Prisoner of War Camps Phenomenon - Essay Example

Prisoner of war camps        Introduction:       A Prisoner of War (P.O.W) camp refers to the captivity of those soldiers who were captured by their enemies during the wartime. Such camps form an economy all together and they remain segregated from the rest of the world economy. The article emphasizes on the point that the prisoners who are kept in such camps also need to satisfy their basic needs of life, the most important among them being food. The question that arises here is that how the individuals can receive the supply of various goods and services that are essential for their living. In this regard, the article shows the existence of a barter economy or the existence of an exchange economy. The article represents the P.O.W economy as an alternative for the Robinson Crusoe economy. In the article, cigarettes are chosen to be the medium of exchange. In other words, cigarettes perform the function of metallic currency in the P.O.W economy. The importance of the article lies in the fact that the standard of living of an individual can be enhanced through a mode of exchange. (Radford)         Benefits of trade:       The article “The Suntory and Toyota International Centres for Economics and Related Disciplines’ by Radford’ lays emphasis on the existence of barter system and the importance of an exchange economy in enhancing the welfare of the economy. The barter system provides the base of exchange. In earlier days when money was not invented, people would still trade among themselves using a standard form of currency as a substitute of money. Rice used to be a medium of exchange. For example, if anyone were in need of milk, then he would obtain one liter of milk from another person in exchange of rice. That is the person who needed milk, would give one quintal of rice to the person from whom he would obtain milk. In this way, trade used to take place in earlier days. However, there was a problem with this system. The problem is regarding the mode of exchange. In the above example, the person who was in need of milk may not always find a person who would be ready to give milk in exchange of rice from him. In such a situation, the concept of using a commodity, say, rice, wheat, milk etc. as a medium of exchange fails. These problems soon lead to the invention of money. Thus, the process of exchange became faster and easier and enhanced the living standards of people.       Trade is beneficial because of comparative advantages in production. David Ricardo proposed the theory of comparative advantage. The theory states that an economy should produce those goods and services for which it has comparative advantage that is the cost of production is low. The concept of production revolves around the idea to produce the maximum output at the lowest possible cost. Therefore, it will be profitable for an economy to produce those goods and services for which the cost of production is low. The economy can therefore, export those goods and services for which it has comparative advantage and import the goods and services for which it does not have comparative advantage. This also results in an increase in the export earnings for an economy with which it can finance its import costs.       This was actually the reason for the people to trade in the P.O.W camps. As has been referred in the article, the P.O.W economy is a replication of the Robison Crusoe economy, it can be said that trade will benefit such an economy. (Radford, n.d) This is because in the Robinson Crusoe economy when there was no trade the welfare level of Crusoe was not very high as it was in the presence of trade. Therefore, if the P.O.W economy would depend on the resources available in their economy and make their consumption and production decisions relating to such resources then the welfare level that will result will not be substantial for them. If they trade with the outside economy thereby concentrating on the production of those goods and services for which it has comparative advantage then they will get higher level of welfare. In this respect, we can site an example from the article. The example is of a trader who enjoyed benefits of trading food items during the period of dearth. The trader supplied food items to other people in the economy in exchange for cigarettes. Since during this period, there was shortage of food, everybody came up to him. In exchange for food, the trader earned cigarettes. His welfare increased in terms of consumption of cigarettes and the earnings from the supply of food items. The welfare level of other person in the economy also increased in terms of an increase in consumption even at the time of crisis.       Other reasons for which people can trade might be related to the consumption of goods and services that are produced in other countries. This gives the consumers an opportunity to access a wide variety of goods and services. Therefore, the choice range of the consumers is widened. Trade can also be done in order to increase the inflow of capital into an economy in terms of export earnings, which in turn will help that economy to finance its import costs. However, the most important reason for trade is to improve the welfare of the economy in terms of improved standards of living. Thus the article interestingly adopts a method of exemplification, in order to give us the background for exchange of goods or trade. This makes the article enjoyable to read and interesting to relate to most of the stories and incidents we already know. Another interesting aspect is the backdrop of P.O.W (Prisoner of War) camps chosen for the analysis and how such a camp can be treated as an economy.       Market Equilibrium:       The basic idea of market equilibrium is the quantity demanded equal to quantity supplied. Demand comes from the consumers and supply comes from the producers. In the present economy, we can easily achieve equilibrium. The P.O.W economy as represented by the article depicts a barter economy where commodities are used as a medium of exchange. In such a scenario, equilibrium can be achieved when demand equals supply. For example, suppose that an individual needs ten quintals of rice, and then he must have to find out a person in the economy who is ready to supply ten quintals of rice. Suppose the person who will give ten quintals of rice is ready to supply in exchange for four packets of cigarettes. In this case, cigarette is considered as a medium of exchange. Therefore, equilibrium is achieved when the person who is in need for ten quintals of rice obtains it in exchange of four packets of cigarettes. Hence, demand equals supply and equilibrium is achieved. In such a barter economy, if money is introduced, then there will be the existence of a market place where the producers and consumers will interact with each other and collectively decide over a price at which transactions will take place. In this economy, the organizers are the prisoners who live in this economy. The organizers helped in attaining the equilibrium by arranging for a market place where the consumers and producers can interact with each other and decide over a particular price at which transaction can take place i.e. consumers are ready to purchase at that price and producers are ready to supply at that price.       Role of cigarettes in the P.O.W economy:       Cigarette was considered the medium of exchange in the P.O.W economy. Cigarettes were considered a unit of account, measure of value and store of value. They were considered homogeneous and reasonable. This is because cigarettes are small and they do not lead to high carrying costs. Transactions of big sizes can easily be dealt with in exchange of small packets of cigarettes. Certain brands of cigarettes were very costly but for transaction purposes, the consumers generally used the low quality brands. Handmade cigarettes replaced the pipe tobacco because their production was less costly. Such handmade cigarettes, which were made from machines, became very much acceptable as a medium of exchange in the economy both in terms of what they would buy and for themselves. However, the use of cigarettes as a medium of exchange led to some disadvantages regarding their intrinsic value. Sometimes there would be the shortage of cigarettes in which case the economy would experience deflation. In such a scenario, private cigarettes were introduced in place of machine made cigarettes. However, problems kept on arising in this economy due to the use of cigarettes as a medium of exchange. This led to the advent of paper money to be regarded as the medium of exchange. (Radford, November 1945)       Difference between cigarettes in the P.O.W economy and money in the world economy:       Both money and cigarettes are considered the medium of exchange, unit of account, store of value and measure of value in the world economy and P.O.W economy respectively. However, they differ in certain respects. Money has a value. Money can be kept in the bank on which interest can be earned and the amount of money can multiply year after year. Cigarettes cannot be kept in the bank and therefore the stock of cigarettes will not multiply. The volume of cigarettes can be completely depleted at some point of time. However, this is not applicable with money. Cigarettes are applicable for exchange purposes only in case of a barter economy but not in case of exchange for the world economy. Money gives purchasing power to an individual but cigarettes do not. Money or rather the currency of one country can be converted into the currency of another country. Money can be used for investment purposes but such is not the case with cigarettes. Another feature of money that can be cited is that if anybody needs health aid then only money can be used to obtain such aid but cigarettes cannot be used in exchange for health aid. Cigarette is just commodity rather it can be used for consumption purposes. In the world economy money is used to purchase cigarettes, which in turn is considered injurious to health. Therefore, money can be considered better medium of exchange than cigarettes.       Effect of supply of cigarettes:       The article shows the existence of a barter economy in the P.O.W economy. The supply of cigarette facilitates exchange in the economy. However, if the stock of cigarettes in the economy completely depletes then the supply of cigarettes in the economy will become stagnant. When supply falls then automatically, the price level will also fall. Therefore, there will be deflation in the economy. On the other hand, if there is substantial supply of cigarettes in the economy but there is no demand then the economy will experience inflation. This is because there will be excess supply of cigarettes but no demand which will automatically push the price to a high level. In such a situation, more number of cigarettes will be needed for exchange purposes than were previously needed. (Radford, November 1945)       Concluding remarks:       The article views the P.O.W economy as an example of an exchange economy. It is being considered a replica of the Robinson Crusoe economy. In the Robinson Crusoe economy, the main assumptions were that there was one and only one person living on the island. There was no contact with the outside world that is there was no trade and everything would have to be produced and consumed using the resources available on the island. In such a scenario, it was found that Crusoe was able to maximize both his utility and profit level by the equality of the marginal rate of substitution with the marginal rate of technical substitution. As soon as Crusoe was allowed to trade with the outside world, his welfare level increased largely. This shows that trade is beneficial. Similarly, in the P.O.W economy the prisoners who live also require the necessities to support their living. Therefore, they have realized the importance of trade in the economy. In the absence of paper money, they followed the barter system. They used cigarettes to be the medium of exchange and acted accordingly. Later on, they realized the problems regarding to the use of cigarettes as a medium of exchange. With the advent of paper money such, a problem was minimized. Market was developed in the economy where the consumers and producers would directly interact with each other to decide the equilibrium price at which transactions would take place.       The formation of the market should be such that money is used as a medium of exchange and not any form of commodity. This is because money will facilitate and stimulate the growth of an economy. Market should consist of a set of consumers and producers. Consumers should be motivated to maximize their utility function subject to their budget constraint. Producers should maximize their profit function subject to the cost constraint. Both the parties should interact in the market in such a way that in the equilibrium demand equals supply. The existence of this form of a market formation may not be natural. This is because when there was absence of money in the economy, there was the existence of barter economy. In this article, the soldiers had understood the problem of the barter economy and so they resorted to establishing a market structure in which money would be used as the medium of exchange. Such a market structure in which money is used as a medium of exchange is very appropriate for the economy. This is because such a market structure will facilitate the growth of the economy and improve the living standards of the people living in it. It will allow the economy to trade with the other countries in the world thereby specializing in its production. It also facilitates the export earnings of the economy and stimulates the growth rate. It can be recommended that a market structure that uses money as a medium of exchange must be created for every economy because money will provide purchasing power to the individuals living in the economy and help the economy to stimulate its growth rate through trade.        Work Cited Radford, R.A. The Economic Organisation of a P.O.W camp. Economica, New Series, 12. 48 (November 1945), 189-201, Available at: http://mail.google.com/mail/?ui=1&view=att&th=12981f3a068692b3&attid=0.2&disp=vah&realattid=f_gb08g98w&zw (accessed on June 29, 2010)  Read More