Why Is the Drug Market Violent?

by Bob Murphy

In the debate over drug legalization, it is now a standard argument to point out that the violence associated with black markets (e.g. drug gangs using drive-by shootings against their rivals) is not due to the nature of the product itself, but rather to its prohibition by the government.  The single best evidence for this claim is that gangsters such as Al Capone killed each other over alcohol during Prohibition, but nowadays it would be absurd to open your newspaper and read that employees of Budweiser had gunned down workers at Heineken.

Even though this type of argument is now standard, I think many who use it aren’t quite sure why it’s so.  Thus let me offer a few reasons in the present article:

(1)  DRUG DEALERS ARE “OUTLAWS”

Simply put, people who deal in prohibited markets cannot turn to official channels to resolve disputes or protect their rights.  (Anarchists might wonder whether anyone has his rights protected by the police and courts, but let’s not worry about that now.)  If you advance ten pounds of cocaine to someone who promises to pay you after he has sold it in smaller quantities to his customers, and months go by without him paying you back, what are you supposed to do?  You can’t call the cops or the Better Business Bureau.  But you can’t ignore it, either, if you don’t want other people to start ripping you off too. Violence is an obvious recourse.

(2)  DRUG DEALS INVOLVE VALUABLE PRODUCT AND CASH

Movies are full of drug deals “gone bad,” but you never read about a sit-down between two telecom giants during a merger proposal, which falls apart when one group pulls out AK-47s.  One of the major reasons for this, of course, is that even though the telecom merger may involve billions of dollars, that money isn’t sitting in the room in a suitcase. 

(3)  THE MARGINAL BENEFITS OF VIOLENCE ARE HIGHER IN A PROHIBITED MARKET

Prohibition greatly increases the street price of drugs.  In a standard econ diagram, the supply curve for something like cocaine shifts way to the left, so that the original demand and new supply curve intersect at a much higher price.  Intuitively, potential drug dealers must earn much larger monetary returns in order to compensate them for all the risks of becoming an illegal merchant.

This is why drug dealers are so intent on getting new clients, to the point where they may even give samples for free initially, and then charge when the new client comes back for more.  (Sales reps from Jim Beam rarely do this.)  To add one more customer might mean, say, an extra $100 a week in profit for a drug dealer, whereas a liquor store owner does not profit nearly as much from persuading a customer to patronize his store rather than the competitor’s down the street.  (Even if the customer is a drunk who spends $100 a week on booze, this doesn’t translate into an extra $100 in his pocket, because the alcohol market is competitive and the wholesale price of the liquor is bid up considerably more than the wholesale price of heroin or cocaine.)

This reasoning shows that a drug gang stands to gain possibly thousands of extra dollars per week if it can seize distribution “rights” on a given corner in a busy neighborhood from a rival gang.  No such incentive exists for a hot dog vendor to eliminate his competitor on the next block.

(4)  THE MARGINAL COSTS OF VIOLENCE ARE LOWER IN A PROHIBITED MARKET

If you are a major drug dealer, you’re already breaking scores of laws for which you could be put away for life.  Depending on the scope of your operation, you’re also possibly paying off dozens of police, parole officers, judges, and politicians.  The very fact that you chose to become a drug dealer indicates that you’re the type of person who doesn’t care too much about the opinion of respectable society, and that jail does not horrify you the way it does most other people.  In this context, then, the marginal cost of killing one of your competitors is far less to you than it would be to executives in legal industries.  (Let’s not worry about the problem of interpersonal utility comparisons; you get my point, I hope.)

The above are four major reasons that prohibited markets are more violent than legal ones.  If we would end the ridiculous and evil War on Drugs, many of the horrors associated with drugs would disappear overnight.