Re-visiting Prohibition

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Next January will mark the 100th Anniversary of the start of Prohibition. It is one of the least talked about and poorly studied events in US history. Very little has been written about it, especially by economists, but I have always found the subject to be interesting.

Americans have always had “issues” with the consumption of alcohol.  Laws restricting its manufacture and sale go back to the colonial period.  The temperance movement of the 19th Century is most often seen as a “moral crusade” or political battle.  Prohibition itself is often viewed through the lens of the speakeasy lifestyle.  As with most great movements much of the forces behind it were based in more practical issues.  

The real issue about alcohol in US politics and economics has always been about taxes. The very first tax levied by the brand new US Government in 1791 was a tax on the manufacture of alcoholic beverages. .The new Congress thought it was a good way to raise money to pay off the Revolutionary War debt.The tax was not well received especially by the people who were making and selling the product. 

Farmers in Western Pennsylvania and Kentucky were growing grain, distilling it into whiskey and shipping it east. Even back then it was a very profitable business. They saw the tax as the governments’ attempt to put its hand into their pockets.The farmers’ response to this tax was an armed rebellion against the United States. 

How big was the rebellion? The US Government sent 13,000 troops to quell it. There were no armed battles and the rebels disbursed. But many people still refused to pay the tax and more than one tax collector was physically assaulted.

The whiskey excise tax was the largest source of tax revenue in the early years of the U.S. and a substantial and reliable source of tax revenue throughout the 19th Century.  As the population grew, total consumption also grew and the total tax revenue collected each year kept going up with it.

Women were at the forefront of the temperance movement for a number of reasons. They were rarely the bread winners in their family and having the male breadwinner too drunk to work or injured because they were drinking on the job was not in women’s financial interests. Time spent at the local pub meant time away from the family and drinking has always been associated with gambling and prostitution, neither of which enhanced marital life. Drunken husbands also had a way of physically and mentally abusing their wives. For. many women Prohibition was a practical remedy for a practical problem.

The temperance movement was an amalgam of women’s groups and mostly Protestant churches or affiliated religious organizations. The movement was well organized. It claimed millions of supporters across the country. The goal was to outlaw the manufacture and sale of alcohol everywhere in the US.

By 1856 they had succeeded in doing so in 12 states and dozens of rural counties. It was a remarkable political feat for a group of like-minded citizens the majority of which were women and could not vote.

As the country moved west after the Civil War and new communities grew along the railroad right of way, saloons were often the first structures built and always a fixture in any new town. Many of those towns had more saloons than churches and many communities in America still do. 

As the 19th Century went on, there were more and more immigrants from Germany who began brewing beer in the mid-west grain belt. These brewers also developed a new business model.The breweries often would help to build or finance a local saloon in exchange for being the only beer offered in it. It was an early version of franchising.

Especially in urban areas, saloons were often a focal meeting place of the local immigrant communities. Saloons or taverns had always been places to drink and discuss politics. They also became known as places where politicians could meet and do business with voters and constituents.   Given that saloons were so prevalent, it is somewhat remarkable that the “drys” prevailed.  

By the turn of the 20th Century there were “wets” and “drys” in both political parties. Neither of the major political parties took a formal position one way or another but momentum for prohibition was growing. Competing products, like soft drinks, began lobbying for prohibition especially at the state and local levels. Eventually there were more “drys” than “wets” in the US Congress and the die was cast.

What actually paved the way for the ultimate success of the prohibitionists was the income tax which was enacted specifically to replace the excise tax on whiskey. Once that was in place, Congress in 1918 passed the 18th Amendment to the US Constitution, it was ratified in 1919 and the enabling legislation, the Volstead Act, began to put Prohibition into action in January 1920. 

The social benefits of prohibition derive from a reduced consumption of alcohol. They include a reduction of alcohol related health issues, less public disruption caused by inebriated citizens, and probably some additional domestic peace. Productivity at work rose as work related injuries and absenteeism decreased. But a lot of people never stopped drinking.  

Whatever romanticized image of Prohibition you may glean from Hollywood, it was not just fashionable people partying in a fashionable speakeasy near Times Square. During Prohibition thousands of poorer people died drinking homemade alcoholic concoctions.Manufacturing and bootlegging turned intolarge,  and profitable, albeit illegal ,businesses.

Still most people bought one bottle at a time from a family member or acquaintance. Everyone knew that they were breaking the law and no one really cared.

Overall enforcement was very difficult. Corrupting judges, politicians and law enforcement was part of the business model for the larger players. Small, person to person, transactions were almost impossible to detect.  It demonstrated to a lot of people that if you were willing to break the law, you were likely to get away with it.  

The Depression killed Prohibition. Roosevelt came into office in 1933 with big spending plans and declining revenue from the income tax as millions of people were out of work. Repealing Prohibition to allow all of the existing illegal transactions back into the mainstream and re-instating the excise tax was a no-brainer. And that is exactly what Congress did.

The post-WWII baby boomers have had alcohol integrated into mainstream family life.   Alcohol is a significant part of the socializing that the baby-boomers do. A drink after work or a beer around the barbeque is modern day normalcy.

The social issues today are the same as always. Excessive drinking frequently shows up in studies of marital problems, spousal abuse and petty crimes. According to the CDC: “Drinking too much can harm your health. Excessive alcohol use led to approximately 88,000 deaths and 2.5 million years of potential life lost (YPLL) each year in the United States from 2006 – 2010, shortening the lives of those who died by an average of 30 years. Further, excessive drinking was responsible for 1 in 10 deaths among working-age adults aged 20-64 years. The economic costs of excessive alcohol consumption in 2010 were estimated at $249 billion, or $2.05 a drink.”

Today most alcoholic beverages are served up by large multi-brand, multi-national conglomerates.   Mass media advertising has made them ubiquitous. It is virtually impossible to watch a sporting event and not see ads for alcoholic beverages.

The US government still collects a tax on every can and bottle. The tax on alcohol today makes up about 12% of the total excise tax revenue and a very small amount of the US Government’s overall income.  Not even the tax collector really cares any more.

Most studies of Prohibition overlook the seemingly constant demand for the product, even when the consumers knew that it was illegal to purchase and consume it.  The simple truth is that banning anything is not a viable policy.  America prides itself as being a nation of laws. Prohibition demonstrated that a wide swath of the population was willing to say: let the laws be damned.  

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