The Ambiguous Moral Foundations of the Underground Economy

By Priest, George L. | The Yale Law Journal, June 1994 | Go to article overview

The Ambiguous Moral Foundations of the Underground Economy


Priest, George L., The Yale Law Journal


George Priest critically examines moral judgments about the underground economy and shows that the broader condemnation of underground activity now conventional in modem discussion is highly problematic and cannot be defended. He compares the relative moral position of market-based to state-controlled regulatory activities and shows, through the example of the underground economy, how the market achieves with greater systematic success many democratic values often asserted as justifications for broader governmental regulation.

Most treatments of the underground economy presuppose that underground economies cannot be morally justified. This moral condemnation is suggested by the conventional taxonomy of activities comprising the underground economy itself: illegal, unreported, unrecorded, and informal. A recent U.S. Department of Labor publication, for example, defines the illegal sector of the underground economy as "economic activities pursued in violation of legal statutes defining the scope of legitimate forms of commerce," presenting examples such as prostitution or the trade in drugs. The same publication defines the "unreported economy" as comprising "those economic activities that circumvent or evade . . . the tax code"; "the unrecorded economy" as those "that circumvent the institutional rules that define the reporting requirements of government statistical agencies"; and "the informal economy" as "those economic activities that circumvent the costs of ... the laws and administrative rules covering property relationships, commercial licensing," or other governmental regulations.(1)

These various activities are obviously similar in their circumvention of rules or regulations, but they are similar in a deeper sense because their existence is presumed to directly impede legitimate government actions, as well as broader values of the citizenry. For example, in a recent essay, Professor Feige, the most prominent scholar of the underground economy, explains the "conceptual linkage among underground economies" as comprising two elements: concealment and immorality. The intentional concealment of this set of economic activities from government and policymakers biases and distorts economic data--data which the government relies upon to control the economy.

To the extent that national accounting systems are based on data

sources primarily collected from the formal sector, a large and

growing informal economy will play havoc with perceptions of

development based on official statistics, and consequently with policy

decisions based exclusively on information provided by official

sources.(2)

In addition, and more importantly, the underground economy represents a moral challenge to the most basic legal and political institutions of a society. Thus, according to Professor Feige, the "most serious consequence" of illegal activities "is to undermine the stability and responsibility of political, legal and economic institutions that might otherwise serve to facilitate the [economic] development process."(3) He condemns the unreported economy on similar moral grounds: "Tax noncompliance shifts the burden from the dishonest to the honest, increasing the costs of adherence to any system of rules and regulations."(4) And finally, Professor Feige regards the impact of informal economic activities as even more harmful: "An often overlooked consequence of growing informality is the unraveling of the social and political fabric."(5) Most other treatments in the academic literature share this moral perspective.(6)

This Essay critically examines such moral judgments. It is inspired by two developments of recent times. First, the collapse of the socialist economies of the Soviet Union and Eastern Europe suggests that we must reevaluate our presumptions about the comparative virtue of economic organization by the state versus organization by the market. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

The Ambiguous Moral Foundations of the Underground Economy
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.