“If you destroy a free market," said Winston Churchill, "you create a black market.” This is one of the few economic truths on which Churchill was right. Other names for the underground economy are the “cash” economy, the “black” economy, the “unofficial” economy, the “hidden” economy. Some of us call it the real economy.
It is the voluntary trade that happens without the protection of government, and often despite government attempts to shut it down. It is pure trade -- trade that happens because both parties expect to gain by it. It is a means of self-defence for the productive: the realm in which they can voluntarily exchange goods, services and currency, and conceal these transactions from government thieves.
The underground economy grows in direct proportion to the size and oppressiveness of government, and proves in the process that governments are largely superfluous to economies when trust between traders exists -- that governments usually do best by doing least.
Ironically, the existence of an underground was one of the main reasons the moribund, state-dominated economies of the former communist countries didn’t collapse much sooner than they did, and why some socialist economies trundle on still. In New Zealand for instance, Roger Douglas claimed in Unfinished Business, his book that founded the ACT Party, that the cash economy grew enormously with the growth in government from the seventies to the nineties, especially “with the increase in weekend markets and tradespeople doing jobs for cash.” He does not say this approvingly, recommending “stiff penalties” for those “who deal in cash without following correct procedures.”
Every lover of liberty should thumb his nose at such effrontery (typical of politicians who've spent their lives with their snouts in the trough the underground economy refuses to pay for) and get on with the business of being productive – all the while protecting the fruits of his productiveness from government cannibals.