The latest Econtalk is “Munger on Middlemen” wherein Mike Munger and Russ Roberts have a terrific dialog on the function of the much derided intermediaries of the economy. Included is this wonderful story about the priest in the POW camp during WWII taken from R.A. Radford’s 1945 Economica article, “The Economic Organization of a P.O.W. Camp.”
From Cafe Hayek, here is the gist of the story:
We reached a transit camp in Italy about a fortnight after capture and received 1/4 of a Red Cross food parcel each a week later. At once exchanges, already established, multiplied in volume. Starting with simple direct barter, such as a non-smoker giving a smoker friend his cigarette issue in exchange for a chocolate ration, more complex exchanges soon became an accepted custom. Stories circulated of a padre who started off round the camp with a tin of cheese and five cigarettes and returned to his bed with a complete parcel in addition to his original cheese and cigarettes; the market was not yet perfect. Within a week or two, as the volume of trade grew, rough scales of exchange values came into existence. Sikhs, who had at first exchanged tinned beef for practically any other foodstuff, began to insist on jam and margarine. It was realized that a tin of jam was worth 1/2 lb. of margarine plus something else; that a cigarette issue was worth several chocolates issues, and a tin of diced carrots was worth practically nothing.
Russ adds:
In the podcast, I mention that it’s a bit of a puzzle that would make a good exam question. How can a priest, presumably an honest priest, engage in trade and end up with more of not just one good by trading for it and accepting less of something else, but more of EVERYTHING. That means everyone else, en masse, must have less. How did he manage it through voluntary exchange. In fact, he managed to make everyone he traded with better off. Yet, they seem to be poorer for it.
So listen to the podcast and in the comments section to that podcast, try to resolve the paradox of how an honest man can benefit others by leaving them with less than they had before.
Highly recommended.
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