You may imprison an economist, but he will remain an economist.

Even in horrific circumstances, men

still live, exchange, form society, and try to understand it. This is the beautiful message conveyed by
an article describing economic relationships in prisoner of war camps and the use of cigarettes as
currency. The 70th anniversary of the end of World War Two is the opportunity to rediscover that
great piece of economic writing.

R.A. Radford was born in Nottingham, England in 1919. As a young man, he went to Cambridge
University to study economics. When World War II started, he had to interrupt his studies to join the
British army. Three years later, in 1942, he was captured by enemy forces in Libya. He remained a
prisoner of war (POW) until the end of the conflict.

During his stay in POW camps, Radford observed fellow prisoners as they exchanged goods and,
marginally, services. Those observations were gathered in an article entitled “The Economic
Organization of a P.O.W. Camp”, published in November 1945. Radford successively analyses the
development and organisation of the market, the use of cigarettes as a currency, price movements, the
introduction and failure of a paper currency, price fixing by camp authorities and the economic impact
of public opinion.

Radford starts with a basic assumption: “After allowance has been made for abnormal circumstances,
the social institutions, ideas and habits of groups in the outside world are to be found reflected in a
Prisoner of War Camp”. Men do not stop living because they are imprisoned. The constraints may be
extremely tight, but men still try to reach a higher level of comfort.

From an economist’s perspective, this means that their behaviour can be analysed with the usual
framework of mainstream economics. Prisoners are rational actors, who aim at maximising their own
well-being or utility.

The camp administration provides each prisoner with a given quantity of basic goods, including
cigarettes. So “a prisoner is not dependent on his exertions for the provision of the necessaries, or even
the luxuries of life, but through his economic activity, the exchange of goods and services, his standard of
material comfort is considerably enhanced”. The enhancement of material comfort through trade
corresponds to the diversity of preferences among prisoners.

The immediate response to that diversity is the exchange of goods, “starting with simple direct barter,
such as a non-smoker giving a smoker friend his cigarette issue in exchange for a chocolate ration”.
Barter enables prisoners to proceed to these basic trades.

“Within a week or two, as the volume of trade grew, rough scales of exchange values came into
existence”. Soon it became clear that these values should be translated into universally accepted unit of
account. “Most trading was for food against cigarettes or other foodstuffs, but cigarettes rose from the
status of a normal commodity to that of currency”. Cigarettes had all the characteristics of a currency.
“Although cigarettes as currency exhibited certain peculiarities, they performed all the functions of a
metallic currency as a unit of account, as a measure of value and as a store of value, and shared most of
its characteristics. They were homogeneous, reasonably durable, and of convenient size”.

When the situations of the war allowed for some stability, camp authorities decided to create a shop.
The shop was large enough to have access to a larger quantity of cigarettes. Prisoners who were
temporarily out of cigarettes were able to borrow from the shop. Credit had emerged. “Thus the
cigarette attained its fullest currency status, and the market was almost completely unified.”

As any currency, “cigarettes were also subject to the working of Gresham’s Law. Certain brands were
more popular than others as smokes, but for currency purposes a cigarette was a cigarette”. Gresham’s
law predicts that when different qualities of money coexist, bad money drives out good. In the camp,
popular brands were kept for smoking. The poorest qualities became exclusively used for exchanges.

This situation worsened when prisoners realised that rolled cigarettes were even cheaper. “Hand-rolled
cigarettes were not homogeneous and prices could no longer be quoted in them with safety: each
cigarette was examined before it was accepted and thin ones were rejected, or extra demanded as a
make-weight. For a time we suffered all the inconveniences of a debased currency”. The lower quality of
money fuelled inflation, until people came back to trading with standard cigarettes. Unfortunately,
Radford does not tell how this happened.