The Economic Way of Thinking 13th Edition by David Prychitko, Peter Boettke, Paul Heyne

Exercise 3

In 1945, economist R. A. Radford published an article, "The Economic Organization of a P.O.W. Camp" describing the economy inside a World War 2 prisoner of war camp. Cigarettes were used to trade various items out of Red Cross parcels and rations.
(a) Why did cigarettes quickly become acceptable as a medium of exchange in Radford's prison camp even for people who did not smoke? Can you think of any other item that might have become money in the prison camp if cigarettes had not been available?
(b) Suppose one of the camp residents had run out of cigarettes, but wanted to buy a jar of jam from another camp resident, and that the owner of the jam agreed to turn over his jam if the buyer gave him a promissory note for eight cigarettes. How could that promissory note become money within the prison camp?