Ben Bernanke, Mervyn King and D Subbarao ought to play more Monopoly. That would teach them a thing or two about the perils of an expansionary monetary policy.
I learnt about the dangers of monetary expansion last weekend, when my daughter challenged me to a game. I nearly lost inside half an hour. I landed on three houses at Oxford Street and had to mortgage King’s Cross and Liverpool station to survive; the end seemed nigh. But then I picked up £200 as I passed Go, then another £150 from Community Chest, and an hour later both my daughter and I were in rude financial health.
In effect, I’d been bailed out by an expansionary monetary policy.
Monopoly has fixed nominal prices (i.e. a hotel room on Pall Mall always costs £625). However the real price of that hotel room is constantly declining. The Bank pumps £200 per player into the economy every round, so money supply is constantly increasing, so “sticky” prices keep getting smaller compared to the money in the game, so, on average, everybody feels richer.
Hotels on Pall Mall and Vine Street are life-threatening early on. As the game develops, the board fills up with houses and hotels, and landing at a hotel on Pall Mall is a mere flea-bite. By now the action has shifted to Mayfair and Park Lane. If the dice roll such that all players survive long enough, even a hotel on Mayfair stops being life-threatening.
From that point on, the players are no longer playing Monopoly, they are playing Comfortable Oligopoly. In this game, the veneer of competition is maintained, but the Bank ensures that nobody actually goes bust, despite the fact that nobody is taking any real risks or making valuable things. There is no natural way of ending this meaningless game. My daughter and I stopped our game only when higher authorities stepped in and decreed that it was lunchtime.
So, policy makers, play a few endless games of Monopoly. Learn that in the short term, monetary expansion can save a few dads from going bust. Learn also that monetary expansion that goes on and on and on robs the world of meaning, until the real economy finally breaks through and produces lunch.
PS: I wonder if the great monetarists Milton Friedman and Robert Lucas suffered through a few endless games of Monopoly?
