The Economic Organization of a P.O.W Camp by R. A. Radford in 1945 describes the economy confined within the German prisoner of war camps. “An unusual form of commodity money developed [were cigarettes] in some Nazi prisoner of war (POW) camps during World War II.” (Mankiw, 2010) Commodity money has intrinsic value, in particular cigarettes are uniform giving them money like qualities. They can also be addictive and it drove the demand, non-addicted prisoners knowing this also accepted them as a medium of exchange. The suppliers of cigarette companies were willing to give away free packs to soldiers, supplied along with other rations and parcels from the Red Cross deliveries. Though, the new supply of cigarettes did not cause hyperinflation issues as to counter this cigarettes were also smoked, which decreased the money supply. “The differing tastes and endowments of the prisoners led them to trade with one another.” (Mankiw, 2010) It increases the wealth of both parties who have different value preferences. Trade and exchange are the result of two parties coming together to agree on a purposeful action to get more of what they want. See this video explaining how economizing action creates alternative possibilities, Trade is Made of Win Part 1: Wealth Creation, Source: (Carden, 2011). The coordination in the market place helps scarce resources to be allocated to the most efficient uses in the process of mutual adjustment, for a good example of this see my article on I, Pencil.
In the camps prisoners may have also used promissory notes to purchase a product of which they could not afford at the present time in promising to pay the debt at a future date or on demand, demonstrating their time preference for consumption. A promissory note is a promise to repay an amount of money and distinct from a check which orders a bank to pay from one account to another persons account. Though, the promissory note does take the qualities of a check, in the sense that promissory notes could not become money in the prison camp. As it becomes assigned to one individual or institution payee you would not be able to transfer the check or promissory note claiming a payment of a certain amount to one other than the original payee. Unless, the original payee sold it to another camp member at a certain price and had them collect the payment when due, though there would not be much confidence in the payee trusting the payer who is a stranger with little ability to pay up.
Reference List (American Psychological Association)
Carden, A. (2011). Trade is Made of Win Part 1: Wealth Creation. Learn Liberty. Retrieved [15/03/16] from <https://www.youtube.com/watch?v=y0gGyeA-8C4&feature=iv&src_vid=nYoqyvksAEA&annotation_id=annotation_1085761767>.
Mankiw, G. (2010). Macroeconomics. (International 3rd ed.). New York, United States of America: Worth Publishers.
Smith, D. (2013). Was “Cigarette-Money” in World War II POW Camps a Case of Commodity Money Origination?. New Economic Perspectives. Retrieved [15/03/16] from <http://neweconomicperspectives.org/2013/04/was-cigarette-money-in-world-war-ii-pow-camps-a-case-of-commodity-money-origination.html>.
Harford, T. (2012). Rules of Trading in a POW Camp. Financial Times. Retrieved [15/03/16] from <http://www.ft.com/intl/cms/s/2/c523efe6-9973-11e1-9a57-00144feabdc0.html>.
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