Friday, March 03, 2006

Prisoner Economy

I was stuck on a piece of work the other day so started reading a piece that Mel had sent me quite a while ago: R.A. Radford’s ‘The Economic Organisation of a P.O.W. Camp,’1 published in Economica in November 1945. It’s fascinating stuff. Radford’s basic point is that the P.O.W. Camp represented, in miniature, the economic society and provided a good case for some simple theories of currency and pricing etc. He found that transit camps were not particularly stable markets, with lots of people coming and going, so that profits were to be made from a dearth of information as to what various commodities from Red Cross Parcels and the like were worth. ‘Stories circulated of a padre,’ for example
who started off round the camp with a tin of cheese and five cigarettes and returned to his bed with a complete [Red Cross] parcel in addition to his original cheese and cigarettes; the market was not yet perfect.
In more settled camps, the market grew too complicated for simple barter:
Within a week or two, as the volume of trade grew, rough scales of exchange values came into existence. Sikhs, who had at first exchanged tinned beef for practically any other foodstuff, began to insist on jam and margarine. It was realised that a tin of jam was worth ½ lb. of margarine plus something else; that a cigarette issue was worth several chocolate issues, and a tin of diced carrots was worth practically nothing.
Over time, cigarettes became the currency for the camp.
The cigarette became the standard of value. In the permanent camp people started wandering through the bungalows calling their offers - ‘cheese for seven’ (cigarettes) – and the hours after [Red Cross] 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 semi-permanent records of transactions led to cigarette prices being well known and thus tending to equality throughout the camp, although there were some 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, although of course barter was never extinguished.
Radford goes on to describe the development of a pure market with prices fixed by supply-and-demand. Admittedly, being free of almost all labour, it was a strange market, but it was one nevertheless. He was particularly interested in cigarettes as currency, arguing that they ‘performed all the functions of a metallic currency as a unit of account.’ Indeed, the camps even experienced inflation linked to money-supply, namely to the rise and fall in the availability of cigarettes as Red Cross parcels came. An influx of hungry new prisoners would increase the price of food. And an air raid would lead to much of the currency being smoked, thus provoking deflation.

Around D-day the camp economy was apparently so buoyant that the officers opened a very successful camp restaurant, with profits being ploughed back into the society through the bribing of guards for essential materials etc. This was on top of a long-established not-for-profit camp shop which had stabilised prices somewhat. Eventually, a paper currency, interchangeable with cigarettes (sort of a gold standard) was introduced, acceptable at the restaurant and the shop.

This is all fascinating stuff. I wonder, though, whether these dynamics would be replicated today. Radford’s story is interesting in and of itself, but also because of its emphasis on price-stabilisation and on the trend towards central control of supply and demand (i.e. the shop and the restaurant). That strikes me as being evidence, of a sort, that the psychology of the market is relatively culturally specific.

I suspect that your average economist in this day and age would decide that the most rational method for satisfying supply and demand would be some sort of auction, with people directly bidding for commodities. I suspect also that you’d have had some sort of futures market working away (which did exist in embryonic form in the camps), with people buying future supplies at future prices.

The one thing I don’t think would exist is the investment bank: I suspect this works in the real economy in part because we don’t see or don’t understand how banks make enough to cover their costs, make a profit and pay us interest. If we did, either we’d conclude that a collaborative enterprise like a bank was more beneficial for us or that we could do the necessary investments ourselves. In that camp, of course, the second thing is far easier, given the small, intimate, size of the economy. So the banker would simply not be trusted to bring us extraordinary returns. I also don't suppose that this sort of thing can develop without officers overseeing the standards of exchange (acting as a state essentially) and without some degree of freedom of movement among the prisoners (so that's Gitmo out).

1By the way, if you can’t access the article, just send me an email at ciaran_o_kelly[at]yahoo[dot]co[dot]uk (with the [at] replaced by ‘@’ and the [dot] replaced by ‘.’) and I’ll send it on to you.

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