Seeing like an economist

If you are a student who “has” to take a course in economics, you often end up approaching the subject as a necessary chore, and (let’s not mince words here) an utter bore. And not as a way to understand the world around you better.

I am, as you might imagine, a person with a strong and definitive bias in this regard, but I think this to be truly unfortunate.

This is the first slide of the presentation that I use when I give talks on introductory economics:

… and I think of the sentence at the bottom of the slide as being at least as important as the one at the top of it.

But in today’s blog post, I want to introduce to you a paper that teaches you how to see the world as an economist does… even if that world happens to be a prisoner of war camp!

Richard Radford was an economist who did lots of things as an economist, but his best known work is a short paper that he wrote in 1945. Radford was about twenty years old or so when World War II started, and he left his studies in economics and joined the British Army.

He was captured, and spent the rest of the war in a prisoner of war camp in southern Germany, called Stalag VII-A. Based on his observations while at the camp, he later wrote a paper called “The Economic Organisation of a P.O.W. Camp

After allowance has been made for abnormal circumstances, the social institutions, ideas and habits of groups in the outside world are to be found reflected in a Prisoner of War Camp.

Radford, R. A. (1945). The economic organisation of a POW camp. Economica12(48), 189-201.

One of these social institutions, as it turns out, was markets.

What could prisoners of war in a camp in some war-torn corner of Germany possibly want out of a market in that camp? How might such a camp even function?

One aspect of social organisation is to be found in economic activity, and this, along with other manifestations of a group existence, is to be found in any P.O.W. camp. True, a prisoner is not dependent on his exertions for the provision of the necessaries, or even the luxuries of life, but through his economic activity, the exchange of goods and services, his standard of material comfort is considerably enhanced.
And this is a serious matter to the prisoner: he is not “playing at shops ” even though the small scale of the transactions and the simple expression of comfort and wants in terms of cigarettes and jam, razor
blades and writing paper, make the urgency of those needs difficult to appreciate, even by an ex-prisoner of some three months’ standing.

Radford, R. A. (1945). The economic organisation of a POW camp. Economica12(48), 189-201.

What might prisoners of war in a camp want out of a market? The same thing that every participant in all markets have ever wanted: to trade in order to make their lives better. I have something that you don’t, and you have something that I don’t, so let’s trade! So long as you get the fact that the word “you” in the previous sentence refers to everybody else in the market, and not a solitary person, you get why markets exist – yes, even in a P.O.W. camp!

How might such a market function? To quote Radford, “Very soon after capture people realized that it was both undesirable and unnecessary, in view of the limited size and the equality of supplies, to give away or to accept gifts of cigarettes or food. “Goodwill” developed into trading as a more equitable means of maximizing individual satisfaction.”

It’s one thing to memorize Lionel Robbins’ definition, and quite another to think about goodwill being undesirable and unnecessary in view of limited supplies. If this was a class instead of a blogpost, I would have spent time in asking students to think about why goodwill became undesirable and unnecessary. I would ask them to think about whether this was a good thing or a bad thing, and why. And I would then ask them to think about what this means for society at large, and the kind of modes of production and exchange that we have adopted over millennia. I invite you to do the same!

Read the rest of the article and see if you can answer the following questions:

  1. Why did cigarettes become money, and no other commodity?
  2. Were all cigarettes of the same quality? How did that affect the money supply?
  3. How did price mechanisms get established? That is, so many cigarettes for a bar of chocolate, and so many cigarettes for a jar of jam. What price a bar of chocolate in relation to a jar of jam? Does it matter if you are a smoker or a non-smoker? Why?
  4. Was the price of all commodities the same in all the barracks in this camp? If not, why not? If you were a prisoner in this camp (and happened to be a student of economics), how would you use this to your advantage? What about this lesson can you apply in your own life?
  5. How did mechanisms in the market develop over time? Did markets become more “efficient”? How should one judge the answer to this question?
  6. Could a market such as this have futures contracts? Why would anybody want such contracts? Were such contracts “fair”?
  7. How did demand and supply work in this market? What were the factors affecting demand and supply in this market?
  8. Did price fixing “work”? What lessons for the world outside?

Sit down with your friends/batchmates and read this paper, and try and answer these questions. Don’t worry about your answers being “right” or “wrong”, see if you can come up with some answers. Try and figure out why others have different answers, and see if you can come up with a list of what are the strengths and weaknesses of your answers and those of the others.

Trade, as it were, ideas in this little group of yours, and appreciate the fact that you can establish a market for ideas while reading about a market in a P.O.W. camp!

And if you can understand the key difference between your little idea market and the P.O.W. market, why, you’ve learnt to both see the world like an economist… and understood why you should care! 🙂

3 thoughts on “Seeing like an economist

  1. In terms of thinking like an economist, I really like the book ‘The Undercover Economist’ by Tim Harford. Captures it (almost) perfectly I think.

  2. […] I’ve bene thinking deeply about how and what kind of content I consume, and am trying to change its composition. Watching (and rewatching) old movies, listening to old songs, reading older books and older papers is all part of the plan, and I hope to share some of this with you over time as well. […]

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