H:\jeeer\jeeer vol 10 no 1 2009.wpd

THE EMERGENCE OF COMMODITY
MONEY ALONGSIDE A FUNCTIONING
FIAT MONEY
John B. White, United States Coast Guard Academy
ABSTRACT
This study describes an actual situation where local pharmacies buy and sell prescription drugs to each other using one drug, Prevacid™, as the “money” to fundthe transaction. The advantages of using Prevacid instead of the readily accepted fiatmoney (US dollars) in these transactions are noted. In addition, the emergence ofPrevacid™ as money is compared and contrasted to Radford’s commonly usedexample of cigarettes as money in prisoner of war camps during World War II. Thisstudy should serve as a useful example of the functions of money in introductoryeconomics classes, as well as to describe how and why commodity money comes intobeing. INTRODUCTION
Do you ever wonder how your pharmacy always (or nearly always) has the prescription medication you need when you need it? Grocery stores often findthemselves short of bread, or milk, or some item that is on your shopping list. Everyonehas experienced the frustration of going to the shoe store and finding the perfect shoe,only to discover that they do not have it in your size. How is it that pharmacies, withhundreds of drugs behind the counter, successfully manage to maintain an inventorythat supports a nearly perfect on time delivery record, when other businesses frequentlyfind themselves short of a particular item? Pharmacies in a small community in southeast Georgia (USA) enhance their chances of delivering the requested prescription drug by cooperating with one anotherin an exceptional manner. If one pharmacy finds itself short of a particular medicine,it calls a local competitor and asks if they have that particular item. If the requestedpharmacy finds itself short of another drug, a barter exchange is negotiated, enablingboth pharmacies deliver the product to their customers with unerring efficiency. Giventhe size of the community, all of the pharmacists know one another. They may have Journal of Economics and Economic Education Research, Volume 10, Number 1, 2009 The body of this manuscript is not reproduced in this posting. The full text of the manuscript is available through most university libraries. Should you have difficulty in finding the full text, you may acquire it from the original journal. Visit http://www.alliedacademies.org to find a link to the original journal source. ACKNOWEDGMENT
The author would like to acknowledge the invaluable assistance provided by Bryan PinckneyWhite, a student at the University of Georgia College of Pharmacy. His technical knowledge ofthe pharmaceutical industry and retail pharmacy made this paper possible.
REFERENCES
Bade, Robin & Michael Parkin (2007) Foundations of Macroeconomics, Boston: Addison Baumol, William J. & Alan S. Blinder (2009) Economics: Principles and Policy, 11th Edition, Mason, OH: SouthWestern Cengage Learning.
Friedman, Milton (1994) Money Mischief, Harvest Book, San Diego, CA: Harcourt Brace and Mankiw, N. Gregory (2009) Principles of Economics, 5th Edition, Mason, OH: SouthWestern Radford, R.A. (1945) “The Economic Organisation of a P.O.W. Camp,” Economica, 12(48), Senn, Peter (1951) “Cigarettes as Money,” The Journal of Finance, 6(3), 329-332 Journal of Economics and Economic Education Research, Volume 10, Number 1, 2009

Source: http://alliedacademies.org/Publications/Papers/JEEER%20Vol%2010%20No%201%202009%20p%20121-126.pdf