Economics in a POW Camp

One of the difficult things about economics is that you can't really see an economy develop from scratch. There is no visible State of Nature. All you see is the continuous process.

In that light, here is a very interesting article. R.A. Radford was an economist taken prisoner by the Germans and put in a POW camp. He witnessed the formation of a POW camp economy and wrote about his experiences in an article published in 1945. The economy included as a prominent feature the use of cigarettes as money. From the article:

The permanent camps in Germany saw the highest level of commercial organisation. In addition to the Exchange and Mart notice boards, a shop was organised as a public utility, controlled by representatives of the Senior British Officer. on a no profit basis. People left their surplus clothing, toilet requisites and food there until they were sold at a fixed price in cigarettes. Only sales in cigarettes were accepted-there was no barter- and there was no haggling. For food at least there were standard prices: clothing is less homogeneous and the price was decided around a norm by the seller and the shop manager-in agreement ; shirts would average say 80, ranging from 60 to 120 according to quality and age. Of food, the shop carried small stocks for convenience; the capital was provided by a loan from the bulk store of Red Cross cigarettes and repaid bv a small commission taken on the first transactions. Thus the cigarette attained its fullest currency status, and the market was almost completely unified.

It is thus to be seen that a market came into existence without labour or production. The B.R.C.S. map be considered as "Nature " of the text-book, and the articles of trade-food, clothing and cigarettes as free gifts-land or manna. Despite this, and despite a roughly equal distribution of resources, a market came into spontaneous operation, and prices were fixed by the operation of supply and demand. It is difficult to reconcile this fact with the labour theory of
value.

Actually there was an embryo labour market. Even when cigarettes were not scarce, there was usually some unlucky person willing to perform services for them. Laundrymen advertised at two cigarettes a garment. Battle-dress was scrubbed and pressed and a pair of trousers lent for the interim period for twelve. A good pastel portrait cost thirty or a tin of "Kam." Odd tailoring and other jobs similarly had their prices.

There were also entrepreneurial services. There was a coffee stall owner who sold tea, coffee or cocoa at two cigarettes a cup, buying his raw materials at market prices and hiring labour to gather fuel and to stoke; he actually enjoyed the services of a chartered accountant at one stage. After a period of great prosperity he overreached himself and failed disastrously for several hundred cigarettes. Such large-scale private enterprise was rare but several middlemen or professional traders existed. The padre in Italy, or the men at Moosburg who opened trading relations with the French, are examples: the more subdivided the market, the less perfect the advertisement of prices, and the less stable the prices, the greater was the scope for these operators. One man capitalized his knowledge of Urdu by buying meat from the Sikhs and selling butter and jam in return: as his operations became better known more and more people entered this trade, prices in the Indian Wing approximated more nearly to those elsewhere, though to the end a "contact" among the Indians was valuable, as linguistic difficulties prevented the trade from being quite free. Some were specialists in the Indian trade, the food, clothing or even the watch trade. Middlemen traded on their own account or on commission. Price rings and agreements were suspected and the traders certainly cooperated. Nor did they welcome newcomers. Unfortunately, the writer knows little of the workings of these people: public opinion was hostile and the professionals were usually of a retiring disposition.

I find this article fascinating because it demonstrates the spontaneous development of both the virtues and vices of capitalism. A price system developed spontaneously, and this facilitated the more rapid distribution of goods based on willingness to pay. People used their specific skills or information to make a profit, or they just used arbitrage -- buying low and selling high. On the other hand, "price rings and agreements" also rapidly developed as entrepreneurs attempted to protect their profits.

Read the whole thing.

Hat-tip: Mind Hacks