In a 1945 issue of Econimica, R. A. Radford wrote about the economic organization of a P.O.W. camp. Radford spent at least two years (the timeline isn’t clear) as a prisoner in Italy and Germany during World War II. He used his experience as the basis for a paper about “financial” transactions among his fellow inmates. He found that although economic activity as a prisoner is severely curtailed, the ideas and habits of the outside world can still be found in daily life:
A prisoner is not dependent on his exertions for the provision of the necessaries, or even the luxuries of life, but through his economic activity, the exchange of goods and services, his standard of material comfort is considerably enhanced. And this is a serious matter to the prisoner: he is not “playing at shops” even though the small scale of the transactions and the simple expression of comfort and wants in terms of cigarettes and jam, razor blades and writing paper, make the urgency of those needs difficult to appreciate…
In some ways, life in a P.O.W. camp was not like real life. Every prisoner received the same weekly ration from the Red Cross. In essence, everybody had the same income. Payment was made in the form of chocolate, cigarettes, and bread. But different people valued certain items more highly than others, making a real economy possible.
The cigarette became the standard of value. In the permanent camp people started by wandering through the bungalows calling their offers — “cheese for seven” (cigarettes) — and the hours after parcel issue were Bedlam. The inconveniences of this system soon led to its replacement by an Exchange and Mart notice board in every bungalow, where under the headings “name,” “room number,” “wanted” and “offered” sales and wants were advertised. When a deal went through, it was crossed off the board.
The public and semipermanent records of transactions led to cigarette prices being well known and thus tending to equality throughout the camp, although there were always opportunities for an astute trader to make a profit from arbitrage. With this development everyone, including non-smokers, was willing to sell for cigarettes, using them to buy at another time and place. Cigarettes became the normal currency.
But P.O.W. camps didn’t just support barter and basic transactions. They also allowed for credit and for investment and for entrepreneurship. And because cigarettes became the medium of exchange, non-smokers were, in a way, savers. They only spent on needs, not on wants. (This is an imperfect analogy, I know.)
This is an amazing paper. If you think you might at all be interested in the subject, give it a try. You’ve only lost a few minutes if it turns out to bore you. I think it’s fascinating.
[The economic organization of a P.O.W. camp, via kottke]
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This is an amazing paper. I’ve always thought that even if you gave everyone the same starting point, some would do better than others. Clearly the key in the POW camp was not to smoke, so you wouldn’t have an intrinsic need for the currency. But they also mention saving bread rations and then selling them when they are at their scarcest.
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Yeah, this is actually amazingly interesting. I try to imagine what would happen with edible currency, and in a sense we have that already, when one considers narcotics and the like. They’re barely a step removed from direct inhalation of the currency used to acquire them.
Of course, currency also doesn’t go stale, a factor on the bread side of the equation.
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I loved the story and parable!
Empire of the Sun has a set of great scenes of John Malkovich running the camps black market and the kid (the future Batman) Christian Bale as the young child helping as a runner.
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FANTASTIC. Thank you! Am linking this in a future Link Love post.
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Interesting, thanks. Reminds me of one of my favorite novels, Clavell’s ‘King Rat,’ though it’s more about capitalism than economics.
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“There was a coffee stall owner who sold tea, coffee or cocoa at two cigarettes a cup”
That coffee guy is a highway robber.
Fascinating paper for us economy nerds. ^^
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This paper was one of things we used in my econ class senior year. I can’t remember the course name though. No texts, just papers like this.
Most of the class was a little boring (professor was long winded). But the papers were awesome. This paper was pretty much my favorite thing about the class.
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Amazing paper.
Good read.
-Nikhil
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It’s like this in all prisons, not just POW camps.
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This reminds me of a TED Talk I watched recently. A guy talked about how cell phones are being used to transfer money in some third world countries.
One guy in a village has a cell phone. Family who work in the city will buy a pre-paid cell phone card and then call the guy in the village. They give him the information for the pre-paid card and he uses it to charge up his cell phone. The village cell phone guy then gives money to the city worker’s family after taking a commission. Then when people in the village want to use the cell phone, they pay him for the minutes they use.
Essentially, they created a currency with something that we would never think of as a currency.
Here’s the talk, but it’s more than about this story above. (I actually didn’t care for most of the talk. The part I’m referencing is at 8:00 in the talk.)
http://www.ted.com/index.php/talks/jan_chipchase_on_our_mobile_phones.html
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Come to think of it, we’re actually using a lot of currencies, not just money. There’s edible currency, influence currency (scratch my back, I’ll scratch yours), even a genetic currency where ugly rich men marry stunning dunderheads to improve their genetic pool.
Who knows what type of currency we would think up in the years to come?
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this is a great read…economics at its best.
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Interesting the article on a POW camp shows an ad for John McCain. Was this on purpose? Coincidence? Or is this an example of contextual advertising where the word POW automatically shows a McCain ad.
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Heh, I had to read this in highschool economics. Absolutely brilliant stuff.
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The method used to create a paper currency in the P.O.W. camp is the same method used by modern banks. Today money is created with a keystroke by the bank in the same way, but instead of offering assets for sale, modern banks act as brokers between buyers and sellers, creating new paper money in the process.
The modern banking “brokering” process would occur as follows in the camp:
1. John knits a wool coat from yarn.
2. Bob wishes to buy the coat for 50 POW dollars, but does not have enough money.
3. The camp’s store brokers the deal; it buys the coat from John with 50 dollars it prints from thin air.
4. Bob buys the coat from the store on credit, owing the store 50 POW dollars, and agreeing to repay the debt over five months, paying 11 POW dollars per month (one dollar per month as an interest fee).
Modern banking is the same, but the wool coat is a house and the terms of the loan are longer. Banks broker deals in exactly the same way, making it easier for a home-builder to sell to a person who lacks the capital to make the purchase.
Notice that in this system there is not enough paper money to both pay off all the loans and the added interest payments. To correct this problem, the store would need to purchase supplies and keep them off the shelves, balancing the amount of supplies and paper. This is why the Fed engages itself in “quantitative easing,” purchasing assets with new money, and keeping them off the market on its balance sheet.
Later, if the value of paper falls against the value of cigarettes, as actually occurred in this camp, the store would be able to place additional items on the shelves to raise the value of paper — by making it less plentiful relative to the supplies available in the store.
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