The purpose of money seems pretty straightforward for the average person: a measure of wealth. But in the eyes of an economist, money actually has 3 roles; it is a store of value (if you work and earn today, you can save that amount of money for the future), a unit of account (a house broker tells you the flat is worth $100.000, not 5000 AirJordan t-shirts) and a medium of exchange (most of us are confident that other people will accept our money because they are a legal tender). However, it is harder to understand how the monetary system works in such a complex economy as the one we live in today. This is why, it is more intuitive to analyze money in prisons.
During World War II, prisoners of war were held in P.O.W. camps, which were regularly
supplied with baskets of goods for the inmates. These baskets contained items like clothes,
food, chocolate, drinks, and cigarettes. Unfortunately, the allocations were not tailored to individual preferences. While one prisoner might prefer eggs over meat, another might fancy
a cup of tea over chocolate. The obvious solution to this problem was bartering, trading items for other items. However, barter proved to be an inefficient way of exchanging resources. For example, if I wanted to drink tea but only had chocolate to offer, I would have to find someone willing to trade their sweet tooth for English tea at 5 pm.
Eventually, cigarettes became the currency – the dollar of the prison if you wish. Prices were in cigarettes and most trades were made with cigarettes. For example, a shirt cost about 80 cigarettes and doing the laundry of another prisoner was about 2 cigarettes per garment. This is how cigarettes were established as a medium of exchange. Moving forward, the guilty pleasure of smokers also became a store of value. Even prisoners who did not smoke accepted transactions in cigarettes because they knew they could use them in the future. Thus, a service in the present translated to a service in the future through the use of currency (cigarettes) - just as the golden coins in the John Wick universe. The final purpose of money is to be a unit of account. In the P.o.W camps, nobody did barter anymore. Every price was quoted in cigarettes and the wealth was measured by how many cigarettes one had at their disposal. Even in the adversity of prison camps, communities found a way to facilitate the capitalistic economy.
All in all, I hope money is better understood now. Though a very tough and unfortunate event, P.o.W camps have offered economics professors worldwide the right context to explain the roles of money to undergraduate students.
Bibliography:
Info:
“Macroeconomics”, 9 th Edition, N. Gregory Mankiw, Harvard University, Chapter 4
“The Economic Organisation of a P.o.W. Camp”, R.A. Radford, Economica, 189-201
“The POW economy explained”, Frances Wooley, Carleton University
Image:
https://www.finance-watch.org/the-perfect-draw-when-cigarettes-became-a-war-camp-currency/
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