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Economics case study

Various theories have been advanced in regard to the origin of commodity money. In this case, a critical assessment of Cigarette as one of the widely used item of trade in the Prisoner of war camps is under focus. Past literature indicates that during the World War II, there was intensive consumption of cigarettes among the soldiers, and this made it become one of the most coveted commodities in military camps. It is worth note, therefore, that, in the event, some of the soldiers were captured and held in POW camps; cigarette got even more use. The mechanism of interaction between the prisoners and the wardens facilitated conversion of cigarette as the medium of exchanging different items for survival in such camps. In response to the limited cigarette supply in the camps, its market generated a concept of commodity money as it was adopted as the item of acquiring other basic needs like food among others. There are some characteristics that qualified cigarette as a medium of exchange (Welch, Patrick, and Gerry 228). A former prisoner of war R.A. Radford authored an article Economica highlighting the concepts surrounding cigarette and its general acceptance within the camps as commodity money. Cigarette was relatively uniform within the camp economy, desirable, and had light weight for portability.

With increasing trade volume across different regions within the POW camps, complex case, arose and cigarette supply began to dwindle. The Red Cross that was the sole supplier of cigarettes began to bring pipe tobacco in lieu of cigarettes forcing the prisoners to alter their quantity by squeezing out some. The ensuing repackaging was a case of debasement and traders began to lose confidence in using cigarette as commodity money. The change in supply of cigarette was based on the prevailing war climate which in turn affected cigarettes issued by Red Cross and forces of demand and supply hence influenced inflation and deflation.

In the Island of stone, the increasing need for other products led to the adoption of the stone as medium of exchange. Although the stone had some evident disqualifications of being money, it was still generally accepted, and this certified its adoption. Use of the voluminous stone in Yap provides a good ground to understand what money is. Although an item may not meet all the characteristics of the US dollar for instance, it may still be used as a medium of exchange therefore qualifies to be money. The strange case of this stone is that it sunk below the ocean but was still considered to be holding a given unit of wealth and therefore continue to be used to exchange goods (Lal, Brij, and Kate 140). This stone can be compared to the contemporary virtual money that just exchange hands online but cannot be physically touched. Take the case of electricity bill clearance online where only figures change on the individual account balance; so is the case of stone which was used as a medium of exchange despite physical absence. In respect of this case, FEI qualifies as money since it’s held in trust of the people by authorized agency and generally accepted as a safe mode of transaction. It is worth to note that FEI is fiat money since it is considered legal as medium of exchange by the socio-political and economic authorities. Despite non-universality, it serves given section of society in the world as a legal tender hence its qualification as Fiat money. It is imperative to underscore the significance of confidence people hold on Fei its usefulness as Fiat money.

Works Cited

Lal, Brij V, and Kate Fortune. The Pacific Islands: An Encyclopedia. Honolulu: the University of Hawai’i Press, 2000. Print. 140

Welch, Patrick J, and Gerry F. Welch. Economics: Theory and Practice. Hoboken, N.J: Wiley, 2009. Print.228