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We only call this group “illegal” to differentiate them from Pharma companies. Legality is a term that is only valid within a non-Libertarian context. Libertarians do not have laws, just contracts.


This group is essentially composed by manufacturers of so-called “street drugs” which are mainly used for recreational purposes.


These manufacturers are subjected to the very same free market rules as the so-called “Legal” ones are. The difference it in the quality and risk of their products.


Current situation


Currently, these manufacturers operate outside of the law. This means that governments spend gigantic amounts of money to so-call “combat” them while at the same time, being the sole source of their fantastic fortunes: the legal ban.


Drug manufacturers operate in darkness and have no responsibility whatsoever. They are criminally prosecuted, but what benefit does this bring to drug users? None. Although some street drugs are branded, most are not. Brands as related for either quality or novelty purposes, but either one is dubious at best.


This is so because there are no incentives for improving the quality of these drugs because of the gigantic mark-up that a legal ban creates. If drug users die or their lives are cut short, it is not an economic problem for suppliers.


And so, these drugs are manufactured using shady processes and procedures, containing high concentration of toxic substances and non-standardized contents. Many of them are so new that not even their manufacturers have any concept of even their short term effects.


In summary, this is the worst possible situation. Governments spend untold tax money and accomplish nothing. Lots of people are criminally penalized for their right to insert into their bodies any product they wish and other for manufacturing said product. These people are housed in institutions at great government expense and prevent nothing. Furthermore, the drug ban creates the situation where drug manufacturers have no incentives to improve either the quality or safety of their drugs. Lastly, this very same ban creates the conditions for astronomical mark-ups which give rise to violence and corruption at a gigantic scale.


Absolute Austro-Libertarian conditions


In a Libertarian environment there are no laws. As such, there cannot be bans, only contracts. This means that these manufacturers will be able to operate just like any other business, without the fear of repercussions.


The first effect of such conditions would be that the price of said drugs would drop precipitously. The ban is what causes high prices, not the product.


As the price drops, it will be imperative for manufacturers to compete on volume. There are two ways to do this; one way is to lower the quality (manufacturing costs) and compete by price and the other is to raise the quality and compete on these grounds.


Although lowering the quality (and hence price) seems like the logical choice, we must remember that every other drug manufacturers will also do so. There is only so much quality lowering that can be done before consumers reject a product. In this case, lowering quality simply means decreasing concentration and this implies less pleasure.


Raising quality on the other hand, implies increasing concentration but it also implies increasing safety.


The main consequence of a Libertarian environment is that recreational drugs will become as any other market with high-end, middle-end and low-end products. However, in that sense high-end products will mark the standard by which customers will judge other qualities, just like with any other product. This will drag the entire manufacturing business towards higher quality.


In quality, there is also the issue of toxicity. In the current system if a customer dies or it is severely affected by a drug, it makes very little difference to the manufacturer because the profit margins are so high. As profits drop substantially, every client will become valuable since the competition is now for volume, not availability. In recognizing this, manufacturers will increase their quality in order to take better care of their customers. We would like to remind our readers that this is not a pipe dream. There are ample historical events that demonstrate this process in operation in a free market. Take for example food production in during the Industrial Revolution in England. Originally, food tampering was very much a daily affair. However, as soon as manufacturers discovered that there was a market for higher quality products, they began to manufacture them (at a higher price, of course). Over time, as the price of these high quality products began to drop, sales of lower-quality products began to drop too. In answering this challenge, the manufacturers of lower-quality products raised the quality in order to be able to compete. This process took place mostly without regulation and without government intervention. It was a purely free-market competition mechanism.


Marketing and liabilities


Would illegal drug manufacturers be liable if they make unsubstantiated claims about safety, efficacy or pleasure? It all depends if there is a purchase contract and its contents.


To begin with, in a Libertarian system freedom of speech is absolute. As claims, honour, morality, reputation and all other non-tangible beliefs rest in the mind of other people, they are not property. As such, they cannot be mediated against. Therefore, drug manufacturers may make any claim they may want to do as long as nobody buys the product. If somebody buys the product things change dramatically. The key question is this: are any of these claims in the purchasing contract?


If the answer is no, then the claim cannot be mediated against.



If the answer is yes and the product does not deliver as specified, this is a breach of contract and can be mediated against.


If the answer is yes but the contract specifically disclaims everything, including that the drug may have any effect at all, then it cannot be mediated against.


In summary, in a Libertarian system manufacturers can lie as much as they want if they are covered by a contract which disclaims all liabilities. Does this sound fair? Of course not. It does not. However, the other option is to have a ridiculously arbitrary and incoherent so-called Freedom Of Speech heap of laws and regulations that amount to censorship (for a more detail view, please see our lesson Freedom Of Speech Is A Figment Of Your Imagination).


But hold on, because we are not finished yet. The Free Market does provide a proper solution to this puzzle: customer ratings.


People believe that before the age of Internet, ratings were non-existing. They are mistaken. Ratings always existed when it mattered. For example during the times when many banks competed printing their own fiat money, there were trustworthiness ratings printed in newspapers. Movie ratings were also common. At any point in time you bother looking at, you will see people rating products. The Internet age simply made this process massively easy and massively broad. How does this relate to our “claims” problem? Simple. As it happens today with consumers rating everything from toilet paper to teachers, from roads to windows, from politicians to pens, from call-girls to cats, there will be drug manufacturing rating. Any manufacturer making outrageous claims or even false claims would be automatically and instantaneously punished by their customers. Market justice will be swift and merciless. Either stop doing it and clean-up your act or be broke. No buts, no ifs, no second chances.


In the same manner in which fee markets clean-up undesirable products, they will clean-up undesirable manufacturers. Will this process be perfect? Of course not! No process ever is, but compared with any other bureaucratic process is light years more effective and efficient. Trial by market, the ultimate justice system.




To gauge the effect of de-criminalization and legalization of drugs in existing countries is an impossible task. Not only because it was never fully done in modern history, but because the precious little examples that we have are quite limited. However, we can extract a few (interim) conclusions. They are:


  • Major forecasted issues never took place (there were no explosions in drug use nor was there drug-tourism)
  • Reduction in drug-related infectious diseases
  • Reduction in drug retail prices
  • Reduction of drug use in problematic and adolescents (the most critical demographic for forecasting future drug use)
  • Stabilization or small increases in drug use among adults
  • Criminality decreases


These conclusions are –arguably- related to de-criminalization programs. On the other hand, studies have shown that countries with the strictest drug laws also present the highest levels of drug addiction. There are many countries where so-called “drug-related offenses” carry punishment several far harsher than rape or even murder!


Trying to curtail drug use through legislation backfires. It simply does not work.




We all use drugs but certain people will always "do" drugs. Drug use is not a disease and it is not a crime. It is a personal decision. The only real choice is to continue with spectacularly failing punishment regulation or turn to the free market to provide safer alternatives and the de-mystification of the drug allure. We prefer the latter but many advisors (those pushing more of the same punishment policies) prefer the former. It is up to you know. Do drugs or don’t do drugs, it is your decision…. and while you are at it, please give some thought as to which system you prefer. It is your choice, not ours.

Note: please see the Glossary if you are unfamiliar with certain words.

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