A unique form of commodity money surfaced in the Nazi prisoner-of-war (POW) camps during World War II. Cigarettes came to fulfill all the functions of money: a medium of exchange, unit of account, standard of deferred payment, and store of value.
The Red Cross furnished the prisoners with cigarettes along with food, clothing, and other goods. The goods
were distributed without precise knowledge of individual needs and taste, giving prisoners an incentive to barter unwanted goods for goods that more closely met their needs. A situation in which trade can considerably raise individual welfare is fertile ground for the emergence of a money commodity, and in the POW camps cigarettes came to play the role of money.
Prisoners set prices in cigarettes. Shirts cost 80 cigarettes, and one prisoner would do another prisoner’s laundry for two cigarettes. Even nonsmoking prisoners kept a store of cigarettes to buy other goods and services, and prisoners built up supplies of cigarettes as savings, making cigarettes a store of value—
another function of money. Cigarettes met the need for a standard of deferred payment. Debts were also run up in cigarettes, particularly gambling debts, and prisoners bought goods and services on credit, promising to pay out of future allocations of cigarettes.
As a monetary commodity, cigarettes possessed many advantages. Their value was maintained by a strong consumer demand; they were somewhat durable, not perishable; and to make change they could be subdivided from a box to individual packages and even to individual cigarettes.
The history of POW cigarette money furnishes examples of a wide range of monetary phenomenon. Gresham’s law could be seen in the tendency for inferior cigarettes to remain in circulation while prisoners hoarded higher-quality cigarettes. Sometimes prisoners debased the currency by removing tobacco in the middle of the cigarette and replacing it with inferior material. A diminished (or expectation of a diminished) influx of cigarettes caused a fall in the velocity of circulation as prisoners hoarded cigarettes, which were becoming more valuable as prices in cigarettes fell. An added infusion of cigarettes, or rumors of an added infusion, brought a rise in velocity, dishoarding, and rising prices in cigarettes. Even banks were established that issued banknotes convertible into cigarettes, but unfortunately the banknotes were often easily forged. Communal stores emerged that were capitalized in cigarettes, and paid dividends in cigarettes.
The history of cigarette money continued after the war. In postwar Germany, a cigarette standard emerged, particularly in transactions between Germans and British and U.S. troops. In the late 1980s in the Soviet Union, packs of Marlboro brand cigarettes served as a medium of exchange in a large underground economy
that had lost faith in the ruble.
See also: Commodity Monetary Standard, Gresham’s Law
References Einzig, Paul. 1966. Primitive Money.
Radford, R. A. “The Economic Organization
of a POW Camp.” Economica (November
1945): 189–210.
