Thursday, October 2, 2008

What Is Money?

This blog has been dealing with some weighty issues for the past few weeks, and that's understandable given events. But I was thinking it was time we reverted to some fundamentals and something on the lighter side. And I found it in today's edition of The Wall Street Journal. The front page story deals with Mackerel Economics. It's not about the world-wide mackerel market (although I did find out there is a shortage). Nor is it about the peculiarities of the mackerel industry. It's about mackerel being the currency of choice in the Federal Prison System in the U.S.

Now many of us probably thought "cigarettes" were the medium of exchange, but that was phased out some time ago because of health concerns. Consequently, rather than convert to strict barter, the economic system of the prison needed a substitute currency.

Mackerel actually seems to serve well, given the institutional (pardon the pun) restrictions. It fulfills the three functions of money - medium of exchange, measure of value and store of value fairly well. How it serves as medium of exchange is evident in the article. But, you may ask second and third functions. The measure of value is achieved because the cost is fairly uniform ($1 a package). The third function is met because the fish comes in sealed, foil pouches and few people actually eat the product. Many commodity based money systems have problems on this count because the underlying asset has more than one use. It even holds for gold.

If you want to approach the topic of money using the basic characteristics of money, mackerel seem to have some of the characteristics: durability, uniformity, acceptability. Others such as portability, divisibility, storability, are more limiting: prison authorities can impose limits on "substitute currencies" because of barter restrictions; and the foil pouches are not divisible. Also, since mackerel have more limited use "outside." Prisoners due for release often end up giving it away (bequest?) or “spending" it all before leaving.

Regardless, this is an interesting way to introduce the idea of money to your students and to help them understand that money is defined by function. (Now, I wonder if they have a monetary authority. Maybe the Flounder Reserve?)

I look forward to your comments.


Steve said...

I've read that canned mackerel is the key source of protein in prison, thus highly valued because everyone is trying to bulk up. So it's likely that it was being consumed--like cigarettes--as well as used as money.

Tim Schilling said...


I also figured it would be a protein source, but the article seems to imply that it's not that widely sought after for that purpose.

However, to the extend that it is, it would present a dual-use problem. Thanks for your comment.

Steve said...

Use might vary depending on how tough the joint is. I recall reading in a bodybuilding mag about an ex-con who said that they ate the mackerel bones and all to get every nutrient they could out of it. They were constantly desperate for protein sources--it was like gold to them, ha ha.

"Dual-use problem," thanks for the new term!