What a Refugee Camp Reveals About Economics
8th April 2025
The Economist, a Voice of the Crust.
Dzaleka’s strange economy exposes the variety of ways humans go about spending even very modest endowments.
It is partly for this reason that confined economies fascinate researchers. The most famous is Stalag VII-A. The Nazi prisoner-of-war camp, in modern-day Poland, was home to Richard Radford, a British army officer. After the war, on returning to Cambridge University, Radford wrote a paper describing how the camp’s rudimentary cigarette trade evolved into a specialised economy that used cigarettes as the currency by which the value of every other available good was expressed. Much as in Dzaleka, work was scarce and everyone’s endowments—packages sent by the Red Cross, a charity—were pretty much equal.
The camp’s economy allowed Radford to challenge an old economic assumption. The “labour theory of value” is most commonly associated with Karl Marx, but classical liberal economists such as Adam Smith and David Ricardo also believed that the price of a good mostly reflected how much work it had taken to produce it, or the perception of that work among buyers and sellers. In Stalag VII-A nobody worked, and everything still had value. The price of butter came from its scarcity relative to how much was sought, not the number of hours a milkmaid had spent churning.
The Labor Theory of Value is an outgrowth of mediaeval Just Price Theory, in which philosophers and theologians desperately scrabbled to figure out some way that the price of something is related in some way to something outside of the market.
It’s wrong, and it’s always been wrong. You can dig a hole and fill it up again and again, but all that labor hasn’t added a thing to the value of that patch of ground, and is totally unrelated to its price.
There is a distinction (which even prize-winning economists–yeah, I’m looking at you, Paul Krugman–don’t seem to grasp) between ‘value’ and ‘price’, and price is always determined by the market: What someone else is willing to pay in trade for your stuff. That is the thing and the whole of the thing.
As one might expect, this comes as a surprise to the people at The Economist, a Voice of the Crust.