The day I went to prison I published an article Bitcoin for Prison. While I didn't get to read or see the article until someone mailed me a physical copy, I found out that my article had started a number of discussions and follow-on commentary.
During my stay at Lewisburg Federal Prison Camp I observed many economic theories put into effect by inmates and the prison administration, including Gresham's law, hyperinflation, currency exchange, and others.
There are two markets in prison, the "Administration Run Market" (ARM) and the "Inmate Run Market" (IRM).
For the ARM, family and friends can add money to your account through Western Union, MoneyGram, or mailing a check. These funds get added to your account fairly quickly and can be used almost immediately, however with a strict spending limit. You get 300 minutes of phone use per month for about $70, and email costs about $0.05 a minute and is only available at specific times to specific people. Once a week you can shop in the commissary with a $360 a month spending limit. Further, certain products have limits of how much you can buy, for example the Mackerel (described below). Alternatively, the IRM is where you can buy sandwiches, wraps, pizzas, Italian ices, hire a personal trainer, get a haircut, pay someone to clean your cube, repair a watch, even inmate run caterers for your birthday or going home party. Additionally there were inmate run 'stores' which sold commissary items at a markup since you could only commissary shop once a week.
The Mackerel (meaning literal packets of fish) is one of the competing currencies in the IRM. It has utility by being one of the best sources of protein on the compound. You can save it for a long time, the shelf life is a few years. The price is relatively the same across all prisons in the country, so even if you transfer prisons your property comes with you, including your Mackerel which is worth the same somewhere else. Unlike tunafish, chicken packets and protein bars, more people eat Mackerel. Those other food items can be used as currency as well, for example the guy who fixes your watch may only accept protein bars because he hates fish. There was even a form of digital currency being used, which I will discuss in another post.
Utility and medium of exchange give it some value but what about scarcity ? If there is a virtually unlimited amount of Mackerel in the IRM, just like the Federal Reserve printing money, there is no scarcity and hyperinflation can occure if it is debased.
Using a simple equation, 467 (Number of Inmates) * 14 (Maximum Quantity Allowed to Purchase Per Inmate) * 52 (weeks, assuming every inmate buys the maximum mount of Mackerel every week)
So if in 2015 we assume that the Supply and Velocity grows at the exact same rate with the Price Level and Transactions unchanging, the amount of Mackerel would essentially double on an even inflation rate. (This is assuming no one eats any Mackerel and none are taken out of circulation, which we know not to be true) This does not factor in the 3 year shelf life, where expired Mackerel becomes a secondary currency. I will discuss in my next post.
I like to believe that the value of money is determined also psychological factors, like a commodity and not only by mechanical or mathematical factors. In prison many of these psychological factors come into play.
Most people use Mackerel as a day-to-day currency for normal transactions, but for reasons I will explain in my next post, they are not the best long term store of value which is important for a currency. For longer term store of value, many inmates use stamps. Stamps have a set rate by the United States Postal Service and have similar characteristics as Mackerel aside for being edible. However, with the introduction of email on the compound many people stopped writing letters as email is cheaper and faster therefore reducing stamps ability to be a transactional currency as a majority of the inmates have no use for them. As a store of value they still hold weight because they are small and easy to store large amounts, while Mackerel is not.
The biggest value stamps have is that they can be mailed home and your family can redeem them for dollars as the local post office, but that feature can be stopped by better mail screening and overnight the stamp could lose its store of value utility.
In my next post I will discuss how currency exchangers work, what happens when the prison administration purposely floods the market, and how a secondary currency was created out of expired Mackerel called “Money Maks”