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A 500-level interlude September 17, 2008

Today’s post doesn’t deal with baseball or the Canadian federal election. I’m working on an article and question cluster for my Financial Economics course (discussion is tomorrow!) and in order to get my thoughts organized I’ll be working on them behind the cut.

If you need a Canadian Politics fix, check out The Globe and Mail’s Opinion section. If you’re after an analysis of baseball until the numbers cry, try Recondite Baseball. For pure money talk, check out TwentiesMoneyMag. If you want a brief discussion of Radford, The Economic Organization of a P.O.W. Camp, 12 Economica (New) 189 (1945), you’ve come to the right place.

The article is freely available on J-STOR; the question cluster is here in handy-dandy PDF format. I’m just kind of grinding through the answers, most of which are fairly clear, to help organize my marginal notes.

1a. The equality of the distribution of supplies (in absolute terms) was essential to the economy arising as it did. Had the rations not included cigarettes and meat for all prisoners, there would have been little incentive to trade. The economy began as a pure barter system in which cigarettes were traded away by nonsmokers and beef was traded by Sikhs for anything else (page 191) but when it became clear that cigarettes and beef were more desirable than most other commodities the holders began to require more desirable items in trade, such as the Sikhs demanding jam and margarine in return for their beef.

1b. Supplies were distributed equally in absolute terms – each person received an equal ration of everything, being allowed cigarettes whether he smoked or not, receiving beef whether he was a vegetarian or not. Prisoners would be unhappy with their allotment in certain cases, especially in the case of the vegetarian receiving canned meat. The nutritional value of the packages was equal, but they presumably did not contain exactly the same food, since there was still an incentive to trade.

1c. The supplies could have been repackaged to make them more desirable to particular groups (for example, preparing specific packets for prisoners with dietary restrictions) or to allocate the cigarettes amongst only the smokers. The prisoners may have consered this facially equitable, especially in light of the public opinion (page 199) that held trade of relief goods to be undesirable. In fact, in lean times the prisoners debated whether nonsmokers should receive their cigarette ration (page 200). The Red Cross and prison authorities likely would have seen such an arrangement as inequitable because it would lead to commodities being distributed unequally. That is, more commodities would have accrued to particular prisoners, which would disadvantage the rest in terms of trade power.

2a. The barter system evolved from the fact that differenbt prisoners valued different goods at different levels. Some prisoners did not want particular goods which were desirable to other prisoners; trade occurred to maximize each prisoner’s utility by allowing him to optimize the personal values of his goods.

2b. The cigarette currency emerged because cigarettes are portable, fungible, nonperishable, and rationed to each prisoner in equal amounts. Since cigarettes are small and of low value individually, they are ideal – the fact that a good sold for relatively many of them (20 for salmon, for example [page 192]) provided a granularity of value. If prices had been quoted in terms of canned salmon, for example, nothing worth less than one can of salmon could be easily bought and sold without opening the can and subdividing the food inside. The addictive nature of cigarettes probably lubricated trade by increasing the urgency that some prisoners felt to acquire them. Had cigarettes not been rationed, I think it is likely that individual servings of tea or coffee would have been used instead for the above reasons -a single teabag not only contains addictive caffeine but is relatively portable and one teabag is just as good as another.

2c. The exchange system reacted nimbly to different outside effects. The large amount of information available through the exchange board (page 191) was probably responsible for the market operating as efficiently as it did. When bread became readily available from an outside source in exchange for lower-value chocolate, the prices tended toward equalizing (page 196). In addition, prices fluctuated throughout the week (e.g. page 194), showing the efficiency of the market as it reacted to supply and demand changes. Untapped markets were quickly opened, as in the case of an Urdu-speaking prisoner who opened trade with the Sikhs by buying their meat (page 193), effectively flooding the non-Sikh market, but prices quickly adjusted. Arbitrage was rampant (page 191; 193; 196), allowing prisoners to use the leverage of time to maximize their wealth.

Unforeseen events, such as rations being halved and the camp being bombed, affected the prisoners’ preset values in artificial paper money (page 197). The change in relative values caused the Bully Mark to lose its value against the cigarette and eventually it was valuable only for undesirable food products. Thus, the cigarette currency’s relatively low value and ability to float freely was essential to the economy’s smooth operation.

2d. The people who gained as a result of unforeseen developments tended to be people with special skills or creativity – the Urdu-speaking officer, for example, or the people who bought chocolate to trade with the German bread vendor. In addition, officers who received private cigarette parcels (page 195) were at a distinct advantage when the Red Cross rations were interrupted. This is analogous to endowment income in the US economy.