Black Market
By
WILL KENTON
Updated May 29, 2021
Reviewed by
KHADIJA KHARTIT
What Is a Black Market?
A black market is an economic activity that takes place outside
government-sanctioned channels. Illegal market transactions usually occur
“under the table” to let participants avoid government price controls or taxes.
The goods and services offered in a black market can be illegal, meaning
their purchase and sale are prohibited by law, or they can be legal but
transacted to avoid taxes.
Illegal markets are also known as illegal markets, shadow markets, or
underground markets.
KEY TAKEAWAYS
An illegal market is an economic activity that occurs outside of
government-sanctioned channels.
Underground markets trade in illegal goods and services, legal goods
and services to avoid taxes, or both.
Examples of underground markets include the sale of illegal drugs,
weapons, human trafficking, and the illegal wildlife trade.
Underground markets can have a negative impact on the economy
because the activity is not reported and taxes are not collected on
the transactions.
Underground markets do provide some benefits, such as creating
jobs for those who may not be able to find employment in traditional
markets and allowing access to medicine and healthcare to those
individuals that might not have had access otherwise.
Understanding an Underground Market
Traditionally, underground market activity was conducted in cash, one of its
defining aspects. This was done in order to avoid creating any paper trail.
With the rise of the Internet, many underground market transactions are
now done online, such as on the dark web, and often conducted with digital
currencies.
Because of this nature, illegal markets can take a toll on an economy since
they are shadow markets where economic activity is not recorded and taxes
are not paid. It is often assumed that a country's gross domestic product
(GDP) is not its actual GDP because it does not take into account all the
business activity conducted in underground markets.
The underground market's many drawbacks include the risk of fraud, the
possibility of violence, and being saddled with counterfeit goods or
adulterated products, which is especially dangerous in the case of
medications.
Types of Illegal Markets
An underground market is often a place for the exchange of illicit and
dangerous goods. They are venues where highly controlled substances or
products such as drugs and firearms are illegally traded.
Human trafficking is a very large illegal market. Human trafficking moves
people into forced labor, prostitution, child armies, and the market for
human organs.
In 2021, it is estimated that there are 40 million people trapped in modern
enslavement worldwide. One-in-four of them are children. Almost three-
quarters (71%) are women and girls. From a 2014 International Labor
Organization (ILO) report, human trafficking earns profits of $150 billion a
year and there are no published numbers more updated about this
aspect.12
Other underground markets include illegal gambling, the illegal wildlife
trade, and illegal mining, fishing, and logging.
In the financial context, the biggest underground market exists for
currencies in nations with strict currency controls. While most people may
shun an underground market because they consider it sleazy, there may
be rare occasions when they have no choice but to turn to this necessary
evil.
As for currency illegal markets, they exist primarily in nations that—apart
from currency controls—have weak economic fundamentals (such as a high
inflation rate and low currency reserves) and a fixed exchange rate where the
domestic currency is pegged at an unrealistically high level to the U.S.
dollar or other currency. As a result, the currency underground market is
flourishing in nations like Argentina, Iran, and Venezuela.
The Necessity of Black Markets
Sometimes, an underground market is the only choice for procuring goods
in certain situations for certain people. For example, suppose you are on
vacation with your family in an exotic location and run out of formula for
your baby. If there is nothing available in local stores and the only way to
acquire baby formula is through an underground market transaction, few
people would hesitate to make the purchase.
Paying a premium over the face value of a ticket to see a concert or sporting
event is also an example of an illegal market transaction. In a number of
developing nations, life-saving medicines are in short supply, and often, the
only alternative is to procure them through the underground market.
Underground market transactions provide no recourse to the buyer in case
the product is defective and a buyer in an underground market can suffer
penalties and jail times just as easily as a seller can.
While critics may carp that this only serves to perpetuate the illegal and
unethical practice of profiteering from someone else’s misfortune,
participating in the underground market is a relatively easy decision to
make when someone’s life is at stake.
Example of an Underground Market
One of the most recent examples of an underground market using modern
technology was that of the Silk Road market. This was a digital market that
used Bitcoin for money laundering and illegal drug transactions and
weapons sales.3
The market began in 2011 and closed in 2013 when it was stopped by the
FBI. The man behind the market was a 29-year old computer science
engineer named Ross Ulbricht. Silk Road sold a variety of illegal goods and
made $1 billion in sales.3
It connected 4,000 drug dealers to 100,000 buyers. An individual could
purchase almost anything; heroin, rocket launchers, falsified documents,
and even murders for hire were discussed. It was known as the Amazon of
the dark web.43
It led to a global search for Ulbricht. He was finally captured, the illegal
market shut down, and he is now serving life in prison.
What Is a Simple Definition of the Black Market?
A black market is any market where the exchange of goods and services
takes place in order to facilitate the transaction of illegal goods or to avoid
government oversight and taxes, or both.
How Does the Underground Market Work?
There are a variety of illegal markets and all of them work in different ways.
An underground market can be a physical market where two individuals
meet to exchange illegal goods, for example, a drug transaction on a street
corner. An underground market can also exist online, such as on the dark
web, where individuals communicate to exchange goods and payments are
made in digital currencies.
What Is an Example of an Underground Market?
An example of an illegal or underground market would be the human
trafficking market that engages in the capture of people throughout the
world and their sale into various areas, such as forced labor and
prostitution.
Is the Black Market Illegal?
All black markets are illegal.
Why Is It Called the Black Market?
There are various theories as to why it is called the "black" market. These
include the association of the word black with shadows and darkness, with
the markets that continued to sell slaves after abolition, and the association
of the color black with anarchist groups.
