Monday, October 27, 2008

POW Camp

At Cafe Hayek, the conversation between Roberts and Munger turns to POW camps. I am sure most of you have heard the account before. It comes from R.A. Radford's 1945 Economica article, "The Economic Organization of a P.O.W. Camp." But I want to zero in on one line from Munger:
Stories circulated of a padre who started off round the camp with a tin of cheese and five cigarettes and returned to his bed with a complete parcel in addition to his original cheese and cigarettes; the market was not yet perfect.
The first time I heard this story, I was taking Comparative Economic Systems. The objective in the course was to evaluate the market on a variety of levels (efficiency, morality, etc). I found it interesting, though, that my professor noted the existence of the padre as an indication that markets might not be fair. His logic: if one person can end up with what he had to start with PLUS more in a barter economy, he must be cheating people (since nothing is produced in a barter economy).

What's the problem with his argument? The POWs are not in a pure barter economy. The Padre is producing information! He is an entrepreneur. He finds price discrepancies and takes advantage of them. But, at the same time, he reveals the information once known only to him, a roaming maverick, to the rest of the camp. How is this unfair?

1 comment:

Juris Naturalist said...

The padre could have accomplished the same results in a stable credit market without even his initial allocation. The tin of cheese and cigarettes operates as (gasp) money to get the trading started and moving. Now, that's some greasy cheese.