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]

This article is about Economics, Odds and Ends  Tuesday, 22nd July 2008 (by J.D. Roth)