The classic comedy Stalag 17 (1953) details life in a prisoner of war (POW) camp from the perspective of a group of U.S. pilots.1 Life in these camps was surely difficult, with not much to look back on in wonder. Though artistically crafted to present the story arc in a comedic manner, the brutal nature of the characters’ imprisonment is not something that can be easily disregarded. Within the first 10 minutes of the film two prisoners attempt an escape and are promptly dealt with by the guards on the perimeter of the compound. One character, Sefton, sees an opportunity with their escape, not to attempt an escape himself, but instead to provide a center for the other prisoners in the barracks to profit off the outcome of the attempted escape. It is within this first scene that we get our first glimpse into the market activity that evolves within these camps. This activity is shown further as the film progresses with allusions to market forces, drawing parallels to economist R.A. Radford’s (1945) famous article detailing his own first-hand observations from within a World War II POW camp about how markets arise to meet prisoners’ demands.
Sergeant Sefton’s introduction to the audience suggests that he is a cynical man, who is not well liked by the soldiers with whom he shares a barracks. However, he brings up an important point by making a mockery of their plan upon escape by suggesting they have not properly considered the risks involved. After Sergeants Manfridi and Johnson drop below the floorboards of the barracks to begin their escape, the soldiers who remain in the camp begin making theoretical bets about what will happen. “I bet they make it all the way to Switzerland!” Sefton, being an apparent cynic, retorts with a bet that says they won’t make it out of the forest. His bet, however, carries with it a little more weight than the others. “Two packs of cigarettes says they don’t get out of the forest.” Bets ensue, with each member covering either a part of the bet or the whole thing. With that scene, we reach one of the most fundamental requisites for a market – money.2
Prisoners are allotted rations of various items including foodstuffs, clothing, and cigarettes. Importantly, preferences differ across individuals, with some valuing one part of their rations more highly than another. Take for example a prisoner who is frail or emaciated. He may value the clothing more highly when temperatures plummet. A chain smoker may blow through his rations of cigarettes in a few days and be faced with days, or even weeks, until the next ration of cigarettes arrives. It would, of course, be in the interest of the frail prisoner and the smoker to come to some sort of agreement, assuming the frail prisoner values the clothing more highly than he does his cigarettes, even if he is a smoker. This seed of a market does not arise because of some attempted imitation of the life they lived outside of the prison walls. Rather, as Radford (1945: 190) so eloquently explains, “the essential interest lies in the universality and the spontaneity of this economic life; it came into existence not by conscious imitation but as a response to the immediate needs and circumstances.”
These individual trades would eventually become much more complex, and established prices are discovered through the frequent trading of goods.3 Direct barter serves its purpose, and would likely never completely disappear. However, the barter system can become difficult if one does not hold the desired commodity that the seller wants in exchange for his commodity. From here, we can see the usefulness of developing some form of accepted medium of exchange in which all prices could be listed and would not fluctuate wildly from day to day. Cigarettes, being small and divisible (in the sense of packs being able to be broken down into individual cigarettes), arose as the natural form of money within these prison populations.
The three key components have already been mentioned, but warrant a brief explanation. For a commodity to be viewed as accepted money within society, it must meet three criteria: medium of exchange, store of value, and unit of account. Let us first evaluate how cigarettes in the camp can assume the role of a medium of exchange. If we remember the example outlined above where the members of the barracks placed bets on the escape. It may have been much more difficult for the prisoners to come to some agreed upon terms of the bets they were placing if something had not acted as a medium of exchange between the members. But what makes cigarettes more advantageous to use as currency than, say, t-shirts? Cigarettes offer a divisible, transportable, and easy to preserve medium for these types of transactions. The small size of cigarettes allows goods to be quoted in a reasonable value, which can easily be carried to the place of market activity. Rations of clothing or certain foods, on the other hand, struggle to satisfy the above requirements that make cigarettes a powerful choice for currency. Imagine that one were quoting prices in t-shirts instead. In this case, one could bet his left sleeve that the prisoners would not make it out, but one would likely not find a willing taker of that bet – hence the divisibility problem of clothing. For these, and other transactions, cigarettes allow for easy trading among members of the POW Camp.
All cigarettes are not created equal, however. Radford (1945: 194) explains the concept of Gresham’s Law in terms of cigarettes in his POW camp. Gresham’s Law states that bad money drives out good money.4 If one good has a higher value, intrinsically or in terms of consumption, for example, one would expect the currency with the higher value to disappear from the market as consumers shift to use of the currency that is less valuable (e.g., consider metallic currency giving way to fiat currency). We can assume, without any loss of generality, that this has taken place within Stalag 17 prior to the first scene in the film. Some brands were more popular than others, and the more popular (i.e. expensive) brands were rarely available for purchase and even more rarely used for trading.
Now understanding how these cigarettes can function, albeit imperfectly, as a medium of exchange, we have also begun to touch on their ability to operate as a unit of account. Some of the issues outlined above impact the unit of account attribute as well. While these outlined issues may lead to cigarettes facing some difficulties in facilitating transactions, prices were quoted in the number of machine-made, or unaltered, cigarettes. In addition to a varying quality of the cigarette, individuals would be able to clip cigarettes, or roll them between their fingers to remove some of the tobacco and thus get an unauthorized discount on the purchase. To solve this, albeit imperfectly, traders began weighing cigarettes in their transactions. Thus, the unit of account component is largely preserved, though the mechanisms that were created to ensure the quality of the cigarette as currency were certainly not perfect.
Lastly, cigarettes needed to act as a store of value. To put it another way, they need to be readily accessible, easy to store, and have a relatively stable value over time. With their compact size and included carrying case, cigarettes were easy not only to store but also carry with you as you walked the yard, allowing you to act on a deal. Cigarettes also have a unique advantage among the other goods that were given in the rations in that they do not spoil after short periods. A cigarette purchased today could be smoked up to a year after the pack has been opened. This allows cigarettes to stay in circulation for a long period of time, with the holder of the currency free to indulge in his desire to smoke or trade it further for something he would rather consume.5
Cigarettes do not only hold value in exchange, but they also hold value in consumption. This can be a negative for someone who enjoys smoking cigarettes, as he is explicitly burning away his money. Referring to the bet that was made at the outset of this section, Sefton found light in the situation when the bodies were uncovered to the chagrin of the prisoners of the camp. Winning this bet increased the wealth of Sefton in cigarettes. He has another unique advantage over the other prisoners in the camp; he does not smoke them.
As with all currency, cigarettes do exhibit fluctuations in their value of exchange. At some points, the market is flush with cigarettes, making the value of each additional cigarette less than if the cigarettes were scarcer. Likewise, when cigarettes become more scarce, the value of each individual cigarette will rise, forcing the price of goods downward. These two effects demonstrate inflation and deflation, respectively.
The clearest demonstration of price movements can be illustrated with the frequency and reliability of Red Cross rations. Described as being 25 or 50 cigarettes per man per week, cigarette stocks were plentiful. While these rations came in regularly, cigarettes performed their duty as money admirably, with each holding strong in its value in exchange. These stocks, however, were subject to interruptions in the market. Whether from airstrikes in the area, or some other outside force, these interruptions contributed to the instability of the currency. When the repository of cigarettes began to fall, prices fell with it. With this decline in prices, and the overall stock of cigarettes, came a decrease in the volume of trade. Even with this instability, we can learn something valuable about the price mechanism, and how no single coordinator was necessary to ration the few cigarettes that may be remaining in a time of great scarcity.
As the total supply of cigarettes falls, each individual cigarette becomes more valuable. This is significant as we have already discussed cigarettes having not only value in exchange, but also value in consumption. This value in consumption is important, as the addictive nature of the nicotine made the consumption of cigarettes more valuable than other staples. As Radford (1945) explains, “The non-monetary demand for cigarettes was great, and less elastic than the demand for food.” This leads us to an important concept within economics: opportunity cost.
Opportunity cost is defined as the cost of giving up the next best alternative when a choice is made. Suppose for example that we have a person who enjoys the consumption of cigarettes. If he is forced to stretch that ration of fifty cigarettes for two weeks instead of the usual one, he will be more frugal with his consumption of the cigarettes, and even more seldom will he engage in trading his cigarettes for some other commodity. In this case, the opportunity cost of trading his cigarettes would be determined by the consumption of his cigarettes. With the consumption of his cigarettes assumed to be greater than the consumption of something he could trade his cigarettes for, he will ultimately choose to consume, rather than trade his cigarettes. This action affects the market in two ways. First, his removal of cigarettes from the market causes the market to suffer a loss of liquidity. With this, there are now fewer cigarettes in circulation for market activities, making current transactions more difficult to facilitate. Additionally, his consumption of cigarettes removes them permanently from the market, hindering their future use in other market transactions. Both effects lead to a market that is less flush with currency, exacerbating the initial shortage of cigarettes for transactions and driving the price of goods even lower.
Why does the price of commodities quoted in cigarettes decrease? This concept of opportunity cost is important to understanding the underlying mechanism at play. So far, the explanation has been focused on the consumer side of the market, examining the effect of a shortage for consumers who find additional value in the consumption of cigarettes. Producers must be aware of this fact, and even if they are part of the camp that was unaffected, the market will convey this information to them.
As the value of cigarettes increases, consumers will likely cut back on their purchases for the reasons outlined previously. As they begin to reduce their frequency of purchases, producers will have a desire to dispense the surplus of inventory. This will be especially true for those producers who themselves find value in the consumption of cigarettes and only smoke their profits, leaving their capital intact. To entice consumers to partake in trades, producers will be forced to reduce their prices. This, however, does not come without its difficulties for some business owners. Radford (1945: 194) discusses his account of a POW named Sam who enjoyed a strong reputation as a trader of food and cigarettes at the camp. During one of these periods of dearth, Sam was left holding large quantities of black treacle, a good that was not highly valued within the community. Upon the arrival of further parcels, Sam was unable to weather the price fluctuations and his once stable capital was withered away, and by the beginning of the next week the once revered businessman was no longer in operation.
Conversely, when cigarettes were plentiful, one sees the opposite effect within the market. These periods of deflation were sometimes offset by sudden large injections of new currency into the market. Private cigarette parcels would arrive periodically throughout the year, potentially flooding the market with new currency in the space of only a few days. Additionally, when the Red Cross received its allocation of transport, several hundred thousand cigarettes found their way into the camp within a period as short as a few weeks. This injection led to a decrease in the value of each additional cigarette, allowing individuals who were hoarding their stock to begin consuming and trading again.
This decrease in the scarcity of cigarettes increased the willingness of consumers to spend more of their own cigarettes to acquire other goods that they valued at least as highly as the number of cigarettes they were trading. Consequently, producers were forced to increase their prices due to the newfound demand for their products. This increase in prices helped serve as a way for the producers to ration their supply and ensure that they could meet the demands of the market without running out of their good or service.
It is important to understand the two-fold value of cigarettes. In times of great scarcity, the vitriol of heavy smokers toward those who only smoked lightly or not at all could be heard throughout the camp. Cries of the inequity of those who only saw value in exchange of cigarettes grew louder and fiercer as the rations evanesced. Incidentally, it is these individuals who saw much more value in trading cigarettes who could weather periods of deflation much more easily than those who were bound by their addiction.
Considering Sergeant Sefton’s proclivity to trade cigarettes and smoke cigars, he would appear to have an upper hand, so to speak, in business dealings within the camp. Not blinded by the consumption value of cigarettes, he was more willing to trade his supply and risk it in bets such as the one at the opening of the movie. Following the receipt of his profits from the bet, he entered the barracks with a unique and prized possession, an egg. The barrack was outfitted with a stove to keep the prisoners warm on the cold nights, but it also provided the opportunity to cook when the rare occasion presented itself. Sefton brought out a small pan and cracked the egg over the warm blaze. Prisoners gathered around in awe, taking in the pleasant and almost forgotten smell of a frying egg. This wonderment was cut short by their suspicion of conspiracy between Sefton and the guards. When accusingly asked what he had to give up for the egg, Sefton replied, “45 cigarettes, the price has gone up.” Stunned, the other members plead that he could not have used the cigarettes he won the night before to purchase the egg. But, of course he had. Remember, he sees no value in cigarettes other than the value they can give him through trading: “What else was I going to do with them, I only smoke cigars.”
Property rights are difficult to define in a prison camp. With individuals attempting to satisfy their own desires, it may in some cases come at the expense of others, particularly if there is not a strong enforcement mechanism in place. Supposing that the guards are against prisoners stealing from one another is a dubious proposition. In the beginning, even the eventually savvy prisoner turned businessman, Sefton, suffered from naivety. This learned experience, however, has led Sefton to find his way to enjoying his life in the prison camp as best he can, even if it came at the expense of having friendly relationships within his barracks.
Think back to the example at the start of this chapter where a wager was placed on whether the escapees would be successful. Sefton wasn’t privy to any additional information about the odds of the escape than the other members of the barracks. However, he was more realistic about their chances, and maybe better utilized the shared information within the group. This led to the other prisoners suspecting him of collusion with the guards of the camp, which certainly was not helped by his frequent transactions with the prison guards. In the initial interrogation, Sefton was pressed on why he was so certain they would not make it out of the forest, to which he replied, “I wasn’t so sure, I just liked the odds.” This outlook is certainly more cynical than those who had blind faith that their friends would make it out alive, but the opportunity was present, and Sefton was ready to cash in on the naivety of his bunkmates.
Sefton was not an amateur in the markets within the prison camp at this point. He regarded himself as sharper than others, allowing him the opportunity to make the best out of his time in the camp, even if it meant trading with the “Krauts.” It is these endeavors that show us the nature of the market that exists in Stalag 17, and the ways in which these businesses improved the lives of all prisoners in the camp, not just those who were the business owners.
Radford’s (1945) characterization of the economic life in a POW camp focused on the trading of cigarettes for various necessities and luxuries, largely discussing food and the cigarette as currency. We can see this go one step further in Stalag 17. Certainly, there was plenty of trading that occurred for the various foodstuffs and other goods that could increase the prisoners’ quality of life. However, human beings are far more complex creatures, with other desires that need fulfilling. Take for example the first mention of the “Stalag 17 Turf Club,” which operated on Saturdays and Sundays. Sefton acted as the owner-operator of the Turf Club and paid the narrator of the film, Cookie, five smokes a day to act as the stable boy. As with traditional horse racing, each prisoner could place bets on one or more rats. The odds board was clearly displayed for all to consider, and prisoners were welcome to watch the rats perform practice runs earlier in the day. It is here where we get a glimpse into the massive capital Sefton has accumulated, with cigarette packs and cartons lining the frame of the shot. Prisoners were happy to place these bets with the hope of hitting big on the winning rat. Even if they were not successful, this was one of the few forms of entertainment they could experience in the camp.
Radford (1945: 194) briefly mentions the role of credit in the POW camp, suggesting that it “entered into many, perhaps into most, transactions, in one form or another.” From these credit markets, spot (current) and future prices of a given commodity would be known, with these prices varying according to the individual terms of sale. Disappointingly, this was not the experience that was outlined in the movie. When a prisoner requested to give payment when the Red Cross rations came in, Sefton sternly replied that he does not give credit: “it’s against the rules of the racing commission!” Perhaps this was an example of entrepreneurial failure? Or it could be an example of entrepreneurial learning if Sefton had been burned by giving credit in the past, especially without a good mechanism to ensure payment.
What if a prisoner hit big on a rat and wanted to celebrate? Or if they wagered it all at the advice of another inmate and lost their entire stash of cigarettes? Lucky for them, Sefton provided them a place to drown their sorrows or celebrate their fortune right in the barracks. Traditional alcohol is not something that could be purchased openly on the market, but Radford (1945) describes that “raisins and sugar could be turned into an alcoholic liquor of remarkable potency.” Radford’s (1945) mention of this is to discuss the impact of this new discovery on the prices of the inputs. Of course, when it was discovered that mixing these two ingredients led to a drunken night, the value of those inputs increased. To properly ration the goods with their newly increased demand, the price of these goods increased as well. For two cigarettes per shot, prisoners would get a taste of the potent mixture. The price is positioned as being on the cheaper end of the spectrum, maybe compared to distilleries in other barracks. For just two cigarettes, all that is guaranteed is that you “don’t go blind.” This gets us to another important aspect of markets that is clear and present within the economy of the POW camp – competition, or a lack thereof.
With presumably few substitutes for the alcohol Sefton was providing, he did not need to face stiff competition on product quality and price. This leaves Sefton with the ability to possibly enjoy economic profits for extended periods. What may cause the lack of competition in these markets? Well, being in a POW camp, access to resources is largely restricted unless you can pay off guards or engage in robust trade with other prisoners. It may be that the materials needed to create large scale distilling are greatly expensive, forcing the owner to operate at a loss in the short run as he attempts to recoup his initial investment in capital. The high start-up costs, as well as the possibility of punishment if his materials are discovered, make it unlikely for there to be a robust market with many producers and many suppliers – something in economics that is known as high barriers to entry. These barriers to new producer entry influence the activity in the market in several ways. Traditional treatment of this looks at the distortion in the price and quantity that prevail in market equilibrium. With fewer producers, the producers that do exist within the market are able to charge a higher price for their good or service, thereby decreasing the amount of the good or service that is desired by consumers. An important note is that while they can increase the price, they will do so to where it maximizes profit, not where they maximize price.
Consider the example of Sefton’s distillery. The quality of his product is decent at best, sending two of the prisoners into a coughing fit. This quality problem can also be discussed through a market characterized by high barriers to entry. If there are few producers in the market with numbers unlikely to grow, Sefton does not need to worry about producing a premium quality product. Additionally, Sefton cited the low price point, “what did you expect for two cigarettes?” Due to the convenient location of the distillery in the barracks, and the possible monopoly he has on the market, he can reduce his costs by producing a beverage that may not be so pleasant in taste. With the lack of alternatives, it is shown almost immediately after the complaint that they went back for another shot. If that is the only alcohol they have available, and it is moderately priced, the consumers will trade off the lower quality for the benefit of inebriation.
The third and final business that is displayed is Sefton’s observatory. Gathering some high-powered lenses and a magnifying mirror, and recruiting a prisoner from barracks 2 to put it together for a pound of coffee, the observatory was in business. The view offered the ability to see the Swiss Alps on a clear day. Despite the marvelous view of the Alps, our narrator, Cookie, questioned why anyone would want to see the Alps when only about a mile away stood the showers of the female Russian prisoners. The view was not of anything obscene, due to the steam, but Cookie offers a rationalization that after two years in the camp, the idea of what was going on was enough.
For a cigarette or a half-bar of chocolate, prisoners could get a 20-second peek through the telescope. The line would flow out of the barracks and into the common ground, something that caused unrest of those at the rear of the line and the residents of Sefton’s barracks. When a few of the residents of his barracks arrive and threaten to shut down the operation, Sefton assures them that the guards are already aware of it. Naturally, this led to further suspicion of Sefton’s collusion with the guards. It certainly seems curious that he can operate all of his businesses with the guards’ knowledge and without them being shut down. Understanding that the guards are human beings who also face incentives, Sefton offers them 10 percent of the take. This final business gives us an opportunity to talk about a few economic principles, such as the mutually beneficial trade with the man from barracks 2 to craft the telescope, and the exchange rate that seems to exist between one cigarette and a half-bar of chocolate, and lastly, taxation and rent-seeking behavior on the part of Sefton and the guards.
The contracting of another man to build the telescope for his observatory leads us to what seems to show a kernel of a labor market. These labor markets could theoretically function with cigarettes for payment, as discussed in Radford (1945), but it may be that the preference of the man in barracks 2 was for coffee in lieu of cigarettes. While this specific case is outlined in the movie, it is conceivable that all sorts of labor market activities would blossom in a POW camp. Radford (1945) mentions a few: laundry services (two cigarettes a garment) and portraits (thirty cigarettes), for example. These business owners operate in much different sectors than the ones Sefton created, but the idea is the same. Further, other people could operate as employees in exchange for cigarettes as payment. As mentioned previously, Cookie was the stable boy of the Turf Club, but he also acted as the bartender for the distillery, and the operator of the observatory. The opportunity to hire a worker to carry out the labor of the business allowed Sefton to simply oversee the operations with little need for his direct participation. These entrepreneurial services were common, as can be seen from the mention of Sefton’s businesses and the construction of other industries within the camp. Radford (1945) mentions a successful owner of a coffee stall, who could afford the luxury of employees to oversee the day-to-day operations, such as brewing the coffee or stoking the tea. Further, this owner could enjoy the services of an accountant at one stage. It surely seems that this man had it all figured out. However, as with all markets, conditions do not remain static. After a period in which he enjoyed great prosperity, he had overextended his capital and his business eventually failed at a cost of several hundred cigarettes. This ebb and flow of prosperity and dearth is important to the functioning of the market. A businessman who has great ventures could be out of business at any moment if cigarette rations changed, or if any of the inputs used in making his goods exhibited large fluctuations in price.
The mention of two prices for the same service gives us insight into the relative value of the goods that would be exchanged. For a cigarette or half of a chocolate bar, prisoners could enjoy the view of the bathhouse. This tells us that, at least in Stalag 17, cigarettes were trading two-for-one with chocolate bars. As intuition would seem to lead, chocolate bars were worth more than cigarettes. These prices may remain stable in the short run, but are likely to change as time goes on. Price levels are affected by more than just the inputs to the good or service. Consider the case of a new influx of prisoners. With more prisoners in the camp, there will be more cigarettes on the market. This would lead to a period of inflation, already discussed, where prices would increase as the relative value of each additional cigarette is diminished. This phenomenon can occur with the expectation of various shocks that will occur in the future. If news reaches the prisoners that next week the size of the prison camp will increase by 10 percent (for example adding ten prisoners to an existing population of one hundred), consumer and producer behavior will react to the future changes that will occur. The expectation of new prisoners arriving will cause consumers to shift their purchases to take advantage of the lower price that exists in today’s market. Consequently, this could lead to a more rapid increase in the price desired by producers so that they may ration their current stock in hopes that they will be able to capture more profit, or secure their existing capital to take advantage of the impending population increase. If this news turned out to be false, however, with prisoners directed to a different camp instead, those prisoners who tried to get ahead of the curve and purchase foodstuffs in advance will have overpaid. Additionally, suppose that rations of cigarettes and chocolate were each halved. It may be expected that because the change in the ration occurred equally between the two goods, the exchange rate between the same goods will remain unchanged.
When considering changes to the structure of the market, one must realize the elasticity, or responsiveness, to changes in the good. Chocolate has an obvious purpose, allowing a prisoner to satisfy his sweet tooth. Cigarettes, on the other hand, have a couple of uses. Not only did they operate as the currency within the market, but they also carried an intrinsic, non-monetary demand. The additional function of cigarettes made the market much less responsive to changes in rations. If a prisoner smoked five cigarettes a week, he will most likely want to consume the same number of cigarettes even when the rations are halved. Chocolate, on the other hand, is a good that would be more responsive to a cut in rations, relative to cigarettes. Due to the higher responsiveness in chocolate, we would expect that the exchange ratio would fall, possibly to a new equilibrium of one cigarette or three-fourths of a chocolate bar. The price movement may seem counterintuitive, but it is important to consider what the change in rations will do to the value of chocolate relative to cigarettes. With the halving of these rations, cigarettes will become more valuable, while the demand for the more elastic chocolate bars will decrease. Thus, while they were previously exchanging at two cigarettes for one chocolate bar, they are now exchanging at two cigarettes for one and a half chocolate bars.
Finally, we can discuss the inner workings of the governance system that operates within the prison camp. A hierarchy exists among the soldiers who oversee the daily activities of the prisoners. At the top is the commandant, portrayed in the movie as a member of the SS; he acts as the warden of the prison. Below him is Sergeant Johann Schulz, who can be seen many times throughout the film interacting with the prisoners. If this were to be thought of as a hierarchy in school administration, the commandant would be the principal, while Schulz acted as the vice principal. Below them are the guards, who, sure enough, have a hierarchy of their own. These guards are the ones who would report prisoners to higher command if they discovered a prisoner’s participation in prohibited activities. However, we must not make these guards beings that do not respond to traditional incentives. They are human after all.
This is aptly addressed when Sefton explains that he pays the guards a cut of his earnings from each of his activities. Offering them this bribe allows him to operate in relative peace, while the guards look the other way. This can easily be imagined as taxes that the guards levy on the prisoners who wish to engage in entrepreneurial activity. This will, of course, increase the start-up costs for a new firm, but these new firms may face additional challenges as well. Sefton pays the guards to keep them happy, and additionally engages in trade for other goods that he may not be able to get inside the prison camp, for which the guards may need to pick up elsewhere. This helps Sefton gain a good rapport with the prison guards. He additionally pays them off for the freedom to go outside of the gate and visit the Russian girls all of the other prisoners gawk at through the telescope.
It is safe to assume that Sefton is well acquainted with the guards and prison staff. This position of relative power, given his good relationship with the prison guards, could presumably give him a greater flexibility to control various aspects of the market to his benefit. Suppose a new business is starting up and offering views at the observatory for only half a cigarette for the same duration of time. Well, this surely will undercut Sefton’s existing enterprise. Presumably, he could attempt to convince people to continue utilizing his observatory through added perks or convincing prisoners that he offers a higher quality view of the bathhouse. That may involve additional work on his end, and it may not end up being successful. It is a very real possibility that someone who has a better view would usurp the idea and command even more profits than Sefton. To protect himself against this, it could be conceived that Sefton was paying the guards 5 percent for a tax on his business, but the additional 5 percent was used to convince the guards that he always operated in good faith and that further attempts to start a business should be rejected.
This leads us to the concept of rent-seeking first mentioned by Gordon Tullock (1967).6 Rent-seeking refers to the scenario by which individuals and businesses attempt to secure benefits for themselves through the political process as opposed to market-based activities (think of your own conception of crony capitalism). The theoretical example outlined above explains one form rent-seeking can take. Sefton used the political process (well, the guards who essentially act as the government) to force new regulations on future competitors, making it more difficult for other businesses to enter the market and diminish his profits. He could, additionally, seek to use his position of power to secure additional rations in a situation where too many rations were delivered (this could conceivably be tied to a scenario in which new prisoners were supposed to arrive but were redirected at the last minute). His position with the guards may allow him to purchase these excess rations at a discount, giving him an advantage over his competition. Rent-seeking is common in modern economies. All one needs to do is consider the amount of lobbying for various regulations, subsidies, and tariffs that exist to see how pervasive this practice truly is.
Stalag 17 offers a humorous view into the life of a World War II POW camp, but it also has a lot to teach us about economics. With each prisoner receiving nearly identical rations, it may appear to the untrained eye that there would be no need for markets to develop. However, individuals differ in their preferences for goods, and because of this, trade will necessarily become common. Just as in the traditional economies we see operating around us daily, barter can be costly, especially if goods are indivisible or bulky to transport. Without any outside influence, cigarettes found their way to be the common form of currency to facilitate the day-to-day transactions of the prisoners. While this market was not perfect, it allows us to see how markets develop organically and function to meet the needs and wants of the citizens.
The focus on Sergeant J.J. Sefton throughout the movie allows viewers to see many market forces at play. From the use of cigarettes as currency, to the betting markets for activities such as horseshoes, racing, and prison escapes, viewers are unknowingly being taught a lesson in economics. Even when the resources may be difficult to come by, or prohibited, market activity finds a way to allocate resources to their highest use. Although these markets are surely imperfect, they depict an economy that is fluidly functioning and providing not only the necessities, but also services that make life easier and more enjoyable.
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