One of the important questions is what happens when a forbidden industry is subjected to legitimate competition. We need more study of this matter. Legalized gambling is a good example. What has happened to Las Vegas is hardly reassuring. But the legalization of liquor in the early 1930's swamped the criminal liquor industry with competition. Criminals are alleged to have moved into church bingo, but they have never got much of a hold on the stockmarket. What happens when a forbidden industry is legitimized needs careful analysis; evidently criminals cannot always survive competition, evidently sometimes they can. A better understanding of market characteristics would be helpful. The question is important in the field of narcotics. We could easily put insulin and antibiotics into the hands of organized crime by forbidding their sale; we could do the same with a dentist's novocaine. (We could, that is, if we could enforce it, the black market would be too competitive for any organized monopoly to arise.) If narcotics were not illegal there could be no black market and no monopoly profits; the interest in "pushing" it would not be much greater than the pharmaceutical interest in pills to reduce the symptoms of common colds. This argument cannot by itself settle the question of whether (and which) narcotics (or other evil commodities) ought to be banned, but it is an important consideration.

The greatest gambling enterprise in the United States has not been significantly touched by organized crime. That is the stock market. (There has been criminal activity in the stock market, but not on the part of what we usually call "organized crime.") Nor has organized crime succeeded in controlling the foreign currency black markets around the world. The reason is that the market works too well. Furthermore, federal control over the stock market, designed mainly to keep it honest and informative, and aimed at maximizing the competitiveness of the market and the information of the customer, makes it hard to tamper.

Ordinary gambling ought to be one of the hardest industries to monopolize, because almost anybody can compete, whether in taking bets or providing cards, dice, or racing information. "Wire services" could not stand the ordinary competition of radio and Western Union; bookmakers could hardly be intimidate if the police were not available to intimidate them. If ordinary brokerage firms were encouraged to take accounts and buy and sell bets by telephone for their customers, it is hard to see how racketeers could get any kind of grip on it. And when any restaurant or bar or country club or fraternity house can provide tables and sell fresh decks of cards, it is hard to see how gambling can be monopolized any more than the soft-drink or television business, or any other. Even the criminal-skilled-labor argument probably would not last once it became recognized that the critical skills were in living outside the law, and those skills became obsolete with legislation.

We can still think gambling is a sin, and try to eliminate it; we should probably try not to use the argument that it would remain in the hands of criminals if we legalized it. Both reason and evidence seem to indicate the contrary.

Costs of Consumption

Essentially the question is whether the goal of somewhat reducing the consumption of narcotics, gambling, prostitution, abortion, or anything else that is forced by law into the black market, is or is not outweighed by the costs to society of creating a criminal industry. In all probability, though not with certainty, consumption of the proscribed commodity or service is reduced. Evidently it is not anywhere near to being eliminated, because the estimates of abortions run to about a million a year, the turnover from gambling is estimated in the tens of billions per year, and dope addiction seems to be a serious problem. The costs to society of creating these black markets are several.

First, it gives the criminal the same kind of protection that a tariff might give a domestic monopoly; it guarantees the absence of competion from people who are unwilling to be criminal, and guarantees an advantage to those whose skill is in evading the law.

Second, it provides a special incentive to corrupt the police, because the police not only may be susceptible to being bought off, but even can be used to eliminate competition.

Third, a large number of consumers who are probably not ordinary criminals--the conventioneers who visit houses of prostitution, the housewives who bet on horses, the women who seek abortions--are taught contempt, even enmity, for the law, by being obliged to purchase particular commodities and services from criminals in an illegal transaction.

Fourth, dope addiction may so aggravate poverty for certain desperate people that they are induced to commit crimes or can be urged to commit crimes because the law arranges that the only (or main) source for what they desperately demand will be a criminal source.

Fifth, these big black markets may guarantee enough incentive and enough profit for organized crime so that large-scale criminal organization comes into being and maintains itself. It may be--this is an important question for research--that without these important black markets crime would be substantially decentralized, lacking the kind of organization that makes it enterprising, safe, and able to corrupt public officials. In economic-development terms, these black markets may provide the central core (or "infra-structure") of underworld business, capable of branching out into other lines.

A good economic history of prohibition in the 1920's has never been attempted, so far as I know. By all accounts, though, prohibition was a mistake. It merely turned the liquor industry over to organized crime. In the end we gave up, probably because not everybody agreed that drinking was bad, or if it was bad, that it was anybody's political business, but also because the attempt was an evident failure and an exceedingly costly one in its social by-products. It may have put underworld business in the United States in what economic developers call the "take-off" into self-sustained growth