This piece seems pretty well-known in the blogosphere, but it is hard to overstate what a strange and enjoyable read it is. Just really covers so many angles and competing theories of economics, from Monetarist (expansion and contraction of the cigarette supply affecting prices and general economic activity) and Austrian aspects (the restraining effect of a commodity-based currency beneficial or no, and attempts to debase the currency such as clipping cigs, etc.) to the black market coming to the fore during fretful attempts at price-fixing to Keynesian and chartalist elements with the brief flirtation with paper currency systems, to “international trade specialization” (selling off coffee to the French part of the camp as a source of cheap tea), to the difficulty of getting the “economy” out of a general funk, to the animal spirits of good and bad war news affecting the larger trade, just on and on.
Seems that this story came from a British officer who was a POW from 1941 to the end of the war in Europe, maybe through the London School of Economics? Some biographical info appears in the blog caracaschronicles from 2002.
In 1941, a British officer by the name of R.A. Radford was captured by the Nazis and confined to a POW camp. At the camp, Radford and 2400 other inmates were forced to live on meager rations delivered by the Red Cross. The rations issued to each prisoner contained a bit of bread, some sugar, biscuits, jam, margarine, tea and chocolate bars, with small rations of canned meat sporadically made available. They also included 25 cigarettes per prisoner per week. Radford, who had been trained in economics before the war, noticed how even in the extreme conditions of a Nazi prison camp, a rudimentary market system developed as prisoners traded with one another to maximize their satisfaction. The British army’s Gurkahs, for instance were eager to trade their meat for other foods, since as Hindus they were strict vegetarians. Prisoners who didn’t smoke were eager to trade their cigarettes for food. At first, each of these trades was a simple barter. But soon enough, the inmates realized the need for a more sophisticated system of exchange. Lacking money, they started using cigarettes as prison currency. A ration of margarine might be bought for seven cigarettes, which could then be used to buy one and a half chocolate bars, and so on.
Soon after his release, Radford described the system that developed in a classic paper entitled “The Economic Organization of a POW Camp,” a write-up that’s much appreciated by undergraduates everywhere for its skill at explaining the mysteries of monetary systems.
Enjoy the essay here!