Solredime

Why is it that illicit black market activities always seem so full of violence, even if violence itself is not one of the goods or services provided in that market? Let us take the example of drugs. Those drugs that are legal, such as paracetamol, antihistamines, etc., can be bought either over the counter, or with a simple prescription. At no point in the transaction between my chemist and myself does violence occur. Nor is there any violence involved in the manufacture or supply of pharmaceuticals. Is it then the nature of illegal drugs that makes business surrounding them violent, or is it their status as illegal?

This question can be answered using simple economic theory. When a State decrees an economic good illegal, it does not suddenly stop being traded and consumed. Why is that? In explaining the nature of a good, Carl Menger outlines four requirements that must be fulfilled for a thing to have goods-character: a human need; properties that enable the thing in question to satisfy such a need; knowledge of this causal connection; and sufficient command over the thing to direct it towards the satisfaction of said need. You will notice that no where does the factor of legality come into play.

The legal status of a good does however send signals to market actors about the risk involved. Most people will automatically cease consumption and trade of a good deemed illegal. These can be broken down into roughly three categories. Those that are risk aversive personality types; those who have a low time preference; and those with a highly developed link between state laws and their perception of morality.

Thus we are left with people who do not fear the State's power, people who are willing to take risks, people who, perhaps, are confident in their ability to violently resist the State's own violence. In this set of people, very few will enter black markets just for thrill-seeking purposes. Most will enter because of greed and the possibility of high profits that comes from restriction of supply in the market. It would seem that from the very beginning, a very restricted and specific set of people will participate in black markets.

Moreover, black markets fail to have many of the characteristics common to white markets. The State's monopoly on justice and simultaneous prohibition of certain goods, makes arbitration through State courts for inside disputes impossible. Thus a demand for the arbitrating function of many crime organisations arise, which, because of the violence-prone set of people that participate in it, will itself display a harsh and violent form of dispute resolution.

The need to stay secretive about their operations will also create incentives for criminal organisations to take on a form which is perhaps in some ways economically inefficient, sacrificing productivity for security. “Blood is bad for business”, the saying goes; but at the same time these black market “firms” become resilient, which is why when one cut's off the hydras' head, another immediately grows in its place. This is to be the perennial outcome if countless billions of taxpayers' money continues to be spent hacking away at the branches, and not the roots, of this artificial evil.

The biggest irony of them all is that the harder the government tries to eradicate black markets, the more it will fuel them. With every new restriction and regulation the government puts up; and with every greater effort it takes to enforce its regulations, the government raises the risk, and hence the profit associated with participation in a black market. To further complicate this problem, as profits in black markets soar, greater incentives arise for the corruption of the police itself. The results of such “noble” experiments could have been painlessly predicted using simple economics, and stupid policies would not have had the chance to create breeding grounds for organised crime for decades to come. One could perhaps excuse regulators' failure to use aprioristic reasoning in this respect, but the failure to see the empirical connection between drug regulations as a rehash of the prohibition era alcohol restrictions is indeed grave.

Ignoring the moral aspect of this argument, which concerns whether people have the right to do what they will to their own bodies; has anybody in the government done a proper cost-benefit analysis of breeding black markets in society? Proponents of prohibition argue that if, for example, drug markets were legalized, everybody would become a drug addict. But besides lack of any empirical proof of this whatsoever, what of the consequences of blacklisting these products in the first place?