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Trading in space
Money has no value in space. When seven astronauts are living together in a cramped atmosphere the psychology of small isolated groups kicks in. Whoever has squirreled away the most M&Ms, tortillas or coffee has the most bargaining power. Those are items that are most prized at the end of a mission if someone runs short in their own stash. Astronauts' meals are color coded on shuttle missions -- and reliable sources tell ABC News some astronauts aren't above switching the colored dots on their dehydrated meals if they have run out of say, lasagna, on day six and have way too much creamed spinach left.
Here is more and the story is interesting throughout. Are they not allowed to bring money on the ship or does money temporarily lose its function as a general medium of exchange? Does the use of money, or the promise of money, break down spaceship norms? They're allowed to bring iPods, so can songs become a medium of exchange? Or does preventing a general medium of exchange produce network externalities (increasing returns) to enhance the liquidity of all the other goods which need to be traded? You do in fact get the tortillas being squirreled away. Can this be a case where the emergence of a general money would be inefficient?
Posted by Tyler Cowen on March 22, 2008 at 07:48 AM in Economics | Permalink
Comments
That reminds me of all those boarding school/boot camp stories where the same economy prevails. As to your question - if you have a small group that's out of contact with the larger economy, money should logically become less important. They can't spend it till they get home, and what they want is easier to come by through barter where they are. Also, wouldn't they be using several different currencies? Are they going to follow the relative value of dollars, rubles, and euros?
I note a lot of things economic depend on whether you have a group of 4, 12, 150-200, or a few thousand and on up the scale.
Posted by: Pat Mathews at Mar 22, 2008 9:37:56 AM
Since they are in a non-productive economy - none of the astronauts are producing anything they or the others would like to consume (Although on Earth their research is a valuable service) - money would lose its value. It seems to me that if everything in the economy stopped producing, and all tradeable resources could only be consumed once, then money has no store of value. Say if I have fifty green M&Ms and you have fifty red M&Ms. You want ten of mine, so we trade. At the end of the trade, there would be only
If we had money - a dollar representing an M&M - and at the end of the day we each ate ten M&Ms - I now have 40 M&Ms and $50, and there are only 40 M&Ms to trade for.
So money loses its function as a store of value. It also loses its simplicity as barter costs decrease. If I have an MRE and you have an MRE, barter costs are nearly zero - I simply have to find out if you have the flavor I want. Trade is easy even without money. In fact, money would be a complicating factor in this trade.
I believe there was a book about the economics of concentration camps - which seems to me to be a very similar situation (extreme rationing, limited goods, and no distribution of income to laborers).
Posted by: Adam James at Mar 22, 2008 10:43:58 AM
Dehydrated creamed spinach ... yum!
Posted by: Peter at Mar 22, 2008 11:01:48 AM
Two comments:
First, for Adam James. It wasn't a book. It was a journal article, in Economica, I believe. It was titled, "The Economics of a P.OW. Camp" by R. Radford. It was on 3 of my 4 readings lists in the Ph.D. program my first year at UCLA. Well worth reading. Also, read Clavell's novel, King Rat, and see if you think Rat doesn't deserve the attitudes of the other prisoners.
Second, there's one kind of trade Tyler didn't consider: intertemporal. If you're in a prison camp, you don't know when or if you'll get out and you don't know whether you'll see the prisoners again. But when you're up in space, you're pretty sure you'll be out soon and you'll see your fellow "prisoners" again. So contracts are more enforceable.
Posted by: David R. Henderson at Mar 22, 2008 11:16:56 AM
What makes something money is that the buyer would accept it back, not on the same trade but as having the same value.
But you can't eat money, and time horizons are shortened in space. There's nothing you can buy except what the other guy has, and vice versa, and that comes to an end when each of you have what you value most. So the last guy won't take the money back. And like the prisoner's dilemma, that queers all the preceding trades.
They could always trade electronically in space, using accounts on earth. Maybe that would extend the time horizon psychologically.
Posted by: Ron Hardin at Mar 22, 2008 11:48:59 AM
I don't get it. These missions don't last forever, so money has value for when the mission is over, if nothing else. But since money has value for when the mission is over, it should have value during the mission as well.
The value of lasagna on the final day of the mission might be high, but surely not infinite. Frankly, I'm not sure why it'd be that high, even.
Posted by: Anthony at Mar 22, 2008 1:48:40 PM
These comments, including Tyler's, miss the point. The key questions are do they play poker in space? If not, why not? And if so, what are the stakes?
Answer those, and you will know what, if anything, is appropriate money in space.
Posted by: David Heigham at Mar 22, 2008 1:56:35 PM
Perhaps part of the reason is self-deception. Trading M&Ms allows people to pretend that they are not buying (and selling) from their friends.
Posted by: ad at Mar 22, 2008 2:01:57 PM
"I believe there was a book about the economics of concentration camps - which seems to me to be a very similar situation (extreme rationing, limited goods, and no distribution of income to laborers)."
"If you're in a prison camp, you don't know when or if you'll get out and you don't know whether you'll see the prisoners again. But when you're up in space, you're pretty sure you'll be out soon and you'll see your fellow "prisoners" again. So contracts are more enforceable."
So in both cases it's a liquidity crisis, like an extreme case of what we're seeing now. In the case of the astronauts, they know the liquidity crisis will probably be over soon, and they should know the contracts they make on-board will be enforced (they would, right?), so as long as they all consider the problem rationally, there shouldn't be an economic effect. But in the case of the prisoners... Well, most of them do know when or if they're getting out to a large extent. So that's not the problem. The problem is they don't trust that contracts will be enforced, which is closer to our current liquidity and credit crisis.
Posted by: Anthony at Mar 22, 2008 2:14:27 PM
Marx would probably say that the exchange values begin falling (from the money form first) because there are no new commodities being produced. Only use values are rising.
Posted by: ideogenetic at Mar 22, 2008 3:02:19 PM
Ooops; I wanted to add that even the spinach would eventually have a use value if, for example, their return had to be delayed.
Posted by: ideogenetic at Mar 22, 2008 3:06:41 PM
I can confirm that something like this happens on long submarine deployments.
Money doesn't lose *all* value, of course - just try taking someone's wallet if you want to test that :) But in the short term it has little meaning. Having a Diet Coke left in your rack, now that has some real value.
Posted by: holmegm at Mar 22, 2008 3:13:00 PM
It seems like a temporary shortage would just result in higher prices. But buying and selling at the right price looks bad, and avoiding such embarrassment through barter or an alternate currency avoids making direct comparisons.
Posted by: Brian Slesinsky at Mar 22, 2008 3:50:39 PM
Seems a lot like money in prison. Money still has value, but since it can't be spent outside of prison until a prisoner is released, it is disconnected from the whole economy except when dealing with the prison guards. While prisons have commissary stores, cash is not accepted - purchases can only be made through funds in an inmate's commissary account. In prisons, cash is actually contraband which inmates are not allowed to possess. Anything a prisoner wants to acquire, such as protection, drugs, services from other inmates, weapons, tattoos, legal assistance, revenge-for-hire (a good shanking), can be acquired through barter more readily than with cash. Thus, cigarettes/tobacco are a more useful currency inside a prison than actual cash (though in some prisons tobacco is contraband, too). Any item (M&M's are ideal) that is easy to count, uniform, not contraband, and non-perishable are ideal "currency."
What's interesting is that the closer a prisoner is to being released, the more value cash has to him/her. Cash is pretty worthless to a prisoner serving life without parole. Basically, having cash in prison is like having a bond. The bond matures when the prisoner is released. The only catch it it's illegal to possess the "bond" since cash is contraband.
Posted by: bruce at Mar 22, 2008 4:26:42 PM
For that matter, why did everybody suck up to Thurston Howell III on Gilligan's Island?
Posted by: mobile at Mar 22, 2008 6:50:52 PM
David Henderson,
Thanks! Actually, it's called "The Economic Organisation of a P.O.W. Camp". I remember reading it but had forgotten the details - and thus could not find it when I needed it!
I think the point is that these systems are minuscule closed economies with zero output. Since output is zero, the value of money declines. What value does it store? I cannot go purchase anything with my money. Why should I have an abstract unit of value?
"Marx would probably say that the exchange values begin falling (from the money form first) because there are no new commodities being produced. Only use values are rising."
Spot on, ideogenetic.
Posted by: Adam James at Mar 22, 2008 8:46:38 PM
Sigh. Why is this so hard? Whenever people trade different items, one of those items will be more tradable than others. When you see it, stop looking elsewhere for money. Once that item becomes tradable for everything, it has become money. So, if a money doesn't appear, it's because people aren't trading enough, or enough different things. If there are only a small number of things to trade, barter becomes more efficient than money, because there's only one transaction cost to get what you want.
Posted by: Russell Nelson at Mar 23, 2008 1:22:43 AM
Consumption is the other half of production. Without production, there is nothing to consume. Food is a bit different, however, in the sense that people CAN eat what the earth provides merely by collecting it--in other words, through their own labor. Arrowheads do not lie about the landscape fully formed merely to be found by some observant seeker. No, they must be made. No amount of "money" is going to make them. It takes muscle power to do that, as does gathering/hunting or cultivating/harvesting.
Even Adam Smith equates the value of things to the labor it takes to produce them. Trade and barter is always about exchanging a thing for a thing. Money is only useful as a convenient method of doing these exchanges as it is far easier to carry coins or shells or whatever than to bring along the entire inventory in the hopes that you have something that can be exchanged for what you want.
In closed systems this is not possible as there is no renewal or replenishment as in the case of astronauts in space exchanging meals among themselves or school children trading a peanut butter for a bologna sandwich or sister's "borrowing" each other's clothes.
When it comes to the business of food, there is no escaping the labor component to get or produce it and when the supply dwindles no amount of money can make more of it magically appear on one's plate. True survival does not depend on money, but rather, the earth on which we live.
Posted by: NeoLotus at Mar 23, 2008 10:05:34 AM
Would not most or all of the stuff that can be traded be NASA stuff? Selling NASA property, even if it is stuff NASA has given you, for personal profit sounds a bit dubiuos, doesn't it? Trading it for other NASA stuff doesn't, IMO.
Posted by: oab at Mar 23, 2008 2:28:38 PM
The value of lasagna on the final day of the mission might be high, but surely not infinite.Well, because the objects themselves are finite, nothing really has an infinite value. If a serving of lasagna has an infinite value, what value does two servings of lasagna have?
As for the money dilemma, I say it is rooted in the illusion of the monetary system. Say you give $1,000 to John in a closed system for some food. Well what incentive other than mutual trust is there for John to keep accepting your medium of exchange? It's not backed up by anything; remember, fiat money is only worth its weight in paper. On a voyage in space, food has a pretty high value, so it acts as a good medium of exchange.
Posted by: Daniel Reeves at Mar 23, 2008 3:00:54 PM
"What's interesting is that the closer a prisoner is to being released, the more value cash has to him/her. Cash is pretty worthless to a prisoner serving life without parole. Basically, having cash in prison is like having a bond. The bond matures when the prisoner is released. The only catch it it's illegal to possess the "bond" since cash is contraband."
The fact that cash is contraband is the only reason the other parts hold. Otherwise, cash wouldn't be worthless to a prisoner serving life without parole, because s/he could use that cash to buy something from a prisoner who is about to be released.
Posted by: Anthony at Mar 23, 2008 11:12:41 PM
The astronauts do not personally incur significant storage or transportation costs. Because the variety of items they can trade for is small, the timeframe is short, and the number of trading partners very small, the mental transaction costs of comparing one's preference for a good to its price are not sufficiently high to require money. Thus barter is sufficient.
Even if parties do incur sufficiently high mental transaction costs, or storage or transport costs, in such a small economy it is often sufficient to mitigate these using a good (like the M&M's Adam James suggested, or cigarettes in prison) that doubles as a consumption good. Its partial monetary nature may not be obvious without close analysis of the transactions.
Furthermore, don't you know that in Star Trek society had progressed beyond needing money? :-) Seriously, there may be formal rules or informal norms at NASA against unauthorized trading of NASA property with fellow employees. Such transactions are more likely to resemble the informal and largely invisible trading of favors that goes on between employees at large companies, and include "services" like adjustments of work schedules, favors returned after the flight, and so on.
Don't worry, with the dawn of space tourism, the orbital honor bar will not be far behind. And you think earthside honor bars are extortionate...
Posted by: nick at Mar 24, 2008 6:04:37 PM
