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If Money Is Created As Debt, Is Interest Just A Tax Paid To Bankers?

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If all money is created as debt, then isn't it interest essentially a tax on money, paid to the private bankers? If so, how is this fair? How have we ended up with this criminally unfair system?

Consider this: If you have a mortgage, repaid over 30 years, you will have paid TWICE as much for it, including the interest (at 6%). This is for something which is a basic necessity in life - shelter.

So, if you are paying £150k for a house, you are also paying £150k to the bankers in interest, or 'bankers tax'. That is 5k a year to the bankers for doing little more than a few key strokes to create the credit. If you fail to pay this, they can take the house off you and still chase you for the difference if they sell it for less than the mortgage.

Considering that at the start of the mortgage, much of what you are paying is interest, this becomes a huge cost. Why do we have such a system, configured to fleece us of our wealth?

If bankers can create these loans, why can't the government, with the (small) administration costs by taxes? The payments could even be taken via taxes to avoid defaults. The whole loan could be interest free and we could just pay back the capital.

Plugging some numbers into a mortgage calculator (http://www.bbc.co.uk/homes/property/mortgagecalculator.shtml) for a 150k mortgage, over 30 years, it is about £960 pm, with £810 as interest. If you just had to pay back the principle, it would be about £415 pm.

As 150k for an average house is still rather obscene, how about a 3x multiple of a pretty average 25k salary - £75k. Considering construction costs, a 3 bed semi should be easily available for this. Paying back just the principle on £75k, over 30 years is about £210 pm. How much more wealthy and fair would society be if this were the case?

Why can't the government take control of all mortgage lending, take the liability for payment on it, then cap new lending to traditional multiples (3x single + 1x second). Taxation could meet the administration fees, with no profit or interest taken.

I understand this may be considered inflationary, but as the government is trying to bail out the banks anyway, does it make much difference - the liability would just be shifted to the government/BoE. If the banks were allowed to fail, the government liability would be smaller too, as the mortgage debt would be "worth" less.

Can this be done? If not, why not? I am genuinely trying to discover why we are living with the current system, when there appear to be much fairer ones. Are there structural reasons for this or just because we are conditioned into thinking it is the only way?

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If all money is created as debt, then isn't it interest essentially a tax on money, paid to the private bankers? If so, how is this fair? How have we ended up with this criminally unfair system?

Consider this: If you have a mortgage, repaid over 30 years, you will have paid TWICE as much for it, including the interest (at 6%). This is for something which is a basic necessity in life - shelter.

So, if you are paying £150k for a house, you are also paying £150k to the bankers in interest, or 'bankers tax'. That is 5k a year to the bankers for doing little more than a few key strokes to create the credit. If you fail to pay this, they can take the house off you and still chase you for the difference if they sell it for less than the mortgage.

Considering that at the start of the mortgage, much of what you are paying is interest, this becomes a huge cost. Why do we have such a system, configured to fleece us of our wealth?

If bankers can create these loans, why can't the government, with the (small) administration costs by taxes? The payments could even be taken via taxes to avoid defaults. The whole loan could be interest free and we could just pay back the capital.

Plugging some numbers into a mortgage calculator (http://www.bbc.co.uk/homes/property/mortgagecalculator.shtml) for a 150k mortgage, over 30 years, it is about £960 pm, with £810 as interest. If you just had to pay back the principle, it would be about £415 pm.

As 150k for an average house is still rather obscene, how about a 3x multiple of a pretty average 25k salary - £75k. Considering construction costs, a 3 bed semi should be easily available for this. Paying back just the principle on £75k, over 30 years is about £210 pm. How much more wealthy and fair would society be if this were the case?

Why can't the government take control of all mortgage lending, take the liability for payment on it, then cap new lending to traditional multiples (3x single + 1x second). Taxation could meet the administration fees, with no profit or interest taken.

I understand this may be considered inflationary, but as the government is trying to bail out the banks anyway, does it make much difference - the liability would just be shifted to the government/BoE. If the banks were allowed to fail, the government liability would be smaller too, as the mortgage debt would be "worth" less.

Can this be done? If not, why not? I am genuinely trying to discover why we are living with the current system, when there appear to be much fairer ones. Are there structural reasons for this or just because we are conditioned into thinking it is the only way?

We have the current system because if you try to reform it, they kill you.

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We have the current system because if you try to reform it, they kill you.

There are more of us than them though. The military own a few guns too.

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...the Bankers in turn have to borrow the money they are lending to you and pay interest on that borrowing...their gross profit is the margin between the rate they pay to borrow and the amount they charge you....this was the essence of Building Societies where the savers provided the funds to the Society to lend ...in fact before you could arrange a mortgage not so long ago you had to be a saver at that Building Society ....it should return to this method...to obtain a mortgage then was a privilege ...again this should be the way going forward ...people should earn the right to borrow....if they need to borrow... <_<

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...the Bankers in turn have to borrow the money they are lending to you and pay interest on that borrowing

Not so. In most cases, they don't have the money to lend in the first place. Neat - collecting interest on nothing. This has been discussed to death on here before...

Edited by RajD

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...the Bankers in turn have to borrow the money they are lending to you and pay interest on that borrowing...their gross profit is the margin between the rate they pay to borrow and the amount they charge you....this was the essence of Building Societies where the savers provided the funds to the Society to lend ...in fact before you could arrange a mortgage not so long ago you had to be a saver at that Building Society ....it should return to this method...to obtain a mortgage then was a privilege ...again this should be the way going forward ...people should earn the right to borrow....if they need to borrow... <_<

Why can't the government control mortgage lending? It is issued when you are young and repaid when you are old. Essentially, as long as the population remains stable, it would not be inflationary over a lifetime (in the same way repaid bank credit isn't). As it would require only a few keystrokes, with payment collection automated in the usual way, it would be practically free. I suppose it is a bit like a modern council house system, but people buy the houses, rather than rent them (which brings freedom of choice etc).

I have no problem with full reserve banking co-existing with such a system, but that could be for none mortgage/housing services. Savings, private/business lending, personal/business accounts. Essentially, traditional banking services, before demutualisation (as I understand it). Full reserve banking may slow business investment, but the fast boom/bust system isn't doing us many favours, is it?

P.S. I found this during Googling: http://www.moneyreformparty.org.uk/. I have never heard of them (not sure if they have been referenced from here before?), but they are UK based and the blog is an interesting read.

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The primary rationale for banks is their excellence in the allocation of capital compared to state agencies. The proof of this superior ability to allocate capital can be seen in the smoking ruins of the economys of the developed world.

:lol::lol::lol:

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Not so. In most cases, they don't have the money to lend in the first place. Neat - collecting interest on nothing. This has been discussed to death on here before...

Indeed it has. ;)

My current understanding is that they do have the money to lend, but in most cases they never have to. Which amounts to interest on minimal admin and considerable risk.

But as the risk can be passed to the taxpayer at times of stress, the risk is, in reality - low.

edit:

P.S. I found this during Googling: http://www.moneyreformparty.org.uk/. I have never heard of them (not sure if they have been referenced from here before?), but they are UK based and the blog is an interesting read.

Their understanding is basic at best, and their spelling is utterly appalling.

Edited by Timm

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Why can't the government control mortgage lending? It is issued when you are young and repaid when you are old. Essentially, as long as the population remains stable, it would not be inflationary over a lifetime (in the same way repaid bank credit isn't). As it would require only a few keystrokes, with payment collection automated in the usual way, it would be practically free. I suppose it is a bit like a modern council house system, but people buy the houses, rather than rent them (which brings freedom of choice etc).

You have to be careful about putting the creation and availability of credit into political hands. What happens when the government decides people and entities of certain persuasions or political beliefs shouldnt be allowed credit? Also just how effectively or efficiently do you expect the government to perform this task anyway?

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Also just how effectively or efficiently do you expect the government to perform this task anyway?

In Gordon We Trust

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The primary rationale for banks is their excellence in the allocation of capital compared to state agencies. The proof of this superior ability to allocate capital can be seen in the smoking ruins of the economys of the developed world.

:lol::lol::lol:

:lol: Quite!

Indeed it has. ;)

My current understanding is that they do have the money to lend, but in most cases they never have to. Which amounts to interest on minimal admin and considerable risk.

But as the risk can be passed to the taxpayer at times of stress, the risk is, in reality - low.

edit:

Their understanding is basic at best, and their spelling is utterly appalling.

Yup, it's not much risk if they are "too big to fail." If the payments on an interest free state mortgage could be gathered using the taxation/civil servant system, defaults would be low. Even if the government repossesses a property, it would return to public ownership and could be rented back as a council house. Essentially, the private bankers wouldn't get their grubby mitts on it!

The site could do with spell checking, but I think they broadly "get" the problem. They certainly have a better grasp (or willingness to admit!) than the current mainstream parties. I admire the effort done in taking the case to the people, regardless.

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You have to be careful about putting the creation and availability of credit into political hands. What happens when the government decides people and entities of certain persuasions or political beliefs shouldnt be allowed credit? Also just how effectively or efficiently do you expect the government to perform this task anyway?

Yes, but then when the alternative is private banking, capable of bringing down the economy anyway, can it be worse?

Having the BoE or some such independent (as can be, anyway!) entity ensuring (money supplied) = (money taxed) would have to be implemented. This balance may be allowed to drift a little to be economically counter cyclic, but would have to be enforced over the business cycle. 0% inflation could be made to be the target, with it only being overturned via referendum, with full disclosure of why it was made law in the first place.

Besides, how difficult is it to check someone's wage and financial position and then add some numbers to said bank account, based on strict, constant, multiples? It's hardly admin rocket science.

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Guest UK Debt Slave
If all money is created as debt, then isn't it interest essentially a tax on money, paid to the private bankers? If so, how is this fair? How have we ended up with this criminally unfair system?

Cos they're smarter than we are.

And their destruction of the global economy is deliberate. It's not a mistake and it's not due to incompetence. They lend nothing and charge interest on it. They contrive credit bubbles and then contract the supply of credit claiming thay didn't know there was a credit bubble. They are asset stripping the people with the full connaivance of our 'elected representatives'

They get away with it because people are generally fekkn dumb.

Bankers are criminals, gangsters in Saville Row suits.

Edited by UK Debt Slave

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Cos they're smarter than we are.

And their destruction of the global economy is deliberate. It's not a mistake and it's not due to incompetence. They lend nothing and charge interest on it. They contrive credit bubbles and then contract the supply of credit claiming thay didn't know there was a credit bubble. They are asset stripping the people with the full connaivance of our 'elected representatives'

They get away with it because people are generally fekkn dumb.

Bankers are criminals, gangsters in Saville Row suits.

If what they are lending has no value, cos it doesnt exist, why do they bother collecting interest,which being the same thing that is nothing, is nothing either?

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As 150k for an average house is still rather obscene, how about a 3x multiple of a pretty average 25k salary - £75k. Considering construction costs, a 3 bed semi should be easily available for this. Paying back just the principle on £75k, over 30 years is about £210 pm. How much more wealthy and fair would society be if this were the case?

There's two different issues here which have been mixed up.

1) The bankers create credit out of thin air and then charge interest on it.

2) Houses are ridiculously expensive, way more so than their cost of production.

Do you blame the cost of Ferrari's on the bankers?

The cost of food?

What about the price of building materials such as like bricks, copper, slate etc?

No, so why housing?

The point is that housing takes on the price of the economic opportunites that its location offers. So an apartment built to the exact same specifications would have two wildly different prices if one where located in on the bank of the Thames for example and the other in the middle of Yorkshire. The same is not true of other forms of capital, cars are the same price up and down the country for instance. The bankers can't do anything about this underlying economic principle yet they're repeatedly blamed for bringing down western capitalsim.

We have a choice to make and time is running out because the national debt is mounting fast. We can either support capitalism and have a fair efficient productive economy or, we can hamper productivity with unjust taxes making Britain uncompetitive and carry on shielding those that get currently enjoy a free ride via the housing market.

Edited by chefdave

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There's two different issues here which have been mixed up.

1) The bankers create credit out of thin air and then charge interest on it.

2) Houses are ridiculously expensive, way more so than their cost of production.

Do you blame the cost of Ferrari's on the bankers?

The cost of food?

What about the price of building materials such as like bricks, copper, slate etc?

No, So why housing?

The point is that housing takes on the price of the economic opportunites that its location offers. So an apartment built to the exact same specifications would have two wildly different prices if one where located in on the bank of the Thames for example and the other in the middle of Yorkshire. The same is not true of other forms of capital, cars are the same price up and down the country for instance. The bankers can't do anything about this underlying economic principle yet they're repeatedly blamed for bringing down western capitalsim.

We have a choice to make and time is running out because the national debt is mounting fast. We can either support capitalism and have a fair efficient productive economy or, we can hamper productivity with unjust taxes making Britain uncompetitive and carry on shielding those that get currently enjoy a free ride via the housing market.

The problem with your position is that in reality the bankers are in fact responsible for inflation, creating credit is in itself inflationary which means these thieving scumbuckets get to steal from you so long as you use money, house are expensive because people could get loans to pay high prices, without that mechanism house prices could not rise as high as they have.

You don't even have to deal with them to get fleeced. How cool is that for them....

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If what they are lending has no value, cos it doesnt exist, why do they bother collecting interest,which being the same thing that is nothing, is nothing either?

Because when you default they can come and take your knackers.

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Guest UK Debt Slave
If what they are lending has no value, cos it doesnt exist, why do they bother collecting interest,which being the same thing that is nothing, is nothing either?

Banks use their profits to buy real assets, or just re-lend. They can't lose really. Anyone who hangs on to 'electronic' savings will see their value erode in real terms. The art of survival under a fiat currency system is to invest wisely, at the right time. One has to 'speculate to accumulate' because you cannot save under this system. Over the longer term, the value of your savings or your pension will always be eroded by inflation, but they are just much more brazen now about stealing peoples' wealth. Ultimately, the thing that gives our money value is the presumption that the majority of people will service debt in the future because debt is a futures contract. But if people cannot service their debts, the bankers seize the peoples' asset wealth, sell it, and reinvest the proceeds. Not bad business when all you are is a state sanctioned counterfeitting agency. And who cares if money becomes worthless when you own all the land, all the property, the politicians, the media, the military, the health service, the education system. Doesn't fekkn matter anymore does it.

DO AS YOU ARE TOLD........OR STARVE

I equate it to a Monopoly game where the banker has the power to create money under the table at whim. Also, the price of property on the board is not fixed. It fluctuates according to how much 'money' is 'available. And instead of the players having a float of debt free 'money', the capital they receive from the banker at the beginning of the game is interest bearing debt.

It's pretty fekkn obvious who is going to wind up with all the land, all the hotel, all the flats and all the utilities isn't it? The guy who created Monopoly designed a game where each player had a fair crack. Under our system however, all wealth is leeched from the people over time. It's a rigged game. They've got a Union Jack wrapped around a flagpole and they're jamming up our collective backsides.

Orwell summed it up perfectly for me

'The future is a boot stamping on a face.........forever.'

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If what they are lending has no value, cos it doesnt exist, why do they bother collecting interest,which being the same thing that is nothing, is nothing either?

True, but the smart bankers at the top take their promisary notes (paid as bonuses and high wages) and quickly transact these into tangible items like mansions, boats, gold. They're smart.

The way I see it is until the pretend pounds are withdrawn and spent on something real, it doesn;t exist.

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We have the current system because if you try to reform it, they kill you.

if only more people understood how the system works

America's forgotten war against central banks

Rising prices is not intrinsic to free-market capitalism. It is a monetary phenomenon caused by increasing money supply. Money, like anything else, is subject to the laws of supply and demand. The more abundant the money, the lower its value.

If the amount of money were to remain constant relative to population, we would see a general decrease in the prices of goods as technologies and transportation efficiencies improved. This would be a boon to consumers.

Consider the rapid spread of telecommunications and computers, two industries where technological improvements have actually been able to outpace the price escalation caused by the monetary inflation of central banks. Lower prices have led to a surge in consumer usage. People don't hold onto their money in hopes of waiting for a better computer or phone. Quite often they buy a second or third one. The consumer base grows as well because for those who previously could not afford one now can do so.

Despite these blatant observations, conventional economic thought believes that decreasing prices are bad for the economy because it encourages saving. It is widely held that consumer spending, not saving, is what drives the economy.

This is a falsehood, perpetrated by those would stand much to gain by further and further indebtedness of the public. Savings leads to capital investment which is the real driver behind capitalism.

Debt

Every dollar created is an instrument of debt lent out at interest. The extra money required to pay back the interest can only come from one place, that being the central bank. As such, the central banks must continuously increase the money supply.

Growth of Currency

For the 2007 fiscal year ending Sept 30, 2007, the total interest charges to the Total Outstanding Public Debt of the United States was US$430.0 billion making it the forth largest expense after Human and Health Services, Social Security Administration and National Defense.

By means of comparison, for that same 2007 fiscal year, the total revenue collected from individual income taxes was US$1,156.8 billion (see table S-8 Receipts by Source on page 169 of the Budget for the Fiscal Year 2008 here).

Thus, the equivalent of a little over 37 cents of every dollar the U.S. government collects under the Sixteenth Amendment goes towards paying the interest on the national public debt. This amount doesn't include any repayment on the principal, nor does it include any State or Local public debt.

Not a bad rate of return for the Federal Reserve which literally creates the money that indebts the nation out of nothing but the want thereof!

How do We Get Out of this Mess?

The current monetary system uses questionable practices on both moral and legal grounds. Monetary inflation erodes the wealth of citizens. Fractional reserve banking enable banks to fraudulently lend out more than they have. Debt is incurred every time new money is created. This debt must is inherited by future generations.

Below are three measures that would establish an honest monetary system.

Repay the Public Debt

The U.S. government must begin by first balancing the annual budget and then begin reducing the public debt. This would reduce the tax burden and ultimately allow tax dollars to be spent only on services requested by the people and not to banking agencies. (For a discussion of to whom the debt is owned to click here).

Introduce a Hard Currency

A hard currency should be introduced that competes against Federal Reserve Notes. Each of these bills would be backed by a defined quantity of a hard asset, such as gold, that are fully convertible at any time. Such a system could be comprised of bills representing a number of grams of gold.

There should be no legislation regarding the exchange ratios between gold and any other commodity or fiat currency. The free market should determine what the price of silver or Euros is in gold.

Borrowers and lenders should negotiate an interest rate on any lending arrangement using the hard currency.

Lastly, there should be no law requiring that people must use this new currency. Legal tender laws are needed to make people accept a bad currency, not a good one.

This hard currency would require banks to store gold in their vaults. Any bank without gold would be unable to issue out the hard currency either in cash or as a loan.

In essence, the hard currency is a paper receipt convertible on a 1:1 exchange basis with gold. The gold is the money; the paper receipt is merely a representation of the physical metal.

Abolish Fractional Reserve Banking

The practice of fractional reserve banking should be criminalized, as is any other form of fraud. No business should be able to lay claim to assets they do not have, let alone lend out these assets and charge interest on them. This would eliminate the phenomena of bank-runs whereby panicked depositors line up to withdraw their assets for fear that the bank is insolvent. A bank should be able to lend out $10,000, only if it has $10,000 to begin with.

With the present system, banks can lend out multiples in loans to what they have in reserve deposits.

U.S. Reserve Requirements

Amount of Liability Reserve Required

$0 to $8.5 million 0%

$8.5 million to $45.8 million 3%

More than $45.8 million 10%

Within these ratios a financial institution may legally lend out up to $8.5 million without any reserve or $45.8 million with less than $1.4 million in assets.

Benefits of an Honest Monetary System

The most significant expenses facing people are: taxes, interest and inflation. The relative significance of each of these costs depends upon one's socio-economic status. Each of them is further exacerbated by the current fiat monetary system of centralized banks and the industry's use of fractional reserve banking.

The measures described above would ensure price stability, preserve wealth and reduce debt.

Price Stability

Price stability can be seen in the following chart that shows the price of oil from 1950 to the present day. Note the marked change in the price of oil before and after Nixon took the U.S. dollar off the gold standard when he closed the gold window in 1971.

The reason for the price stability under a gold standard is that the relative value between commodities fluctuates much less than their prices in fiat currency.

Preservation of Wealth

Personal wealth would be preserved under an honest monetary system. Under a fiat monetary system, newly created money diminishes the value of those already out in circulation. It is no different from theft, albeit an insidious form that the victim doesn't even realize. The amount of gold being mined inflates the gold supply by about 2% per year. Much less than the estimated 12-15% money supply growth rate of fiat money.

Reduction in Debt

Future generations would be spared the burden of a large debt for obligations promised by a previous administration.

To do this, would require that we begin living within our means. Perhaps this is the most serious roadblock to us ever having an honest monetary system.

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The problem with your position is that in reality the bankers are in fact responsible for inflation, creating credit is in itself inflationary which means these thieving scumbuckets get to steal from you so long as you use money, house are expensive because people could get loans to pay high prices, without that mechanism house prices could not rise as high as they have.

You don't even have to deal with them to get fleeced. How cool is that for them....

The problem you're going to have is proving that the activity of the bankers causes inflation in car prices. In reality the only thing that has hyper-inflated over the past decade is housing so that would suggest that the problem lies with the housing market rather than the money supply.

Edited by chefdave

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Consider this: If you have a mortgage, repaid over 30 years, you will have paid TWICE as much for it, including the interest (at 6%). This is for something which is a basic necessity in life - shelter.

If you don't like it, you don't have to take out a mortgage - you can always get the basic necessity of shelter by renting.

It's pretty fekkn obvious who is going to wind up with all the land, all the hotel, all the flats and all the utilities isn't it? The guy who created Monopoly designed a game where each player had a fair crack.

The lady who created the game which Monopoly blatantly plagiarised created it to demonstrate that, under a capitalist system, eventually wealth becomes concentrated in the hands of a few. Sure it's partly luck who ends up with all the money, but then that's true in real life too.

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I equate it to a Monopoly game where the banker has the power to create money under the table at whim. Also, the price of property on the board is not fixed. It fluctuates according to how much 'money' is 'available. And instead of the players having a float of debt free 'money', the capital they receive from the banker at the beginning of the game is interest bearing debt.

It's pretty fekkn obvious who is going to wind up with all the land, all the hotel, all the flats and all the utilities isn't it? The guy who created Monopoly designed a game where each player had a fair crack. Under our system however, all wealth is leeched from the people over time. It's a rigged game. They've got a Union Jack wrapped around a flagpole and they're jamming up our collective backsides.

Then you completely and utterly misunderstand the concept of the game Monopoly:

The history of Monopoly can be traced back to 1904, when a Quaker woman named Elizabeth (Lizzie) J. Magie Phillips created a game through which she hoped to be able to explain the single tax theory of Henry George (it was intended to illustrate the negative aspects of concentrating land in private monopolies)

http://en.wikipedia.org/wiki/Monopoly_(game)

The whole point of monopoly is to monopolise locations and then extract as much rent as possible from other players in the game. The person that extracts the most and financially cripples the others is declared the winner, its the same premise as the one we use to set up our economy and why we find ourselves constantly lurching from one economic crisis to the next.

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