The Economics of Activity That is Illegal

Certainly, if you are engaged in the illegal drug trade anywhere in the world, you cannot be part of the official, reported economy. You have to use cash and also be careful that your illegal transactions cannot be traced by government authorities, including tax collectors. Otherwise, you’ll soon be headed for jail.
Of course, there is no way to know exactly how much underground activity is centered in the illegal drug trade. Estimates of the worldwide total vary from $300 billion per year to well over $1 trillion per year. While the U.S. $100 dollar bill used to be the drug dealers’ cash of choice, now they often use 500-euro notes (worth about $700).
Consider that a $1 million in $100 bills weighs 22 pounds—which would fill a very heavy carryon that might be searched. The same amount in 500-euro bills weighs just 3.2 pounds. The increased use of euro bills for illegal transactions has benefited the European Central Bank (ECB) because it costs very little to produce euro currency compared to that currency’s face value. Not all illegal activities involve drugs, to be sure.
The purchase and sale of human organs, for example, is part of the underground economy around the world. Paying for someone else’s kidney in the United States is an illegal activity, as it is in most countries. Nevertheless, some of those who are on the waiting list for kidney transplants sometimes turn to “matchmakers” who will find a perfectly healthy person who is willing to donate an organ—for a price. And the price for the organ—usually acquired from a donor who lives in another country—will likely range from $5,000 to $25,000 (and up). All in cash, all unreported, and all part of the underground economy.

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1. The Estimated Size of the Underground Economy On a worldwide basis, about one-third of annual world income...