The Black and Blue of Black and Gray Markets
Posted by PintofStout on April 21, 2007
Revisiting the book that inspired my post on Agorism and the underground economy, Off the Books: The Underground Economy of the Urban Poor, by Sudhir Alladi Venkatesh via a review in reason‘s May issue (this review now available online) a realization came to me. The players in underground markets are predominantly poor with little to lose from risking transactions in the black or even gray markets. Their lack of wealth is predominantly caused by their lack of access to government sanctioned markets, which is what ultimately drives them underground and keeps them there. So the apparent lack of such economies in more affluent areas can easily be attributed to the risk involved for the wealthier residents and less restrictions on them in the open market. One doesn’t have to have taken the worst of 12 rounds in the ring of life to go underground, but going underground certainly increases the chances of taking more blows than anyone could hope for.
Sam Konkin’s theory of revolution sees these small underground economies getting larger and ultimately undermining the authority of the state. But if the urban poor only go underground because they have to and therefore have little to risk, what is going to drive larger numbers of people who have some wealth, a house, and some financial security to risk going underground? The answer to that is easy: The incentive to keep what they’ve earned. Many people participate in economies similar to the ones in Venkatesh’s book but on a smaller and much grayer scale. Working for cash under the table, trading services with a neighbor, selling things via a flea market or yard sale, pretty much anything done without reporting the income to the government is the gray market (if it is illegal beyond just not reporting, then it becomes a black market). If the government is going to try and take a cut every time money changes hands, the people have to work more and harder to get what they need, so they are simply trying to keep the prying hands of government out of their transactions whenever possibly.
Unfortunately, at such small scales and while keeping so much of our economic activity within reach of the government, the underground or counter-economy will be like throwing stones at tanks. The catch is to get people to participate on larger and larger scales, thus putting more of their current wealth at risk from outright theft from the state, which in turn makes it less likely they will participate further. As I had mentioned elsewhere, it seems like the more you have to lose, the less free you are. Unless there is an explosion of revolutionary monks, it seems a revolution is unlikely to grow much while the recruits are still somewhat prosperous (if not as free as they’d like). This is where the turning point of Konkin’s theory takes place: when mechanisms or organizations are sprouted that provide some protection from that risk or even just consultation on how to lower the risk, these organizations or people will remove the monopoly on protection from the state and allow the counter-economy to further expand to the detriment of the state. Eventually, freedom may mean more than just “nothing left to lose.”