Black Money and Its Functions

Black Money and Its Functions SHANKAR ACHARYA et al's two re- tent articles on black money and its functions in India (October 8 and December 3, 1983) are to be highly commended for their review and analysis of the by now profuse literature on the subject. I am not writing to contradict anything they have said as much as to register some reservations on some emphasises in the second article. Whereas the effect of black money on the effectiveness of control of the supply of money by the monetary authorities is an item of some concern to those authorities, I would think that what is needed is a broader vision in which we analyse the potential welfare costs of the Black Money Economy, as compared with the situation where it did not exist. This no-black market situation is hard to define, because it is usually land probably correctly argued that a situation under which all income was reported for tax would have a lower overall level of economic activity than at present. However, we can catalogue five major potential welfare costs of the existence of a black money economy.