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The perfect draw – when cigarettes became a war camp currency

Understanding money
Reading Level: Expert
Reading Time: 6 MIN.

About the author:

Fabien Hassan is an analyst for the 2° Investing Initiative, a Paris-based think tank working for the alignement of the financial sector with the objectives of emission reductions to mitigate climate change. Fabien holds a degree in Economics from the Ecole Normale Supérieure de la rue d’Ulm, in Paris. He also studied in Sciences-Po Paris, Princeton University, and the Free University of Berlin. Read his blog here.

You may imprison an economist, but he will remain an economist. Even in horrific circumstances, men still live, exchange, form society, and try to understand it. This is the beautiful message conveyed by an article describing economic relationships in prisoner of war camps and the use of cigarettes as currency. The 70th anniversary of the end of World War Two is the opportunity to rediscover that great piece of economic writing.

R.A. Radford was born in Nottingham, England in 1919. As a young man, he went to Cambridge University to study economics. When World War II started, he had to interrupt his studies to join the British army. Three years later, in 1942, he was captured by enemy forces in Libya. He remained a prisoner of war (POW) until the end of the conflict.

During his stay in POW camps, Radford observed fellow prisoners as they exchanged goods and, marginally, services. Those observations were gathered in an article entitled “The Economic Organization of a P.O.W. Camp”, published in November 1945. Radford successively analyses the development and organisation of the market, the use of cigarettes as a currency, price movements, the introduction and failure of a paper currency, price fixing by camp authorities and the economic impact of public opinion.

Radford starts with a basic assumption: “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”. Men do not stop living because they are imprisoned. The constraints may be extremely tight, but men still try to reach a higher level of comfort.

From an economist’s perspective, this means that their behaviour can be analysed with the usual framework of mainstream economics. Prisoners are rational actors, who aim at maximising their own well-being or utility.

The camp administration provides each prisoner with a given quantity of basic goods, including cigarettes. So “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”. The enhancement of material comfort through trade corresponds to the diversity of preferences among prisoners.

The immediate response to that diversity is the exchange of goods, “starting with simple direct barter, such as a non-smoker giving a smoker friend his cigarette issue in exchange for a chocolate ration”. Barter enables prisoners to proceed to these basic trades.

Within a week or two, as the volume of trade grew, rough scales of exchange values came into existence”. Soon it became clear that these values should be translated into universally accepted unit of account. “Most trading was for food against cigarettes or other foodstuffs, but cigarettes rose from the status of a normal commodity to that of currency”. Cigarettes had all the characteristics of a currency. “Although cigarettes as currency exhibited certain peculiarities, they performed all the functions of a metallic currency as a unit of account, as a measure of value and as a store of value, and shared most of its characteristics. They were homogeneous, reasonably durable, and of convenient size”.

When the situations of the war allowed for some stability, camp authorities decided to create a shop. The shop was large enough to have access to a larger quantity of cigarettes. Prisoners who were temporarily out of cigarettes were able to borrow from the shop. Credit had emerged. “Thus the cigarette attained its fullest currency status, and the market was almost completely unified.

As any currency, “cigarettes were also subject to the working of Gresham’s Law. Certain brands were more popular than others as smokes, but for currency purposes a cigarette was a cigarette”. Gresham’s law predicts that when different qualities of money coexist, bad money drives out good. In the camp, popular brands were kept for smoking. The poorest qualities became exclusively used for exchanges.

This situation worsened when prisoners realised that rolled cigarettes were even cheaper. “Hand-rolled cigarettes were not homogeneous and prices could no longer be quoted in them with safety: each cigarette was examined before it was accepted and thin ones were rejected, or extra demanded as a make-weight. For a time we suffered all the inconveniences of a debased currency”. The lower quality of money fuelled inflation, until people came back to trading with standard cigarettes. Unfortunately, Radford does not tell how this happened.

The analysis of cigarette currency made Radford’s article quite famous. It is a fascinating story of how prisoners try to rebuild their former economic environment to improve their lives in detention.

There is another reason for the notoriety of cigarette currency. It perfectly illustrates the mainstream economic theory of money. Men started to exchange goods. They bartered, but this became insufficient in a more complex market structure. So men invented money. POW camps are like an anthropologic experiment that proves the validity of economic theories. In Radford’s words, “a P.O.W. camp provides a living example of a simple economy which might be used as an alternative to the Robinson Crusoe economy beloved by the text-books, and its simplicity renders the demonstration of certain economic hypotheses both amusing and instructive”.

Radford considers that the experiment constitutes a lesson on humanity. “The principal significance is sociological […]. The essential interest lies in the universality and the spontaneity of this economic life; it came into existence not by conscious imitation but as a response to the immediate needs and circumstances”. This boils down to assuming that the POW camp constitutes “a brand new society”, an experiment on which hypotheses on our society can be tested and validated.

This approach omits the fact that prisoners were members of our society. They were used to living in a modern market environment, so it is quite natural that they should try and reproduce their former life. It does not prove that money succeeded barter in the history of mankind.

This attachment to life outside of prison has been analysed by anthropologists in other contexts. For example, in Papua New Guinea, the use of cigarettes as currency creates some distance between the economic environment of the prison and the rest of the world. “Part of the problem with national currency is that it risks activating inmates’ memories of transactions outside the gaol [jail] and of debts they have yet to return (children’s school fees, rent payment due to their wives, [etc.]). By contrast, cigarettes help inmates to forget their thoughts” (Reed, 2007).

The omission of the social dimension of money by Radford corresponds to the general economic orientations of his article. The young British economist is a perfect example of what we would today call mainstream economic thinking. Interestingly, this liberal free-market approach was not dominant in the 1940s. Radford does not stand out for his original theories, he stands out for his ability to demonstrate all the major premises of economics through the description of his fellow prisoners.

Despite the fixed rations, prisoners managed to have some free competition. “There were entrepreneurial services”. Some became wealthy, others lost everything.

There were also monopolies. “One man capitalized his knowledge of Urdu* by buying meat from the Sikhs** and selling butter and jam in return: as his operations became better known more and more people entered this trade, prices in the Indian Wing approximated more nearly to those elsewhere”.

Monopolies had a poor image in the camp. “Particularly unpopular was the middleman with an element of monopoly, the man who contacted the ration wagon driver, or the man who utilized his knowledge of Urdu”. However, as stated by economic theory, monopolies never lasted long. Others soldiers would finally understand the trick and find a way to communicate with vegetarian Indian prisoners. The free market always wins.

According to Radford, prisoners have a hard time accepting the free market. Two elements considerably affected material comfort by distorting prices: public intervention and opinion.

Public intervention became more important near the end of the war. Conditions improved. There was some room for entertainment. Camp authorities opened a shop and a restaurant. They tried to fix prices and introduce a new paper money called BMk. This worked for a while, in the absence of shocks.

In wartime in a POW camp, exogenous economic shocks take the form of bombings, important battles and interruptions of the supply chain. The “planned economy” was never able to adapt to those changes. When “the price structure changed, the recommended scale was too rigid”. This inability to follow the evolutions of the market ruined the restaurant. Soon enough, “there was a flight from the BMk., no longer convertible into cigarettes or popular foods. The cigarette re-established itself.

The welfare first provided by the restaurant was an illusion. It relied on a certain state of the world. Ethical considerations also played a part. “But prices moved with the supply of cigarettes, and refused to stay fixed in accordance with a theory of ethics”. Radford does not believe in the morality of economic life.

For example, “in every period of dearth the explosive question of ‘should non-smokers receive a cigarette ration?’ was discussed to profitless length”. For Radford, authorities should not try adapt the preferences of individuals. They should keep on granting each prisoner the same package, and let them trade depending on their tastes and priorities. Similarly, price fixing in the shop seemed fair but “eventually public opinion turned against the recommended scale and authority gave up the struggle”.

Ultimately, “opinion was always overruled by the hard facts of the market”. Why did free markets work so well in the POW camp? As Radford explains, the camp looks like “the Robinson Crusoe economy”. This designates simple mathematical models where economic actors are isolated from external pressures, like Robinson on his island. In the camp, all prisoners have the same ration and similar needs. There is a limited number of goods. There are no intergenerational inequalities, no externalities and little space for market power. In other words, POW camps prove that Robinson models do work if the corresponding hypotheses are met. They do not prove that free markets always work in more complex societies and environments, such as ours.

In the course of the article, readers would almost forget that Radford is describing a POW camp during World War II. In that context, ‘opinion’ meant questions of life and death, of solidarity between prisoners. Throughout the text, Radford does not mention that. His writing is worthy and modest. It conveys the message that even in dire times, the forces of the free market are the best way to improve welfare. Of course, people may disagree with that message. But it has rarely been expressed in such a touching way.

The article ends with the liberation of the camps, which suddenly brings the reader back to the reality of the war. Radford concludes with an enigmatic sentence, whose interpretation is best left open. “On 12th April, with the arrival of elements of the 30th US. Infantry Division, the ushering in of an age of plenty demonstrated the hypothesis that with infinite means economic organization and activity would be redundant, as every want could be satisfied without effort”.

After the war, Radford returned to Cambridge and received a bachelor’s degree in economics. He then moved to Washington to work for the International Monetary Fund (IMF). He died on November 7, 2006. “The Economic Organisation of a P.O.W. Camp” was described as a “a remarkable piece of writing” by the Financial Times in 2012. It will remain as a symbol of resilience, and an empathic attempt at understanding the fundamental economic aspirations of men.

Fabien Hassan

This article concludes our series on money.

*Urdu: An Indic language closely related to Hindi but written in the Persian script and having many loanwords from Persian and Arabic. It is the official language of Pakistan, and is also widely used in India and elsewhere, with about 50 million speakers worldwide. (Source:

**Sikh: A Sikh is a follower of Sikhism, a monotheistic religion which originated during the 15th century in the Punjab region of South Asia. Most Sikhs are vegetarian (Source: Wikipedia).


  • Radford, R. A. (1945). The Economic Organisation of a POW Camp. Economica, 189-201.
  • Berg, M. (2013). “Was ‘Cigarette-Money’ in World War II POW Camps a Case of Commodity Money Origination?”, New Economic Perspectives. Available on that link, consulted on January 5, 2015.
  • Harford, T. (2012). “Rules of trading in a POW camp”, Financial Times, May 12, 2012. Available on that link, consulted on January 4, 2015.
  • Reed, A. (2007). “‘Smuk is King’. The action of cigarettes in a Papua New Guinea prison”. In: Henare, A., Holbraad, M., & Wastell, S. (Eds.). Thinking through things: theorising artefacts ethnographically. Routledge, pp 32-46.
  • Washington Post (2006). “Obituaries. Richard A. Radford, IMF Economist“, November 14, 2006. Available on that link, consulted on January 4, 2015.
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