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Free markets vs black markets and criminality

By Eddie Willers
web posted June 11, 2007

What economists call "black markets" result when government intervention makes it difficult or impossible for legal markets to supply a pressing demand for certain goods. The "black market" is a market that is very limited in scope, especially for large-sized goods. There is more scope for black market trades where commodities -- like cigarettes, candy, stockings, and drugs -- are easy to conceal. While a free market is conducted "out in the open" and "over the counter" (since it is not against the law), a black market takes place surreptitiously and with caution to avoid detection and arrest by the authorities. Black markets operate under the handicap of illegality. (For many decades hard-core socialism behind the Iron Curtain made regular markets illegal, so that the main experience people living there have had with markets is with black markets -- markets that are against the law and in which those caught participating are fined or punished.)

Black markets result from government intervention such as price controls (imposing an artificial price ceiling above which sellers may not legally sell and buyers may not legally buy) or outright prohibition (a legal ban) on a product.

In cases of outright legal prohibition of a product (as was the case with liquor in the 1920s or coccaine and marijuana today), if there is still ample effective demand for the product despite its prohibition, pressure develops for the establishment of the market illegally, i.e., as a "black" marekt. This outlaw market or "black" market presents problems due to its illegality: The supply of the product will be scarcer, and the price of the product will be higher to compensate the producers for the risk of violating the law (and the possibility of getting caught, fined, or imprisoned). The more the prohibition is enforced and the stricter the penalties for its violation, the scarcer the product and the higher the black market price will be. Also the illegality of such markets hinders the usual process of efficiently distributing information to consumers (by way of advertising) about the existence of the market. As a result, the market will be far less efficient, service to the consumers will decline in quality, and prices will be higher than under a legal market (for the same product). Also, the premium on secrecy in a black market works against large-scale business, which is likely to be more visible and therefore more vulnerable to law enforcement. The tremendous advantages to the consumers of efficient large-scale business organization are thus lost -- thus raising prices due to reduced supply.

The bulk of "organized crime" occurs (and has occurred) as attempts to circumvent government prohibitions in order to profit by satisfying the desires of consumers. Entrepreneurs and operators of this sort are called "black marketeers" or "racketeers" and are generally despised as ruthless low-life characters. Ironically, government prohibitionism may often amount to a grant of monopolistic privilege to the scuzzy black marketeers. They tend to be very different kinds of persons from those peaceful entrepreneurs and businessmen who would flourish in legal markets. This is because in the "black market" rewards go to those (i.e., criminal elements) with skill in bypassing the law, evading the notice of police, or in bribing government officials to look the other way. Under-the-table deals, bribery of officials, favoritism, etc. all tend to be features of black markets.

FBI statistics show that over two-thirds of all violent crime is related to illegal drugs -- people committing crimes to get money to pay high black-market prices for their "fixes' or pushers shooting it out with police, rival gangs, or their suppliers due to drug deals gone sour. If the American people understood the poltics and economics of black markets better, and if they really wanted to reduce violent crime significantly, they could put pressure on government officials to lift the ban on illegal drugs and allow fully legal markets to operate out in the open.

Whlle I strongly recommend against the vice of drug abuse and advise anyone and everyone to just say "no" to mind-distorting and addictive substances, I realize that there are many who will not heed my warnings and many who are already in a desperarte cycle of addiction and who will do almost anything, including resorting to crime, to get enough money to support their habit. Such people will be taken advantage of by criminals as long as the substances they want are banned by law. The current governmental ban on such substances effectively empowers the worst criminal elements in society. Lifting those drug prohibitions would tend to disempower the gangs by taking away their black market incentives. The price of drugs would fall dramatically as the supply would increase due to legalization/decriminalization. This would destroy the black market profits which now empower the gangs and thugs.

And, ending the "War on Drugs" would remove one of the main excuses used by corrupt government agents for confiscating private property for their own use. In the name of fighting the vice of drug abuse, Big Government has increasingly attacked our traditional American liberties of financial privacy and financial freedom. The so-called "forfeiture laws" are used in defiance of Americans' Fourth Amendment rights. People should demand a halt to this dangerous nonsense.

The opposite of a black market is a free market, a market not hampered by governmental restrictions and prohibitions. Ending black markets and permitting free markets in their place would not only slash violent crime, but would also predictably reduce police corruption by taking away the temptation now posed by big bribe money made possible by high black market drug profits.

Let's disempower the criminal gangs by ending Prohibitionism. It's time to\ return America to free-market private enterprise and personal responsibility again. ESR

Eddie Willers can be reached at ewillers@Laissez-FaireRepublic.com. (c) 2007 Eddie Willers.


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