How Would a Georgist Single Tax Work in Monopoly?

Wednesday, October 24th, 2012

The history of Monopoly, the board game, is surprisingly political, as it was originally meant to illustrate Henry George’s half-socialist, half-capitalist idea that we should have a single tax on land — on the unimproved value of the land.

Bryan Caplan recently taught his sons how to play Monopoly, so he naturally asked, how would a Georgist single tax actually work in Monopoly?

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.

Comments

  1. James James says:

    One thing that took me a long time to grok was what is meant by the “unimproved value of the land”. This means the rental value of your land if it is unimproved, empty, but it doesn’t mean the rental value if everyone’s land was unimproved. It means the value of your land if it was empty but surrounded by improved land. E.g. if you owned a crater on Piccadilly surrounded by shops and hotels.

    The idea is that it is location that gives your land its value, and that one reason locations are valuable is because of network effects. It’s much less confusing if instead of talking about the “unimproved value of the land”, you talk about “location value”.

  2. James James says:

    Not quite sure how your field would be valued if you and all your neighbours had removed the stones from the soil. This is clearly an improvement to the land, so shouldn’t be taxed, but I can’t think of a method designed to measure location value that wouldn’t accidentally tax the improvement.

  3. Isegoria says:

    I’m not sure that Henry George understood unimproved land value as location value derived from improvements on others’ land.

  4. James James says:

    Georgism is out-dated; you don’t have to be a Georgist to advocate LVT. The most modern version of LVT ideology I’m aware of is Mark Wadsworth’s.

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