From studying at John Maynard Keynes' Cambridge to a long life working at the International Monetary Fund, RA Radford's career as an economist had one rude interruption — he spent half of the Second World War in a prison camp.
On his release he quickly wrote an absolutely astonishing article for Economica, an academic journal. The Economic Organisation of a POW Camp describes and analyses, with a dry wit, the markets and other institutions that developed in the camp.
The foundations of these economic structures were rations from the Red Cross — largely of food and cigarettes. From time to time, these rations would arrive in bumper amounts and at other times run short. Everybody felt the surplus or the shortage.
Humans have developed many different economic institutions, from gift giving to feudal obligation, but in the camp it was the market that ruled. One can speculate as to why: gifts were pointless, since everyone started with the same. Meanwhile there was little scope among the prisoners for the kind of power imbalances and organised violence that feudalism would have required.
Yet markets emerged quickly, because while prisoners had equal means, they did not have identical preferences. The Sikhs sold their beef rations; the French were desperate for coffee; the English wanted tea. Relative prices moved in response to broader developments, such as the arrival of new prisoners — and with bread rations handed out on Mondays, on Sunday evenings 'bread now' would trade at a premium to 'bread Monday'.
There was money to be made by middlemen. Sometimes
the camp even traded with the outside world — prisoners would bribe guards with coffee, and the coffee would go 'over the wire' to black market cafés in Munich. There was even a futures market. There was something universal and spontaneous, Radford decided, about markets.
Of course, a market works better with a currency, and
the cigarette emerged as the leading contender because
it was portable and each cigarette was a decent substitute for another cigarette. Not a perfect substitute, though: prisoners would 'sweat' cigarettes, rolling them between the tips of the fingers to shake loose a little bit of tobacco. Tastier brands and fatter cigarettes were reserved for smoking rather than currency — an example of what economists call Gresham's Law: "bad money drives out good".
All this mattered greatly
at the time, as Radford poignantly recalled, even
as fresh memories began to fade: "The small scale of the transactions and the simple expression of comfort and wants in terms of cigarettes and jam, razor blades and writing paper, make the urgency of those needs difficult to appreciate, even
by an ex-prisoner of some three months' standing."
His final line is worth reflecting on in our present economic difficulties. On 12 April 1945, the camp was liberated,
and, noted Radford, "every want could be satisfied without effort."
Tim Harford is a Financial Times columnist and author of Adapt:
Why Success Always Starts With Failure (Abacus, £8.99)
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