Why work for a living? Winning the game of Monopoly

Thursday, 14 July 2022 — Albert Park

[5 min read]

Dear Reader,

One of Queensland’s fastest-growing cities is set to get its own version of the world’s most iconic property board game — Monopoly!

The idea for the Hervey Bay edition came from local property developer and salesman Glen Winney (Managing Director of WIN Group).

He lobbied Monopoly to make the edition so he could use it as a thank you gift for clients:

‘I’ve always been interested in property, so Monopoly was the perfect game to actually use for a present, anybody buying property off us, as a gift…Monopoly just makes sense.’

Indeed.

To any seasoned Aussie real estate investor, Monopoly certainly makes sense.

Over the boom years of the housing cycle, many will have made more from their real estate going up in value over a year than they would’ve working for a living!

In economics it’s termed ‘economic rent’.

The definition can be summarised as the unearned profit that comes from owning a resource, monopoly, natural scarcity, or anything else that gifts a windfall — one that’s not ‘earned’ from toil, risk, or enterprise.

Rent-seeking can take on many forms.

But undoubtedly, the one that gifts the greatest gains over the cycle always comes from owning the rights to land.

After all, even if the worse forecasts spruiked of a 15% fall in Sydney and Melbourne’s median price were to eventuate from this recent pullback — owners would still be ahead from where prices were pre-pandemic.

The Hervey Bay edition will be on sale from 25 July.

There are more than 1,144 versions of Monopoly circulating.

It’s been translated into 40 languages and sold in more than 100 countries. It’s the world’s most popular proprietary game.

The lesson?

If you want to be as rich as Mr Monopoly, owning real estate and jacking up the rent is the way to do it…

Still, this wasn’t how it started.
Few are aware of Monopoly’s origins.

The true story was covered up for years, and the Parker Brothers fought many expensive lawsuits to keep it that way.

In fact, Hasbro, who purchased Parker Brothers in 1991, still spruik the myth.

According to Hasbro, it was created by Charles Darrow during the 1930s Depression to remind people of better times.

The truth is, Monopoly was originally called The Landlord’s Game.

It was invented and patented in 1904 by feminist and social reformer Elizabeth (Lizzy) Magie (1866–1948).

Lizzy’s father was an anti-monopolist!

An influential figure in his own right, he gave her a copy of Henry George’s best seller, Progress and Poverty (published 1879).

In it, George demonstrates how poverty and unemployment could be minimised by the removal of all current taxation, and replaced with a ‘single tax’ on monopoly rents (i.e. land).

He reasoned, why would we tax productivity, labour, and consumption when there’s a large dollop of unearned income pooling in the pockets of owners of land and other natural monopolies?

This led to a worldwide Georgist movement.

It was the beginning of the progressive era.

Land and wealth were concentrated in the hands of a few.

The economy was recovering from the depths of the 1890s depression — and George’s message was mesmerising to Lizzy and her friends who wanted reform.

The Landlord’s Game contained two sets of rules:

Think of it like a basic income. Money is collected and circulated from taxes on increasing land values.

Everyone gets a bit of the gain — society flourishes.

This is the one we have now.

Lizzy’s fantasy was to prove that the first set of rules was morally superior:

‘Let the children once see clearly the gross injustice of our present land system and when they grow up, if they are allowed to develop naturally, the evil will soon be remedied.’

The Single Tax Review, Autumn 1902

The game immediately went viral.

It became a family favourite across the US.

It’s not clear if Lizzy realised how enthusiastically it had been embraced. Editions were localised from the onset.

Rules adapted to fit in with players preferences.

However, the fact that the anti-monopolist set of rules quickly became obsolete is a lesson in itself. It illustrates much about politics and the economy today.

Monopoly was (and still is) used as a game to teach young minds how to get onto the mythological housing ladder.

It mirrors both society and the economy.

Ultimately, the largest landowner — the bank — always wins.

And unlike in the late 1800s, a large proportion of the population today get to enjoy a small slice of the monopoly pie with an investment property or two.

This behaviour alone ensures the cycle will continue.

There are only two sides to choose from — be a rentier or a renter...

Sincerely,

Catherine Cashmore,
Editor, The Daily Reckoning Australia

Dear Reader,

We’ve been bitten by ticks so often, more than 73 years on a Maryland farm, we thought we were immune to Lyme disease.

And maybe we are.

But there are other tick-borne bacteria. A friend warned us:

‘I thought I was dying. I lost the use of my right arm. Then, I began to mix up words. Whatever it was, it had gotten into my brain. Doctors didn’t know what was going on. But I was so alarmed I researched which states had “right to die” laws; I didn’t want to be a burden to my family.

‘And then…a guy I knew told me he thought it sounded like Lyme Disease…so I had some additional tests. And it turned out it was not Lyme…but some other disease you get from ticks.

‘My advice…stay out of the woods in the summertime.’

In the ‘50s and ‘60s, ‘check yourself for ticks’, was every mother’s command when children came in from playing or working outside. But ticks weren’t so dangerous back then, just obnoxious. They bury their heads in your flesh. You don’t notice until the area begins to swell and itch. But then, they’re almost impossible to dislodge. You pull out the body, but the head stays anchored. You have to dab on alcohol, scratch and claw until you can dig the head out…usually with a big clump of your own skin still in its jaws.

But children get fewer ticks today. They no longer play outside. They need wires attached, batteries, and air conditioning to have a good time.

Ticks are a non-sequitur. Our subject is money. And today, we look at how it dies.

Down, down, down…

Personal computer sales are in a downturn, says. The Wall Street Journal:

‘The waning appetite for personal-computer purchases is accelerating amid economic turbulence, hitting a near-decade low following two years of boom in pandemic-driven purchases.’

But it’s not just computers. Here’s TradingEconomics:

‘Retail sales in the US unexpectedly fell 0.3% mom [month-on-month] in May of 2022, the first decline so far this year and compared to market forecasts of a 0.2% rise. It follows a downwardly revised 0.7% increase in April, as high inflation, gasoline prices and borrowing costs hurt spending on non-essential goods. Auto sales recorded the biggest decline (-4%) and sales also fell at electronics & appliance stores (-1.3%); miscellaneous store retailers (-1.1%); nonstore retailers (-1%); furniture stores (-0.9%); and health & personal care stores (-0.2%).’

What’s going on? Dollars are dying.

At some level, it’s simply normal and natural…a part of the life cycle. Everybody smiles when new dollars are born. Sales go up. It’s when they pass away — at the other end of the cycle — that sales go down and the wailing and gnashing of teeth begin.

Repo man callin’

Stocks are down about 20% so far this year. That is the worst performance since 1970.

Bonds are down about 10% — the worst performance, well, since George Washington was president.

A 60/40 portfolio — 60% equities/40% treasury bonds — is down 16%...which is the worst performance ever.

‘Doctor Copper’, reputed to be the ‘metal with a PhD in Economics’, supposedly because of its ability to predict where an economy is headed, is down 33%.

Corn, wheat, and soybeans are down about 25%.

Even used cars are down 7% since the beginning of the year. This is despite a growing inventory of used cars. The repo men are busy. Here’s Autoblog: ‘Car repossessions on the rise, as average price hits $47,000’:

‘It’s hard to read automotive news without hearing stories on rising car prices and gouging car dealers. That’s one side of the story, and while it’s important, there’s a whole other thing happening on the financial side of the market that has experts worried. Vehicle repossessions are on the rise, Barron's reports, meaning many people who bought cars in the past two years are running out of ways to pay for them.

‘According to Kelley Blue Book, the average price of a new vehicle rose 13.5% year over year to $47,148 in May. Combined with record-high monthly payments, it’s easy to start piecing together the story. Edmunds data showed that a whopping 12.7% of new car buyers are on the hook for payments of $1,000 or more per month.’

Autos, commodities, stocks, bonds — almost everything is going down. Real estate is so ‘local’, it’s harder to tell what is going on. But the likelihood is that it will go down with everything else.

Putting numbers to the damage, the total net worth of American households — including their holdings of stocks and bonds, and adjusted for liabilities — is about US$140 trillion. If, overall, asset prices are off 15%, this represents the death of US$24 trillion dollars’ worth.

Hang the black crepe. Light a candle. And kiss the dead dollars goodbye.

Regards,

Bill Bonner,
For The Daily Reckoning Australia