Posted by: Dirk | October 22, 2019

About the rules of the monetary circuit

In “Monopoly”, the bank can “print” money indefinitely, the players get into debt, and the state adds 200 Marks each round. But what if everyone had to pay 200 Marks each round and would suffer negative returns when owning railway stations?

Even if “Monopoly” comes from the US, it has long since become a classic German game. And it goes like this: In the ideal case four players buy and sell roads, build houses and hotels and pay each other rent, which depends on the price of the road and the number of real estate. So, the money circulates nicely in the “private sector” or, put differently, among the households. At some point, however, players will run out of money and will no longer be able to make payments. The only thing left is to sell streets, which in the real world is called “fire sales”. But with that they rob themselves of future sources of income. The resulting inequality brings the game to an end – when only one player has any money left.

Applied modern monetary theory

But where does the money come from? A bit of capital stock is inherited, as it were, by the central bank simply “printing” the money and bringing it into play. During the game, event cards and community cards are used for transactions with the state, and of course passing “GO” means that money enters the game. In the modern version of Monopoly, players get 200 Marks each time.

In the real world, the “players” get their income from capital possession, even from government bonds, which pay interest. But this aspect is missing in Monopoly. If we (in our minds) replace the four train stations on the playing field with government bonds, where the player earns interest when he moves onto them, then we have a realistic economy.

In addition, mortgages can be taken out, money that has to be repaid at some point. If this happens, the encumbered real estate will no longer earn rents. Of course, this is an unrealistic rule, because in the real world it is of course possible to rent houses and flats purchased on credit.

The state intervenes in the game in two ways. First, it generates state money; second, it guarantees property rights. The state injects money into the game in two ways. First, as I said, when passing “GO”. Secondly – as a mental equivalent to the income from owning the stations – by paying interest on government bonds. If we assume that the state is indebted with 100,000 Marks, then there is an income of 1,000 Marks per interest point on the player. If this kind of income is provided, the game will weigh a few rounds back and forth until a winner emerges.

Neoliberal economic policy

But what would happen if Monopoly’s rules were turned upside down? What if the state were to run a budget surplus and government bonds were to yield negative returns? Applied to the rules of the game: if 200 marks are deducted from the assets of the players who passes “GO”?

A surplus of the state is of course a deficit of the budgets, because they pay the taxes. In addition, the players have to pay a certain amount of currency units when they move onto a station, which are now triggering negative bond payments. There, too, payments to the state will cause private assets to shrink.

Shrinking household wealth will not remain without consequences in Modern Money Monopoly. Households will have greater problems making payments and will therefore be insolvent earlier than in the original version of Monopoly. Since the money is pretty tight quite quickly and the first bankruptcies will occur after a few rounds, the game would soon no longer be fun.

Progressive economic policy

If we want a progressive economic policy in which everyone can have fun, then we have to be clear about the objectives of the game. Instead of simply maximising profits, for example, the common good should also be taken into account. Because everyone should be able to play in the ‘game of life’, not just those with great fortunes.

For example, there are some arguments in favor of taxing wealth, either regularly (by passing “GO”) or through event cards. Community cards could be used to support low-income players. Rents could also be limited with a rent cap.

The role of fiscal policy – government spending and taxes – should be to enable all households to save. In the case of four players, this does not work if the state achieves a surplus. At least one player must have a deficit, probably two or three. To make it possible for all players to become savers, the state must switch to a deficit position.

Whether the government then pays a positive rate of interest on its government bonds or not depends on considerations outside the game. Only if government bond rates had an impact on players’ demand for credit would positive rates play an important role.

Economic policy and recession

If a government with a black zero withdraws more money from households through taxes every year than it transfers to households through government spending, then private wealth will grow less than it would otherwise. If government bonds also bear negative interest rates, then the state will take even more income away from its citizens. This will have an impact on the economic cycle. According to Handelsblatt, almost 7 million Germans were already overindebted in 2018. The figures have been rising for five years.

As with Monopoly, the German state can also simply bring money into play via “its” bank, the Deutsche Bundesbank, which costs nothing. It can thus create income and employment and thus eliminate unemployment.

Even if the debt brake and the Stability and Growth Pact set limits, the Federal Government still has some room for manoeuvre. If it continues to hesitate now – already in the middle of the recession – the room for manoeuvre will be smaller. At some point it will be forced to implement an austerity policy of spending cuts. That would sweep the figures of many players off the board. Such a result must be avoided by all means.

But while “new game, new luck” applies to Monopoly, reality does not know the end of a game, but it does know many losers.


Translated with http://www.DeepL.com/Translator

MMT-based rules for a Modern Money Monopoly are available here.

(This article first appeared in German at Makroskop on October 22, 2019.)


Responses

  1. posted on 22 October 2019

    Modern Money Monopoly

    from Dirk Ehnts, Econoblog101

    About the rules of the monetary circuit

    http://econintersect.com/pages/opinion/opinion.php?post=201910221814

    John B. Lounsbury Ph.D. CFP

    Managing Editor Econintersect.com

    Senior Contributor TheStreet.com

    Highly ranked author Seeking Alpha

    ________________________________

  2. The role of fiscal policy – government spending and taxes – should be to enable all households to save. Dirk

    Past a reasonable account limit, risk-free saving is not saving but fiat hoarding and should be penalized with negative interest. Only individual citizens, and then only to reasonable account limit, have an inherent-right to use their Nations fiat for free.

    Nor should risk-free accounts be paid interest otherwise we have welfare proportional to account balance – a moral absurdity and a violation of equal protection under the law.

    Otoh, an equal Citizen’s Dividend, perhaps partially funded by negative interest on large and non-individual citizen accounts, does not violate equal protection under the law.

    Sorry, not sorry, to be so dogmatic but the road is narrow indeed* when it comes to ethical money creation.

    *source material: both Old and New Testaments.


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