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Black Market
From Auburn University
A black market is a market in which certain goods or services are routinely traded in a
manner contrary to the laws or regulations of the government in power. Typical reasons why the
market goes underground in this way include: 1) the desire by substantial numbers of buyers and
sellers to evade restrictive government price controls or inconvenient rationing schemes, 2) to
avoid paying heavy taxes on the good or service in question, or 3) simply to be able to obtain
forbidden goods or services that the government does not want the people to have at all. The size
and relative importance of black markets vary greatly from one country to another and from one
historical period to the next within any single country. In general, the greater the extent to which
the government tries to dominate and control the economy, the larger the fraction of economic
activity that takes place through the black market can be expected to be. Partially offsetting this
tendency of more interventionist policies to spawn ever larger black markets, the size of the
black market in any given country at any given time also reflects the size and effectiveness of the
bureaucratic machinery the government mobilizes to catch people who violate its economic
regulations and the severity of the punishments that are routinely inflicted on those who get
caught. Thus it was surely no accident that the ultra-highly regulated economic institutions of
Nazi Germany, Soviet Russia, Eastern Europe and Communist China coexisted in symbiosis
with gigantic regulatory and secret police establishments, extensive informer networks, crowded
prison systems featuring thousands of slave labor camps, and frequent imposition of the death
penalty for so-called “economic crimes.” The Nazi regime was destroyed by World War II
before it was old enough to undergo any very extensive modifications, but it was surely no
accident that even the first very tentative and partial gestures by the various Communist regimes
to abolish or restrain many of their more extreme “police-state” practices during these last few
decades quickly resulted in an enormous expansion of black market activity, despite the fact that
these governments were also just beginning to loosen up their control of the economy at the same
time.
In the United States, government efforts to regulate and micro-manage the economy have
historically been much less extensive than in Communist or socialist countries. In fact, the
American commitment to the general ideal of “free enterprise” has typically been considerably
stronger than has been the case in virtually all of the more advanced industrialized Western
countries. Nevertheless, we can easily identify at least a few rather large examples of the black
market in the United States. First of all, the US government has typically been more ambitious
and aggressive in its attempts to regulate and control economic activities during times of
perceived national crisis (especially during wartime). World War II rationing and price controls
were accompanied by extensive black market activity involving illegal dealings in meat, sugar,
automobile parts, penicillin and other regulated commodities as well as widespread evasion of
rent controls. Even in relatively normal times, however, there are important areas of black
market activity in the US economy. First of all, and most clearly “criminal” in the eyes of the
general public, there is always a certain amount of illicit trade in stolen goods passed on directly
(or indirectly, through “fences”) from burglars, jewel thieves, cattle rustlers, hijackers,
shoplifters, light-fingered employees, and the like. In addition, black market trade remains very
widespread (and probably still is growing) in certain demerit goods which remain strongly in
demand, even though federal and/or state governments have sought to prohibit them entirely
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(narcotics and most other psychoactive recreational drugs, hard-core pornography, the services
of prostitutes, false i.d. cards, ozone-depleting Freon for automobile air conditioners, Cuban
cigars, the gall bladders of bears, products made from elephant tusks) or to monopolize the
product in government hands (running of lotteries-for-profit, fully automatic firearms) or to tax
them very heavily in a discriminatory fashion (moonshine whiskey, bootleg cigarettes). Heavy
rates of taxation on otherwise perfectly legitimate wages, salaries, and unincorporated small
business profits (currently a minimum federal tax take of 18% for income tax plus more than
15% for social security tax, even before beginning to tally up state and local income taxes and
license fees) provide strong incentives for illegal working “off the books” for cash to evade
taxes, at least in low capital or temporary service occupations where government detection is
unlikely and/or punishment would probably be mild (lawn care services, free-lance handymen,
automobile mechanics, household servants, baby-sitters, plumbers, electricians, part-time
beauticians, locksmiths, appliance repairmen, temporary day-laborers, computer consultants,
tutors, etc.). Putting even an approximate number on the full extent of black market activity in
the US (or in any country) is very hard to do and necessarily rather imprecise, but, for what it is
worth, economists who have made serious and systematic efforts at estimation claim that black
market activity probably amounts to at least 10% of US GNP. In many Third World countries
(which tend to put a tremendous number of detailed economic regulations on the books but have
only very inefficient bureaucratic capabilities for enforcing them), black market activity is
believed to produce well over half of GNP.
Black Market
Black Market is a term designating the illicit sale of commodities in violation of government rationing
and price-fixing. The term originated in Europe during World War I, when the introduction of rationing
in belligerent countries tempted some persons with access to supplies to enrich themselves by selling
unrestricted quantities of rationed items at inflated prices.
Black markets are phenomena of times of crisis. They flourish only when an abnormal scarcity of
essential goods may cause a government to impose rationing and price controls as a means of
ensuring a more equitable distribution of supplies. At such times certain consumers will pay
abnormally high prices to obtain the scarce items, and some profiteers are prepared to take legal and
other risks to obtain and sell these items at high prices. Black markets flourished throughout World
War II but disappeared after the war as soon as the production of civilian goods returned to normal
and government controls were lifted.
Illicit currency exchanges are also sometimes defined as black market operations. These black
markets develop when the official exchange value of a currency is fixed at a rate that does not reflect
its real exchange value. Such a situation is an incentive for holders of foreign currencies to engage in
extralegal currency exchanges rather than to use the less profitable exchanges at official rates.
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