May 05, 2023 - 10 min read
The game of Monopoly can teach us a lot about how to properly structure competition, and prevent oligarchies from ruining all the fun.
To better understand and predict the world around us, whether it be financial, technological, or even social- we first run simulations of potential outcomes with our dreams and our imaginations. Now that higher tech versions are available to us, we run very sophisticated computer simulations. Our goals haven’t changed, but we’ve made improvements regarding the elegance and aesthetics of our abstractions.
Games can teach us a lot about life, and therefore a thought experiment is in order to see if we can’t find some parallels we can apply to today’s world. The game Monopoly will be used as we discuss how to play, some of the dynamics which negatively affect the game as it goes on. This maps nicely onto the scalability issue which often plagues highly performant, decentralized networks.
Next, we will consider how these dynamics played out in ancient history by using an extreme but well-documented example. Then, we will consider how too much regulation creates unhealthy power dynamics in which competition ceases to the point of economic stagnation and, in the case of the western Roman empire, complete collapse. Innovation and healthy competition are the keys to longevity. So first a bit of context, and then some analysis.
Monopoly is a classic board game that was brought to market by a company called Parker Brothers back in 1935. The game was designed for 2-8 players and revolves around buying and selling real estate properties in order to accumulate wealth and charge rent to other players using your properties.
To begin, players are given an equal, predetermined amount of starting money, and choose their game pieces (car, hat, shoe, etc.). Players take turns rolling a pair of dice and moving their game pieces according to the sum of their roll.
When landing on an unowned property, players can opt to purchase it so that they can charge rent to other players landing on this space. Owning all properties of the same color forms a “monopoly,” allowing the owner to build more complex properties like houses and hotels, significantly boosting the rent they can charge.
Players also navigate “event” spaces on the board, like Chance and the Community Chest. In these cases, players draw cards with special effects. Other spaces are rather costly, like paying taxes or even going to jail!
To get out of jail, players have to either pay a fine, use a “Get Out of Jail Free” card, or roll “a double.” Keep in mind that other players will be moving around the board and purchasing properties while the player stuck in jail watches the available real estate evaporate before their very eyes.
The game continues with players accumulating wealth through property acquisitions, strategic trading, and avoiding disastrously bad luck. Bankruptcy occurs when a player owes more money than they have, in which case they’ll have to forfeit their assets and exit the game. The objective is to be the wealthiest and last player standing by bankrupting all other opponents.
Most of the above situations actually map quite nicely onto real life, don’t they? The most notable exception being that we all start with the same amount of money and a blank board, of course. We don’t all spawn on the same Go square either. In reality, we’re all born in a variety of circumstances ranging from both extremes on the wealth spectrum.
The only way to completely ‘even the score’ would be to destroy any and all accumulated wealth. The thought is unconscionable, but history tells us it is a common outcome when inequality is left to fester for too long. This toxic notion must be rejected for a better option.
The answer is to invent new games and ensure that there are both opportunities to rise up from one’s successes, but perhaps more importantly, that winners are not guaranteed to remain so forever. They mustn’t be able to shield themselves from failure by capturing regulators, forming monopolies, excusing themselves from the laws of regular citizens, manipulating the currency, or banning innovations which pose threats to the status quo.
Chaos and inequality are baked into every system all around us, which makes dynamism one of the best trade offs we can hope for in terms of creating hope for a prosperous future both individually and collectively. That is, in order to avoid the pitfalls of stagnation and then collapse, the game has to evolve and adapt to accommodate the new context and renewed opportunities for realizing success.
Monopoly undoubtedly requires strategy, but the game also relies heavily on the luck of the dice. It’s frustrating when one’s successes or failures are decided arbitrarily rather than by the outcomes of a wise strategy. It doesn’t scale because nobody wants to play such a game for very long.
While the use of dice is not inherently a problem, anyone who is unable to compete alongside other players due to perceived arbitrariness will eventually give up the game, or else make up their mind that it is no longer fun to participate. We all understand that luck is a part of the human experience as much as skill. Speaking from personal experience, this would be the time that even the winner might decide it’s time to quit and play a new game.
Furthermore, players who gain significant advantages early in the game often continue to dominate in the accumulation of wealth and property, leading to unbalanced power dynamics. That is to say, the obvious disparities start to reduce the fun of the game and replace it with discomfort. This occurs when the winner owns properties on all of the spaces, collecting rent in perpetuity and never being unseated from their winning status. Does this sound at all analogous to the world we find ourselves living in today?
This makes it nearly impossible for other players to catch up since all the “low-hanging fruit” has been picked, and every roll of the dice results in the losing players paying rent to the emerging and increasingly dominant winner. This phenomenon can be exacerbated by the formation of monopolies and the merging of corporate and state interests.
This precarious arrangement combines levers of power like finance, regulatory, and enforcement powers. This makes opportunities rife for connected individuals to influence and anticipate upcoming regulation and rotate between the public and private sectors of the industry they’re supposed to be regulating.
This sort of power isn’t often relinquished gracefully, which is why many suspect the regulatory actions against Web3 in the US might be coming from self-interested, incumbent power structures. There’s a reason why the phrase “don’t trust; verify,” has become so commonplace amongst those in the digital asset space.
There are very few ways to dislodge the dominant player from their winning position as the mechanism as the pareto principle seems to create a gravitational pull towards that winner, bankrupting the other players or causing them to quit once they realize the inevitability of the game’s outcome. When this happens on a broader, societal level, the results are terrible for nearly everyone.
Complex systems become more fragile as they scale. What’s more, they’re subject to a phenomenon called feedback in which the effects of small disruptions are amplified, sometimes resulting in partial or complete collapses. The old saying, ‘the straw that broke the camel’s back,’ comes to mind. It was not the straw itself, but the accumulation of disruptions which reached a threshold so as to create a cascading collapse, partially or fully.
Let us use the collapse of the western Roman Empire as an example, since it illustrates the point rather eloquently. The most likely culprit was the grotesque inequalities which accumulated due to inflationary overspending by the government and deteriorating conditions for the middle class.
You see, the gap between the rich and poor in the Roman Empire widened over time, leading to social unrest and discontent. The wealthy elite accumulated vast fortunes, employed slaves, and became rampant speculators in real estate. The trend ultimately lent itself to a culture of corruption and exploitation in which inequalities were exacerbated and became widespread.
Since the Roman economy relied heavily on slave labor and rent extraction, technological innovation was stifled and social mobility basically ceased altogether. The wealthy’s growing reliance on slave labor contributed to the empire’s economic stagnation and decline.
Middle class and independent farmers couldn’t compete with free labor and price controls, and did not have the means to reduce the burdens of taxation as more well-connected elites may have had. They either fled to the countryside, became soldiers, or went to the capital to get the free provisions being handed out to those without options.
To fund its wars, expanding bureaucracy, and increasingly generous food subsidies, the Roman government often resorted to debasing its currency by clipping off some of the silver content of coins. This led to a decline in the value of money and a consequent increase in the prices of goods and services.
The debasing of the Roman denarius was another contributing factor, though this doesn’t compare directly with our Monopoly analogy. However, it still allowed incumbent power structures to gobble up all of the wealth via military expansion, the acquisition of slaves, and rampant real estate speculation.
An overproduction of the money supply disproportionate to economic growth is a recipe for inflationary disaster every time. It should therefore be noted for its contributions to the grotesque inequalities which manifested over time.
Furthermore, the Roman government increasingly imposed high taxes on its productive citizens. Since inflation and taxation combined took a heavy toll on small business owners and tradesmen, economic activity slowed considerably, and the population requiring government subsidies and handouts increased quickly.
Opportunities for work in the private sector dried up and small businesses couldn’t compete any longer. The subsequent social decay ultimately led to an utter malaise in the population as the class divide became so polarized.
Demoralization was perhaps the most tragic outcome of all as more people lost hope in their futures. As the Western Roman Empire faced increasing challenges, its social fabric began to unravel as people saw their society as becoming hopelessly corrupt. This result is not so different from the late stages of a game of Monopoly: players lose their will to play nicely any longer. They’re prepared to quit.
Few were prepared to defend Rome or help to rebuild it after it was finally sacked in 410 AD. The people were so sick of losing the same game that they just went on without it. This is to be compared to the game of monopoly and how the losing players eventually quit the game with the hopes of a fresh start. Let’s explore how this can be avoided, shall we?
Web3, on the other hand, has the potential to promote social cohesion via transparency, increased financial access, and reduced friction when it comes to conducting transactions. Trust is a key factor in social cohesion, and blockchains are designed to create trust by transparently recording and displaying their ledger contents.
By using digital currencies and conducting P2P transactions, users around the world enjoy better access to the global economy without relying on clunky payment systems or other inhibiting friction points. It liberates users from the limitations of their geographical location and in many cases allows them to move about the world to places the rent-seekers have sought less rent. The games become fun again.
When information is shared openly and reliably, it fosters an environment of infinitely scalable trust and collaboration. With hard money, capital accumulation, and social cohesion, the world could be poised for a revival of prosperity that would rival that of the Renaissance.
In Web3 we often talk of scalability, but it almost always refers to the ability to add new users or process more transactions per second. However, scalability should also be seen through the lens of time, that is, can a system enjoy longevity and to what degree. Imagine the difference between a flash flood versus a streaming river; both are impressive, but only one gives rise to civilization.
Systems need to scale over time if they are to survive; this much is obvious. As more users are forced to interact with a costly and ineffective system in order to function, response times often become slower. This is what characterizes the legacy financial system.
Web3 is akin to upgrading to a new game, or maybe more like a downloadable expansion pack to the current game we’re all playing. It addresses many of the issues we will demonstrate head on, namely by updating the monetary system and providing a new frontier for growth and exploration with plenty of low-hanging fruit to be picked.
You see, you can’t go around just taking properties off the Monopoly board and giving them away. The players earned those fair and square. No, the players simply need more games to play, along with the hope that they can win a little bit more than they did last time.
This only happens if the game is adaptable. Adaptability is our greatest strength, and upgradeability is the key to innovation. Failure to adapt in the face of critical circumstances equates to a dysfunctional immune system, a paralysis of our will to survive. Think about this when governments try to suppress competition and innovation, and consider more than the economic impacts of such foolish measures.
The future needs good ideas to build upon, and we can’t afford to keep learning our lessons the hard way. Moreover, systems must remain competitive and keep up with technological advancements, meaning that they must be flexible and responsive to chance events and market dynamics. Let’s hope we don’t regulate our games away until all our players quit and go elsewhere.
Just like our game of Monopoly, a binary society composed of only the rich and the poor is destined to fail. Healthy competition is the dynamism that promises scalable prosperity, and that means a large middle class to act as a highly fluid buffer zone of healthy competition through which both the richest and poorest may pass. This is what keeps the game going a bit longer. Here’s to another thousand years of exploring the stars; onward and upwards.
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