A Geek in Prison — Part 13 — MackerelCoin & My Socioeconomic Observations of Prison
A Geek in Prison is Bitcoin Pioneer Charlie Shrem’s account of his experience going from being a force for increasing adoption of Bitcoin before the world had heard of cryptocurrency to a 15-month stint in federal prison for selling it to the wrong people. In his excitement to spread the word about Bitcoin, Charlie fell afoul of the law and acknowledges that he committed the crime. He has since gone on to found Crypto.IQ, an educational and investment firm.
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, it came 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 on 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 hire inmate-run caterers for your birthday or going home party. Additionally, there were inmate-run “stores” that sold commissary items at a markup since you could only commissary shop once a week.
The Mackerel, a packet of fish, is one of the competing currencies in the IRM. It has utility because it is one of the best sources of protein on the compound. You can save it for a long time since 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 tuna fish, 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 the fact that it is a medium of exchange give Mackerel 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 occur if it is debased.
There is a simple equation for this: 467 (Number of Inmates) * 14 (Maximum Quantity Allowed to Purchase Per Inmate) * 52 (weeks, assuming every inmate buys the maximum amount of Mackerel every week) equals the maximum supply.
Soin 2015, we assume that the supply and velocity grow at the 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 that makes expired Mackerel a secondary currency. I will discuss that in my next post.
I like to believe that the value of money is determined also by 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 rate set by the United States Postal Service and have similar characteristics to Mackerel aside from being edible. However, with the introduction of email at the compound, many people stopped writing letters as email is cheaper and faster. This reduced 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 it’s easy to store large amounts. Mackerel is neither of these.
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.”