Remembering prisoners of war

For those of us who have not known war, the words of soldiers can help us understand what Remembrance Day is about.

Richard Radford is one such soldier. When war broke out in 1939, he left his studies at Cambridge and joined the British army. Captured in Libya in 1942, he spent the remaining war years in prisoner of war camps. Upon his release, he wrote an analysis of The Economic Organisation of a P.O.W. Camp. It is worth reading today, both for what it says about life during wartime, and for its lessons about "the universality and the spontaneity" of economic activity.

Soldiers in the German P.O.W. camps received regular rations for most of the war. Their captors provided basic necessities - bread, margarine, and so on. Red Cross and private parcels provided the rest - cigarettes, chocolate, meat, tea, coffee, and less popular items, like tinned carrots. Almost as soon as soldiers were captured, barter systems emerged, with non-smokers trading cigarettes for chocolate, for example. But over time camps became highly organized economies, with cigarettes serving as currency.

Cigarettes had many advantages as money - they were relatively uniform, durable, and a size convenient for both small and, in packets, large transactions. Yet they had disadvantages too.

Gresham's law says that bad money drives out good - and bad cigarettes drove out good ones. For example, the use of hand-rolled cigarettes led to complex negotiations. Each cigarette would be individually examined to ensure that it contained an acceptable amount of tobacco before a transaction could be completed.

But the major disadvantage of cigarette currency was that people burnt their money on a regular basis. Over time, smoking decreased the stock of cigarettes in circulation. As cigarettes became scarcer, desperate smokers would be willing to sell treacle or jam for fewer cigarettes, and deflation would ensue. Unless a new cigarette issue arrived, "stocks soon ran out, prices fell, trading declined in volume and became increasingly a matter of barter."  But too many cigarettes injected into the economy too quickly caused problems too - people flush with cigarettes would readily offer generous amounts for food, and inflation would result.

Monetary fluctuations were not the only cause of price movements in the camps. Food was issued at regular intervals, and its price rose and fell with the amount in circulation:

Bread was issued on Thursday and Monday, four and three days' rations respectively, and by Wednesday and Sunday night it had risen at least one cigarette per ration, from seven to eight, by supper time. One man always saved a ration to sell then at the peak price: his offer of "bread now" stood out on the board among a number of "bread Monday's" fetching one or two less, or not selling at all -- and he always smoked on Sunday night.

 A 21st century economist might see these price fluctuations as a sign of markets working as they should, responding to scarcity and rewarding thrift. Yet in the camps they were viewed differently. "There was a strong feeling that everything had its 'just price' in cigarettes. While the assessment of the just price...was impossible of explanation, this price was nevertheless pretty closely known."

Indeed, of the most fascinating aspects of Radford's account is the emergence of rules and institutions. Some of these facilitated market activity. Others limited its scope - because even POW camps had economic inequality, and too much inequality threatened the camp's social structure.

There were a number of sources of inequality. Some people received more private parcels than others. Some had special advantages that allowed them to make more profitable trades. For example, an Urdu-speaking British soldier was able to trade meat for jam and margarine at advantageous terms in the Indian part of the camp.

But perhaps the most serious source of inequality was smoking, or burning money. Smokers who traded too much food for cigarettes risked malnutrition. That was a social concern, not just because of solidarity among the prisoners, but because malnourished prisoners were taken to the camp hospital, where they were a drain on soldiers' collective resources. But what could be done about it?

A simple solution was to restrict trade - in Red Cross toilet articles, for example, or in German rations.

Another possibility was lump-sum redistribution from non-smokers to smokers. The soldiers discussed endlessly whether or not non-smokers should receive a cigarette ration, but no adjustments to rations were ever made.

Finally, the Senior British Officer, responding to both health concerns and public opinion, instituted price fixing. Recommended prices were announced, and any sales that departed by more than five percent from the recommended price were "discouraged by authority." The overall price scales were adjusted upwards and downwards with the supply of cigarettes, but the relative prices were not adjusted.

And towards the end of the war, this became a problem:

In August, 1944, the supplies of parcels and cigarettes were both halved. Since both sides of the equation were changed in the same degree, changes in prices were not anticipated. But this was not the case : the non-monetary demand for cigarettes was less elastic than the demand for food, and food prices fell a little. More important however were the changes in the price structure. German margarine and jam, hitherto valueless owing to adequate supplies of Canadian butter and marmalade, acquired a new value. Chocolate, popular and a certain seller, and sugar, fell. Bread rose; several standing contracts of bread for cigarettes were broken, especially when the bread ration was reduced a few weeks later.

The prices fixed by the senior officers were not adjusted in response to changes in the price structure. As a result, more and more sales took place in the black market at unauthorized prices. "Eventually public opinion turned against the recommended scale and authority gave up the struggle." And then:

In the last few weeks, with unparalleled deflation, prices fell with alarming rapidity, no scales existed, and supply and demand, alone and unmellowed, determined prices....A margarine ration gradually sank in value until it exchanged directly for a treacle ration. Sugar slumped sadly. Only bread retained its value.

In conditions of such extreme scarcity, the rules and institutions that made markets work came under pressure:

By April, 1945, chaos had replaced order in the economic sphere: sales were difficult, prices lacked stability.

On the 12th of April, Radford's camp was liberated. His account of the economic organisation of a P.O.W. camp was published later that year. His intention was to describe "the universality and the spontaneity" of economic activity. But what he conveyed was the strength of the human spirit.

All quotations in this article are taken from R.A. Radford (1945) "The Economic Organisation of a P.O.W. Camp" Economica, 12(48): 189-201.

After the war, Radford returned to England, where he completed his degree at Cambridge. In 1947, he moved to Washington and  accepted a position at the International Monetary Fund, where he had a successful career. He passed away in 2006, at the age of 87.

Here is an assignment and solutions based on Radford's article. I assigned these in a second year course, but they would probably be more appropriate for an upper-level undergrad course. The TAs found them tough.

 

Comments

[Nick Rowe]

What surprises me is how much implied real interest rates fluctuated, over such a short time. All the goods in question were storeable, at least over 3 or 4 days. Time-preference must have been very high, to get those (presumably predictable) price fluctuations as the equilibrium result of fluctuating endowments over the week.

[Frances Woolley]

Nick:

Compensation required to defer consumption of $100 from 2020 to 2021?
Compensation required to defer consumption of all cigarettes until tomorrow?

Just asking.

Actually this raises an interesting point - lenders to the very poor generally charge high interest rates. Even the Grameen Bank charges interest rates that are comparable to credit card rates. When one is on the edge of subsistence, bread today is a very different thing from bread tomorrow - hence the high rates of time preference (bread going from 7 to 8 over a course of 3 to 4 days) that you note.

[Nick Rowe]

Frances: yep. Smokers definitely have hyperbolic time-preference. I've rolled butt ends in my time. And dumping in the rapids miles from anywhere last Summer was nearly a disaster. But fortunately I just managed to dry my papers in the sun.

But was it bread going from 7 to 8, or cigs going from 1/7 to 1/8? What happened to other relative prices? Was it intertemporal bread preferences, or cig preferences?

And if you are hungry today, but know you will be even hungrier tomorrow, a presumably rational person should still save.

[Frances Woolley]

Nick, sorry, I couldn't resist the cigarette comment.

He doesn't say exactly, but I got the impression that it was bread changing in price from 7 to 8, not cigarettes. Changes in the price of cigarettes generally caused overall inflation/deflation, except towards the end of the war, when their economy was nearing collapse.

Radford does discuss a number of examples of relative price changes caused by external factors/tastes.

The discovery of a means of fermenting dried fruit dramatically increased the price of raisins.

The invention of immersion heaters increased the price of tea.

Hot drinks were cheaper in the summer, but soap was more expensive.

Because the British and French had restricted access to each others sections of the camp, the relative prices of tea and coffee differed in the two areas - tea being more expensive in the British part, coffee in the French (there was also an external to the camp black market for coffee).

[Frances Woolley]

One reason why prisoners might have had such a high rate of time preference is genuine uncertainty about whether or not they would be alive to eat bread tomorrow ("eat, drink and be merry for tomorrow we die"). Radford only mentions it in passing e.g. talking about black-outs and the increase in cigarette consumption during bombing raids, but there was a non-trivial risk of being bombed.

I wonder, also, whether or not the storage technology was perfect (if not human theft, presumably there were vermin in the camps, though he never mentions this).

[Mike Moffatt]

I have a feeling this is going to be one of those incredibly insightful blog posts that next-to-nobody comments on because there's nothing left to say. As such, I'll just say how much I enjoyed it!

[Stephen Gordon]

Me too. Awesome post.

[Frances Woolley]

Mike, Stephen, thank you!

[Nick Rowe]

Yep. I can beat you three at number of comments any day. It's easy. Just say something controversial, with lots of mistakes, bits left out, without empirical support. ;-)

Frances: yes, risk of death would raise interest rates. But from my reading of POW books, for British soldiers in Germany it was much less than the 1% or 2% or more per day that would be needed to make those rates an equilibrium.

[K]

Nick:"it was much less than the 1% or 2% or more per day that would be needed to make those rates an equilibrium."

Don't forget risk premium.  Maybe people are risk averse about dying?

[Sina]

Absolutely fascinating. Very good post.

[Alice Woolley]

Fascinating, and a lovely Remembrance Day tribute. Here's my question: does the ability to do economic analysis within the relatively closed economy of the POW camp distort the sense of the workability/usefulness of economic analysis within more complex economic/social systems?

[Frances Woolley]

Alice, thanks for your kind words.

The thing that I love about Radford's article is that one can tell so many stories about it.

Another way of interpreting his account is the that economic systems require social organization. The trading system worked in part because each part of the camp had an 'exchange and mart' board where items were posted for sale. People bought and sold on credit because they trusted each other - and trust was maintained in part, one imagines, by the military command structure, and in part by the fact that, if you reneged on a promise you could hardly hide from the person you reneged upon!

That's a lesson that carries over to more complex economic/social systems.