What Monopoly Teaches us about Money

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In the average game of Monopoly, each player receives $1,500 in Monopoly money to start. Let’s assume in this particular game of Monopoly, there are four players, and each property must be put up for auction where the four players bid on it. The four players march around the board, landing on new properties and bidding against one another for each. Each player garners a few properties and by the time the last property is purchased, each player is relatively low on funds. Now at this point of the drawn-out example, one may wonder: What does Monopoly have to do with understanding three of the most important lessons about money? Well, practically everything.

Lesson 1 - The Purpose of Money: We can glean immediately money’s purpose; it facilitates exchange. Money is used to purchase properties, to pay rent, to get out of jail, and to pay the pesky luxury tax that is landed on seemingly so often. Money makes this simple and efficient. Without it, what would one use to pay for a property, and if a player charged rent, what would they agree to settle with? Money simplifies this; it serves as a commonality between all transactions. The property, the rent, the get out of jail, they are all priced in money. Money facilitates this exchange; that is its purpose. It is the same in real life.

Additionally, money serves as a liquid pool of capital that can be used when needed. It is much easier to pay out of Monopoly money than to mortgage properties, remove houses, or trade properties for cash. Having extra Monopoly money handy for expenses is advantageous, just as it is advantageous to hold cash in the real world for sudden expenses.

Lesson 2 - How Much Money an Economy Needs: At a certain point, after all the properties have been purchased and everyone is relatively low on funds, the players may lament their situation and suggest an idea for the next game. The agreement states that the players will now each start with $3,000 in Monopoly money. This way, each player can purchase their properties and have a good chunk of cash once all the properties have been purchased to buy houses or pay any rent. This simple misconception underlies one of the great myths of money, one with extremely damaging consequences in the real world: the myth that all can be solved by printing more money.

What occurs next is intuitive. On the first turn, someone rolls an 8, and lands on Vermont Avenue, a property that went for its typical list price of $100 in the first game. This time however, when the bids hit $100, they don’t stop. The players realize that they are willing to pay more money for this property, as they have more money to bid. When the bidding stopped at $100 in the previous game, that was 1/15^th of the player’s initial cash position. It is only natural that the players will pay that similar 1/15^th amount, so when the bidding stops near $200 for Vermont Avenue in the new game, the result of adding more money to the game becomes obvious. And when all the properties are sold and players find their cash piles nearly depleted as they did in the first game, the message sets in. The doubling of the initial money supply did not enrich everyone by twice as much; it simply made each monopoly dollar worth half as less. This may not be immediate; it may take time for some to accept this difference in reality; but over time, this will occur, and the winners will be those that recognized it first.

If they were to try again with $15,000 in initial money supply for each player, they’d run out all the same by the time the last property was purchased. The only difference is that properties would have sold for 10x the amount they did in the first game.

Ultimately, any supply of money is sufficient to serve an economy given the money is divisible enough to facilitate the smallest exchange. Whether there was $1,500 or $15,000, there was no difference. The only difference was when there was $15,000, each dollar simply purchased 1/10^th as much. This also indicates that there is no need for the money supply to increase for any functional reason; the current supply of money is always enough.

What if the supply of properties were to grow; wouldn’t that necessitate more money in the game? The answer is still no. Were the players to attach a second board of Monopoly and double the number of properties, their $1,500 would still be enough for the purchase of all properties. The properties would sell for, on average, roughly half as much in the bidding process. Each dollar, then, if the properties were to double, would have twice as much purchasing power: it can buy twice as much property as it could in the original game! With more properties (supply) and the same amount of money (demand), the price will decrease.

Even if the supply of goods in an economy increases, there is no need for the money supply to increase concurrently; each unit of the money supply will simply gain in purchasing power to account for the growing economy. This is no different in real life as it is in Monopoly.

Lesson 3 - The Damage of Adding More Money: We’ve covered that there is no need for the Monopoly money supply to increase, but we must also address why it’s bad for the individual if it does.

Let’s approach a Monopoly example that is more realistic.

1. Let’s suppose, as it is in the real world, properties are already owned by a set of other ‘players’.

2. Additionally, there are no beginning $1,500 starting cash pile. The players are restricted to earning money only through the $200 ‘salary’ as they pass Go each time.

3. The banker of the game can now create money at will for themselves.

With each property being available from purchase from an existing individual, the players must progress throughout the game, collecting their salary, until they can purchase one of the properties and garner an asset. This is fair; each player “works” for their money and their money can then be used to purchase property.

The banker, however, is not constrained by having to earn a ‘salary’. They can create more money for themselves at will, with their only constraint being that they cannot add so much that inflation in the price of properties expands so greatly that players quit the game and no longer accept the Monopoly money. This would be bad for the banker and anyone that saved in the Monopoly money. As the banker creates more money and uses it for themselves, to give out as credit to others, or to give to friends and allies as favors, the Monopoly money supply increases, and as described before, properties begin to get more expensive as the owners realize there is more money around to bid for them. The result is simple; the players march around the board hoping one day to aspire to property ownership, but every time they go around the board, they find the properties have grown more expensive and extend out of reach. Their $200 salary doesn’t go as far anymore as Boardwalk has double or tripled in price due to the expansion in the money supply.

Even if their salary increases over time at the same rate, this is not enough, because the important factor is that their savings are always losing value relative to the properties and can’t catch up. This is the true damage of a system where new money is printed; those who save in that money are completely debased and unable to get ahead.

To show this effect of savings devaluation, let’s assume every year that the supply of money increases by double, Boardwalk (a proxy for scarce property) conservatively increases in price by 1.5x, salary increases by 1.5x and the player is able to save their entire salary. Below shows the table of a player’s savings and cost of Boardwalk with the delta between the two.

If we assume a still very high savings rate of 75%, the disastrous impact of new money is even more obvious:

The winners of this system are the bankers and whoever surrounds themselves around them, and those who own the properties, as their properties are scarce and only increase in nominal valuation over time. Those who attempt to work and save their way to a prosperous future; those are the losers who are endlessly debased.

The Point: The point of all of this is that it’s not just a random Monopoly example; it’s real life. The Federal Reserve is the banker that has orchestrated the increase in the money supply of the United States from $286 billion, when first officially tracked in 1958, to 21.5 trillion at the end of 2024, a total growth of 7409% a compounded annual growth rate of 6.76% a year, and 99% dilution to anybody that had saved their money in the dollar. This has benefited the government, who has been able to spend recklessly, and the politicians, bureaucrats and bankers who have tagged along. It has also benefited those with assets, as assets like homes, gold and the S&P 500 have increased by 5.22%, 6.85% and 10.60% a year respectively over a similar timeframe. Like the players in the game of Monopoly, things aren’t quite as bright, as wages have struggled to keep up, with the annual median full-time salary lagging, growing only at 4.20% a year, and minimum wage growing at 3.05% a year, completely frozen since July, 2009. Asset ownership of stocks, bonds and high-end real estate continue to centralize higher as asset ownership begets more ability to own more assets, while those who save in the dollar are left behind.

It's not the asset owner’s fault – they’re just responding to market demand. This is simply a symptom of a system that does not allow people to save in money without being endlessly devalued. The answer for the individual is to avoid saving in the Monopoly money that government-dictated money is, but to save in better money, money that cannot be printed for free.