Cigarettes… as money

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Talking about money, there is a very interesting story about cigarettes used as money. A US economist, R.A. Radford, wrote in 1945 a paper based on his experience as a prisoner in a POW Camp (“The Economic Organisation of a POW Camp“, published in november 1945″Economica”). Besides paying compliments to the man (I don’t know how many would have cared about how economic exchanges worked, if they were prisoners in a POW camp), I have to say that that this paper is really interesing since highlights “the universality and the spontaneity of this economic life; it came into existence, not by conscious imitation, but as a response to immediate needs and circumstances“.

What kind of economic transaction could take place in a POW Camp? Well, many more than one could think. This is because every prisoner receives the same rations, but they have different need. The simplest example is barter: a non-smoker prisoner may exchange his cigarette ration with the chocolate ration of a smoker.

But barter is a slow and inefficient, allowing relevant arbitrages possibility, since information many not flow fast enough. So it could happen that in different areas of the camp could be bartered 2 tuna tins with 4 chocolate bars, 4 chocolate bars for a shirt, and a shirt for 3 tuna tins. Radford writes of a prisoner soldier that starting with some cheese and some cigarettes, going around the all the camp was able to come back with an entire Red Cross food parcel.

Quite naturally, an object rised to be the money of the camp: cigarettes. The choice of cigarettes comes from the fact they are standardized and numerable goods (2 cigarettes are worth twice 1 cigarette), and a single cigarette has a value small enough to be used as payment in small transaction.

Obviously, cigarettes posed some problem as money: for example they couldn’t be smoked, since one would had smoked his savings. But most of all, money demand wasn’t supported by money offer: Red Cross distributed several hundred cigarettes every few weeks, creating a relevant form of inflation.

One last note: POW camps aren’t an exceptional case in using cigarettes as money. It is known that in some ex-socialist countries cigarettes have been used as money instead of official one, super-inflationed and nearly of no value, just before communism collapsed.

Original post (in Italian): Le sigarette come moneta

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