Friday, October 3, 2008

The Mackerel Economy

What happens when people need a means of exchange and standard currency cannot be used? McArdle and Tabarrok give examples. The case of mackerel money in American federal prisons is especially interesting:

There's been a mackerel economy in federal prisons since about 2004, former inmates and some prison consultants say. That's when federal prisons prohibited smoking and, by default, the cigarette pack, which was the earlier gold standard.

Prisoners need a proxy for the dollar because they're not allowed to possess cash. Money they get from prison jobs (which pay a maximum of 40 cents an hour, according to the Federal Bureau of Prisons) or family members goes into commissary accounts that let them buy things such as food and toiletries. After the smokes disappeared, inmates turned to other items on the commissary menu to use as much of the federal prison system mackerel has become the currency of choice.

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