The Market Mechanism - a Prisoner of War Camp

More interesting than changes in the general price level were changes in the price structure. Changes in the supply of a commodity, in the German ration scale or in the make-up of Red Cross parcels, would raise the price of one commodity relative to others. Tins of oatmeal, once a rare and much sought after luxury in the parcels, became a commonplace in 1943, and the price fell. In hot weather the demand for cocoa fell, and that for soap rose. A new recipe would be reflected in the price level: the discovery that raisins and sugar could be turned into an alcoholic liquor of remarkable potency reacted permanently on the dried fruit market. The invention of electric immersion heaters run off the power points made tea, a drug on the market in Italy, a certain seller in Germany.

In August, 1944, the supplies of parcels and cigarettes were both halved. Since both sides of the equation were changed in the same degree, changes in prices were not anticipated. But this was not the case: the nonmonetary demand for cigarettes was less elastic than the demand for food, and food prices fell a little. More important however were the changes in the price structure. German margarine and jam, hitherto valueless owing to adequate supplies of Canadian butter and marmalade, acquired a new value. Chocolate, popular and a certain seller, and sugar, fell. Bread rose; several standing contracts of bread for cigarettes were broken, especially when the bread ration was reduced a few weeks later.

In February, 1945, the German soldier who drove the ration waggon was found to be willing to exchange loaves of bread at the rate of one loaf for a bar of chocolate. Those in the know began selling bread and buying chocolate, by then almost unsaleable in a period of serious deflation. Bread, at about 40, fell slightly; chocolate rose from 15; the supply of bread was not enough for the two commodities to reach parity, but the tendency was unmistakable.

The substitution of German margarine for Canadian butter when parcels were halved naturally affected their relative values, margarine appreciating at the expense of butter. Similarly, two brands of dried milk, hitherto differing in quality and therefore in price by five cigarettes a tin, came together in price as the wider substitution of the cheaper raised its relative value.

Enough has been cited to show that any change in conditions affected both the general price level and the price structure. It was this latter

phenomenon which wrecked our planned economy.

Paper

Currency-Bully Marks Around D-Day, food and cigarettes were plentiful, business was brisk and the camp in an optimistic mood. Consequently the Entertainments Committee felt the moment opportune to launch a restaurant, where food and hot drinks were sold while a band and variety turns performed. Earlier experiments, both public and private, had pointed the way, and the scheme was a great success. Food was bought at market prices to provide the meals and the small profits were devoted to a reserve fund and used to bribe Germans to provide grease-paints and other necessities for the camp theatre. Originally meals were sold for cigarettes but this meant that the whole scheme was vulnerable to the periodic deflationary waves, and furthermore heavy smokers were unlikely to attend much. The whole success of the scheme depended on an adequate amount of food being offered for sale in the normal manner.

To increase and facilitate trade, and to stimulate supplies and customers therefore, and secondarily to avoid the worst effects of deflation when it should come, a paper currency was organised by the Restaurant and the Shop. The Shop bought food on behalf of the Restaurant with paper notes and the paper was accepted equally with the cigarettes in the Restaurant or Shop, and passed back to the Shop to purchase more food. The Shop acted as a bank of issue. The paper money was backed 100 per cent. by food; hence its name, the Bully Mark. The BMk. was backed 100 per cent. by food: there could be no over-issues, as is permissible with a normal bank of issue, since the eventual dispersal of the camp and consequent redemption of all BMk.s was anticipated in the near future.

Originally one BMk. was worth one cigarette and for a short time both circulated freely inside and outside the Restaurant. Prices were quoted in BMk.s and cigarettes with equal freedom—and for a short time the BMk. showed signs of replacing the cigarette as currency. The BMk. was tied to food, but not to cigarettes: as it was issued against food, say 45 for a tin of milk and so on, any reduction in the BMk. prices of food would have meant that there were unbacked BMk.s in circulation. But the price of both food and BMk.s could and did fluctuate with the supply of cigarettes.