Prison, jail, penitentiary are all the same things. They are meant for the mental reform of a person convicted of criminal activities. However, sometimes they can even enhance the business acumen of a person. They are supposed to have very limited trade and economic activity. In such a world, the only way one could earn is through working official chores assigned by the prison and the only place to spend is the official commissary, or a canteen, extant in the jail premises. However, more often than not, the prisoners trade informally themselves. Goods are smuggled in and a variety of services are offered by the prisoners with skills. Such an informal or underground economy is a common sight in prisons, especially in prisons with people serving quite longer sentences. This article is an attempt to explain why informal economies spring up and how they are operated.

There are many reasons why an informal economy springs up. Often the demand of the prisoners is not satisfied by the officials or the prison canteen. An exhaustive list of things that are trivial to the ‘free people’ and are taken for granted are luxuries for the prisoners and hence, have put a huge value on the. Such small things, like a blanket or warm and delicious food, are difficult to get hold of. The only way they can get the items is through illicit means. Second, although there is a canteen present in prison, it is practically the only shop and exercises monopoly power. This results, often, in the sale of goods for a premium on their original price. Many prisons prohibit prisoners from carrying cash with a concern that they would bribe the guards to get their way. Instead, each prisoner is assigned a card; into which they can load money and use it to make purchases. These cards can be loaded either by funds sent in for them by someone and/or the earnings of the prisoners.

As mentioned above the only legal ways to earn money is to do the work allotted by the prison officials. However, the wages offered in the prison are diminutive, even below the statutory minimum in many countries. For instance, the average wage in the federal prisons in the US is 31 cents per hour, way below the minimum requirement of $7.25 per hour. The Indian prisons compete with their US counterparts in this aspect. The average amount of wage paid is approximately ₹48 per day (the actual wage varies from state to state, as prisons fall under the state list), which is one-fourth of the prescribed minimum wage in the country. This clearly points out the enormous gap between the wages and the prices in a prison. Even if the goods were to be sold at the Maximum Retail Price, it would not be possible for the prisoners to afford it. It is also the case that the quality of food is abysmal and sometimes becomes quite hard to eat. This is another reason for the existence of an economy where it is not supposed to exist.

Therefore one thing is clear: there is a demand for goods and services (smuggling in drugs can also be categorised as a service!) in prison. This demand creates opportunities for prisoners to make money. The cost of a good mainly depends on the risk it takes to smuggle in the good. The stronger the security, costlier the good is. Supply of a good can come from two sources: either the prisoners get in the good through their external contact or pay the prison guards to bring the good. In his famous book, Extreme Economies, Richard Davies quotes an ex-convict who served time in the Louisiana State penitentiary saying “…these [guards] are young and uneducated, they can triple their wages by bringing these things in.” This is mostly true for guards serving in other prisons as well because often the salary paid to these guards is often very low. For this reason, often, the guards are also willing to smuggle in the goods for prisoners. Therefore, the trading prisoners strike a deal with the guards and pay them commissions. Now that we have seen how the supply and demand are satisfied, we need to look at what is the medium of exchange. As cash is prohibited, prisoners come up with innovative ideas to solve their problems.

One can find the most popular medium of exchange for the most part of history has been ‘cigarettes’. Apart from cigarettes shower gel capsules, rosary beads, cigarette paper, etc. have also been used in UK prisons. In the US, after cigarettes, the most popular exchange mediums were postage stamps. Notice all the above items perfectly satisfy all the properties of a currency: store of value, a medium of exchange, and a measure of value. In recent times, however, a popular ‘currency’ emerged in the US: ‘mackerel’ (a type of packaged fish). The validity of a currency depends on the convention that ‘everyone values the currency because they expect everyone else to value it.’ This is exactly what happened with mackerel. While such an exchange was perfectly possible among the prisoners, convincing a guard to take it is hard; as they would only accept cash as payment. Richard Davies explains how the prisoners of Louisiana prison overcame this conundrum (this is also what happens across most of the US prisons): prepaid cards. Using a debit or credit card, one could purchase these prepaid cards (which have an upper limit of $500) basically anywhere. All you need to do is tell the beneficiary the 14-digit number that is behind the card and they could redeem it. So, the buyer and the beneficiary need not even know each other and the transaction happens. Moreover, the fact that no proof or ID is required to buy these cards means that it leaves no digital trail.

The prisoners also engage in these activities because it provides a sense of identity and purpose to the prisoners. They find their lost dignity, in the society, by working and proving useful to their fellow prisoners. Also, the scarcity of the basic goods and, sometimes, prohibited goods means that they can be traded for huge sums. Prisoners that come from families with a relatively lower standard of living support their families with the income earned by engaging in the informal trade inside the prison. There are also success stories where people, after leaving prison, started their own businesses using the skills acquired during their time in prison. It is also important to take note of the fact that people can put their skills into negative use, say, by engaging in smuggling of drugs. Therefore, the solution to this informal arrangement, if one were to find such an economy harmful, is to recognise the fact the prisoners are people with unsatisfied needs, tastes, and demands; increase the wages substantially, to treat them like normal humans and to let them retain their sense of dignity.