Classic Paper

Here’s a classic economics paper that Robert just read for the first time.  Imagine that!

The Economic Organization of a P.O.W. Camp, Radford, R.A., Economica, November 1945

Selected excerpts:

Very soon after capture people realized that it was both undesirable and unnecessary, in view of the limited size and the equality of supplies, to give away or to accept gifts of cigarettes or food. “Goodwill” developed into trading as a more equitable means of maximizing individual satisfaction.

. . .

In this camp we did not visit other bungalows very much and prices varied from place to place; hence the germ of truth in the story of the itinerant priest. By the end of a month, when we reached our permanent camp, there was a lively trade in all commodities and their relative values were well known, and expressed not in terms of one another- one didn’t quote bully in terms of sugar – but in terms of cigarettes. 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 semi permanent 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, though, of course, barter was never extinguished.

The unity of the market and the prevalence of a single price varied directly with the general level of organization and comfort in the camp. A transit camp was always chaotic and uncomfortable: people were overcrowded, no one knew where anyone else was living, and few took the trouble to find out. Organization was too slender to include an Exchange and Mart board, and private advertisements were the most that appeared. Consequently a transit camp was not one market but many. The price of a tin of salmon is known to have varied by two cigarettes in 20 between one end of a hut and the other. Despite a high level of organization in Italy, the market was maculated in this manner at the first transit camp we reached after our removal to Germany in the autumn of 1943. In this camp – Stalag VIIA at Moosburg in Bavaria -there were up to 50,000 prisoners of all nationalities. French, Russians, Italians and Jugo-Slavs were free to move about within the camp: British and Americans were confined to their compounds, although a few cigarettes given to a sentry would always procure permission for one or two men to visit other compounds. The people who first visited the highly organized French trading center, with its stalls and known prices, found coffee extract – relatively cheap among the tea-drinking English -commanding a fancy price in biscuits or cigarettes, and some enterprising people made small fortunes that way. (Incidentally we found out later that much of the coffee went “over the wire” and sold for phenomenal prices at black market cafes in Munich: some of the French prisoners were said to have made substantial sums in RMk.s. This was one of the few occasions on which our normally closed economy came into contact with other economic worlds.”

. . .

One trader in food and cigarettes, operating in a period of dearth, enjoyed a high reputation. His capital, carefully saved, was originally about 50 cigarettes, with which he bought rations on issue days and held them until the price rose just before the next issue. He also picked up a little by arbitrage; several times a day he visited every Exchange or Mart notice board and took advantage of every discrepancy between prices of goods offered and wanted. His knowledge of prices, markets and names of those who had received cigarette parcels was phenomenal. By these means he kept himself smoking steadily – his profits – while his capital remained intact.

. . .

Credit entered into many, perhaps into most, transactions, in one form or another. Sam paid in advance as a rule for his purchases of future deliveries of sugar, but many buyers asked for credit, whether the commodity was sold spot or future.Naturally prices varied according to the terms of sale. A treacle ration might be advertised for four cigarettes now or five next week. And in the future market “bread now” was a vastly different thing from “bread Thursday.” Bread was issued on Thursday and Monday, four and three days’ rations respectively, and by Wednesday and Sunday night it had risen at least one cigarette per ration, from seven to eight, by supper time. One man always saved a ration to sell then at the peak price: his offer of “bread now” stood out on the board among a number of “bread Monday’s” fetching one or two less, or not selling at all – and he always smoked on Sunday night.

THE CIGARETTE CURRENCY

Although cigarettes as currency exhibited certain peculiarities, they performed all the functions of a metallic currency as a unit of account, as a measure of value and as a store of value, and shared most of its characteristics. They were homogeneous, reasonably durable, and of convenient size for the smallest or, in packets, for the largest transactions. Incidentally they could be clipped or sweated by rolling them between the fingers so that tobacco fell out.

. . .

Machine-made cigarettes were always universally acceptable, both for what they would buy and for themselves. It was this intrinsic value which gave rise to their principal disadvantage as currency, a disadvantage which exists, but to a far smaller extent, in the case of metallic currency; that is, a strong demand for non-monetary purposes. Consequently our economy was repeatedly subject to deflation and to periods of monetary stringency. While the Red Cross issue of 50 or 25 cigarettes per man per week came in regularly and while there were fair stocks held, the cigarette currency suited its purpose admirably. But when the issue was interrupted, stocks soon ran out, prices fell, trading declined in volume and became increasingly a matter of barter. This deflationary tendency was periodically offset by the sudden injection of new currency. Private cigarette parcels arrived in a trickle throughout the year, but the big numbers came in quarterly when the Red Cross received its allocation of transport. Several hundred thousand cigarettes might arrive in the space of a fortnight. Prices soared, and then began to fall, slowly at first but with increasing rapidity as stocks ran out, until the next big delivery. Most of our economic troubles could be attributed to this fundamental instability.

. . .

PUBLIC OPINION

Public opinion on the subject of trading was vocal if confused and changeable, and generalizations as to its direction are difficult and dangerous. A tiny minority held that all trading was undesirable as it engendered an unsavory atmosphere; occasional frauds and sharp practices were cited as proof. Certain forms of trading were more generally condemned; trade with the Germans was criticized by many. Red Cross toilet articles, which were in short supply and only issued in cases of actual need, were excluded from trade by law and opinion working in unshakable harmony. At one time, when there had been several cases of malnutrition reported among the more devoted smokers, no trade in German rations was permitted, as the victims became an additional burden on the depleted food reserves of the Hospital. But while certain activities were condemned as anti-social, trade itself was practiced, and its utility appreciated, by almost everyone in the camp.

More interesting was opinion on middlemen and prices. Taken as a whole, opinion was hostile to the middleman. His function, and his hard work in bringing buyer and seller together, were ignored; profits were not regarded as a reward for labor, but as the result of sharp practices. Despite the fact that his very existence was proof to the contrary, the middleman was held to be redundant in view of the existence of an official Shop and the Exchange and Mart. Appreciation only came his way when he was willing to advance the price of a sugar ration, or to buy goods spot and carry them against a future sale. In these cases the element of risk was obvious to all, and the convenience of the service was felt to merit some reward. Particularly unpopular was the middleman with an element of monopoly, the man who contacted the ration wagon driver, or the man who utilized his knowledge of Urdu. And middlemen as a group were blamed for reducing prices. Opinion notwithstanding, most people dealt with a middleman, whether consciously or unconsciously, at some time or another.

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