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.

Posted in Economics, Games, Henry George, Policy | 4 Comments »

Progress and Poverty

Thursday, March 18th, 2010

I recently read Andrew Bisset’s The Strength of Nations on a whim, because it was mentioned in Henry George’s Progress and Poverty, which argues that land is fundamentally different from other forms of property:

The English yeoman — the sturdy breed who won Crecy, and Poictiers, and Agincourt — is as extinct as the mastodon. The Scottish clansman, whose right to the soil of his native hills was then as undisputed as that of his chieftain, has been driven out to make room for the sheep ranges or deer parks of that chieftain’s descendant; the tribal right of the Irishman has been turned into a tenancy-at-will. Thirty thousand men have legal power to expel the whole population from five-sixths of the British Islands, and the vast majority of the British people have no right whatever to their native land save to walk the streets or trudge the roads.
[...]
And so the abolition of the military tenures in England by the Long Parliament, ratified after the accession of Charles II, though simply an appropriation of public revenues by the feudal land holders, who thus got rid of the consideration on which they held the common property of the nation, and saddled it on the people at large, in the taxation of all consumers, has long been characterized, and is still held up in the law books, as a triumph of the spirit of freedom.

Yet here is the source of the immense debt and heavy taxation of England. Had the form of these feudal dues been simply changed into one better adapted to the changed times, English wars need never have occasioned the incurring of debt to the amount of a single pound, and the labor and capital of England need not have been taxed a single farthing for the maintenance of a military establishment. All this would have come from rent, which the land holders since that time have appropriated to themselves — from the tax which land ownership levies on the earnings of labor and capital. The land holders of England got their land on terms which required them even in the sparse population of Norman days to put in the field, upon call, sixty thousand perfectly equipped horsemen,53 and on the further condition of various fines and incidents which amounted to a considerable part of the rent. It would probably be a low estimate to put the pecuniary value of these various services and dues at one-half the rental value of the land.

Had the land holders been kept to this contract and no land been permitted to be inclosed except upon similar terms, the income accruing to the nation from English land would to-day be greater by many millions than the entire public revenues of the United Kingdom. England to-day might have enjoyed absolute free trade. There need not have been a customs duty, an excise, license, or income tax, yet all the present expenditures could be met, and a large surplus remain to be devoted to any purpose which would conduce to the comfort or well-being of the whole people.

As that passage suggests, Henry George strongly believed in a single tax on land. This makes a fair amount of economic sense, given the inelastic supply of land, but George presented it as a matter of social justice, making him an odd combination of free-market libertarian and leveling socialist — and the inspiration for the game of Monopoly.

Posted in Andrew Bisset, Economics, Henry George, Policy | 1 Comment »

End All Taxes — Except One

Friday, July 3rd, 2009

Reihan Salam reiterates Henry George’s 130-year-old call to end all taxes — except one:

A staunch believer in laissez-faire economics, George found it perverse that we tax productive activities like work and innovative investment while letting landowners grow rich simply because they scooped up property at the right time. In that spirit, George called for a “Single Tax” on the unimproved value of land. There’s a certain compelling logic to the Single Tax that stands the test of time. When you tax income, aren’t you punishing people for working hard? But when you tax an asset like land, you’re simply encouraging the most valuable use of that land. In the years since George faded from the scene, a number of economists, from Milton Friedman to Paul Romer, have found virtue in the Single Tax, not least because it creates the right incentives for government. Simply put, the better you govern, the more valuable the property. The more valuable the property, the more revenue you raise.

This would make even more sense if governments were for-profit corporations.

The board game Monopoly was created by Georgists, by the way.

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Competitive Government vs. Democratic Government

Tuesday, April 21st, 2009

Arnold Kling looks at competitive government vs. democratic government:

In democratic government, people take jurisdictions as given, and they elect leaders. In competitive government, people take leaders as given, and they select jurisdictions.

Albert Hirschman sees it as the difference between exit and voice, Spencer Heath calls it the difference between proprietorship and politics:

Heath evidently was influenced by the single-tax movement of Henry George. The idea of the single tax is to use a tax on land to finance all of government’s functions.

Heath reasoned that a land tax was analogous to rent. One can think of government as a landlord, supplying public amenities in exchange for rent. From that perspective, a profit-maximizing landlord might serve just as well as an elected government.

Today, two-thirds of Americans own their own homes, including the land underneath. Public goods are supplied by governments. In Heath’s model, everyone would lease their land, and public goods would be supplied by the landlord. Within any given area, there would be many landlords competing for tenants. Each subdivision might have a different landlord. The landlord would decide on rent, amenities, and rules. Tenants would lease the land. Heath’s grandson, Spencer Heath MacCallum (1997, 2004), describes this as manorialism. He sees manorialism as a voluntary relationship between tenants and landlord, whereas feudalism is a system where the tenant/serf cannot leave without the landlord’s permission.

Historically, Kling notes, Americans have viewed tenancy with disdain:

We associate home ownership with freedom and equality. We associate tenancy with serfdom. Thomas Jefferson wanted a nation of yeoman farmers.

In Jefferson’s time, land was the primary source of wealth. Today, a tenant is no longer necessarily poor and dependent. In fact, modern shopping malls and office buildings come close to the Heath model.

Posted in Arnold Kling, Economics, Henry George, Policy | No Comments »

Anti-Capitalist Rerun

Tuesday, April 21st, 2009

Phillipe Diaz’s The End of Poverty is an uninteresting anti-capitalist rerun, the rarely strident Tyler Cowen says:

A few months ago I went back and tried to read some Ayn Rand. As Adam Wolfson has suggested recently in these pages, it wasn’t easy. I was put off by her lack of intellectual generosity. I read her claim that “collectivist savages” are too “concrete-bound” to realize that wealth must be produced. I read her polemic against the fools who focus on redistributing wealth rather than creating it. I read the claim that Western intellectuals are betraying the very heritage of their tradition because they refuse to think and to use their minds. I read that the very foundations of civilization are under threat. That’s pretty bracing stuff.

I can only report that The End of Poverty, narrated throughout by Martin Sheen, puts Ayn Rand back on the map as an accurate and indeed insightful cultural commentator. If you were to take the most overdone and most caricatured cocktail-party scenes from Atlas Shrugged, if you were to put the content of Rand’s “whiners” on the screen, mixed in with at least halfway competent production values, you would get something resembling The End of Poverty. If you ever thought that Rand’s nemeses were pure caricature, this film will show you that they are not (if the stalking presence of Naomi Klein has not already done so). If you are looking to benchmark this judgment, consider this: I would not say anything similar even about the movies of Michael Moore.

In this movie, the causes of poverty are oppression and oppression alone. There is no recognition that poverty is the natural or default state of mankind and that a special set of conditions must come together for wealth to be produced. There is no discussion of what this formula for wealth might be. There is no recognition that the wealth of the West lies upon any foundations other than those of theft, exploitation and the oppression of literal or virtual colonies.

Cowen points out that the Robert Schalkenbach Foundation, dedicated to the works of Henry George, should be ashamed for having funded this movie:

George was a flawed but brilliant and incisive thinker. He understood that wealth needs to be produced, and he also understood the strong case for free trade, most of all to protect the interests of labor. His 1886 book Protection or Free Trade remains perhaps the best-argued tract on free trade to this day; in that book George refutes exactly the arguments put forward by The End of Poverty.

Ever since I read that Monopoly was created by Georgists, I’ve been seeing George’s ideas everywhere — or at least from time to time.

Posted in Economics, Henry George, Media, Policy | No Comments »

History of Monopoly

Tuesday, December 2nd, 2008

The early history of the board game Monopoly is far more interesting — and ideological — than I realized.

The game that went on to become Monopoly started out as The Landlord’s Game. The designer, Elizabeth Magie, patented the game board design in 1904, patented a revised edition in 1924, and sold the rights to Parker Brothers in 1935 for $500. This is after Parker Brothers started distributing Charles Darrow’s Monopoly.

But what inspired Magie to create The Landlord’s Game in the first place? Well, it turns out that Magie was a Georgist, and she created the game to demonstrate Henry George‘s left-libertarian belief that, while we each own what we create, everything found in nature, most importantly land, belongs equally to all humanity.

(Let’s ignore the Malthusian consequences of that for the moment.)

This belief, by the way, led Henry George to recommend a single tax on unimproved land value — a tax that makes sense for not-at-all-socialist reasons. The supply of land, after all, is extremely inelastic — they’re not making any more of it — so taxing it won’t reduce the quantity supplied; it’ll just reduce the “unearned income” or “rents” going to the property owner.

Indeed, a land value tax — which, unlike an ordinary property tax, ignores building and improvements — has been more or less implemented in Hong Kong and Singapore.

Oddly, such a direct tax is considered unconstitutional in the United Staes.

At any rate, I don’t think I learned the lesson Magie wanted me to learn from her game — until now.

Posted in Economics, Games, Henry George, Policy | No Comments »