The 'black' or undocumented economy is attracting attention. Both our own Office of National Statistics (ONS) and its EU counterpart, Eurostat, have been trying to quantify it. Part of the black economy is criminal in the normal sense of drugs and fraud, but most of it is simply economic activity which is unrecorded to escape tax and regulation. In general, the higher the burdens which those two impose, the greater the temptation to evade them.

Although at first glance the black economy looks like money lost to government finances, much undocumented activity would probably not be worth doing at all if it had to be taxed.

Carl Mortished’s European Briefing in the Times quotes the Italian think tank Eurispes which estimates underground business activity in Italy to be about 27% of the economy. This is roughly in line with the IMF's estimate that about a third of Italian workers are off the books. Estimates for Greece are higher still, as are those for some of the ex-Soviet countries. Excise duties in Britain on alcohol and tobacco are high enough for a flourishing underground trade to flourish. It is quite something in Britain to inspect discarded cigarette packs to see the various languages in which the health warnings appear. America’s black economy is reckoned to be about 9% of GDP, with its small size usually attributed to the lower taxes there.

Of two possible ways to reduce the black economy, one is to intensify snooping, searches and policing, employing additional officers to crack down on fraud. Particular attention is devoted to nannying, cleaning, plumbing and building, since evasion seems to be widespread in such areas.

Another way is to lower the tax and regulatory burden so that it becomes far less necessary or worthwhile to evade it. The ASI follows Adam Smith himself in following the second course. Under his advice hundreds of taxes and duties were abolished or drastically reduced, and the romantic Cornish smugglers became an endangered species.

In the old story the wind and the sun competed to remove a man’s cloak. The force of the wind proved inadequate; then the sun came out and the man took his cloak off. It should be required reading in the Treasury.