What happens in a money-less economy?

Tuesday, April 28, 2020

Welcome to another Discover Tuesdays topic where I will answer one common question and hopefully we can both learn something from it.

Just a disclaimer before we begin, the questions here are mostly about consumer behavior or anything related to Economics. I find these topics interesting but if you want to suggest something else, I am all ears!

In response to my previous topic entitled "Why can't we just print money?", conversely I ask, "What happens in a money-less economy?"

Quick mental exercise: think about what would happen if money is deemed invaluable. Imagine migrating in a country where there is no currency/money?  You go to a marketplace and suddenly all your cash is worthless. How will you survive? Comment below and let me know your thoughts! 



The short answer is: The Invisible Hand

The long answer is:


In 1942, a young economist named R.A Radford, who enlisted in the British army for WWII, was captured and became a prisoner of war in Libya. While in prison, he observed the behaviour of his fellow inmates and compared it to that of social institutions in the outside world.  Prisoners are considered to be rational individuals responsible for their own well-being. (read on The Economic Organization of a P.O.W. Camp by R.A. Radford)


In the camp, prisoners were each given a basket of basic goods, including cigarettes. Barter  has been the system of exchange like that of a mainstream economy. The preferences of prisoners are always for the improvement of their comfort. Non-smokers would trade their cigarettes for a food ration, so on and so forth. The volume of trades became higher by the day and most of it were for cigarettes vs. food. Cigarette was so commonly traded that it turned out to be a staple in every barter and became more of a "currency" than a normal commodity (double coincidence of wants as discussed on the previous topic).


When the war stabilized, the camp authority opened a shop. Prisoners who were temporarily out of cigarettes could borrow from the shop. The concept of credit arose, again similar to that of a currency.


Have you thought about our quick mental exercise a while ago? The prison camp was like a live experiment to our question, what happens in a money-less economy?


People will find a way to rebuild their former economic environment to improve their lives. 

In Radford's observation, in the absence of money, people created their own - which is cigarette.


As in Adam Smith's Wealth of Nations, in its simplest analogy to the above, there will always be an invisible force that will automatically regulate a free market to reach demand-supply equilibrium. 


It is called The Invisible Hand because it is like one, controlling a marionette.




And that's it for this Tuesday's topic! I hope you enjoyed reading this. Let me know your thoughts or any suggestions for next week's topic. 😊



PS. Special thanks to Anita for the cover photo!




---

DiscoverTuesdays is a blog series where we talk about any worldly topic or common existential question. Everyone is welcome to join the symposium and express their own thoughts.

2 comments

  1. The whole idea of money and the economy is the trade and exchange of goods. And so, if money is deemed invaluable, the only other way to survive is to find another item/concept to replace money. Like the prisoners, they used cigarettes to exchange for food rations, etc. with cigarettes being the new currency. Pawn shops work in a similar way - people exchange what they believe has value for money, or in this case, you could exchange it for something you actually need.

    This was an interesting read, thank you for sharing this!
    nicole x

    ReplyDelete
    Replies
    1. Thank you! Glad that you liked reading it 💕

      Delete