Learning economics on the Monopoly board

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Learning economics on the Monopoly board

Thursday, July 2nd, 2009 | Economics |

Your argument holds in a monopoly game. But we temporarily got around the basic limit of what can be financed in a monopoly game by adding a second monoply game to the system: we increased the money supply in the bank using money from a second monoply game; we liberalized the building rules so that we could build as much as we wanted to on a property; we issued IOUs to each other to prevent bankruptcies; and among other “Bernanke-like” changes, we added houses and hotel pieces to the original game’s supply.

Our monopoly game went on for two or three more trips past Go, and then there was one gigantic bankruptcy. So your argument holds: in a closed money supply system, there is a basic limit to what can be financed from the bank.

We played this double monopoly game as kids one hot afternoon in San Jose, and we learned some important lessons in economics that apparently the Federal Reserve Bank has yet to learn.

As we added the second game’s money to the original game and liberalized building rules, the first thing we noticed was that the cost of living on the game board went up. (We had inflation.) The cost of living made the final bankruptcy bloodier than ever.

The most interesting thing was that the second bankrutcy— the killer— came quite fast. A couple of trips around the monopoly board, and it was game-over. Unless we wanted to issue more IOUs to each other, the game had reached an end determined by the money supply shortage at the bank. There was not enough money (even with the second game’s supply of money added-in to the money supply) to pay the new rents on the original game board.

Tags: the fed