There seems to be no middle ground in the debate between total prohibition and unregulated legalization. An economist's solution would involve a compromise that balances costs and benefits of drug legalization and taxation at the margin, thus making the issue of drug legalization an empirical matter. A preliminary analysis of economic issues involved in drug legalization is presented that focuses on whether drug legalization can be accompanied by trade restrictions that improve welfare but do not increase drug use. The author concludes that, under reasonable assumptions about drug interdiction, drug smuggling will still persist even if drugs are legalized. In other words, trade restrictions cannot totally abolish drug smuggling. The author develops a two-tier model of drug sales in which pure profits accrue at both levels. The model also determines an equilibrium level of endogenous violence among competing drug dealers as rent-seeking behavior and identifies market responses to various policy changes. Additional information on the drug sales model is appended. 15 references, 13 footnotes, and 1 figure