Black Markets are Not Free Markets

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As libertarians, we can all agree that the Free Market is a virtue that will yield a more peaceful and prosperous society. Unfortunately, what constitutes as a free market has been distorted in recent times.

There are many libertarians that see the black market as a means to achieve a free market in a statist society. These individuals, mainly followers of Samuel Konkin III, typically refer to themselves as “agorists.”

For this article, I will define black markets as any market which deliberately avoids interaction with the State. So for any transaction that is subjected to regulation, including the sales tax, would be considered consenting to state action according to Konkin in theory. At a shallow level, this seems to be an effective way of revoking your resources from the State, but the fact is black markets are creations of the State. To prove that black markets are not free markets, I will give a case from an economic perspective in which I explain that the price system of a black market is distorted due to state action. I will also give a political case in which I will demonstrate that black markets are state creations. I will then demonstrate that the State itself is a black market on murder, privilege, and servitude.

DISCLAIMER: This article is not intended to condemn individuals that do take part in transactions in which the State takes no part, this is merely explaining the flawed logic of claiming black markets is a form of the free market and a solution to the problem of the State.

No one that is educated in economics would ever claim that the market we have today is a free market. A free market is a system in which everything is privately owned and there is no State-regulation. Currently, the Federal Register exceeds 80,000 pages. If there is an industry for it, the United States Federal Government regulates it or will regulate it in the near future. Due to these regulations, the price system is distorted. With regulations, businesses are incentivized to increase the prices and/or lessen the quality of their goods and services in order to maintain a profit.

Legal restrictions are one of the top causes of market distortions. There are agorists that openly claim that they do not want drugs to be legalized because then the State would meddle with the market for drugs. What these individuals fail to realize is that the same economic principle that dictates regulation of businesses will increase prices and lower quantity applies to the black market, but on a much larger scale, which means that the State already meddles with the market for drugs by means of prohibition.

Prohibition is one of the more extreme forms of regulation in which the State explicitly bans a good or service from being provided. By banning or simply restricting the legal use or transfer of a good or service, the State has added a greater risk to being involved in such an industry. Due to this, businessmen in these industries have reason to increase their prices and decrease quality due to the fact that there is less competition in their market, giving them a greater market share and thus more market power. This reduction in the availability of substitutes for said commodity increases the elasticity of the good, meaning that the businessman is more capable of increasing the price without losing a significant amount of customers.

Since black and grey markets are the ones that experience the greatest degree of legal restrictions, claiming that the free market is epitomized in the high price, low quality black market is an economically ignorant statement that makes our ideology less respectable in the academic realms. This is why the political process is necessary to libertarian activism. By compelling elected officials to repeal regulations and prohibitions or to nullify these laws at the state level, one can witness a market free of State-induced distortions (and also a reduction in black market activities). The black market will provide no such free market benefit.

Also, the demand for a black market is artificial. To conclude that black markets will lead to liberty is to conclude that more statism will lead to liberty. This is due to the fact that without the State, black markets would not exist. Black markets are responses to government intervention within the market. It shouldn’t take a complex justification to say that black markets ultimately come from the demand to subvert legislation in order to provide goods and services that could otherwise not be legally provided. A vast black market would imply a vast regulatory burden, and thus a vast State. Conducting in black market activities could in fact backfire and compel businessmen in these industries to lobby for the continuation of current legislation and even the escalation of such regulations, as their jobs depend on these laws. This occurs in the same way that big businesses lobby for regulations: big businesses can afford the regulations and since there’s no alternative, businessmen in the black market can as well. The black market and the State have a mutually beneficial relationship in which more regulation entails more black market activity.

To further prove that the demand for black markets is artificial, consider this. In a truly free drug market, would there ever be a demand to meet some shady guy with a thick rap sheet on the street corner to buy from him? Or would there instead be a demand to buy from a reputable firm with positive reviews from customers? After all, it is often said that by legalizing marijuana, the drug cartels would go out of business. If there were a natural demand for their services and the black market is a free market, wouldn’t it be logical to conclude that customers would continue to purchase from them? Black markets are therefore protectionist in nature, going against the very principles of the free market – they protect markets which only arise in the event of state intervention.

But above all, the State itself is a black market.The State is merely the means by which people subvert the Natural Law (For a justification of Natural Law and Natural Rights:). The State is a black market for three main categories: privilege, and servitude, and violence. The State is the means by which businesses and organizations seek to restrict competition against themselves. To tell an individual what to do with their own property is a violation of their natural rights, but the State does this with every regulation they pass and enforce. Lobbyists for big businesses (and even the black market) seek competition-reducing regulations that will give them a greater market power over their respective industries. By doing this, these individuals are participating in an activity in which they are acquiring a service that would not be acquirable through legal means. As for servitude, the State has the capacity to conscript individuals into fighting for wars or provide resources for said war.

In addition, the State claims that we work for them for approximately 30% of our work year, considering they feel that it they entitled to our income. Consider the fact that the State delegates these funds to certain industries whether it be infrastructure, welfare, or military as they sees fit. Regardless of who does this, this is a violation of your rights. This is a violation of the Law. And if you refuse the State’s advances, they reserves the right to throw you in a cage or even kill you if the situation escalates to that extent. Ultimately, the State provides services that violate the Natural Law. It is in itself a black market.

With these cases in mind, one must be oblivious to the nature of economics, politics, and the State itself in order to claim that black markets are a form of free market expression. Black Markets are not free markets. They are the distorted results of State intervention in the market. If one wishes to promote a free market, it is within their best interest to promote the repeal of prohibition and the loosening of regulations so that one can experience an actual free market, not a market that offers artificially expensive, low quality products.

The black market ultimately relies on the State’s power to regulate. If we had a free market, there would be no black market. The two are mutually exclusive.