On mackerel as currency

This article from the Wall Street Journal explains how, since the phase-out of cigarettes in prisons, pouches of mackerel have become the de facto currency.

I see a few problems with mackerel as a unit of currency. The most obvious, as discussed in the article, is that mackerel bulks a lot. It seems prisoners' lockers are starting to overflow with mackerel.

Another problem, I would think, would be inflation. According to the article, one of the reasons that prisoners like the mackerel as currency is that a pouch costs approximately one US dollar. Thus the currency is pegged against the greenback. But, as the article also mentions, nobody likes mackerel: "few - other than weightlifters craving protein - want to eat it." The result of this would be that over time, the supply of mackerel in a prison would increase, causing inflation. The Mack would come to be valued at a discount to the greenback.

However, this inflation would not continue indefinitely, and prisoners would not end up hauling around mackerel by wheelbarrows. Eventually, Macks would fall to a point where it would be more rational for an inmate to eat his mackerel than to store it for future use as currency. Also, whatever the real value of the Mack, its nominal value would remain $1. That is the price at which prisoners would still have to purchase new Macks from the prison canteen. The subsequent disincentive to buy new Macks would thus help to control the money supply.

The next logical step would be a move to the Mackerel Standard. An enterprising prisoner - presumably one who already has power and prestige within the prison system - could set himself up as a bank. He could take deposits, and issue scrip to the effect that this piece of paper was equivalent to X Macks. He could then put his mackerel to work, probably in some sort of loan-sharking business.

There are some problems with this. One is that the bank would then start to accumulate mackerel pouches. Even with re-lending the money, the profits - in the form of bulky mackerel - would be difficult to handle. The banker, after all, cannot deposit his massive amounts of mackerel in an underground vault, and is constantly at risk of having his mackerel confiscated. No doubt some of the profits would be put back into the economy - as payment for thugs, etc - and some would be re-lent. However the banker would then be vulnerable to runs on his bank, as he would be unable to keep a sufficient supply of mackerels available to cover a run.

The solution here would be for the banker to make an arrangement with the prison canteen. The banker could exchange his mackerels for cash at a discount, and the canteen officer could then re-sell the pouches back to the inmates, thus making a profit. In return, the canteen officer would guarantee to supply the banker with mackerel in the event of a run.

Thus the canteen officer would become a Reserve Bank, the problem of bulky piles of mackerel would disappear, and scrip in the form of paper Macks would supplant actual mackerel pouches as the prison's currency.

That's my thinking, anyway. Of course the article says that due to an increase in the cost of mackerel, the value of the Mack is surging against the dollar. So what would I know?

posted by Nicholas @ 4:34 PM