For a number of years, I've been using some odd moments to re-connect with economics which I learnt as a subject for A-level and which learning I have been able to marshal to understand the basic issues in national and political life ever since, to some degree. One of the consistently distressing things, given that background, has been the Thatcherite 'handbag economics' which essentially persisted having become the new common sense through to more recent times and enabled austerity politics to take hold.
A couple of paragraphs digression...
It's worth noting too, that despite the austerity narrative, the Cons were not averse to using the 'magic money tree' quite copiously. In doing so they showed that it is the 'where the money is deployed to' in respect of the production of money that is at issue. -Because they paid out without taxing it back or calling in the debt. So how they justify 'where we don't insert money into the economy' -by a narrative of unaffordability- is really the thing to watch. "Do as I say not as I do".
Clearly by this point, the household budget analogy of Thatcher (often called 'handbag economics) had become so commonplace that it was straightforward to deploy it to justify political choices as if they were 'just the way things are'. It could take hold because it had the open goal of widespread ignorance about what was actually happening at a macro economic level. In that way austerity came to be seen as 'just common sense' (however unpalatable) to so many people. Unhappily also this affected many politicians most of whom should have known better, not least because they are, in a sense, supposedly paid to know better. But it seems that most of them didn't actually understand macroeconomics -as polling by Positive Money demonstrated. I'm hoping the following exploration of a certain famous trading game's economy will help readers to become better informed than many MPs appear to be. This may help those MPs raise their game (pardon the pun).
Back to the main points
So, one of the things that I've been musing over for a little while, is how we might displace the cultural fastness of the idea of handbag economics with something more accurate and helpful. In response to this challenge, one of the images or ideas that I keep coming back to is a certain famous property trading game. I think in part because when I was learning about fiscal policy I managed to persuade my sisters to play a game of Monopoly (tm) with me where I, as banker, was given tax-raising powers. This gave me the chance to observe over the course of a game, the contrast with all the other times we'd played. What we found, unsurprisingly, was that greater equality between players was possible and could be maintained for a long time. We observed that the fiscal (a progressive tax) mechanism countered the monopolistic dynamic of the game which is 'to those who have more will be given' -ie towards monopoly at the expense of others -'beggar your neighbour'. Of course, the game was originally designed to teach about just this monopolistic dynamic and I think I may have inadvertently reproduced to some degree, the other -original version- of what was originally called 'The Landlords' Game' which was a version with a land value tax embedded in the rules. I understand the two were to be used together as a learning tool.(*2)
Since then one of the things I have found myself returning to in terms of understanding monetary dynamics in macro-economic terms, is summed up in the question,
"Do you know what happens in a game of Monopoly if the banker runs out of money?"
Many people don't because they've not experienced a game where that has been necessary. I played enough games when I was younger for this to happen at least once. The answer to that question is that the banker simply creates more currency -literally just writes on bits of paper and these then become legal tender within the game. If this doesn't happen, the game grinds to a halt. In order to continue the exchange of money for properties, fines, rents, building, mortgaging etc (which is all the economy of the game), there has to be sufficient supply of money to support that activity. ^*
From this point of departure, I have been noting several parallels and helpful reflections to an actual, proper, scaled-up, economy with its own money-issuing powers. It's almost as if the game is a scaled-down model of a real economy. In fact it is and was designed to be so -the only question is whether the parallels between the two scales hold -and this is the topic of this little enquiry.
As I have come to see it, 'handbag economics' (perhaps I'll stop scare-quoting that) is problematic because, seen in terms of the game of Monopoly, handbag economics takes only the perspective of an individual player and not the banker. The game enables us to see, if we ponder further, the way that money represents or is backed by the total economy. It also helps us to begin to grasp the importance of one of the core insights of Modern Monetary Theory (MMT); that the starting point for a government in an economy is not "tax" but "spend".
Usually handbag economists start with the idea that you have to have money coming in before you can spend it. This is then transposed directly to the macro economy and is taken to mean you have to tax to get the money coming in so that it can be spent. This is the perspective of the ordinary player in the game: in order to function as a player you have to have money otherwise you can't buy or develop properties, nor can you pay fines or rents and your only recourse if you run out of money is to sell or mortgage properties or to hope one of your rivals will drop onto one of your properties and give you rent or that you will pass 'go' and get your 200 currency units (cu's -different national editions use different denominations: £ $ etc) income.
However, just stating it in those terms does help us to understand a few things. One is that there is another perspective in the game; that of the banker. Another, and relatedly, is about where that 200 cu's comes from and what function it has in the economy-that-is-the-game. And the question of the 200 cu's for passing go (how are they earned and how does that work?) also relates to a third matter: starting the game.
These are all tied together by the insight that if the game's economy runs out of money, the banker -as banker, not as a mere player- can simply produce more currency 'from thin air' in game terms: the banker has a magic money tree and doesn't run out of "other people's money". In fact the danger in the game is that other people run out of the banker's money (translation: the economy runs out of the government's money).
To be sure, the banker doesn't normally just give the new money away. There are a few mechanisms which they can use to float new money into the game's economy. One is via the basic income given by passing go which can now be paid in newly-created (minted!) money, similarly those points where the banker is mandated by cards to pay players. The new currency tokens will then continue to be used and they will function in just the same way as the printed cu papers that were issued at the start of the game. Basically it is trust or confidence that makes this happen. As long as the players continue to treat the new tokens as currency, it actually is currency. That is, if players trust to accept it from one another as payment of the debts that the game's rules recognise and create, then it is functioning in the exact same way as the game's pre-printed currency notes. Probably, ultimately what holds that trust in place may be that the banker will accept those tokens in payment of fines, property deals etc and continue to re-circulate the new `notes` in payment of the banker's own obligations to pay the basic 'passing go' income to players along with any occasional card-mandated 'bonus payments'.
I underline that the new notes are functionally interchangeable with the 'old' pre-printed currency unit notes that come in the game box. Now we understand better the banker's point of view. The banker is there to ensure that the currency functions to support the game's economy; to make sure that there is enough money for everyone to exchange in payment for the goods and services that the game consists of or for players to use to pay debts to other players or to the banker themself. The banker is spending that currency into existence. First of all in starting the game by creditting each player with a sum of money and then by topping up each player's account each time they pass go. That first amount is not earned in any way by any of the players: it exists to enable the game's economy to get started. This is essentially like the Modern Monetary Theory proposition that the proper order for understanding a macro economy is not tax-then-spend (the handbag economics' story) but rather spend-then-tax. I'm just focusing on the spend aspect for now, not the tax dimension.
What MMT is saying is that for a money-using economy to start and keep going, money (currency units) must be made available to 'players' /economic actors to be able to represent\stand for goods and services that they can exchange. Once players\economic actors have currency units and have confidence and trust that others will accept them in exchange for goods or services, then they can engage in exchanges using the cu's -this is "economic activity". The necessary trust\confidence can be underpinned, enabled and strengthened by a sovereign token issuer being themselves prepared to accept the currency units \tokens in payment of (for example) taxes(*3).
What if the banker couldn't introduce currency into the game regularly?
This section is a bit of a side-exploration. Feel free to move to the next section if the detail does your head in (headed "Micro model ...").
We could, perhaps, consider the reverse side of the banker's spending currency into play within the game. What would happen if money was not being brought into the game's economy -that is if it wasn't being spent into existence inside the game? Two scenarios here: one would be a game where no-one has any money at the start, the other scenario would be where no-one receives 200 cu's for passing go. If there was no opening credit for each player at the start of the game, then a game might look like the following situation. Since the rule is that no-one may buy properties on the first time around the board, then during that first round a player may find they have to pay a fine or receive moneys from other players or to give money to other players as a result of card mandates related to where players pieces land following a dice-throw. Clearly these things could not happen, and so having not cu's would mean that the first round only had the effect of determining the relative order and timing of players entering into the second round. No slight disparities in wealth would yet crop up. If the only income were from passing go, then some players would be able to begin buying properties. This would advantage those who had the highest dice throws to get round first. They would then be able to modestly buy properties and gain, perhaps, a modest income by taking rents from players whose aggregate dice throws meant they went past go last. It would probably take quite a lot of time for these initial gains and losses to add up.
And we still haven't addressed the issue of the fines that may have accumulated in the first round -admittedly unlikely to be many but still possible. So, imagine a player ends up with a card mandating that they pay 50 cu's to the banker. Without any starting moneys, the would have to issue an IOU, assuming the banker accepts it: perhaps the deal would be that they'd only get 150cu's from the bank on passing go. Or, what if the mandate was to pay other players, say 10cu's each. Again an IOU could be offered and if accepted could potentially begin to work as a currency token if other players would accept it, which they would if they trusted that the debt would be paid with the basic 'passing go' income. The IOU note could then circulate as a currency unit. Let's notice here that the confidence in such IOUs relies on the prospect of a basic passing go income (hereinafter: "bpgi") introducing an accepted currency into the game's economy. This clarifies the function of money as a unit of account between players making it easier to settle debts more quickly and efficiently.
If there were no basic 'passing go' income, there are two scenarios. One is that there was a start-of-game deposit of currency units to each player and that is 'it' -no more money comes into the game's economy, there is no further currency to be had. The other scenario could be that there is no starting money either. This latter scenario would be like the previous scenario but without expectation of any currency units becoming available. So the only way to proceed would be to issue IOUs against fines and hope that these became currency -but what would they be 'backed' by? How would they become a means to buy properties and so forth? Unless the players had the nous to agree together to independently create a banker with the kinds of powers the conventional rules set out, the game would seem doomed never really to begin. Or perhaps players would be allowed to claim the cards of any property they landed on and perhaps those could become the basis -the backing- for a currency of sorts provided all the players trusted one another to honour the debts created.
There would be an interesting question here of how the relative valuations of the properties might then develop since the conventional rules set a price which rests in the authority of the banker to refuse to hand over deeds for less than that price. If the first of those two scenarios (where there is no bpgi of 200cu's) is followed and there is a starting set of moneys each player has but no other money in the game's economy then the play-out might look like this. Various exchanges would go on to pay fines etc. The banker would not be able to pay out for occasional card-mandated bonuses unless either they received moneys as banker from other players -fines etc or if this was a permitted way to introduce new cu's into the game. However, that would result in a patchy game where payments were a bit hit-and-miss and as a game, it'd be really slow to get going and would likely grind to a halt when money wasn't available to enable payments and receipts. (A situation historically like the depression situation that Keynes sought to remedy with his General Theory).
Micro model to macro: parallels between game and national economy
This all helps us to appreciate that a currency is 'backed' by the economy as a whole. In other words, the cu's represent and correspond to the economy -the goods and services (potentially) available for exchange. It also helps us to appreciate the importance of the MMT insight that the actual order of things in an economy is "(government) spend and then tax". The two are interlinked. What the currency does is unlock the potential availability of the goods and services. The offer of a payment calls forth a corresponding offer of a widget or a service. No money, no economy. Without the currency being available, much of the potential exchange of goods and services does not take place: the game's economy and the actual economy are in recession: not much happens and many people are not provisioned. Not being provisioned is like the players having to go round the board without being able to buy -or sell, come to that: the property cards remain only potential but not active parts of the game; the houses and hotels sit in the box and are never brought out into use.
To unlock the latent potential of properties, houses and hotels and bring them into the game, there must first be money. And sometimes, during the game, there must be more money added if the economy of the game gets locked up because, say, player C passed Go, but there are no more currency notes. The banker isn't in debt in any meaningful way, the rules of the economy simply require there to be more money than was originally printed and packed with the game. The banker's IOU is in effect currency -it can be recirculated because it can be relied on for exchange and ultimately the banker will accept it back in payment for property, a house, a hotel, a fine or to get out of jail. The game's economy is good for the extra currency units else the banker wouldn't have needed to 'print more money'.
This is in essence how it is in the big economy beyond the game. The country has loads of potential 'stuff' and activities to produce and distribute. To unlock that potential the banker (the government, essentially) can put currency into circulation. To be sure, it has more options for doing that than a trading game offers, though it could do the equivalent of giving people 200cu's for passing Go. This was proposed (helicopter money -it's what the USA did with covid payments) as a better idea than giving it to bankers who, in the event, just ferreted it away. With it just sitting in offshore accounts, it didn't function to unlock latent potential in the wider economy. In some cases they ferreted it away in property, and all that did was cause inflation in the property market. This is bad because it made it even more difficult for ordinary people by driving up their costs of living where those costs are related to property prices and rents. It would have been better for the economy as a whole and ordinary people in particular if QE had been based on basic passing Go income.
In the game the players start with a load of money. They've not earned this. The purpose of this money is to prefigure the game's economy; in effect it says to the players, "This is your initial potential in the game, spend it to bring the game to life". It represents the capacity for the players to interact economically and to expand the scope of the game's initial conditions. The currency calls the game into being when it is used. It enables purchases and exchange. It brings properties into the game and enables development. Likewise the bpgi keeps topping up the game's economy often enabling some players to stay in the game. In the big economy, the government has to spend currency into the 'game' that is the economy in order to release the productivity latent in the resources, processes, labour and ideas of the country. If the currency is curtailed or allowed to be stashed away unproductively (this was Keynes' concern back in the day) the resources cease to be used because offers of money for stuff or activities dries up. We can see, in terms of the trading game, that if the banker does austerity, then the game seizes up. But the banker doesn't need to do austerity, the banker isn't in debt to anyone; the banker is merely making something available to enable the continued unlocking of the game's resources and the continuance of payments and exchange suitable to maintain and develop the game's present capacity.
Other lessons to learn from the trading game analogue
So we can see the idea of government "debt" is misleading at best and poisonous at worst. What is too often labelled 'debt' is actually a monetary shadow or a kind of virtual analogue of economic capacity. If it isn't ... let's say "invested"... then productive capacity cannot be brought into the economy. Government 'debt' is actually decisions about where to first insert that money into the economy to call forth productive capacity. It's not really debt in our ordinary way of understanding(*5), it's better thought of as investment or commissioning. When the banker gives a player 200 cu's bpgi, they are inserting that money into the economy of the game in a way that first assists the individual player but with the knock-on effect of supporting further transactions originating with that player. That 200cu's becomes a rent income for another player and perhaps a chunk fairly promptly goes back to the banker as a property purchase and a house built. This makes it easier to understand that this is not, as Thatcher would frame it, "other people's money" but that money is actually a collectively owned artefact which is meant to serve the common good. But everywhere it is in chains in privatised holdings and public-to-private capture-and-convert schemes -trickle up economics.
What about inflation? This is quite often asked. Mostly this is because either people have vague recollections of learning about the hyper inflation of the early 1920s in the Weimar Republic, or because they have picked up a monetarist argument which applies the basic idea of supply and demand to currency in use. Sometimes both. Well, the evidence seems to be very weak and the causes for the Weimar republic's hyper inflation was not really about money supply -but much more understandable in the terms of the analogy to the game I'm writing about here -a mismatch between currency and what it is 'backed' by in the form of productive capacity. The point is that if money represents and corresponds to productive capacity in an economy (or a trading game), then if you reduce that capacity (a war will do that) but don't take account of that in money issuing, then the mismatch will tend to show up as inflation -particularly if you have a punitive reparations regime in place to remove even more 'stuff' from that economy.
That the game grinds to a halt if the banker doesn't issue new currency also invites us to question why there is a huge amount of money somewhere 'in the game' but still more is needed. And this has a not-insignificant real-world analogue. The new currency is needed because all of the came-with-the-game notes are sat in players' possession. They are, if you like, savings. It would be fun perhaps to play around with the possibility that the banker might actually give them savings accounts and then mimic fractional reserve banking(*4) in the game -though that only delays the potential problem; if a player or two wanted all their cash back, there could be a 'run on the bank' and the banker would be back to having to produce new currency units. But I digress. The point being made is that savings which are merely sitting there, are not calling things into existence, they are unproductive. In the property trading game, these hoards don't recirculate cu's. If there's no mechanism to return those hoards into circulation in a timely fashion, then you have to 'print' more money to replace it.
Don't forget the obvious lesson to learn -which the game was originally set up to teach: the tendency to monopoly (hence the name). The game very clearly shows how small, often chance-based, differences in wealth tend, over time, to accumulate at the expense of weaker \unluckier players. It's one of the reasons I don't like to play the game -the slow decline of the losing players into penury is not entertaining and the small chance of a reversal is not enough to offset that watching paint dry feeling. Just like in real life (except in real life people are being ground down into actual misery). The original Landlord's Game had a second version of rules for once players had understood the dynamics of unearned income via rents towards monopoly power. The second set of rules levied a land value tax and playing through those rules showed how progressive taxation could re-equalise the power of individuals and not only reward good luck and happenstance.
Let's also not forget that the analogy helps us to understand that money is, in a sense, a public utility and one that we all create collectively. It relies on our trust and continued valuing of it. As we trust it enough to spend and be paid we maintain its value (try spending foreign currency at your local supermarket if you don't believe me! -it fails because 'we' don't trust it to be good for payments). We should, I think, be wary of allowing money to be privatised ie its value to be siphoned off unproductively or for private interests to cream off value from our collective creation. For them to do that, they should have a good public-interest case and we should have democratic accountability about the way that money is put into circulation and taken out. It's our collective money: individuals get to have it because 'we' agree it's in the rules of the game.
We might want to think about the possibility that the bpgi is like a UBI...
Things that don't carry across
Because the game narrowly focuses on property and rents, matters relating to production, everyday provisioning are not really in view. It's worth noting that property prices and rents are fixed and this usually is not the case 'out there'. The banker doesn't levy taxes -unlike a government (though I suggest playing modified games to explore that could be interesting -rename the banker as "chancellor" and the bank as "exchequer").
Modify the game to explore further
- Try out the counter-examples in the 'what if...' section above.
- Give the banker (>"chancellor") tax levying powers. You have different options. When the player passes go, maybe, a percentage of the value of their property cards? An income tax -have a starting point in terms of the money the player has in hand: say, 20% on income if they hold in cash anything above their starting account.
- Give the 'chancellor' powers to invest money in particular projects or to give poverty relief. You'd need to decide (democratically?) what parameters to use.
- Allow the 'chancellor' to acquire the utilities and redistribute the proceeds as dividends to all the players.
- Go completely 'free market': don't have prices for the properties but auctions, let property card holders determine their own rents... Make sure you have a plan to break up the fights.
*To be fair, maybe not 'everything' -I just couldn't resist the pull of the popular phrase.
*2 For a bit more info: http://landlordsgame.info/ and https://roamresearch.com/#:~:text=https%3A//evonomics.com/monopoly-was-invented-to-reveal-the-toxic-greed-of-capitalism/ . I found this book to be helpful and eye-raising: https://www.bloomsbury.com/uk/monopolists-9781620405710/ See also this article which also explores cheating in the game and real life.
*3 it is likely that this is how money actually started -see Graeber or Mellor -or many other historians of political economy. This is not particularly controversial, just too little known. By 'sovereign token-issuer' I mean someone or some authority with sufficient clout to be able to command the respect to act in this way and issue monetary tokens. Usually this as a government apparatus.
*4 Quite a lot of sites and text books write as if fractional reserve banking is still practised. It mostly isn't -actual banking practice left this behind ages ago.
*5 Our ordinary understanding of 'debt' is based on the implicit equation to household accounting and not national accounting. To go for that analogy by using that word, is to smuggle in a wrong understanding about national accounting which is misleading. It's a malignant, perhaps malevolent, rhetorical move. We can grasp the inappropriateness of the analogy by asking "who's the debt owed to?" -Well, the government borrowed from the Bank of England, which is ... drum roll... an arm of government. What's it backed by? -The nation's total capacity to do and to make stuff and our collective trust that the tokens we circulate (coins, notes and bytes) are 'good for it' (ie settling bills, debts and paying tax). The so-called 'debt' is actually the government providing and investing in maintaining the flow of goods and services that constitute the economy. The government 'owes' us the money, collectively, to do what we do in the economy. If the government is properly democratic, then we owe ourselves. If it's not then it is stealing from us or facilitating theft from the common wealth.
^* Update: I finally (10/1/2022) got down to reading Stephanie Skelton's The Deficit Myth, I discover in chapter 1 that she refers also to the Monopoly game principle that the banker never goes broke and the consequent rule that they simply issue promissory notes.
Furth update: Interesting research here. - A little insight into how privilege works.
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