Bryan Caplan  

How Would a Georgist Single Tax Work in Monopoly?

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Another fascinating aside from Larry White's The Clash of Economic Ideas (Kindle price just $23.40):
Georgist theory was even the inspiration for the board game Monopoly.  The game's original creator called it "The Landlord Game" and intended it to illustrate the unfairness of receiving rent based on the lucky ownership of advantageous plots.
As chance would it have, I recently taught my sons how to play Monopoly.  When I read White's historical aside, I immediately started wondering, "How would a Georgist Single Tax on unimproved land affect the game?" 

The answer: Not as you'd expect.  Despite the Georgist origins of Monopoly, rents on unimproved land are miniscule.  Check out the price schedule for Boardwalk, the highest-rent square in the entire game:

boardwalk3.jpg

Without improvements, even Boardwalk only yields a rent of $50.  So a full-blown Georgist Single Tax would collect just $50 per landing.  If the owner maximally improves the property by erecting a hotel, he'd get to keep $1950 ($2000-$50) a pop - 97.5% of the value.  Despite the game's Georgist origins, almost all of the value comes from improvements.

Is something fishy going on?  In Georgist terms, no.  Houses and hotels should definitely count as "improvements."  After all, the more you tax houses and hotels, the lower players' incentive to build them.  A non-gamer might imagine that players will always build as many houses and hotels as they can afford.  After all, each house only costs $200 - a sum players can usually more than recoup as soon as the next player lands on Boardwalk.  If you're a gamer, though, you'll quickly realize that things aren't so simple.  Buildings lose 50% of their value if you ever have to sell them, so you have a strong incentive to keep a decent amount of cash in hand.

Does Monopoly reveal a fatal flaw in Georgism?  Not at all.  (For the real fatal flaw, see my paper with Zac Gochenour).  The reason why a Single Tax on the unimproved value of Boardwalk generates so little income is that the game artificially fixes a bizarre package of relative prices.  A real estate market where (a) Boardwalk with nothing brings in $50 in revenue, (b) Boardwalk with a hotel brings in $2000 in revenue, and (c) a hotel only costs $1000 to build, simply wouldn't be stable in a free market.  Competing developers would bid up the rent of Boardwalk with nothing, bid down the rent of Boardwalk with a hotel, and/or bid up the price of houses.

The right lesson to draw is simply that despite its creator's didactic motive, Monopoly is a bad way to grasp the essentials of Georgism.  In a truly Georgist game, unimproved rents would be enormous, and improvements would be priced at marginal cost.  Would that be a fun game?  I doubt it, but perhaps somewhere in cyberspace there's a game-designing econ geek itching to prove me wrong.  If you build it, I will play.


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COMMENTS (13 to date)
Alex Godofsky writes:

I would instead just say that you are assessing the tax wrong by taking the rent the game gives you as the (perpetuity) value of the unimproved plot.

Probably the best way to actually impose an unimproved land tax would be to force plots to always go to auction and then take the entire proceeds of the auction and give them to the "government".

Aside: your blog is broken in Chrome. I can't click on the "comments (0)" link and I can't click in the Name or Email Address fields.

Alex Godofsky writes:

re: Chrome
Sorry, it must have been something wrong with my browser because everything works again in Chrome (the previous comment had to be posted in IE).

Alex J. writes:

Perhaps Georgist Monopoly would also tax the doubling of rents when you own a full set? Still, it's a small amount.

I think the actual lesson of Monopoly is about gains from trade, though many people don't seem to learn this lesson: Two people can make a trade which leaves both of them better off. (They're better off at the expense of the other players, but it is a game after all.)

John C writes:

@Alex J.

I'm not seeing very many Pareto improvements here. Aren't the differences in potential rents enough to make trading difficult?

I always assumed that obstructing monopolies was the dominant strategy. Well, that and purchasing as much property as you can get your hands on even if you have to mortgage other property to do it.

Philo writes:

I once praised Bryan for correctly spelling ‘minuscule’. Now I have to withdraw the accolade.

John Thacker writes:

Bryan, do you play with the auction rule? Monopoly is much better with the auction rule.

Perhaps it would illustrate the Georgist principle by noting that people who land on a space are able to purchase Boardwalk for far less than what a fair auction would result in if they decline. That initial option is their endowment.

LVTfan writes:

I've never understood why the ratio of the selling prices on the lots and the rental values is so inconsistent. On Mediterranean Avenue, rent is $2 while the selling price is $60; next door rent doubles but the selling price is the same. At Park Place the rent is $35 and the sale price is $350; at Broadway land rents for $50 and sells for $400.

Seems to me that the selling price of the land should be the rental price capitalized at some consistent rate -- say, 5%, or "20 years' purchase."

Early versions of The Landlord's Game (the original game was developed by 1902 by Lizzie Magie (see http://lvtfan.typepad.com/lvtfans_blog/2011/01/lizzie-magie-1902-commentary-the-landlords-game.html) apparently came with two sets of rules. One was called the Prosperity rules (see http://gco2e.blogspot.com/2010/01/landlords-game-model-demonstrating.html and the two links there, and produced a very long and dull game: no big winners, no losers. In other words, a model for sustainability!

The other set of rules was much more similar to the rules of Monopoly as we know them. Lots of losers, and one or two winners. An exciting game, but not much of a model for a workable society.

John David Galt writes:

I've often wondered if some game like Sim City could be extended to have a realistic enough economy to be used to test questions like this as simulations. (There would need to be the same kinds of controls one finds in simulations of physical-science phenomena such as weather, so we don't wind up simulating something that looks like reality but is completely different from it.)

For the excellent sleuthing behind the relationship between the Landlord game and modern Monopoly, see this 2004 transcript of the History Detectives.

See also my previous comment about the game's history and its relationship to Georgist taxation in one of Bryan's previous posts many years ago, at http://econlog.econlib.org/archives/2007/11/tolstoy_the_cla.html#30469.

Adam writes:

Monopoly itself isn't the Georgist game but an adaptation of it. I don't have a copy of the landlord game, but I would assume Georgist economics are closer to working out in it than in Parker Bros Monopoly

Michael Stack writes:

Not that anyone asked, but I think the biggest challenge of Monopoly is getting everyone to agree to a consistent set of rules.

Before playing, I'll usually ask, "If there is a disagreement over the rules, we'll consult the rule book, OK?" Typically everyone agrees, assuming whatever variation they're accustomed to playing (e.g., Free Parking windfalls) will be defined in the rules.

Michael writes:

This sounds like an interesting problem, so I will take a first stab at "Georgist Monopoly" (I am multitasking, so I may forget something):

1. Every time someone lands on an unoccupied square, the property goes up for auction.

2. The bids in the auction correspond to how much “land rent” the player will pay for each turn around the board (counted as they pass Go). This rent is first paid to the bank when the bid is made. (No bidding unless you actually have the cash in hand.)

3. Occupancy start when the winning bidder next passes Go, and subsequent land rent payments occur after each pass around the board.

4. Any player may place a higher bid for any occupied property. In their bid, they must include the full price for any improvements, to be paid to the current owner if the bid is successful. If they still have the highest bid when they pass Go, they take control of the property and improvements, and the money for the improvements goes to the previous occupant.

5. Players are able to change their land rent bid for any property, but the changes do not take effect until the player passes Go, and are subject to other players changing their bids.

6. If a player is in Jail, he is subject to land rent every time all other players pass Go (in other words, he has to pay when the slowest player makes a complete circuit), and any rents on improvements normally due him are paid instead to the bank.

7. Any land that is abandoned (no improvements and no rent being paid) cannot be bid upon until the next time someone lands on it.

8. All other rules are the same as in standard Monopoly.

That would be one variation. I'd be interested in hearing other people's ideas. Possibly a boring game, though, since with average players it would be very hard to corner the market or charge outrageous rents. On the other hand, Baltic and Mediterranean would see their land rent value as much closer to Boardwalk and Park Place in the standard game.

Alex J. writes:

(Sorry for the delayed response.)

John C,

Let's say you have 4 players who have bought all of the properties, but none have any monopolies. Who has an advantage? From what we know, nobody.

Two of the players arrange a trade which leaves them both with monopolies. Who has an advantage now? The two players who just traded can improve their properties and start getting the larger rents. Even if their trade was not perfectly even, it's easy to see that even the player who got the short end of the trade might still be advanced ahead of the two players who didn't trade.

Personally, I try to make trades with more than one other player, and I'm willing to take a slightly smaller share of the traded properties in order to speed things along. The idea is that 40% of the benefit of three trades will be better than 60% of the benefit of one trade.

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