Lessons we can learn from a prison economy
inmate reported: ‘You can tell how good a man’s doing by how many soups he’s got in his locker. Twenty soups? Oh, that guy’s doing good!’ 8
That currency forms in prisons, whether it be cigarettes or ramen, proves to economists that society will always find a currency. Currency in prison is a medium of exchange, which meant that the British could have more tea and the French more coffee. It also allows for a store of value, which allowed inmates to hold their wealth in one universal item. In brief, while we often take currency for granted in modern society, its importance and benefits are underlined in a prison economy. Another characteristic evident in a prison economy is a classical recession. Classical economists believe that economies always run at maximum capacity. Therefore, during a recession, they believe that no intervention is necessary as wages and prices will adjust accordingly. 9 This is the key difference between classical and Keynesian theories, as Keynesian economists believe that prices are sticky (the tendency of prices to remain constant despite changes in supply and demand), 10 which therefore means that in Keynesian economics the economy does not always run at maximum capacity. Radford mentions that, towards the end of the war, the supply of Red Cross Parcels started to decrease. This meant that the supply of cigarettes was low, and they were being consumed faster than they were being provided. This led to huge price rises in the camps as the value of the cigarette increased. Senior officers and social pressure tried to keep the prices low because of the anger at this huge price inflation, but this failed. Radford stated that ‘prices moved with the supply of cigarettes, and refused to stay fixed in accordance with a theory of ethics’ . 11 Radford does not explicitly explain why prices do not stick, but it is suspected that in a harsh setting like a prison, people were more willing to pay whatever price to receive food. The prison experience is extremely like a classical recession: there was an external shock, prices had to adjust, and markets did clear. Although, the standard of living decreased this was due to a decrease in supply, and any policies would not have helped. 12 This example is a hugely important lesson in our economies today, especially with the decreasing supply of oil due to the Ukraine and Russia conflict. If we as economists were to follow Jean-Baptiste Say, using Say’s Law (the proposition that ‘supply creates its own demand’. Essentially the supplier of a product will spend the income received, thus the supply creates demand), 13 the focus should be on resolving the crisis rather than trying to keep oil prices low. If we look at an outside example, we can see why the prison recession teaches us an invaluable lesson on how to deal with external shocks. In late 1973 the Yom Kippur war led to the Arab countries of the OPEC (Organisation of Petroleum Exporting Countries) announcing an embargo on oil exports, which doubled the price of oil. 14 Then in 1979, during the Israeli revolution, there was disruption to Iranian oil supplies, leading the price of oil to double again. 15 This caused a huge issue for western economies,
8 Wang 2016: 2. 9 Young 2022. 10 Goldberg and Hellerstein 2007.
11 Radford 1945. 12 Harford 2013.
13 Oxford Reference. Say’s Law . 14 Britannica. Arab oil embargo. 15 Macalister 2011.
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