Blackadder’s Lair

The home of many a cunning plan

The Miracle of the Cheese and Cigarettes

This week’s EconTalk podcast featured Mike Munger talking about the role of middlemen in the economy. In the podcast, Prof. Munger makes reference to R.A. Radford’s famous article, The Economic Organization of a P.O.W. Camp, best known for its description of how cigarettes came to be used as a substitute for money in German P.O.W. camps during WWII (cigarettes are often used as a cash substitute in modern day prisons; in prisons where smoking is prohibited, it seems they use mackerel). Solders in these camps received care packages from the Red Cross containing cigarettes, tins of beef, cheese, chocolate, and other similar items. Since not everyone valued each of the individual items equally, trade soon developed. And so, apparently, did middlemen. According to Radford, “Stories circulated of a padre who started off round the camp with a tin of cheese and five cigarettes and returned to his bed with a complete parcel in addition to his original cheese and cigarettes.”

The mystery is how he was able to do this. Was he a saint, and the increase in his basket a miraculous event akin to the multiplication of the loaves and fishes? Was he was a very wicked man, who was able to increase his own bounty by defrauding his fellow prisoners? I would think not. More likely, the priest was simply being rewarded for performing a role common to all sorts of middlemen: namely that of matchmaker.

The job of a matchmaker is to find a suitable bride for a potential groom and visa versa. For this they collect a fee. Matchmakers, of course, don’t manufacture brides and grooms, nor do they generally do much to make their clients more desirable to a potential mate. And of course the thing they trade in, love, is one of the last things people would ever want to turn into a “commodity” to be traded on the open market. Yet matchmakers generally aren’t subject to the opprobrium that falls on other sorts of middlemen (stock brokers, say). The reason is that we can see that the matchmaker is providing a real service. It may be that Bob and Margaret would be perfect for each other, but unless they happen to meet randomly they could live blocks apart from each other and never know it. Matchmakers help to connect people who otherwise would have trouble finding love for whatever reason, and many people find the resulting increase in happiness that comes from two people finding each other to be well worth whatever fee the matchmaker charges (today, of course, matchmakers typically use computers to help them perform this service).

Likewise, in Radford’s prison camp, different people valued the various items in their Red Cross parcels differently. One might be a vegetarian who has a sweet tooth. He would gladly trade all of his tinned beef (which are otherwise useless to him) for even a little extra chocolate. Another might prefer the beef to his allotment of chocolate, and gladly trade the one for the other. If these two prisoners knew who each other were, they could easily trade their items, to the mutual benefit of both. If they lack this information, however, there may be no realistic way for them to realize this benefit. A man who wanted to trade his beef for chocolate might search the camp for someone who wanted to trade his chocolate for beef. But this would be time consuming, and it might be that there was no direct way to make the trade he wanted. Prisoner A might prefer chocolate to cigarettes, Prisoner B cigarettes to beef, and Prisoner C beef to chocolate, and so to make the trade work the prisoner would have to have knowledge of all three’s preferences. By making the rounds and trading on the information he has gathered about people’s various preferences (much of it no doubt indirect), the priest is able to improve the lot of the inmate’s to such an extent that he can make them all better off and still take a sizable surplus for himself.

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October 27, 2008 - Posted by | Capitalism, Economics, Trade

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