Question

SCARCITY IN ACTION: THE RISE OF MARKETS IN A POW CAMP In 1945 R. A. Radford, a British economist, published an article about his experience as a prisoner of war during the Second World War. He explained how in a society like the prisoner of war camp economic institutions like markets rose naturally to deal with the problem of scarcity. The story takes place in an Oflag, a camp for officers only, where between 1200 and 2500 people were imprisoned between 1943 and 1945. There was no paid labor in the camp. The only goods available were the food parcels from the German Army and the Red Cross. At the beginning the goods rations, such as chocolate, jam and cigarettes, were divided equally among the prisoners. There was no income inequality in that society. However, very soon, prisoners realized that trading could help deal with scarcity. For example, at the beginning non-smokers started giving cigarettes to smokers in exchange for chocolate. Over time more complex exchanges started to take place. A formal shop was created where exchanges could take place. A market was created. Cigarettes became the currency used in exchanges. Each good had a price in terms of cigarettes and only sales in cigarettes were accepted. Prices changed over time according to demand and supply. Oatmeal, once rare, became more common after 1943 and so its price fell. During hot weather people wanted more soap and less chocolate, and so the price of soap increased while that for chocolate decreased. In 1944 the supply of food parcels was halved and prices changed accordingly. Canadian butter and marmalade became scarce resources and their prices increased. Prisoners started to switch to German margarine and jam. Even in a simple society, with no production or labour, a market was created as a natural mechanism to allocate scarce resources.

based on that please answer these questions: a.How do you think that the creation of the market in the POW camp helped answer the what, how and for whom to produce questions?

b.If cigarettes become a scarce resource, what do you think should happen to their market price?

Answer 1

a) How do you think that the creation of the market in the POW camp helped answer the what, how and for whom to produce questions?

In the army camp, there was no paid labor. There was no currency either. The camp received a lot of parcels, which generally contained chocolate, jam, soaps, oats and cigarettes.

Now, when these goods are distributed equally, there is no problem of unequal distribution. However, not everyone is a smoker. Similarly, not everyone may like chocolates. Thus, a market is needed where people can exchange goods with each other.

The simple concepts of marginal utility and marginal cost can be applied. The demand and supply of goods and their availability could determine the relative prices. The "what, how and for whom to produce" questions can be thus answered easily.

What to produce: Nothing is produced in the camp itself, but the camp relies on the parcels received from the army and the Red Cross. This will generally consist of a list of essential items, and a few special items as well. The camp members will decide which items are more important, and indirectly affect what to produce.

How to produce: Though production isn't taking place in the POW camp, it is still relevant to answer that how will the required items be acquired. It may take a lot of lobbying and persuasion to include an item, for example chocolates, in the list of essentials. The important items would then be produced in the outside world, taking into consideration the added demand from the POW camp.

For whom to produce: This is where the relative bargaining power of the inmates comes into play. The natural forces of demand and supply, seasonal factors, availability in the outside world, and so on, will determine how allocation ultimately takes place. The "market price" in the camp, will depend on demand and supply within the camp, but also on the "outside world market price" as well. Thus ultimately, those who are willing to pay the most, will get the item they desire.

The market makes it easier to understand the relative importance of the goods, and how much people are willing to pay for them

---

b) If cigarettes become a scarce resource, what do you think should happen to their market price?

As with any other good, if the level of scarcity increases, the price of the good also rises.

In the POW camp, cigarettes were being used as currency and also as a popular item of consumption. This must have led to a rise in the price of cigarettes. Even non-smokers would require them, as they were used as the only currency. Since the POW camp would rely on supplies from outside, they would have limited control over the quantity of cigarettes. Thus, the prices were bound to rise.