johnnymk

http://mises.org/story/3653

In anticipation of the coming inflation, more than a few folks are squirreling away gold coins, and, because of that demand, these coins are still selling at inflated premiums and the spot price of the yellow metal continues to hang stubbornly above $900 per ounce. But gold may not be the only thing to hoard.

Interestingly, when asked if there is anything else a person can store their savings in, globetrotting investor Doug Casey recently offered up an item that has historically been used as money — cigarettes. "Well, they keep raising the taxes on cigarettes — a pack now costs $10 in some places in the US, that's 50 cents per individual cigarette," Casey says.

If you're American and are going to be storing things, you probably can't go wrong building a stash of cigarettes. Even if you don't smoke — or perhaps especially if you don't smoke — every time you return to the US, you should buy the maximum amount of duty-free cigarettes allowed and store them.

Cigarettes, despite flunking the "durability" test, meet all the other criteria to make them a good monetary instrument. They are generally marketable, despite the constant attacks on their use as being unhealthy. Cigarettes are divisible, recognizable, (somewhat) homogeneous, and, due to the increased taxation, fairly stable in value and have a high value per unit weight. In fact, a 7-Eleven at the Jersey shore recently advertised selling cigarettes priced "at the state minimum."

Cigarettes are so valuable that they are being stolen by the truckload to be sold in high-tax states — like New Jersey, New York, and Washington. But individual counties also ladle taxes on each pack leading to smuggling within a single state with varying county tax rates, reports the Wall Street Journal. "It's a big business and it's getting horribly bigger," Paul Carey III, enforcement coordinator for the Northern Virginia Cigarette Tax Board, told the Wall Street Journal.

As in the case of counterfeiting, states don't take cigarette bootlegging lightly. Undercover agents for the New York State Department of Taxation and Finance arrested 18 people, including two 7-Eleven operators, for buying untaxed cigarettes. Smugglers are even willing to trade cocaine for cigarettes. "That tells you about the profit margin they saw on cigarettes," the ATF's Edgar Domenech told the Wall Street Journal.

R.A. Radford famously wrote in his November 1945 Economica article "The Economic Organization of a P.O.W. Camp,"

Most trading was for food against cigarettes or other foodstuffs, but cigarettes rose from the status of a normal commodity to that of currency.

Radford explained that each barracks had an "Exchange and Mart notice board" where sales and wants were posted. Over time all transactions were recorded in cigarettes with the price of smokes "tending to equality throughout the camp, although there were always opportunities for an astute trader to make a profit from arbitrage."

In his amazing account, Radford recognized that cigarettes preformed the functions of money nicely especially "as a measure of value and as a store of value." Some prisoners, as many kings had before, even "clipped or sweated [cigarettes] by rolling them between fingers so that tobacco fell out." With the currency value of all cigarettes the same, more popular cigarettes were saved or smoked, while poorer quality cigarettes were used for trading, just as Gresham's law would dictate.


When cigarette supplies were interrupted, the amount of currency declined, transactions dried up, and prices fell. But when a Red Cross shipment of several hundred thousand cigarettes arrived over a short period of time, "Prices soared, and then began to fall, slowly at first but with increasing rapidity as stocks ran out, until the next big delivery."

The Fed has essentially created the biggest shipment of currency ever, but the crippled banking system hasn't yet delivered it to our prison camp. When it arrives, it might be handy to have some spare smokes around to trade with.

Jeffbx

I don't smoke so I don't know if it's true, but don't cigarettes go bad after a while? I don't think it's something you can stash away for a few years & then resell...