The Economic Organisation of a Pow Camp

By R.A. Radford

Introduction

Some POW's returned home from Germany after World War II with stories of great escapes. R.A. Radford returned home and published an account of the development of a market economy in these camps. His story was first published in Econometrica, in 1945.

R.A. Radford was captured in 1943, during the Allied attack on Europe through Italy. He was moved to "Oflags" or temporary POW camps, and finally to "Stalags", permanent (and much larger) POW camps within Germany. He was finally interned in Bavaria. in southern Germany.

Radford noted that POW's did not have to work to gain the basics of food and shelter. Indeed. small luxury items were provided in regular parcels from the Red Cross. A POW (prisoner of war) could improve his standard of living considerably through the exchange of goods and services. "Luxuries" in this situation consisted of items like jam, cigarettes, razor blades and writing paper. The interest in the market economy of the prisoner of war camps, be they "Oflags" or "Stalags", lies in

"the universality and the spontaneity of this economic life;
it came into existence, not by conscious imitation,
but as a response to immediate needs and circumstances."

An Oflag consisted normally of between 1,200 and 2,500 people, housed in a number of separate but inter communicating bungalows, one company of 200 or so per building. Individual POW's actively traded in goods and some services. Most trading was for food for cigarettes, but soon cigarettes rose from being a normal commodity to being a currency. Prisoners received rations from the German detaining forces, and occasional parcels from home, but they also received tinned milk, jam, butter, biscuits, tinned beef, chocolate, sugar and other items from the Red Cross on a regular basis. Apart from the occasional package of cigarettes, clothing and other items from home, all prisoners received equal shares of supplies.

Prisoners realised very soon after capture that giving away food or cigarettes was undesirable. Everyone received the same amount, after all, and individuals began looking for ways to maximize their own satisfaction within the limited resources available to each.

Radford’s' company reached a transit camp in Italy, about a fortnight after capture. A week later, their first Red Cross parcel arrived. At once, exchanges, already established, multiplied in volume. Starting with simple direct barter, such as a non smoker giving a smoker friend his cigarette issue in exchange for a chocolate ration, the market became more elaborate as more complex exchanges became the accepted custom. However, the market was not perfect. Stories circulated of an army chaplain who started off around the camp with a tin of cheese and some cigarettes: he returned to his bed with a complete Red Cross parcel, in addition to his original cheese and cigarettes!

Within a week or two, the volume of trade crew and rough scales of exchange values came into existence. It was realised that a tin of jam was worth half a pound (250 grams) of margarine plus something else: that a cigarette issue was worth several chocolate issues. and that a tin of diced carrots was worth practically nothing.

In this camp, the prisoners did not visit other bungalows very much and prices varied from place to place. There appeared to be a grain of truth in the story of the chaplain: differing tastes in different bungalows led to different rates of exchange of commodities. The chaplain had visited all the bungalows and had used this fact to accumulate wealth.

By the end of the month, the POW's had reached their permanent camp. By this time, there was a lively trade in commodities and their relative values were well known. Prices were expressed in terms of the number of cigarettes required to make an exchange. Sugar was not quoted in terms of fins of beef, but in terms of cigarettes. People started by wandering through the bungalows calling their offers "cheese for seven" (cigarettes). The first hours after the arrival of Red Cross parcels were bedlam, as all prisoners attempted to exchange goods in such a way as to maximize their own satisfaction within their limited resources, guided by their own individual tastes and preferences.

The inconvenience of this system soon led to its replacement by an "Exchange and Mart notice board in every bungalow. This board used the headlines of "name", "room number", “wanted" and "offered" to advertise sales and wants. When a deal went through, it was crossed off the board. The public and semi permanent records of transactions led to cigarette prices being well known and thus these prices tended to equality throughout the camp.

Arbitrage

However, there were always opportunities for "arbitrage", where an astute trader could use temporary differences in relative prices between bungalows to buy and sell quickly and make small profits that were, in part, based on a lack of complete knowledge of the market.

With this system of relative pricing, everyone, including non smokers, was willing to sell for cigarettes, using them to buy and sell goods at another time and place. Cigarettes became the normal currency, although barter was never completely extinguished.

The existence of a stable, unified market and the prevalence of a single price did not occur all the time. As prisoners were brought in and moved out for a variety of reasons, the camp became at times chaotic, overcrowded and uncomfortable. Consequently the market became many markets, not one. The price of a tin of salmon was known to have varied by two cigarettes in twenty (10%) between one end of a hut and the other.

In the autumn of 1943, the prisoners were moved to Stalag VIIA at Moosburg in Bavaria. In this POW camp, there were up to 50,000 prisoners of all nationalities. The French, Russian, Italians, Yugoslavs were free to move throughout the whole camp. The British and Americans were confined to their compounds, although a few cigarettes given to a sentry would always procure permission for one or two men to visit other compounds.

The people who first visited the highly organised French trading centre with its stalls and known prices found coffee extract relatively cheap amongst the tea drinking English – but commanding a fancy price in biscuits or cigarettes and some enterprising people made small fortunes that way.

They found out later that much of the coffee went "over the wire" and sold for phenomenal prices at black market cafés in Munich. Some French prisoners were said to have made substantial sums in Reichmarks (the Nazi currency). Radford says this was one of the few occasions the closed economy of the Stalag came into contact with other economic worlds.
Eventually public opinion grew hostile to these monopoly profits, not everyone could make contact with the French. Trading with the French was then placed on a regulated basis. Each group of beds was given a quota of articles to offer and the transaction was carried out by accredited representatives from the British compound, with sole (i.e. monopoly) rights to trade on behalf of the entire British contingent of POWs.

The same method was used to trade with sentries, as in this trade secrecy and reasonable prices were of particular importance. However, individuals saw advantages in breaking the regulated monopoly for their own gain, and the system was not perfect. The interloper proved too strong.

The permanent camps in Germany saw the highest level of commercial organisation. In addition to the "Exchange and Mart notice boards, a shop was organised as a public utility, controlled by representatives of the Senior British Officer, on a "no profit" basis. People left their surplus clothing, toilet requisites and food there until they sold at a fixed price in cigarettes. Only sales in cigarettes were accepted there was no barter and there was no haggling. For food at least, there were standard prices; clothing is less homogeneous and the price was decided by the seller and the shop manager in agreement. Shirts would average 80 cigarettes; ranging from 60 to 120 according to quality and age. Of food, the shop carried small stocks for convenience: the capital was provided by a loan from the bulk store of' Red Cross cigarettes and repaid by a small commission taken on the first transaction. Thus the cigarette attained its fullest currency status, and the market was almost completely unified.

"A market had come into existence without labour or production.
Despite the fact the goods were initially "free", and despite the fact of a roughly equal distribution of resources, a market came into spontaneous operation, and prices were fixed by the forces of supply and demand. "

There was even a small labour market. Even when cigarettes were not scarce, there was always some unlucky person willing to perform services for them. Laundrymen advertised at two cigarettes a garment. Battle dress was scrubbed and pressed and a pair of trousers lent for the interim period, for twelve cigarettes. A good portrait painting cost thirty cigarettes. Odd tailoring and other jobs had their own prices.

There were also entrepreneurial services. There was a coffee stall owner who sold tea, coffee or cocoa at two cigarettes a cup, buying his raw materials at market prices and hiring labour to gather fuel and to stoke the fire, he actually employed the services of a chartered accountant at one stage. After a period of great prosperity, he over reached himself and failed disastrously for several hundred cigarettes! Such large-scale private enterprise was rare, but several middle men or professional traders existed.

The chaplain in Italy, and the men who opened trading with the French in Moosburg, were examples. The more sub divided the market, the less perfect the advertisement of prices, and the less stable the prices, the greater was the scope for these operators.

One man capitalised on his knowledge of Urdu [a language of India) by buying meat from the Sikhs and selling butter and jam in return. As his operations became better known, more and more people entered into the trade with the Indians. Prices in the Indian line began to approximate prices elsewhere in the camp, although through to the end "contact" among the Indians was valuable as linguistic difficulties prevented the trade from being completely free.

Some men were specialists in the food, clothing or even the watch trade. Middlemen traded on their own account, or on commission. Price rings and agreements between these middlemen were suspected by the general public. The traders certainly cooperated. New comers were not welcomed, and Radford found it difficult to learn much of their operations. These professionals were generally of a "retiring disposition".

One trader in food and cigarettes had capital of 50 cigarettes, carefully saved. He used this capital to buy rations on issue days. He held these rations until the price rose, just before the next issue of food. He also picked up a little by arbitrage: several times each day he visited every "Exchange and Mart” notice board and took advantage of every discrepancy between the prices of goods offered and wanted. His knowledge of prices, markets and names of those who received cigarette parcels was phenomenal. By these means he kept himself smoking steadily his profits while his capital remained intact!

A credit market existed in most transactions as well. Radford speaks of "Sam” who paid in advance, as a rule, for his purchases of future deliveries of sugar, but many buyers asked for credit, whether they wanted the sugar on the spot, or on agreed future date. Naturally prices varied according to the terms of sale. A treacle ration might be advertised for four cigarettes now, or five cigarettes next week.

In the "future" market, "bread now" was a vastly different thing from "bread Thursday". Bread was issued twice a week, on Thursday and Monday. On Thursday, four days ration were distributed, on Monday, three days ration. By Wednesday and Sunday night, it had risen from seven cigarettes to eight cigarettes per ration, by suppertime. One man always saved a ration to sell at peak price: his offer of "bread now" stood out on the Board among a number of "bread Mondays", fetching one or two cigarettes less, and he always smoked on Sunday night.

The Cigarette Currency

The cigarette was a unit of account, a measure of value and a store of value, as well as a means of deferred payment. Like money made from metal, cigarettes were homogeneous. reasonably durable, and of a convenient size for the smallest, or in packets, for the largest transactions. Like money, cigarettes were 'clipped" or "sweated" by unscrupulous traders by rolling them in your fingers until the tobacco fell out. [In the days of gold currency. people shaved minute amounts of gold from coins, before passing them on to other people. This was called "sweating" and was punishable by death.]

Cigarettes were also subject to "Gresham's Law" in markets were goods are exchanged with a currency that has an inherent value itself, invariably "the bad drives out the good." Certain brands of cigarettes were more popular than others as smokes, but for currency purposes, a cigarette was a cigarette. Consequently buyers used the poorer quality cigarettes as currency and the shop rarely saw the more popular brands. At one time cigarettes hand rolled from pipe tobacco began to circulate. Pipe tobacco was issued, in lieu of cigarettes, by the Red Cross at a rate of 25 cigarettes to the ounce, and this rate was standard for exchanges, but an ounce could produce 30 home made cigarettes. Naturally, people with machine made cigarettes broke them down and re rolled the tobacco, and the real cigarette virtually disappeared from the market. Hand rolled cigarettes were not homogenous and prices could not be quoted in them with safety. Each cigarette was examined before it was accepted and thin ones rejected. or extras demanded to "make up the weight."

Machine made cigarettes were always universally acceptable, both for what they could buy and for themselves. It was their intrinsic value that was their principal disadvantage as a currency. The POW economy was repeatedly subject to periods of deflation and a scarcity of money. While the Red Cross issue of 50 or 25 cigarettes per man per week came in regularly, and while there were fair stocks of cigarettes held. The cigarette currency suited its purpose admirably. However, if parcels were delayed, stocks fell, and prices fell as each remaining cigarette became more valuable. Trade declined in volume, and barter re appeared. Private cigarette parcels arrived in a trickle throughout the year, but the big numbers of cigarettes came in quarterly when Red Cross received its allocation of transport. Several hundred thousand cigarettes might arrive in the space of a fortnight. Prices soared, and then began to fall slowly at first but then with increasing rapidity as stocks ran out, until the next big delivery. Most of our economic problems could be attributed to this fundamental instability.

Price Movements

Radford found that changes in the price structure, (between substitutes and complements) were in fact more interesting than changes in the general price structure. Changes in the supply of a commodity, in the German ration scale or in the make up of the Red Cross parcels, would raise the price of one commodity relative to others. Tins of oatmeal, once a rare and much sought after luxury parcel, became a commonplace in the parcels of 1943, and the price fell. In hot weather the demand for cocoa fell, and that for soap rose. A new recipe would be reflected in the price level: the discovery that raisins and sugar could be turned into alcoholic liquor of remarkable potency reacted permanently on the dried fruit market. The invention of electric immersion heaters run off the power points made tea, a drag on the market in Italy, a certain seller in Germany.

In August 1944, the supplies of parcels and of cigarettes were both halved. Since both sides of the equation were changed in the same decree, chances in prices were not expected. 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, a 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.

In February 1945, the German soldier who drove the ration wagon was found to be willing to exchange loaves of bread at the rate of one loaf for a bar of chocolate. Those in the know began selling bread and buying chocolate, by then almost unsaleable in a period of serious deflation. Bread, at about 40, fell slightly; chocolate rose from 15; the supply of bread was not enough for the two commodities to reach parity, but the tendency was unmistakable.

The substitution of German margarine for Canadian margarine when the parcels were halved naturally affected their relative values, margarine appreciating at the cost of butter. Similarly, two brands of dried milk, hitherto differing in quality and therefore in price by five cigarettes a tin, came together in price as the wider substitution of the cheaper raised its relative value.

It is clear that any chance in conditions affected both the general price level and the price structure. As Germany began to loose the war, uncertainty entered the market, and prices fluctuated wildly.

It is clear that in this economy (and in others) any change in conditions affects both the general price level and the price structure.

In January 1945, supplies of Red Cross cigarettes ran out and prices slumped further. In February, the supply of food parcels stopped. Food, itself scarce, was almost given away in order to meet the non monetary need for cigarettes (i.e. smoking). Barter increased in volume.

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

Economics has been defined as the science of distributing limited means amongst unlimited and competing ends. On April 12th, with the arrival of elements of the 30th US Infantry Division, the ushering in of a new age of plenty demonstrated the hypothesis that with infinite means economic organisation and activity would be redundant, as every want could be satisfied without efforts.