing (however badly directed that has been).

Of course, more needs to be said about the ways that money supply can be increased or decreased (the devil and the solutions are in the detail) and the effects for good or ill that this can have. But the take-home point is that Austerity is a crock: it's founded on a faulty analogy and one that in the doing of it makes the poor poorer and the rich richer.
 -----------------------------------------
* I well recall in the late 1970's, when the election campaign was raging that saw Mrs Thatcher become Britain's Prime Minister, realising that my A level Economics showed me how misleading it was to pretend that government spending was like a household budget. Once you've started to look at money supply issues, Keynsianism and the like, it doesn't seem such a straightforward or helpful analogy at all. For those educated outside Britain, A levels ('Advanced levels') were and are exams whose grades are used by universities to determine who to offer places to. It's worth noting that A level Economics is not widely taught and so most university Economics courses end up having to use the first year (perhaps more) to cover what an A level takes in.
** The mistake is one, without doubt, that neoliberal bankers and their political and industrial mates are happy for us to continue to make (and many of them probably believe it themselves. To be sure, it suits the ideology of shrinking state and putting finance in control, in effect.
*** The Deficit, in capitals like that, is my way of referring to the totem of what I'm calling 'Austerity Discourse'. Austerity discourse is a political fable used to justify reducing government spending and 'shrinking government'. The central totem is the analogy (or framing) of the household budget: income and outgoings. This construct enables austerity-promoters to disable the exercise of sovereign money by government which keeps the economic discourse within parameters that favour their projects. The Deficit is then a phrase that can be deployed to rein in any proposals that would use the powers of sovereign money in ways that don't fit the austerity narrative.
^ And this, of course, reminds us in passing that the value of money vis-a-vis goods and services in the real world is something that we construct socially. Money is a cultural artefact not a force of nature.
^^This is not to concede to monetarist theory, simply to recognise that in certain circumstances there is a reality, particularly in a circumstance like the game where a dynamic factor like velocity of circulation can't make up for shartfalls in quantity.
^^^ This is essentially a historical sort of model of the origins of commercial banking. There have been developments since: from lending out deposits, to fractional reserve banking through to money-creation-lending that we see today and which Positive Money (and others) critiques as, in effect, the privatising for profit of what should be a public good -a money supply that ensures a well functioning economy for the many not just the few.

PS (Posted 3Dec2016) I thought it affirming to find someone else using monopoly as a way to help us to understand some macroeconomics. So ...
In the game Monopoly, $200 is the amount every player gets for passing Go. Such cash infusions aren’t bad for the game; instead they help all players play the game. The same would happen in our real economy if everyone gets infusions of $200 a month. The extra money would relieve some burdens of working families and heighten their chances for success and satisfac­tion. And it would stimulate our economy without higher debt.

No comments:

Christian England? Maybe not...

I've just read an interesting blog article from Paul Kingsnorth . I've responded to it elsewhere with regard to its consideration of...