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Author Topic: The Cigarette Economy  (Read 2480 times)
BitterTea
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April 08, 2011, 05:55:35 AM
 #1

I found this article while browsing Wikipedia. I think it was linked off of the "commodity money" page.

http://www.albany.edu/~mirer/eco110/pow.html

Some interesting bits...

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Our supplies consisted of rations provided by the detaining power and (principally) the contents of Red Cross food parcels – tinned milk, jam, butter, biscuits, bully, chocolate, sugar, etc., and cigarettes. So far the supplies to each person were equal and regular. Private parcels of clothing, toilet requisites and cigarettes were also received, and here equality ceased owing to the different numbers despatched and the vagaries of the post. All these articles were the subject of trade and exchange.

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The cigarette became the standard of value. In the permanent camp people started by wandering through the bungalows calling their offers – "cheese for seven" (cigarettes) – and the hours after parcel issue were Bedlam. The inconveniences of this system soon led to its replacement by an Exchange and Mart notice board in every bungalow, where under the headings "name," "room number," "wanted" and "offered" sales and wants were advertised. When a deal went through, it was crossed off the board. The public and semipermanent records of transactions led to cigarette prices being well known and thus tending to equality throughout the camp, although there were always opportunities for an astute trader to make a profit from arbitrage.

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The people who first visited the highly organized French trading centre with its stalls and known prices found coffee extract – relatively cheap among the tea-drinking English – commanding a fancy price in biscuits or cigarettes, and some enterprising people made small fortunes that way. [...]

Eventually public opinion grew hostile to these monopoly profits – not everyone could make contact with the French – and trading with them was put on a regulated basis. Each group of beds was given a quota of articles to offer and the transaction was carried out by accredited representatives from the British compound, with monopoly rights. The same method was used for trading with sentries elsewhere, as in this trade secrecy and reason able prices had a peculiar importance, but as is ever the case with regulated companies, the interloper proved too strong.

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It is thus to be seen that a market came into existence without labour or production. The B.R.C.S. may be considered as "Nature" of the textbook, and the articles of trade – food, clothing and cigarettes – as free gifts – land of manna. Despite this, and despite a roughly equal distribution of resources, a market came into spontaneous operation, and prices were fixed by the operation of supply and demand. It is difficult to reconcile this fact with the labour theory of value.

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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. Consequently buyers used the poorer qualities and the Shop rarely saw the more popular brands: cigarettes such as Churchman's No. 1 were rarely used for trading. At one time cigarettes hand-rolled from pipe tobacco began to circulate. Pipe tobacco was issued in lieu of cigarettes by the Red Cross at a rate of 25 cigarettes to the ounce and this rate was standard in exchanges, but an ounce would produce 30 home-made cigarettes. Naturally, people with machine-made cigarettes broke them down and rerolled the tobacco, and the real cigarette virtually disappeared from the market. 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.

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While the Red Cross issue of 50 or 25 cigarettes per man per week came in regularly, and while there were fair stocks held, the cigarette currency suited its purpose admirably. But when the issue was interrupted, stocks soon ran out, prices fell, trading declined in volume and became increasingly a matter of barter. This deflationary tendency was periodically offset by the sudden injection of new currency. Private cigarette parcels arrived in a trickle throughout the year, but the big numbers came in quarterly when the Red Cross received its allocation of transport. Several hundred thousand cigarettes might arrive in the space of a fortnight. Prices soared, and then began to fall, slowly at first but with increasing rapidity as stocks ran out, until the next big delivery. Most of our economic troubles could be attributed to this fundamental instability.

Note: what was experienced in the cigarette economy was monetary deflation, a decrease in the money supply. We know that this will not happen with Bitcoin. This is a fundamentally different thing than a fluctuation of the exchange rate, or an increase in capital causing price deflation. Additionally, cigarettes are not as easily divisible as Bitcoins. Had they been, the problem would not have been as severe.

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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 drag on the market in Italy, a certain seller in Germany.

Two of my favorite parts:

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One man always saved a ration to sell then at the peak price: his offer of "bread now" stood out on the board among a number of "bread Monday's" fetching one or two less, or not selling at all – and he always smoked on Sunday night.

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One trader in food and cigarettes, operating in a period of dearth, enjoyed a high reputation. His capital, carefully saved, was originally about 50 cigarettes, with which he bought rations on issue days and held them until the price rose just before the next issue. He also picked up a little by arbitrage; several times a day he visited every Exchange or Mart notice board and took advantage of every discrepancy between prices of goods offered and wanted. His knowledge of prices, markets and names of those who had received cigarette parcels was phenomenal. By these means he kept himself smoking steadily – his profits – while his capital remained intact.

One might think that these two men were greedy bastards. Well, that is probably true, but what is not so obvious is that they were performing a vital economic function: saving for later. If not for their greed, nobody would have bread on Sundays and Wednesdays, or rations long after they were issued.
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eMansipater
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April 08, 2011, 04:32:53 PM
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Fascinating find BitterTea--you have to put an address in your signature for tips!

If you found my post helpful, feel free to send a small tip to 1QGukeKbBQbXHtV6LgkQa977LJ3YHXXW8B
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Jered Kenna (TradeHill)
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April 08, 2011, 04:42:29 PM
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Good and really interesting read.
Thanks going to pass that around.

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April 08, 2011, 09:45:45 PM
 #4

This is fantastic.

Spontaneous, voluntary order!

http://www.twitter.com/EverydayAgorism/
Check out my blog on Bitcoin and Agorism! http://www.practicalagorism.com/
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April 08, 2011, 09:55:05 PM
 #5

Fascinating indeed, especially the part about Gresham's law.  I bet nobody there ever imagined they'd end up working as cigarette counterfeiters.  I wonder how long that process of re-wrapping took.

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divergenta
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April 08, 2011, 09:57:46 PM
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Awesome indeed! Thanks for sharing.

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