Curiosities / Episode 06
When Cigarettes Became Money
Why would someone who did not smoke accept cigarettes in exchange for food?
The cigarette was useful to someone else. That turned out to be enough to start a different kind of exchange.
Follow the exchange ↓The parcel didn’t know what you wanted.
A supply of goods cannot give everyone the same preferences. Someone wants more of one thing and has little use for another. There is a reason to exchange.
In November 1945, economist R. A. Radford published an account of the prisoner-of-war camps he had experienced. Prisoners traded rationed goods, with cigarettes becoming a common way to quote prices and make payments.
These exchanges took place under forced wartime confinement, with important supplies arriving from outside. They were ways of meeting needs in that setting.
One detail makes the story particularly revealing: people who did not smoke accepted cigarettes too.
The person with soap doesn’t want your tea.
Consider a simple example: you have tea to offer and want soap. The person with soap wants chocolate.
You both have something to exchange, but that does not give you a deal. Finding someone with the thing you want is only half the problem. They must also want what you have.
Now suppose a different person wants your tea and offers cigarettes. If other people will accept them, that offer opens another route to the soap.
You don’t have to smoke the payment.
You sell the tea, accept the payment, then use it to obtain soap. The soap seller can use it for another purchase.
Your buyer and your supplier no longer need to be the same person. The payment connects their different wants.
This is why the non-smoker’s choice makes sense. The cigarette is useful as something that can be passed on.
The next person is part of its value.
Radford described notice boards advertising offers and wants. Cigarettes became the common currency, while barter continued alongside them.
The object was still a cigarette. What changed was the set of exchanges people could use it to make.
That is the answer to the opening puzzle: someone who does not want to smoke can still want the payment, because it has somewhere else to go.
A little further into the story
What happens if someone smokes the money?
That cigarette is no longer available to pass on as payment. Radford described a currency affected by consumption, changes in supply and differences in quality.
It could be useful without being perfectly reliable. The historical account also shows why a payment object’s availability and acceptability matter, not just its name.
Could they have traded without money?
Yes. Barter continued in Radford’s account. In the tea, soap and chocolate example, a coordinated three-way barter exchange could also match the different wants.
A direct two-person swap requires a match in both directions, often called a double coincidence of wants. A common payment can reduce that matching problem. It is not proof that exchange without money is impossible, or a story about the origin of all money.
What makes something money?
Economists describe three familiar functions:
- A medium of exchange is accepted in payment.
- A unit of account provides a common way to quote and compare prices.
- A store of value carries purchasing power into the future, although its value can change.
These describe what money does. Federal Reserve Education and the European Central Bank explain them further.
How much can one camp account tell us?
Radford’s article is a firsthand historical account, not a controlled experiment. Captivity, rationing, outside supplies and the institutions around exchange are part of its context.
It makes an exchange mechanism concrete. It does not settle every question about modern money, or show that all currencies began this way.
Follow the evidence
- R. A. Radford: The Economic Organisation of a P.O.W. CampEconomica 12(48), 189–201, November 1945. A firsthand account, with the historical setting and limits that implies.
- University-hosted scan of Radford’s articleRead the original account, including the setting and complications behind this story.
- Federal Reserve Education: Functions of MoneyMedium of exchange, unit of account and store of value.
- European Central Bank: What is money?The functions of money, with context beyond this particular historical account.
Original illustrations. No historical dialogue, camp prices or individual prisoners’ transactions have been invented.