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Isis Normagne G.

Pascual
Econ 121 Homework: The Economic Organization of a P.O.W. Camp
Cigarette money was the currency used by prisoners of war to
exchange ration within their camps. It started from simple rations
which were mostly maintained by parcels of food and cigarettes from
the Red Cross. All of the rations where equally distributed to the
prisoners. When the Red Cross received bumper supplies or ran short,
the prisoners enjoyed a surplus or a shortage.
At first, there was no incentive for the prisoners to exchange
their rations as they were receiving practically the same commodities.
However, trading developed as prisoners realized that they have
different preferences. Prisoners started by simple barter to maximize
their utilities. For instance, non-smokers started to trade their
cigarettes for chocolate ration. More complex exchanges emerged as
individuals started to realize which commodities they really want to
acquire.
Cigarette money emerged due to the immediate need of a
portable and homogenous currency that could help facilitate the
exchanges between the prisoners. Cigarettes were able to perform as
a unit of account, as store of value and as medium of exchange. Aside
from being able to perform the functions of money, they were very
convenient to handle because they were quite durable and easy to
carry.
Unfortunately, towards the end of the war, the supply of Red
Cross parcels gradually vanished. As supply of cigarettes became
scarcer, people who are desperate to obtain cigarettes were even
willing to sell food for fewer cigarettes. Deflation ensued as cigarette
ration grew smaller. The simple economy that was formed out of need
eventually collapsed.
Cigarette money might have served its purpose for a time, but it
failed because it was never able to adapt to exogenous changes such
as influx of new prisoners, bombings and interruptions in the supply
chain. The economy relied heavily on the supply of rations that is why
failure to sustain the supply meant the failure of the whole economy.

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