Page 1 of 2 12 LastLast
Results 1 to 30 of 47

Thread: Economics Of The Black Market

  1. #1

    Economics Of The Black Market

    ...I was thinking about this in relation to BTC and decided to make a thread, since it has broader implications (e.g. re anarcho-capitalism).

    I. The Costs Of Doing Business In The Black Market Are Extremely High.


    (1) Since the state will not enforce contracts for illegal goods/services, black market actors either have to forgo contracts (severely limiting their activities) or take on the risks and costs of enforcing their own contracts (e.g. by hiring goons or putting themselves under the umbrella of a larger criminal organization).

    (2) Since black market actors cannot make use of the police or courts, at least in matters related to their illegal activities, they are more vulnerable to violence from other black market participants (e.g. from competing producers), and have to bear the costs of their own defense (once again, by either hiring their own goons or putting themselves under the umbrella of a larger criminal organization).

    II. The Black Market Is Not A Free Market.

    As explained above, black market actors must rely on their own resources to both enforce contracts and defend themselves from violence by other black market participants, since they have no recourse in the state's law enforcement system (they are effectively ostracized). Those who cannot afford to hire their own goons end up under the aegis of larger criminal organizations (which formed precisely to meet the demand [their own] for enforcement). These criminal organizations heavily regulate their corners of the black market: e.g. by enforcing territorial monopolies ("turf") regarding the sale of illegal goods/services and by collecting de facto taxes ("protection money") from those operating under their aegis. The state is absent from the black market, but aggressive interference with the market remains.

    III. Hence, No One Chooses To Operate In The Black Market, Unless...

    (1) Their business is altogether illegal (e.g. drugs, certain types of guns, prostitution), such that they have no choice,

    or, (2) The costs of doing business in the white market are even higher (e.g. Venezuela).



  2. Remove this section of ads by registering.
  3. #2
    The reality is the market chooses a state over anarchy. Having a state to settle disputes increases trust and lowers transaction costs.

    Online poker is a good example to see black markets in action. Most sites that operate in the US have switched to Bitcoin as there primary way to process transactions. They are a black market and Bitcoin is a work around. But the market would choose regulated sites with no Bitcoin in a heart beat if that were an option. Nobody would play on the unaccountable Bitcoin site that operates in Central America if they didn't have to. Sites that are unaccountable to governments increase transaction costs dramatically because every so often someone is going to run off with your money and there is no way to sue.

  4. #3
    Quote Originally Posted by Krugminator2 View Post
    The reality is the market chooses a state over anarchy. Having a state to settle disputes increases trust and lowers transaction costs.

    Online poker is a good example to see black markets in action. Most sites that operate in the US have switched to Bitcoin as there primary way to process transactions. They are a black market and Bitcoin is a work around. But the market would choose regulated sites with no Bitcoin in a heart beat if that were an option. Nobody would play on the unaccountable Bitcoin site that operates in Central America if they didn't have to. Sites that are unaccountable to governments increase transaction costs dramatically because every so often someone is going to run off with your money and there is no way to sue.
    Exactly. Since black markets aren't free markets, and organized crime outfits are state-like (or actual states in some cases, where the recognized state has failed), you could say that businesses prefer the white market to the black market in the same way that they prefer Singapore to Indonesia or Switzerland to France.

  5. #4
    Perfectly demonstrated.

    Let's see if the Anarchists even try to respond to this thread.



    I double dare you......................
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  6. #5
    Even if all of the OP is true, I don't have any idea what it has to do with anarchy. Black markets don't exist without government actions creating them. The government drives up the price of these products or services, creating the profit margin to cover these "high expenses", and also government laws restrict competition from entering and having a free market in the black market. I'm sure a lot more people would enter the illegal drug business if they didn't have to worry about being killed or caged for doing it.

    But it was a good effort. You'll prove that an alternative to the state is impossible sooner or later. I can feel it.

  7. #6
    Quote Originally Posted by The Gold Standard View Post
    Even if all of the OP is true, I don't have any idea what it has to do with anarchy. Black markets don't exist without government actions creating them. The government drives up the price of these products or services, creating the profit margin to cover these "high expenses", and also government laws restrict competition from entering and having a free market in the black market. I'm sure a lot more people would enter the illegal drug business if they didn't have to worry about being killed or caged for doing it.

    But it was a good effort. You'll prove that an alternative to the state is impossible sooner or later. I can feel it.
    Anarchists constantly point to the black market as a true "free market", and you completely ignored the point that people prefer the "white market" so long as the state is not more burdensome than the difficulties of the black market or tribal warfare.
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  8. #7
    Quote Originally Posted by Swordsmyth View Post
    Anarchists constantly point to the black market as a true "free market", and you completely ignored the point that people prefer the "white market" so long as the state is not more burdensome than the difficulties of the black market or tribal warfare.
    I don't know or care what "anarchists constantly point to." The black market, as described here, is a product of state actions. Of course people prefer the "white market". There are a lot more armed government agents out there looking to kill you than there are gangsters guarding their drug turf.

  9. #8
    Quote Originally Posted by The Gold Standard View Post
    Black markets don't exist without government actions creating them.
    Black markets exist when people cannot rely on a state's security apparatus to enforce contracts and deter crime; when they have do it themselves instead. When a state exists, the black market is the space on the fringes of state authority. When a state does not exist, everyplace is a black market. The problems I outlined (heavy costs, criminal organizations interfering with the market) will apply everywhere in a stateless society, not just in the drug business et al as they do now.



  10. Remove this section of ads by registering.
  11. #9
    Quote Originally Posted by r3volution 3.0 View Post
    Black markets exist when people cannot rely on a state's security apparatus to enforce contracts and deter crime; when they have do it themselves instead. When a state exists, the black market is the space on the fringes of state authority. When a state does not exist, everyplace is a black market. The problems I outlined (heavy costs, criminal organizations interfering with the market) will apply everywhere in a stateless society, not just in the drug business et al as they do now.
    As long as you declare it, that will make it so.

  12. #10
    Quote Originally Posted by The Gold Standard View Post
    As long as you declare it, that will make it so.
    It's so for the reasons explained, on which I'll go ahead and elaborate, since you have nothing to say.

    There's a black market for heroin (for instance) because the state outlawed it. However, the reason that the black market for heroin is the way it is (not a free market, highly regulated by gangs, etc) has nothing to do with the state. That black market is that way because of the absence of the state - the fact that the heroin market actors have no recourse to the legal system, and have to construct their own mechanisms for resolving disputes (which isn't peaceful and NAP-abiding, needless to say).

    Q. Haven't anarcho-capitalists proposed ostracism (denial of access to the ancap legal system) as a punishment?

    Why would that be a punishment?

    Why might the black market in which those outcasts would have to operate not be a nice place?

    ...and state's gone in this scenario, of course, so it can't be the state's fault.

  13. #11
    Quote Originally Posted by r3volution 3.0 View Post
    It's so for the reasons explained, on which I'll go ahead and elaborate, since you have nothing to say.

    There's a black market for heroin (for instance) because the state outlawed it. However, the reason that the black market for heroin is the way it is (not a free market, highly regulated by gangs, etc) has nothing to do with the state. That black market is that way because of the absence of the state - the fact that the heroin market actors have no recourse to the legal system, and have to construct their own mechanisms for resolving disputes (which isn't peaceful and NAP-abiding, needless to say).

    Q. Haven't anarcho-capitalists proposed ostracism (denial of access to the ancap legal system) as a punishment?

    Why would that be a punishment?

    Why might the black market in which those outcasts would have to operate not be a nice place?

    ...and state's gone in this scenario, of course, so it can't be the state's fault.
    You are arguing from inside a cardboard box and deny anything exists outside it. If you believe all black market transactions are enforced with violence, then you are naive.
    All modern revolutions have ended in a reinforcement of the power of the State.
    -Albert Camus

  14. #12
    Quote Originally Posted by otherone View Post
    You are arguing from inside a cardboard box and deny anything exists outside it.
    Yup, that's me...(whatever it might mean)

    If you believe all black market transactions are enforced with violence, then you are naive.
    I don't and didn't say I did.

  15. #13
    Quote Originally Posted by r3volution 3.0 View Post
    Yup, that's me...(whatever it might mean)



    I don't and didn't say I did.
    I'll simplify it for you.
    I have a neighbor who sells pot. There is a constant stream of people going in and out of his house. He supports himself that way. They hand him money. He hands them weed. Like buying a stick of chewing gum. The black market. No state required.
    I could, hypothetically, have a neighbor who makes and sells cupcakes. Legal product, through an unregistered entity. The gray market. They hand him money, he hands them cupcakes. No state required. Both the black and gray market can not turn to the state to enforce contracts. It's been speculated there are 3 "illegal" businesses for every registered enterprise in the US. The necessity of the state as arbiter of the market is not demonstrated by market forces.
    All modern revolutions have ended in a reinforcement of the power of the State.
    -Albert Camus

  16. #14
    Quote Originally Posted by otherone View Post
    I'll simplify it for you.
    I have a neighbor who sells pot. There is a constant stream of people going in and out of his house. He supports himself that way. They hand him money. He hands them weed. Like buying a stick of chewing gum. The black market. No state required.
    I could, hypothetically, have a neighbor who makes and sells cupcakes. Legal product, through an unregistered entity. The gray market. They hand him money, he hands them cupcakes. No state required. Both the black and gray market can not turn to the state to enforce contracts. It's been speculated there are 3 "illegal" businesses for every registered enterprise in the US. The necessity of the state as arbiter of the market is not demonstrated by market forces.
    If someone robs him of his pot and beats the hell out of him (say, in a move to corner the local pot market), what is his recourse?

  17. #15
    Quote Originally Posted by r3volution 3.0 View Post
    If someone robs him of his pot and beats the hell out of him (say, in a move to corner the local pot market), what is his recourse?
    Why is a pot dealer not allowed to defend himself? You own a firearm, Rev? What would you do if you were assaulted? Call the cops?
    All modern revolutions have ended in a reinforcement of the power of the State.
    -Albert Camus

  18. #16
    Quote Originally Posted by otherone View Post
    Why is a pot dealer not allowed to defend himself?
    I didn't say he wasn't "allowed" to defend himself.

    I'm asking you what happens if someone robbed him and beat him up - i.e. this already occurred, he failed to defend himself, didn't work.

    What does he do now?



  19. Remove this section of ads by registering.
  20. #17
    Quote Originally Posted by r3volution 3.0 View Post
    I didn't say he wasn't "allowed" to defend himself.

    I'm asking you what happens if someone robbed him and beat him up - i.e. this already occurred, he failed to defend himself, didn't work.

    What does he do now?
    What would you do?

    EDIT:
    Your question has nothing to do with "contract enforcement". You are referring to competitive business practice. In your example, my neighbor would have to decide whether the reward was worth the risk. You may have asked, "What does the little local hardware store do when Home Depot moves in down the block?"
    Last edited by otherone; 12-09-2017 at 07:46 PM.
    All modern revolutions have ended in a reinforcement of the power of the State.
    -Albert Camus

  21. #18
    Quote Originally Posted by otherone View Post
    What would you do?
    Stop evading the issue.

    Answer the question.

    EDIT:

    EDIT:
    Your question has nothing to do with "contract enforcement".
    That may be because that's a different thread...

    You are referring to competitive business practice. In your example, my neighbor would have to decide whether the reward was worth the risk.
    Right, and what that means in practice is that the weak producers are put out of business by the strong, or at least put into a subservient relation to them (they get "taxed," have to buy their product from them, etc): aka not a free market.

    You may have asked, "What does the little local hardware store do when Home Depot moves in down the block?"
    If it's less efficient, it goes out of business, and that's good.

    One business driving out another through market competition =/= One business using violence to force another out.

    ...What is, something you should never have to explain on a libertarian forum?
    Last edited by r3volution 3.0; 12-09-2017 at 07:55 PM.

  22. #19
    Quote Originally Posted by r3volution 3.0 View Post
    Stop evading the issue.

    Answer the question.
    I don't know what he'd do. I'll ask him next time a see him.
    All modern revolutions have ended in a reinforcement of the power of the State.
    -Albert Camus

  23. #20
    Quote Originally Posted by otherone View Post
    I don't know what he'd do. I'll ask him next time a see him.
    See above, I responded to your edit.

  24. #21
    Quote Originally Posted by r3volution 3.0 View Post
    Stop evading the issue.

    Answer the question.

    EDIT:



    That may be because that's a different thread...



    Right, and what that means in practice is that the weak producers are put out of business by the strong, or at least put into a subservient relation to them (they get "taxed," have to buy their product from them, etc): aka not a free market.



    If it's less efficient, it goes out of business, and that's good.

    One business driving out another through market competition =/= One business using violence to force another out.

    ...What is, something you should never have to explain on a libertarian forum?
    You certainly are adept at muddying the water. Your OP :
    (1) Since the state will not enforce contracts for illegal goods/services, black market actors either have to forgo contracts (severely limiting their activities) or take on the risks and costs of enforcing their own contracts (e.g. by hiring goons or putting themselves under the umbrella of a larger criminal organization).
    II. The Black Market Is Not A Free Market.

    As explained above, black market actors must rely on their own resources to both enforce contracts and defend themselves from violence by other black market participants, since they have no recourse in the state's law enforcement system (they are effectively ostracized).
    What would happen if these "black market" goods and services were made legal?
    All modern revolutions have ended in a reinforcement of the power of the State.
    -Albert Camus

  25. #22
    Quote Originally Posted by otherone View Post
    You certainly are adept at muddying the water. Your OP :
    It would be really great if you actually responded to something I said.

    What would happen if these "black market" goods and services were made legal?
    There would cease to be a black market obviously.

    But if then the state were abolished, we'd be back to the situation described, except it would be universal, not just for drugs and so forth.

  26. #23
    Just so everyone is clear , all of this whining will not be enough for me to lower prices .

  27. #24
    Quote Originally Posted by r3volution 3.0 View Post
    or, (2) The costs of doing business in the white market are even higher (e.g. Venezuela).
    ^This. Bitcoin is a creature of the fiat monetary system, that is, no one would have built/used Bitcoin had they not felt the need to escape the outrageous devaluation and stifling regulation of the fiat monetary system. The fiat monetary spokespeople keep informing us that "inflation is quite low" but our wallets say otherwise. In short, the establishment and its money-printing bankers are lying about the costs of doing business in the economic funhouse they've built for themselves and their buddies - for outsiders, the costs are prohibitive.



  28. Remove this section of ads by registering.
  29. #25
    Quote Originally Posted by ClaytonB View Post
    Quote Originally Posted by r3volution 3.0
    or, (2) The costs of doing business in the white market are even higher (e.g. Venezuela).
    ^This. Bitcoin is a creature of the fiat monetary system, that is, no one would have built/used Bitcoin had they not felt the need to escape the outrageous devaluation and stifling regulation of the fiat monetary system. The fiat monetary spokespeople keep informing us that "inflation is quite low" but our wallets say otherwise. In short, the establishment and its money-printing bankers are lying about the costs of doing business in the economic funhouse they've built for themselves and their buddies - for outsiders, the costs are prohibitive.
    Right, but that's not even close to being the situation now (outside of places like Venezuela). If the US gets to that point, then sure, maybe BTC will seriously rival the USD. But that's not much to hang your hat on. It's almost like saying "if the dollar collapses, BTC might take its place." That's very different from the idea that BTC will itself undermine the USD, without some great external upheaval to help it along.

  30. #26
    Quote Originally Posted by r3volution 3.0 View Post
    It would be really great if you actually responded to something I said.



    There would cease to be a black market obviously.

    But if then the state were abolished, we'd be back to the situation described, except it would be universal, not just for drugs and so forth.
    That is an unsubstantiated claim that has nothing to do with the black market. The black market is a product of the state.
    All modern revolutions have ended in a reinforcement of the power of the State.
    -Albert Camus

  31. #27
    Quote Originally Posted by otherone View Post
    That is an unsubstantiated claim that has nothing to do with the black market.
    Only if you ignore everything I've said so far, which you have, so well done.

  32. #28
    Quote Originally Posted by r3volution 3.0 View Post
    Only if you ignore everything I've said so far, which you have, so well done.

    Nope. I understand your argument.
    You claim a condition that can only exist in the presence of the state would exist in the absence of the state.
    All modern revolutions have ended in a reinforcement of the power of the State.
    -Albert Camus

  33. #29
    Quote Originally Posted by otherone View Post
    Nope. I understand your argument.
    You claim a condition that can only exist in the presence of the state would exist in the absence of the state.
    I've seen no indication that you understand what I'm saying, since you don't respond to what I'm saying.

    Here's a post of mine to which your response was "You're certainly adept at muddying the water."

    I'll try one (1) more time to elicit a serious response from you, then I'm joining Occam in the smoking lounge.

    Quote Originally Posted by Me
    Quote Originally Posted by You
    You are referring to competitive business practice. In your example, my neighbor would have to decide whether the reward was worth the risk.
    Right, and what that means in practice is that the weak producers are put out of business by the strong, or at least put into a subservient relation to them (they get "taxed," have to buy their product from them, etc): aka not a free market.
    Any response?

    Quote Originally Posted by Me
    Quote Originally Posted by You
    You may have asked, "What does the little local hardware store do when Home Depot moves in down the block?"
    If it's less efficient, it goes out of business, and that's good.

    One business driving out another through market competition =/= One business using violence to force another out.

    ...What is, something you should never have to explain on a libertarian forum?
    Any response?

  34. #30
    Quote Originally Posted by r3volution 3.0 View Post
    ...I was thinking about this in relation to BTC and decided to make a thread, since it has broader implications (e.g. re anarcho-capitalism).

    . The Costs Of Doing Business In The Black Market Are Extremely High.
    no the risks of doing business in black market are high
    the costs of doing business in black market are low because SWIM is sidestepping taxed channels thereby magnifying margins

    (1) Since the state will not enforce contracts for illegal goods/services, black market actors either have to forgo contracts (severely limiting their activities) or take on the risks and costs of enforcing their own contracts (e.g. by hiring goons or putting themselves under the umbrella of a larger criminal organization).
    In the absence of state enforcement one should mitigate risks by dealing with trusted parties, having clear terms, not talking clients into more than you suspect they can afford, and using collateral wherever prudent. Strong arm violence is not the typical way of most black markets in the absence of "state enforcement"; most thriving black markets are built on trust networks.



    (2) Since black market actors cannot make use of the police or courts, at least in matters related to their illegal activities, they are more vulnerable to violence from other black market participants (e.g. from competing producers), and have to bear the costs of their own defense (once again, by either hiring their own goons or putting themselves under the umbrella of a larger criminal organization).
    Most black markets have very little violence. How much illegalized home improvement is contracted every year in the US without anyone getting shot?


    II. The Black Market Is Not A Free Market.

    As explained above, black market actors must rely on their own resources to both enforce contracts and defend themselves from violence by other black market participants, since they have no recourse in the state's law enforcement system (they are effectively ostracized). Those who cannot afford to hire their own goons end up under the aegis of larger criminal organizations (which formed precisely to meet the demand [their own] for enforcement). These criminal organizations heavily regulate their corners of the black market: e.g. by enforcing territorial monopolies ("turf") regarding the sale of illegal goods/services and by collecting de facto taxes ("protection money") from those operating under their aegis.
    but you're not describing a black market you're describing a mafia... which is a state

    The state is absent from the black market, but aggressive interference with the market remains.
    when you see the state as a criminal organization... then another criminal organization takes over... of course there is still no free market. your point?




    III. Hence, No One Chooses To Operate In The Black Market, Unless...

    (1) Their business is altogether illegal (e.g. drugs, certain types of guns, prostitution), such that they have no choice,

    or, (2) The costs of doing business in the white market are even higher (e.g. Venezuela).


    Every time you pay cash and suspect the other guy isn't paying taxes on the transaction... you're in the black market.

    'We endorse the idea of voluntarism; self-responsibility: Family, friends, and churches to solve problems, rather than saying that some monolithic government is going to make you take care of yourself and be a better person. It's a preposterous notion: It never worked, it never will. The government can't make you a better person; it can't make you follow good habits.' - Ron Paul 1988

    Awareness is the Root of Liberation Revolution is Action upon Revelation

    'Resistance and Disobedience in Economic Activity is the Most Moral Human Action Possible' - SEK3

    Flectere si nequeo superos, Acheronta movebo.

    ...the familiar ritual of institutional self-absolution...
    ...for protecting them, by mock trial, from punishment...


Page 1 of 2 12 LastLast


Similar Threads

  1. Replies: 5
    Last Post: 12-11-2013, 12:02 PM
  2. Free Market Economics Department
    By anaconda in forum Economy & Markets
    Replies: 4
    Last Post: 06-30-2012, 03:22 PM
  3. Replies: 9
    Last Post: 03-04-2010, 02:28 PM
  4. Spreading free market economics on Yahoo Answers
    By sam9657 in forum Economy & Markets
    Replies: 3
    Last Post: 01-23-2009, 11:47 AM
  5. Free Market economics & Wealth distribution
    By coplinger in forum U.S. Political News
    Replies: 14
    Last Post: 06-30-2007, 09:23 AM

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •