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Please Don’t Let This Become The Norm, Ramen Edition…

August 23rd, 2016 · 1 Comment
Econ 101 · Macroeconomics

So the internet seems pretty much obsessed with this story right about now…

Ramen is displacing tobacco as most popular US prison currency, study finds
by Mazin Sidahmed

Cost-cutting measures by private facilities have led to subpar food quality and fewer meals, making noodles a commodity that trades well above its value

Source: The Guardian


The headline, taken at face value, isn’t particularly surprising to economists- we are quick to point out that a pretty wide variety of items can count as “money”, provided that they perform a few functions:

  • A medium of exchange
  • A unit of account
  • A store of value

By this characterization, sure, ramen could serve as money- I guess ramen packs aren’t so large as to be too cumbersome to be traded, you could quote “prices” of other items in terms of packs of ramen (and measure your wealth in packs of ramen, I suppose, though that sounds a little sad), and ramen isn’t particularly perishable so it could make a decent store of value. If you think about it, basically any non-perishable commodity could be used as money in this way, it’s just a matter of changing your “base currency” to the good in question. For example, let’s say that the “price” of a pack of cigarettes is 3 packs of ramen- this means that 3 packs of ramen can be traded for one pack of cigarettes. (Note that prices are really just terms of trade.) I could have just as easily quoted the price of a pack of ramen as 1/3 of a pack of cigarettes- nothing has changed except I’m in an universe where the cigarettes are the base currency, i.e. money. (This framing shift happens all the time in foreign exchange, since a nominal exchange rate is just the price of one currency in terms of another currency.) I used this example because, historically speaking, cigarettes are commonly used as currency in prison situations, as the article points out.

When economists talk about money, we are careful to distinguish between commodity money- i.e. money with intrinsic value- and fiat money, which isn’t useful in and of itself. Clearly, ramen falls under the heading of commodity money, since, if you are anything like me, you get utility from eating ramen. (Technically I am referring to the restaurant version, but just go with me here.) Interestingly, it’s precisely this feature that causes me to question a. whether ramen is actually being used as money is typically used, and b. whether, if true, such use would even be a good idea.

The article above states that “the decline in quality and quantity of food available in prisons due to cost-cutting has made ramen noodles a valuable commodity.” I completely buy this statement, but “valuable commodity” and “money” are not synonymous. The article does go on to mention that ramen does often get traded for other goods and services, and the “prices” imply that there is some sort of arbitrage opportunity for those who can acquire ramen at the commissary price of 59 cents and then trade for other goods rather than acquire the other goods directly. The “money” argument kind of breaks down, however, when the article clarifies that people do in fact want to eat the ramen- I suppose you can technically eat a dollar bill if you wanted to, and you see situations where people use pennies decoratively rather than as a medium of exchange, but it seems like the opportunity cost of forgone consumption is pretty low when it comes to traditional currency, and you don’t see a lot of traditional currency being diverted for consumption purposes. Ramen, on the other hand, has a high opportunity cost of forgone consumption, literally speaking…and a prisoner decreases the the money supply every time he or she gets hungry! I’m not convinced that that is how money is supposed to work- just imagine the hunger-related swings in interest rates that could result. (At least when money is used to buy food, the food gets consumed whereas the money just gets transferred.) Even if the prison economy isn’t sophisticated enough to support a market for loans, eating the ramen currency is going to result in deflation, since there’s going to be less ramen currency to go around to conduct other economic transactions. (In other words, ramen purchasing power will increase because there is less of it available for purposes of exchange.) This isn’t great, since stable prices are thought to be a desirable feature in an economy.

I do think that there’s an important metaphor here- the above discussion suggests that sure, ramen can technically function as money, but the fact that it’s useful in itself causes it to function suboptimally as money in a number of ways. More generally, using an item as money either takes that item out of consideration as a useful resource or causes undesirable money supply/price stability effects (or some combination of the two). In this way, fiat money is pretty efficient in that it minimizes the productive stuff diverted to count as money (mainly some fancy paper, zinc, etc. Hey, it’s not a perfect system.). By similar logic, it’s not surprising that gold was a popular form of commodity money, since the uses for gold (electronics, jewelry, tooth caps. etc.) are actually pretty limited compared to the amount of gold available in the world. (If this were not the case, we wouldn’t see so much of it in bar form.)

I guess what I’m saying is that I hope this ramen as currency thing doesn’t catch on as a larger trend, since I don’t want to have to feel as bad about eating ramen as I do about leaving dollar bills in jeans pockets when I do my laundry. (I was going to say that I didn’t want to have to decide between eating the ramen and buying stuff with it, but I suppose the tradeoff between consuming one good and consuming another exists even when money itself is not consumable.) Also, it’s thought that contractionary monetary policy can cause recessions, and I certainly don’t want my ramen consumption habits to be responsible for that.

tl;dr:

Update: The internet is a fantastic place, so now we’re discussing how the commissary could act as a ramen central bank and I am pondering the amount of seigniorage potential present in ramen minting. For now, I’m going to go in the kitchen and whip up some counterfeit ramen.

Tags: Econ 101 · Macroeconomics

1 response so far ↓

  • 1 J.D. Montgomery // Aug 24, 2016 at 9:43 am

    He’s left out one important characteristic of a commodity money: it must be finely divisible into parts with small prices that still have some money use–for example, it’s easier to deal in grains of tin metal than in whole refrigerators or tractors. If what I trade isn’t worth an entire tractor, you aren’t going to disassemble it so we can conduct trade in tractor parts that on their own would have no use.

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