by Grant Phillips
Drug zealots often proliferate images of back alley drug deals and the respective dangers as justification for government intervention. In spite of prohibition, the drug market continues to flourish. Current policy perpetuates the distrust of buyers and sellers – resulting in damages to both parties.
As government efforts prove futile, market forces create meaningful solutions that reduce both party’s inherent risk in black market transactions. The Internet and Bitcoin offer unique opportunities for improving the “drug buying experience”. Government agents, however, are now focused on shutting down services that reduce the risk of buyers and sellers.
Faced with the strictest regulation of all, entrepreneurs create innovations for improving market dynamics. The Silk Road, a recently shut down website, facilitated transactions between buyers and sellers while maintaining both party’s anonymity. Although founder Ross Ulbricht was able to evade government traces, he was ultimately arrested and convicted on multiple counts that totaled a life sentence.
The Silk Road provides unique evidence for how markets reduce risk of buyers and sellers. Although this regularly happens in legal markets, it’s phenomenal for the black market. Facilitation websites offer both parties anonymity and security.
By introducing anonymity into the transaction, the Silk Road effectively increased market competition, which benefits the consumer. Instead of being stuck with one dealer by force or lack of alternatives, buyers can browse products from multiple sellers and find a price that best suits their demand. If a local street dealer or web competitor was exercising monopolistic power, Silk Road exposed them to competition around the world. They must reduce their price in order to remain competitive on the market.
Furthermore, Silk Road provided customers with a means to ensure quality product. In a market filled with unchecked producers using deadly substance in their product, consumers surely welcome the peace of mind that such a risk has been greatly reduced. The website included elaborate and anonymous reviews of seller’s products and trustworthiness.
In other words, you might be able to scam one person, but your financial gain would be short-lived. Conversely, there is no customer review for the local gang member selling polluted narcotics. Go ahead and complain to the gang or cartel. You probably won’t get far.
By shutting down Silk Road, the government has caused similar websites to voluntarily shut down to avoid life sentences. Evolution, a similar service, closed their website shortly after Silk Road was shut down. The owners, however, still want to make a return on their capital.
Evolution used an “exit scam” to recoup their investment. One day, the page is down for “technical difficulties” and users have trouble withdrawing their funds. Some people claim the owners made out with $12 million. Of course, this is nothing relative to the consumer and investor benefits if they were able to maintain operations. Government intervention ruined another beneficial service and left the consumer to pay the price.
Drugs are a real thing that must be addressed. Prohibition, however, reduces consumer market power at a fairly large expense. Furthermore, it allows producers and sellers to maintain arbitrary market advantages through their own unchecked practices.
When producer surplus exceeds consumer value, the market offers competitive solutions that benefit consumers. Even the strictest regulation cannot undermine the power of markets.