black market

1. The illegal business of buying or selling goods or currency in violation of restrictions such as price controls or rationing.
2. A place where these illegal operations are carried on.

For more information on black market, visit Britannica.com.

A type of economic activity that takes place outside of government-sanctioned channels. Black-market transactions typically occur as a way for participants to avoid government price controls or taxes, conducting transactions 'under the table'. The black market is also the means by which illegal substances or products - such as illicit drugs, firearms or stolen goods - are bought and sold.

Investopedia Says:
While the black market is commonly associated with criminal activities involving drugs or weapons, it also has a financial component: black currency-exchange markets almost always appear when government controls on exchange rates prevent the use of natural exchange rates in the global marketplace.

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Extralegal markets in which free-market exchange occurs in commodities and goods whose prices and/or supply are regulated or rationed by government. During World War II a black market existed for rationed goods in short supply. Another example is the market for drugs that cannot legally be sold, or sold without a prescription.

A black market was a major structural feature of the Soviet economy throughout the communist era. Having emerged during World War I in response to the regulation of prices and supplies, the black market burgeoned after the Bolshevik seizure of power. In 1918 - 1919, the Bolsheviks' radical vision of socialism as an economy without capitalists or market mechanisms led to the closure of virtually all private shops. Until their re-legalization in 1921, in connection with the New Economic Policy, the distribution system consisted of a vast, bureaucratized, socialized network of state and cooperative outlets, and an equally vast underground trade.

In subsequent decades, the black market reflected the general condition of the economy. Through the early 1950s, staple foods, clothes, and other necessities predominated. World War II marked the zenith of this tendency, as the urban population was forced to sell off surplus possessions on the black market in order to purchase supplementary food. As survival-threatening crises receded, the array of goods sold on the black market widened to reflect the rising expectations of Soviet consumers. By the 1980s, observers noted the prevalence of such items as automobile spare parts, imported blue jeans, rock-and-roll records, and home decor. Foreign currency (especially U.S. dollars) was also the object of black-market transactions throughout the postwar period, with underground exchange rates for foreign bills greatly exceeding the official rate.

Three factors complicate assessments of the black market. First, a black market by definition eludes data collection and reporting. Quantitative estimates of its aggregate role in the Soviet economy thus necessarily remain speculative.

Second, the Soviet Union's unstable legal environment makes it difficult to track changes over time. The basic juridical rubric for the black market was speculation (buying and reselling goods with the intention of making a profit), which was outlawed in every Soviet criminal code. It was applied sparingly and rather arbitrarily during the New Economic Policy, but Josef Stalin's renewed assault on the private sector in the late 1920s created pressures for a formal redefinition. The law of August 22, 1932, mandated a five-year labor-camp sentence for speculation, including petty sales, but it failed to standardize prosecution, which exhibited the campaign character (extreme fluctuations in prosecution rates) typical of the criminal justice system as a whole. The law was finally softened in 1957 through the redefinition of petty speculation as a noncriminal offense, and then through the reduced prison sentence for criminal speculation in the 1960 RSFSR Criminal Code.

Third, the black market's parameters are blurred by the fact that some private transactions remained legal. Through at least the 1950s, most black-market sales took place at outdoor markets or bazaars. The primary function of these venues, from an official point of view, was to enable farmers to sell surplus produce after all delivery obligations had been met. Their secondary function, however, was to provide a space where any citizens could hawk used clothes and surplus possessions, and where registered artisans could sell certain kinds of handmade goods. These transactions, which eventually came to include the private provision of services, included many shadings of legality. Aron Katsenelinboigen accordingly argued that the Soviet economy should be thought of in terms of a spectrum of colored markets, and not just black versus red.

In sum, the black market was a product of regulated prices, shortages, and geographical disparities in the availability of goods, as well as a legal system that criminalized most private transactions.

Bibliography

Katsenelinboigen, Aron. (1977). "Coloured Markets in the Soviet Union." Soviet Studies 29(1):62 - 85.

—JULIE HESSLER

The illegal buying and selling of goods above the price fixed by a government. Black markets usually develop when, because of war, disaster, or public policy, a government tries to set prices for commodities instead of allowing the normal operations of supply and demand to set prices.