The underground economy consists of two broad categories: the unreported production and trade of legal goods and services and the production of illegal goods and services. Of these, the nonreporting of transactions in legal goods is the more important source of underground income. The types of transactions include Federal income tax evasion, excise tax evasion, activities of illegal aliens, the stolen goods market, fraud involving legal goods and services, the smuggling of goods other than drugs, and the pirating of records and tapes. Illegal goods and services include gambling, arson, drugs, prostitution, loan sharking, embezzlement, bribery, pornography, protection and extortion, and counterfeiting. The underground economy grew most rapidly in the 1960's, but did not grow more rapidly than reported economic activity in the 1970's. The structure of the underground economy is complex and can vary markedly from sector to sector. A better understanding of the nature and extent of the underground economy would aid economic policymaking. Data tables and chapter reference lists are included.