Munger on Middlemen

by Russ Roberts on October 27, 2008

in Podcast, Prices

The lastest EconTalk is Mike Munger talking about middlemen. In the first part of the podcast, he tells a wonderful story about the priest in the POW camp during WWII taken from R.A. Radford’s 1945 Economica article, "The Economic Organization of a P.O.W. Camp." Here is the gist of the story:

We reached a transit camp in Italy about a fortnight after
capture and received 1/4 of a Red Cross food parcel each a week
later. At once exchanges, already established, multiplied in
volume. Starting with simple direct barter, such as a non-smoker
giving a smoker friend his cigarette issue in exchange for a
chocolate ration, more complex exchanges soon became an accepted
custom. Stories circulated of a padre who started off round the
camp with a tin of cheese and five cigarettes and returned to his
bed with a complete parcel in addition to his original cheese and
cigarettes; the market was not yet perfect. Within a week or two,
as the volume of trade grew, rough scales of exchange values came
into existence. Sikhs, who had at first exchanged tinned beef for
practically any other foodstuff, began to insist on jam and
margarine. It was realized that a tin of jam was worth 1/2 lb. of
margarine plus something else; that a cigarette issue was worth
several chocolates issues, and a tin of diced carrots was worth
practically nothing.

In the podcast, I mention that it’s a bit of a puzzle that would make a good exam question. How can a priest, presumably an honest priest, engage in trade and end up with more of not just one good by trading for it and accepting less of something else, but more of EVERYTHING. That means everyone else, en masse, must have less. How did he manage it through voluntary exchange. In fact, he managed to make everyone he traded with better off. Yet, they seem to be poorer for it.

So listen to the podcast and in the comments section to that podcast, try to resolve the paradox of how an honest man can benefit others by leaving them with less than they had before.

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