The words of Ross Ulbricht, the presumed founder of Silk Road who has just been sentenced to life in prison for his role in the illegal drug exchange website and six related deaths, will sound familiar to economists. At his sentencing, Ulbricht said: “I remember clearly why I created the Silk Road...I wanted to empower people to be able to make choices in their lives, for themselves, and to have privacy and anonymity.”
Many economists believe that there’s an economic and moral case for legalizing drugs—and not just marijuana. Prohibition is costly, and legalization could reduce violence and generate tax revenue. As Harvard economist Jeffrey Miron argued in an interview with Der Spiegel, the argument for legalization is Economics 101: Bans result in black markets, which are costly both in terms of the violence they generate and the missed opportunities for taxation. The international shadow economy is currently valued at $10 trillion dollars, with the illegal drug market valued at around $300 billion. Miron’s estimate is that the U.S. government would have an extra $85 billion annually if drugs were legalized.
“If you believe in anything that the Americans claim to believe in—freedom, individuality, personal responsibility—you have to legalize drugs. The maxim should be that you're allowed to do it if you're not harming anyone else,” Miron writes.
Miron is far from the only economist who supports legalization; economists have been making this argument for decades. Celebrated Nobelists Milton Friedman and Gary Becker were outspoken on the matter, arguing that the government’s drug-related expenditures on police, courts, and prison were far too high. More recently, economists have studied less direct benefits of legalization: In a paper published in 2013 economists D. Mark Anderson, Benjamin Hansen, and Daniel Rees estimated that legalizing marijuana would result in dramatically fewer traffic fatalities as drivers replaced alcohol with pot, which is thought to be much less dangerous for those behind the wheel.
So how does Silk Road square with the classic economic defenses of a free drug market? Silk Road facilitated 1.5 million transactions involving thousands of sellers and buyers, so clearly it’s a marketplace that worked. But it’s rather hard to compare Silk Road to an actual legal drug market because it wasn’t at all legal; it was the very definition of a black market. As Joe Mullin at Ars Technica writes, “But running my hypothetical street market doesn't mean I am striking a nail in the coffin of the drug war. Likely, it's just the opposite. A market designed to hide from the law is a great excuse for law enforcement to double down on the severity of enforcement and punishment.”
And it looks like many libertarian economists don’t support Ulbricht either. The Mises Institute, which proliferates the works of Austrian economists Ludwig von Mises, has previously been quiet about Ulbricht. But in recent days, the Institute’s blog has posted an essay on the question of whether Ulbricht is a libertarian martyr. Afterall, the participants on Silk Road were willing ones and some argue that buying drugs from Silk Road was safer than from the streets. Yet the conclusion the author reached, quoting economist Murray Rothbard, seems to be that Ulbricht’s black market did not advance libertarian aims. “Black market entrepreneurs (like all entrepreneurs) will sink or swim without the assistance of libertarian theorists,” writes Jeff Deist, the president of the Mises Institute.
Silk Road has been called an economic experiment gone wrong. And if you look at Ulbricht’s trial, it’s clear that many things went wrong. Even the most idealistic supporters of Silk Road couldn’t ignore that it turned Ulbricht into a kingpin who acted violently toward those who he thought might compromise the anonymity of the marketplace. Violence and bribery are both features of black markets (two undercover federal agents investigating Silk Road have been charged with Bitcoin theft), so it’s worth wondering whether Ulbricht would have turned violent in a legalized market.
Even with Ulbricht behind bars, black markets online are unlikely to go away. Students at Columbia University, supposedly some of the brightest in the country, were using the money-transfer app Venmo to buy drugs. And though Ulbricht’s harsh sentence was partly to send a message, the online drug market is still vibrant. Economists are definitely right on one point: People seeking drugs will still find them, it’s always just been a matter of how—and at what cost.