3.2 Better to Have Had Money and Lost It Than to Have Never Had Money at All

To further appreciate money’s importance, consider what happens when it is absent—universal distress, followed quickly by money’s reintroduction or reinvention! After World War I, for example, the German government created too much money too quickly. Hyperinflation, a very rapid rise in the prices of all goods, ensued. Prices increased so fast that workers insisted on being paid twice daily so they could run, not walk, to the nearest store to buy food before their hard-earned wages became worthless. Before the hyperinflation, it was said that you could buy a wheelbarrow full of food with a purse full of cash. During the hyperinflation, you needed a wheelbarrow full of cash to purchase a purse full of food. At the end of the debacle, you kept the wheelbarrow at home lest your most valuable asset, the wheelbarrow, be stolen! At the end of the crisis, the German economy was on a barter basis, but only briefly before currency reforms stopped the inflation and restored a money economy.

In prisons, prisoner-of-war camps, and other settings where money is unavailable, inmates quickly learn the inadequacies of barter firsthand and adopt the best available commodity as money—a medium of exchange; unit of account; a store of value; and even, to the limited extent that credit is available in such circumstances, a standard of deferred payment. Packs of cigarettes often emerge as the commodity moneyForms of money that have intrinsic value as a commodity. of choice. (Talk about one’s fortune going up in smoke!) There are good economic reasons for this preference. Although not perfect, cigarettes are a serviceable medium of exchange. First and foremost, sealed packs of cigarettes are easily authenticated because it would be extremely difficult to counterfeit or adulterate them, especially under prison conditions. Although they differ somewhat from brand to brand, they are also relatively uniform in quality. If you gave up a bar of soap for two packs, you could rest relatively well assured that you were not being cheated. Second, cigarette packs are divisible, into twenty individual cigarettes, or “loosies,” without giving up much of their ease of authentication. (A loosie is easier to adulterate than a sealed pack, say, by replacing the tobacco with sawdust, but is still not easy.) Divisibility is important because supply and demand might well dictate an equilibrium price that includes a fraction of a pack, just as it often leads to prices that are a fraction of a dollar ($), yen (¥), euro (€), or pound (£). Individual cigarettes are also somewhat divisible but only when filterless or when consumed. One might, for instance, sell a good blanket for four packs, two loosies, and five drags or puffs.

Cigarettes also have relatively high value-to-weight and value-to-bulk ratios. In other words, they are relatively valuable given their size and weight. That portability is, of course, important to their function as a medium of exchange. Although they eventually go stale and can be ruined if smashed or drenched in water, sealed cigarettes packs are durable enough to also serve as an intermediate term store of value. The elasticity of the supply of cigarette packs is volatile, however, because smokers find it difficult to quit smoking, no matter the price and the fact that the quantity of packs in circulation depends on shipments from the outside world. In modern prisons, this is less of a problem, but in prisoner-of-war (POW) camps, sudden gluts caused the prices of goods (noncigarettes) to soar (that is, the value of cigarettes plummeted), only to be followed by long periods of deflation (lower prices for noncigarettes) as the supply of cigarettes dried up and each cigarette gained in purchasing power.