The Economic Organization of a Prison

by on October 2, 2008 at 12:04 pm in Economics | Permalink

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.

Gabe October 2, 2008 at 12:14 pm

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.”

NYT columnist October 2, 2008 at 12:49 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.

meter October 2, 2008 at 1:02 pm

Note to Fed: start breeding mackerel. We may need a replacement currency since the dollar will soon be useless.

happyjuggler0 October 2, 2008 at 1:19 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.

Zamfir October 2, 2008 at 1:33 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?

Andrew October 2, 2008 at 2:23 pm

I assume Federal prisons have a large reserve of mackerel.

nelsonal October 2, 2008 at 2:47 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.

Yancey Ward October 2, 2008 at 2:53 pm

Gotta be on the lookout for those cans of chicken relabeled mackerel.

pants October 2, 2008 at 4:35 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.

Ginger Yellow October 2, 2008 at 6:55 pm

Bring back the Herring Standard!

gabe October 3, 2008 at 10:17 am

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.

George Corbett October 3, 2008 at 1:24 pm

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.

arbitrary aardvark October 6, 2008 at 4:48 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.

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