Lessons we can learn from a prison economy
Henry Chan
The economy of prison is not a topic often studied by economists. Its simple application is irrelevant to most of society, as problems like inflation, poverty, and inequality take the forefront of economists’ minds. 1 However, below the surface, the economy of prison provides us with invaluable information on social dynamics and habits which reflect the real world, while also helping to confirm classical economist views on external shocks. 2 This essay will not only describe the workings of an economy in prison; it will also dissect how we can apply these patterns to larger-scale economies and to modern economic theories. An interesting aspect of a prison economy is currency. It is hard to imagine how a currency can form without a central bank or regulators, but all a currency needs is a medium of exchange, a store of value and a unit of account. 3 One example of this was recounted by Radford in the Economica about his experience in a prisoner of war camp in 1942. The fundamental start-up of this unregulated economy was based on the Red Cross parcels which were identical and delivered to all prisoners. 4 Each prisoner received the same standardized package. However, needs were unique to each prisoner. The British wanted more tea, the French more coffee and the Sikhs had no use for razors. Therefore, trade emerged in this camp. Soon after this, a currency formed, which had to be portable and reasonably popular: the cigarette. This was a relatively successful currency. However, it fell short of Gresham’s Law. Gresham’s Law is a monetary principle stating that ‘ bad money drives out good ’ . In the context of the camp, this means that ‘ Certain brands were more popular than others as smokes, but for currency purposes a cigarette was a cigarette. ’ Essentially, the poor-quality cigarettes were used for currency while the popular brands were used for smoking. 5 However, in more modern prisons, a different currency is used: ramen. Some propose this could be due to increasing restrictions on tobacco, a decrease in food quality or a decrease in smokers (41% of US adults smoked in the past week in 1944, down to 16% in 2018). 6 However, Michael Gibson-Light, a doctoral candidate at the University of Arizona School of Sociology, conducted a study and concluded that it was simply a result of prisons cutting costs. 7 In the early 2000s, prisons reduced overall serving sizes and modified lunch to a cold sandwich and a small bag of chips. Therefore, as the quality of prison food decreased, so did the demand for it. Soon after, the demand for the substitute good, ramen, increased. As ramen became more popular it was able to become the currency used in this prison. This was very useful to have in the prison, as it allowed prisoners to build a reputation, as in the study one
1 Pettinger 2020: 1. 2 Humphrey 2014: 1. 3 The Economic Lowdown Podcast Series 2021. 4 Radford 1945: 1 – 11. 5 Ibid.: 5 6 Dugan 2018: 1 . 7 Gibson-Light 2016: 3.
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