Surrogate money: cigarettes

A famous paper about the economic organization of a P.O.W. camp has been written by R.A. Radford and published in November, 1945. Reference was made to the personal experience of the author in a German Oflag (officer camp) in Italy and afterwards in Stalag VII A at Moosburg in Bavaria, a camp with 50 thousand prisoners of different nationalities.
Similar experiences were reported from prisoners of war in German as well as in allied camps.
In a P.O.W. camp, everyone receives roughly an equal share of essential from the governing authority, that can be considered as the equivalent of the nature in a classical economic system: by trade individual preferences are given expressions in order to increase the comfort, then exchanges between people are regularly made.
The exchanges start with direct barter, within a couple of weeks some scales of values start to exist that, within one month more ore less, are not any more expresses in terms of one another but in terms of cigarettes.
The “cigarette currency” performed all the functions of a metallic currency as a unit of account, measure of value and store of value, it was subject to the Gresham law since some brands were preferred to others and mechanical cigarettes were preferred to hand rolled, tobacco was used as currency at a standard rate of 25 cigarettes to an ounce.
The limit of the currency system was the demand for non-monetary purposes, that caused inflationary and deflationary cycles.
Around D-Day, food and cigarettes were plentiful, then the Entertainments Committee decided to launch a restaurant, where meals were sold for cigarettes. The scheme was vulnerable to deflationary waves and heavy smokers were unlikely to attend, then the Shop started to act as a bank of issue for the Restaurant. The paper money, called Bully Mark (BMk) was backed 100 per cent by food. Albeit tied to food and not to cigarettes, the price of both food and BMk fluctuate with the supply of cigarettes.
A scheme of planned economy was attempted, under proposal of the Medical Officer who was anxious to control food sales through a price control based on fixed prices with 5% tolerance: the price of food was in some way related to the calorific value. The price scale first was a success but, when the market structure changed in August, inflationary and deflationary waves caused an increase of “black market” sales. In January, 1945, scarce supply of food and cigarettes caused a depression, the surrogate monetary system collapsed and again food was given away in order to meet the non-monetary demand for cigarettes.
Gianluca di Castri – 13/06/2020
Source: R.A. Radford – The Economic Organization of a P.O.W. Camp – Economica, November 1945