The On-Chained Economy

27 Mar 2020 by rate3

While the world remains in stand still and most of us - under the house arrest, the future becomes fuzzier and fuzzier. Faced by that uncertainty I've decided to diversify my usual reading diet consisting mostly from DLT white papers by adding to it some new spicy ingredients.

The focus of today's review is "Hustling: The "Inside" Economy of a Prison" paper dated back to 1975 (nineteen-seventy-five) and authored by Sandra E. Gleason (Assistant Professor of Economics of University of Michigan-Dearborn).

It studies "illegitimate economic activities or "hustles" occurring inside the State Prison of Southern Michigan". This paper analyses different factors influencing supply / demand curve for a special type of oligopolistic micro-markets, formed by group of about 3200 men which "receive a small monthly stipend" supplemented by "other legitimate income sources, such as gifts and government transfer payments".

However, most people belonging to this consumers group, naturally, find it "inadequate for their desired consumption and develop hustling activities to acquire income, goods, and services which would otherwise be unavailable to them".

They use three main channels to satisfy this demand: the prison store, inside purchases (financed by by a check written against a man's account) and products send inside as gifts.

There are, basically, four main category of goods and services available on this microscopic market space: entertainments (in a wider sense), food, personal items (cloths, hygiene products etc) and various crafts.

At the same time, the sources of legitimate income are limited as well, while only 600 men were employed in the Michigan State Industries. That depresses prices on this micro market. However, because production costs are also very low (compare to out-of-the-wall environment) the profit margin exceeds 100% - 300% for some categories of goods. In the "entertainment sector" it might gets even higher.

However, the entry barrier on this market is very high. "A hustler must have access to goods and services demanded by other inmates and/or access to working capital. For example, a hustle in raw or cooked steaks, yeast, and milk requires employment in a kitchen ... "

Citing: "The working capital needed for hustling consists of one of the four media of exchange: cigarettes, green (Federal Reserve notes), scripts representing transfers between men's accounts. The most commonly used media of exchange are cigarettes and green."

On this types of markets those participants, who have managed to establish long-term relationships with authorities or have a substantial initial capital, will be the only actors and disproportionate beneficiary. All of the rest forms a group of consumers, which present a limited but relatively stable demand on a few categories of low cost - low quality (because of the absence of competition) products and services.

Obviously, I do not want to draw a direct parallel between State Prison of Southern Michigan and the whole Santa Clara County :) However, I found it very educational to witness first hand as more than 5 million people have simultaneously and wholeheartedly embraced the regime, which even several weeks ago had been absolutely unthinkable for most of them. Of course, the fear is a very strong motivator, indeed.