HW #9 Econ 108

A.

This was a very interesting reading on how markets develop spontaneously. Rizzo talked about in class how markets aren’t planned and how they just happen, but this article really helps to explain how I this spontaneous action occurs. The article talks about how markets develop spontaneously due to various people’s wants and desires. This leads to trade, which in the end develops a market. It was interesting to see that things like cigarettes became a form of currency in the market because outside of the camp, cigarettes wouldn’t have had the same value. This is kind of like the saying of one man’s trash is another man’s treasure. In the outside world, cigarettes have little cost but in the camp they have a lot of value.

One thing that was interesting was how much the market thrived with little regulation. Once the store and restaurant owners began regulating prices and the market, the sales started dwindling. This proves that little regulation is when a society thrives economically.

It was also very interesting that when the Red Cross didn’t deliver a certain number of cigarettes, prices dwindled and inflation and deflation occurred based on the number of cigarettes in circulation. This is very similar to how our society works but with money. When there is too much circulation, inflation occurs, when then there is a small amount in circulation, deflation occurs.

This article is very similar to the topics that we discuss in Econ 108 and found it very worthwhile to read.

B.

1.  What is it that leads to a market being created?

2. What determines whether inflation or deflation will occur? What can be done to prevent these?

C.

The reading talks about the development of a market in a prisoner of war camp during WW2 in 1944. The market that was developed within the camp did very well for a lot of the reading. A lot of this had to do with the freedom from regulation until the end of the story when regulation started to occur. This market was created spontaneously which we have talked about a lot in class.

The market that happened in the POW took on the currency of food, various items, and cigarettes.

The article first talks about the development of a market. The rations that people got were the initial source of income in the POW.

The campers made an “Exchange and Mart Notice Board” where people listed offers from different people to make people aware of the potential trade. This board acted as a middle man allowing the transaction between buyers and sellers to become easier.

Commercial organizations developed within the camp as well. A shop with public utility that was under the control by officers on a non-profit basis came into effect. Things were bought like a real retail store with the currency in cigarettes.

This market came into existence without labor or production. It all happened based on spontaneous order with the prices being set based on supply and demand.

Some labor developed from people offering services for cigarettes as well as the shops and restaurant. This market was mainly based on no regulation that developed from the Red Cross dropping off rations to the POW camp.

Later on, actual money was issued that was backed 100% by food. This paper was called the Bully Mark. This money caused a lot of regulation in the market of the camp.

Near the end of the camp, the restaurants and shops took over the “Exchange and Mart Notice Board” and started regulating the market. Prices increased from this regulation.

Eventually public opinion turned against the regulating and everything returned to as it had been before with cigarettes being the main currency in the market.

At the end of the story, A US infantry unit arrived with materials. The author used this to show that having infinite products causes economic organization and activity to be unnecessary since every one gets what they want for free, so no work is needed to get their wants in society.