Black market

A black market is an economic activity that involves people exchanging goods illegally and conducting all transactions through illicit channels to avoid government price controls and taxes. It has a significant impact on economies since sellers don't pay taxes and provide customers with goods prohibited by law.

In this article, we'll find out how black markets started and why they exist now. We'll also uncover why they affect economies so negatively and how governments try to control them.

Why do black markets exist?

Black markets allow people to exchange products or services prohibited by their governments. They emerge when sellers want to evade taxes on certain goods. As a result, these transactions are unrecorded so that both sellers and buyers don't need to pay any money to their government. Illegal trade arises when people don't have the right to work yet but still need money for a living. You can see black markets in countries where government-imposed price ceilings cause shortages.

High levels of unemployment often provoke workers to look for any kind of job to make money. People who don't have the opportunity to find a job legally end up in illegal businesses. They don't report their occupation and salary to their governments and don't pay taxes. Some enter black markets because of the numerous licensing restrictions they can't afford to invest money in.

Now that you know why black markets exist, let's find out how they started.

How did the black market start?

Black markets started their existence during wartime when countries imposed restrictions on resources essential for human life, primarily food. Products like gasoline, rubber, and metal also fell under these restrictions. Governments introduced rationing to provide everyone with a fair share of food. This step resulted in people getting involved in illegal activities like selling and buying on black markets. They peaked during World War II when the majority of countries enforced rationing and price control.

People came up with different ways to sell their goods illegally. For example, farmers reported a lower number of births of new animals to supply meat to their buyers illegally. There was also a case when US supplies that were meant only for the US army got to the British black market.

It's time to find out how black markets influence the economy.

How do black markets affect the economy?

Underground markets negatively influence legitimate businesses that can't compete with significantly lower prices on goods. As a result, they can even be driven out. Some illegal sellers deliberately create shortages of legal products and services to force people to buy from them.

All transactions on black markets happen without governments' consent and permission. The shadow economy activities also don't involve the payment of taxes. This affects governments' revenue that could have been used to pay for its citizens' services. Since underground market economic activity isn't mentioned in the statistics, it undervalues a country's GDP (gross domestic product) as well.

Let's have a look at the ways governments control the black market.

How do governments control the black market?

To stop the black market activities is almost impossible. The majority of sellers offer illegal products or services in a way that bypasses generally accepted laws. Goods that make up the largest percentage of the black market are shoes, apparel, and accessories. Years ago, all illegal transactions were in cash so as not to leave a trace. Nowadays, when the internet allows using the dark web and digital currencies, black market transactions are conducted online.

The US government tries to fight illegal trade. Customs and Border Protection authorities prevent illicit goods from entering the United States while the Drug Enforcement Administration and the FBI do everything possible to reduce drug trafficking.

The shadow economy has a long history and continues its existence until today. There are still a lot of sellers and buyers involved in black markets online.