February 25, 2005 2 Comments
My standard answer is available in an earlier blog post.
I used to keep an economics portal uptodate as I read online articles that I thought were useful and fundamental.
One of the most useful articles I’ve ever read was “The Economic Organization of a P.O.W. Camp” by R.A. Radford, a British officer in World War II and an economist in civilian life. It’s not a long read and it’s fascinating.
I’ve been thinking about the article because of a discussion that took place at the new Austrian Economics Forum on the monetary economics of virtual markets in online games. (I think this POW article should be considered required reading by online game designers.)
Radford’s POW article is about:
- how money and markets emerged in Prisoner Of War camps (which, by the way, would seem to disprove the Labor Theory of Value);
- how cigarettes came to be the standard commodity money; and
- what happened to supplies when economically illiterate officers tried to intervene in the market to address what they perceived as inequities, exploitation, and other market failures.
Money and Prices
(55:21) — Murray Rothbard
Exactly eleven minutes and thirty seconds (11:30) into his lecture on Money and Prices, Rothbard mentions Radford’s piece and summarizes its significance. I believe he calls it the most anthologized economics article ever.
Of course, if I’m going to plug a short article as a good place to begin to understand money, I have to mention my own contribution to Gilligan’s Island Economics, but really, the POW article is more basic — and it actually happened, unlike Robinson Crusoe or the seven stranded castaways.
I’m always fighting the misimpression that economics is about money — that economic concerns mean monetary or material concerns — but really, an understanding of money is necessary to understanding sound economics, and as Austrian School economists will warn you, anyone who tries to describe the economy without reference to prices or price theory is probably trying to pull a fast one. (This might describe the majority of professional macroeconomists.)
PS I keep encountering claims that it was Milton Friedman who first pointed out the cigarette money that evolved in WWII. He definitely talks about commodity monies in his book, Free to Choose, but he’s not the source. Let’s clear that up, shall we?
PPS Another thing Friedman talks about is how in hyperinflationary Central Europe, two main commodity monies evolved: cigarettes for small purchases and cognac for large. This seems to me like the bimetalism of previous centuries, where silver and gold played similar parallel roles. One question that remains for me: on a truly free market, where no government controls the money or the money supply, would we evolve toward a trimetalism (e.g., copper, silver, gold) or a system of money substitutes (digital and paper) for claims on one metal (e.g., gold or platinum)?
PPPS For the reason I assume a free-market money would be metal-based, see my Gilligan article, mentioned above.