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The Economic Organization of a Prison
A famous paper in economics showed how cigarettes became a medium of exchange in a POW camp (even leading to booms and slumps depending on Red Cross deliveries). For a long time cigarettes were the money of choice in American prisons as well but today, according to a great piece in the WSJ, the preferred medium of exchange is mackerel.
There's been a mackerel economy in federal prisons since about 2004, former inmates and some prison consultants say. That's when federal prisons prohibited smoking and, by default, the cigarette pack, which was the earlier gold standard.
Prisoners need a proxy for the dollar because they're not allowed to possess cash. Money they get from prison jobs (which pay a maximum of 40 cents an hour, according to the Federal Bureau of Prisons) or family members goes into commissary accounts that let them buy things such as food and toiletries. After the smokes disappeared, inmates turned to other items on the commissary menu to use as currency...in much of the federal prison system mackerel has become the currency of choice.
I loved this point which raised the possibility of significant mack seignorage.
...Mr. Muntz says he sold more than $1 million of mackerel for federal prison commissaries last year. It accounted for about half his commissary sales, he says, outstripping the canned tuna, crab, chicken and oysters he offers.
Unlike those more expensive delicacies, former prisoners say, the mack is a good stand-in for the greenback because each can (or pouch) costs about $1 and few -- other than weight-lifters craving protein -- want to eat it.
Thanks to Brandon Fuller for the link.
Posted by Alex Tabarrok on October 2, 2008 at 12:04 PM in Economics | Permalink
Comments
Why is it that those who have accurately wrote about and predicted things similar to what we are experiencing today are marginalized?
Case in point. G. Edward Griffin wrote this in chapter 6 of his most popular book back in 1994!
Does it sound familiar? :
"Although national monetary events may appear mysterious and chaotic, they are governed by well-established rules which bankers and politicians rigidly follow. The central fact to understanding these events is that all the money in the banking system has been created out of nothing through the process of making loans. A defaulted loan, therefore, costs the bank little of tangible value, but it shows up on the ledger as a reduction in assets without a corresponding reduction in liabilities. If the bad loans exceed the assets, the bank becomes technically insolvent and must close its doors.
"The first rule of survival is therefore to avoid writing off large, bad loans and if possible to at least continue receiving interest payments on them. To accomplish that, the endangered loans are rolled over and increased in size. This provides the borrower with money to continue paying interest plus fresh funds for new spending. The basic problem is not solved, it is postpone d for a while and made worse.
"The final solution on behalf of the banking cartel is to have the federal government guarantee payment of the loan should the borrower default in the future. This is accomplished by convincing Congress that not to do so would result in great damage to the economy and hardship for the people. From that point forward, the burden of the loan is removed from the banks ledger and transferred to the taxpayer."
Posted by: Gabe at Oct 2, 2008 12:14:58 PM
I saw that this morning too! Plan to post about it tonight. ;-)
Posted by: Speedmaster at Oct 2, 2008 12:40:57 PM
Hey Gabe,I actually am writing an article on this. No one should listen to that man because I have it on good authority that Griffin is a conspiracy theorist and a anti-semite.
Does anyone have an opinion on what is more effective at making the sheep shut their brains down? calling someone a "conspiracy nut" or a "anti-semite"...I just started at the Times so I am still learning the tricks of the trade. Greenspan called and told me he prefers "populist". At least whichever word I choose I can safely avoid actually talking about the points made.
Posted by: NYT columnist at Oct 2, 2008 12:49:47 PM
Goldfish?
Posted by: Andrew at Oct 2, 2008 1:01:44 PM
Note to Fed: start breeding mackerel. We may need a replacement currency since the dollar will soon be useless.
Posted by: meter at Oct 2, 2008 1:02:04 PM
Newbie NYT columnist,
Come on man, I wrote a book about this. Your most effective technique is to cleverly brand the guy as A) a extremist right winger(free-market fundamentalist) then all the anti-war people and minorities will ignore him or B) a extremist left winger(a commie who hates the rich). then all the people who have been ingrained with sufficient patriotism will ignore him.
After you do this, remind the sheeple that extremist hate groups are the same as terrorist. If you can work in some praise for bi-partisian pragmaticism then your homefree.
Posted by: Carrol Quigley at Oct 2, 2008 1:02:43 PM
I wonder what banning smoking in prisons means on the margin for future crime?
For all I know several countries have banned smoking in prison for some time, and someone has already done a study on this and already knows "the answer".
I'm thinking that smoking is an expensive and very hard to eliminate habit. As such, anyone who comes out of prison as a smoker will need more money than someone who leaves prison who doesn't smoke.
To the extent that the smoking ban means that ex-cons don't need as much money to survive, it implies that more ex-cons can make ends meet via legal means via a crappy job, thus reducing economic pressure to return to a life of crime.
Also for those ex-cons who are going to commit crime regardless of their financial needs, it may well be that they might not commit as many crimes since they have less of a monthly "nut" to meet thanks to their lack of an expensive smoking habit.
Finally, and this is far more squishy, smoking gets some antisocial responses from a variety of society's members. To the extent that not smoking reduces the us vs them attitude of ex-cons, perhaps that would reduce hostility of ex-cons to others, reducing the impulse to hurt others one way or another.
Posted by: happyjuggler0 at Oct 2, 2008 1:19:04 PM
"I wonder what banning smoking in prisons means on the margin for future crime? "
I haven't seen a study on this, but given that illegal drugs are in our prisons and the last time I checked illegal drugs were "banned" in prisons. I'm guessing that the crime of smuggling cigarettes into prison and smoking cigarettes in prisons would increase in the future.
The increased skills acquired by prisoners in the arts of bribery, extortion and smuggling would probably help the prisoners earn better livings after prison...perhaps some would even make it to congress.
Posted by: Gabe at Oct 2, 2008 1:29:37 PM
It's strange that smokes presumably were good exchange material because everyone wanted to consume them, while mackerel is good because no-one wants to eat them?
Posted by: Zamfir at Oct 2, 2008 1:33:37 PM
Gabe,
No doubt there is cigarette smugging going on, just like with drugs. But this raises the market price for them, thus reducing demand. Thus fewer nicotine addicts leaving prison when their terms are up.
Given that there is already a smuggling infrastructure going on for drugs and presumably other things, I suspect that any increase in smuggling skills from tobacco prohibition in prison is quite muted.
Posted by: happyjuggler0 at Oct 2, 2008 1:41:10 PM
I assume Federal prisons have a large reserve of mackerel.
Posted by: Andrew at Oct 2, 2008 2:23:21 PM
Surely they could set up a fractional reserve banking system with demand deposits and reduce the need to tote around cans of fish to do business and to avoid individual can storage costs. They must not teach money and banking in prison education systems.
Posted by: mike at Oct 2, 2008 2:36:33 PM
Mike by the end of the first paragraph of the article I'd thought the commisary could do the same thing, but it turns out the currency is illegal, the guards confiscate any hoarding they find, so it might be riskier to hold your mack in a bank than deal with the difficulty of trading in a commodity.
Posted by: nelsonal at Oct 2, 2008 2:47:18 PM
Note to Fed: start breeding mackerel.
Hmmm, should I go long or short on mackerel? Decisions, decisions.
Pants, any advice here?
Posted by: at Oct 2, 2008 2:53:06 PM
Gotta be on the lookout for those cans of chicken relabeled mackerel.
Posted by: Yancey Ward at Oct 2, 2008 2:53:52 PM
If new mackerel is continuously introduced and nobody eats the stuff, wouldn't you get inflation. Maybe the confiscation by the guards is essential for a stable currency?
Posted by: MH at Oct 2, 2008 2:55:26 PM
Pants, any advice here?
Man do I feel famous.
Go long for right now. It will take some time but eventually will become more widespread and youll see a lot of inflation. So keep an eye out and know when to begin shorting it.
Risks include overfishing, environmental regulations and lack of good mackerel breeding infrastructure.
Posted by: pants at Oct 2, 2008 4:35:07 PM
If new mackerel is continuously introduced and nobody eats the stuff, wouldn't you get inflation. Maybe the confiscation by the guards is essential for a stable currency?
I guess it depends on how many protein-craving weightlifters there are. It's certainly an effective way to remove currency from the system.
Posted by: Jake at Oct 2, 2008 4:40:57 PM
Bring back the Herring Standard!
Posted by: Ginger Yellow at Oct 2, 2008 6:55:14 PM
For good mack seignorage, shouldn't the prisons mark up the price of mackeral, so that the mack purchased for currency use would lead to profits for the prisons. Or, given their monopsony power, the prison could effectively lower the wage of workers to $.20 per hour by doubling the price of mackeral.
Posted by: liberalarts at Oct 2, 2008 8:47:23 PM
Gabe,
No doubt there is cigarette smugging going on, just like with drugs. But this raises the market price for them, thus reducing demand. Thus fewer nicotine addicts leaving prison when their terms are up.
...the result being that those who want the cigarettes and no longer have them available will migrate to using products that give more high for the smuggling risk...so the crack and heroine use increases....We've seen this before.
Then before you know it we have Plan Columbia and the CIA shipping drugs into america because it is such a easy way to fund black ops.
Posted by: gabe at Oct 3, 2008 10:17:46 AM
Gabe,
I haven't got time to address your specific posts, and I apologize for that. However, I've read a small sample of G. Edward Griffin, at the request of a friend, and I can't encourage you strongly enough not to take the man seriously. His research is shoddy at best, and outright misleading at its worst. His knowledge of economics goes just far enough to sound like he knows what he's talking about, but he'll then contradict himself in the same paragraph. He's learned some terminology, but has a very poor grasp on the actual principles.
I haven't read anything by him in a while, but please, don't stoop to this guy's level. Read some Milton Friedman or Hayek or even Rothbard, they'll give you plenty of Libertarian ammunition while still being intellectually honest, to say nothing of being well-written.
Griffin's vague pointing at some scary New World Order of Illuminati and industrialist bankers behind the scenes comes across as a lazy re-hash of antisemitic spook stories from a hundred years ago. If you replace the word "Bankers" with "Jews" as you read through his stuff, you'll be amazed at how familiar (and horrid) it all sounds.
The appeal behind his books, as far as I can tell, is that they offer a simple explanation for a complex world: that all of the world's problems are caused by a small group of villains.
Please, don't go there.
Posted by: d.cous. at Oct 3, 2008 10:59:46 AM
Quoted from Zamfir:
It's strange that smokes presumably were good exchange material because everyone wanted to consume them, while mackerel is good because no-one wants to eat them?
Quoted from liberalarts:
For good mack seignorage, shouldn't the prisons mark up the price of mackeral, so that the mack purchased for currency use would lead to profits for the prisons. Or, given their monopsony power, the prison could effectively lower the wage of workers to $.20 per hour by doubling the price of mackeral.
There are actually two different currency systems at work here. Mackerel is being used purely as an exchange currency, while cigarettes were previously used as payment in kind. Inmates would trade cigarettes for other goods just like parents "pay" their children for good grades and doing chores using things like candy. Payment in kind is a simple barter exchange of one good or service for another of equivalent value.
Mackerel, on the other hand, serves as a representation of actual money. It is more akin to the allowance children receive from their parents. Children have absolutely no use for money - only for the things money can buy for them.
Increasing the price of mackerel would only make each can worth more. It would actually increase the wealth of those prisoners who had a large stockpile just before the increase went into effect. The prison wouldn't gain anything from a change in price.
In other words, mackerel = cash, cigarettes = goodies.
Posted by: George Corbett at Oct 3, 2008 1:24:28 PM
Hey all,
I work as a psychologist in a federal prison, and the "mackerel-as-currency" is news to me, in comparison to the prime form of currency - stamps. It is not uncommon to find vast stores of stamps during searches of the cells of individuals suspected of engaging in trade of one sort or another. They carry the additional benefit of having significant value once an individual leaves the facility.
As far as smoking, when the ban was first implemented, cigarettes were more highly valued than other contraband, including drugs (tobacco was going for a more higher rate than marijuana, for example). Rumor had it that a pack of cigarettes could fetch $50 on the inside, and there was significant concern that certain staff might actually succumb to the temptation of smuggling cigarettes in, since possession of tobacco by staff is not, in and of itself, illegal (unlike other drugs). I really don't know, however, if that has been the case...
Posted by: Jeremiah at Oct 3, 2008 9:20:49 PM
At Marion County CCA circa 2004 the currency was "soups", packages of ramen that cost about a quarter at the commissary. The prisoners without commissary funds could still get some basics like stamps and soap, and i was well on my way to setting up arbitrage when they finally let me call my lawyer and bond out. I'm a vegetarian and couldn't eat the jail food, so i survived on soups won at chess or earned via legal research. Topic is also being discussed at boingboing.
Posted by: arbitrary aardvark at Oct 6, 2008 4:48:27 PM
