Black Markets Are Not Free Markets

By Jack Neison

As many understand, I am extremely skeptical of what I call “libertarian bumper sticker slogans.”  I have criticized the popular internet slogan “taxation is theft” for being too broad and simplistic a statement to cover the preferences of all individuals.  Personally, I do not want to be taxed, and so if I am taxed against my will, then this taxation is certainly theft in my mind.  However, there are many individuals out there who believe that taxation is a net positive for society, and so they pay their taxes willingly.  While I disagree with these people, to them, taxation is certainly not theft.  Such a broad statement ignores the subjective preferences of individuals, and I do not believe that prescribing such assertions to others who might have a differing point of view is a very good practice for anyone who considers his or herself to be an individualist.

The above paragraph is me simplifying my argument against the use of said slogan as a rhetorical tool.  My full argument in regards to this topic is much more fleshed out and nuanced.  Thankfully, what I am going to discuss in this piece does not require such a complex and nuanced argument.

Recently, I have noticed a number of libertarians (most of whom at least claim to be agorists) claim that “black markets are free markets.”  One woman, who will remain nameless because she seems to seek out attention wherever she can find it, even went so far as referring to Latin American drug cartels as “free market cartels” because, under the existing socio-economic paradigm, they work within the black market.  While I believe that such a statement is absurd on its face and ought to be treated as such, I realize that there are a number of libertarians out there who actually believe that “black markets are free markets,” and so I will quickly dispose of such a ludicrous assertion.

First of all, in a free market, prices are determined via market factors such as supply and demand.  Many goods are scarce based upon resource availability, and so the more demand there is for a product, generally there is less supply.  Consequently, the less demand there is for a product, the more supply there generally is.  If you manufacture a lot of a specific product and very few people buy it, then you will be stuck with a large supply, and the typical solution to this for a firm is to lower the price in order to increase demand.  If you have a limited amount of a specific product that is very popular on the market, then you have a high demand and a low supply, and so prices can be raised in order to increase revenue without seeing much of a drop in overall sales.  In a free market, these things all occur naturally, and firms adjust their prices according to the market signals they receive based upon supply and demand.  In a heavily regulated market, these price signals are manipulated through state interventions, including taxation.  Although a black market does not fall into the same non-free category as a regulated white market, price signals are still heavily influenced by state interference; in many cases, these price signals are manipulated by the state more than in a regulated white market.

In order to understand this, one need only ask why illegal drugs have the street prices that they do when most of these drugs can be grown and/or manufactured by just about anyone.  The simplest answer to this question is risk.  The more risky a product is to produce, the more costs that are involved in producing it.  Any product that requires a high price for production is likely going to have a higher price on the market.  But even if risk doesn’t affect cost, for one reason or another, it still certainly affects the incentives of the distributor.  For instance, if I’m moving contraband that could get me ten or so years in a state or federal prison, I’m probably going to expect a little bit more for my troubles.

One of the major reasons that black markets are so profitable is because of the risks that are involved, and these risks are completely artificial and arbitrary; they’re based solely upon the fact that the product is illegal.  The difference between a white market and a black market is that the white market is state-regulated while the black market is banned by the state.  Everyone involved in the production and distribution of a black market good expects to be compensated more because they are risking their own freedom by being involved in it.  This drives up costs and lowers supply, as producers and distributors are needed for the market to exist, and these producers and distributors can’t produce or distribute if they are locked in a cage.  This is the very definition of state manipulation of price signals that the Austrian economists regularly point to in regulated white markets.  The only real difference is that in a black market this price manipulation is taken to its absolute extreme.

There is also the problem of “regulatory violence.”  From the perspective of Samuel Edward Konkin III, the founder of agorism, the Mexican drug cartels would more suitably be called red market actors rather than black market actors.  The difference lies in enforcement; while an agorist working in the black market might threaten the use of violence against someone who owes them money, these drug cartels are known to torture and behead anyone who “disrespects them” in any way.  These cartels are not simply looking to provide a product or service to people who want it, but they are looking to monopolize on a market share that they have already nearly cornered.  They act as their own mini-states in a highly profitable market with little competition.  This is, in no way, shape, or form, the way that any free market could ever work in reality; in a free market, there are simply too many competitors for it to be economically viable to try and kill ‘em all, and even if such an attempt was economically possible, it would be realistically impossible.
The pseudo-agorist response to this is that “people who work in black markets are working outside of government regulations.”  In a sense, I suppose this is correct.  Everyone who works in black markets is certainly breaking the law.  However, there is no greater government regulation than prohibition, and if prohibition drives prices up artificially, then a prohibited market could hardly be considered “free,” and if we are to be advocates of free markets, then I would certainly hope that we can come up with better examples than Latin American drug cartels.

It occurs to me that there are few limits to the rhetorical, nonsensical propaganda that many libertarians will stoop to in hopes of “conversion” of others.  Or maybe these libertarians who stoop to such levels are just looking for their fifteen minutes.  Either way, I love most libertarian ideas and hate most libertarians.  All libertarian philosophies (and there are many) existed before you were born, and they will continue to exist after you die.  I really don’t care if you want to gain popularity on the internet from a bunch of neckbearded fanboys using these ideas; however, when you are completely full of shit, I will call you out on it.

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