From: hernlem@chess.ncsu.EDU (Brad Hernlem)
Subject: Re: How the government can help.
Reply-To: hernlem@chess.ncsu.EDU (Brad Hernlem)
Organization: North Carolina State University
Date: Tue, 21 Jul 1992 16:03:28 GMT

In article <1992Jul21.045839.4252@zeus.franklin.edu>,
amir@zeus.franklin.edu (Amir Taghavi) writes:
> In article <1992Jul20.140652.13362@ncsu.edu> hernlem@che14.ncsu.EDU
(Brad Hernlem) writes:
> >
> >Amir Taghavi writes:
> >***
> >Before this discussion gets any further, I would like to mention some major
> >problems that have been going on in our(Iranian) society. As long as we have
> >these problems in Iran, we will not be able to solve our economic problems.
> >
> >[...]
> >
> >2- Black market of any kind. e.g. money, grocery and etc.
> >
> >[...]
> >
> >****
> >
> >I disagree, to some extent. Black markets are manifestations of attempts
> >by governments to control prices or supplies of commodities. The black
> >market is not the problem but a result of the problem. Of course, people
> >who take advantage of the black market to gouge consumers are no better
> >than thieves and they are a problem. And those that divert commodities
> >through the assistance of corrupt officials compound the problem even
> >further because they drive the value of goods up even higher by taking
> >them out of the supply.
> >
> 
> Dear Brad;
> 
> I am not sure that, how much you know bout the Black Market in Iran.
> Black market in Iran is quite different than U.S. Black market. 
> In U.S., black market is mainly done by government just to monopolize
> the prices of goods in Stockmarket for global economic purpose. 
> 
> Iranian black market is slightly different than U.S. black market.Iranian
> black market is usually done by the member of government in an unusuall
> way. It is almost like covert operation, that nobody knows about it and
> it is done under table( just an expression). Well there are always, some
> people in every government that they use the power of their position
> just for their own personal gain. e.g. O. North, J. Poindexter, 
> H. Kissinger and list goes on and on.  We have had some people like this
> in our government too.
> 
> **** Warning: This is only a constructive criticism on behalf of Iranian
> 	      government. It is not a promotion toward MKO.  MKO, please
> 	      DO NOT take an advantage of this. 
> 
> 
> Best regard
> Amir Taghavi

Perhaps I over simplified the situation in my discussion. There is no
real "free market" because the assumptions made in the economic models
are never completely satisfied. I think we are talking about two
different things and agreeing on the same thing. What I mean by the
"black market" is the mechanism of supply and demand which provides
goods at prices which truly reflect the balance between what is
available and how much people are willing to pay (this does not mean the
price is "fair"). There are at least three levels of involvement in a
black market economy; one can be a supplier who buys up goods at the
"official price" and resells those goods at the price which is set by
the black market or one can be a supplier who smuggles goods into the
country or one can be a supplier who diverts goods from the official
supply, usually through corrupt government officials or by theft. I
believe that the first two types of suppliers are actually providing a
service to the consumers while the latter type are betrayers of the
public trust and compounders of the problem because they cause the black
market price to rise and the quantity of available goods at the official
price to fall (the smugglers will actually cause prices to fall because
they are introducing a larger supply of goods to the market).

A black market exists for two reasons; either the government or official
rate for a commodity is set lower than the "real" value of that
commodity or the government suppresses the supply of that commodity or
is unable to ensure an adequate supply, perhaps because of foreign
economic embargoes. Even if no corrupt officials exist in government or
the distribution network, if the overall supply through official sources
is lower than the demand at the official price, there will exist a price
differential between the official price and what people are willing to
pay. Such a situation will promote the formation of a black market.
In order to eliminate the black market, the government should raise the
official price to bring the price differential to zero. The increased
revenue can be used to assist the lower classes rather than lining the
pockets of those who are willing or capable of running a black market business.

Brad Hernlem