The Politics of Prohibition

How government greed, not individual rights, ended America's ban on alcohol.

Don Boudreaux | July 31, 2007

The standard, schoolbook history of alcohol prohibition in the United States goes like this:

Americans in 1920 embarked on a noble experiment to force everyone to give up drinking. Alas, despite its nobility, this experiment was too naive to work. It soon became clear that people weren't giving up drinking. Worse, it also became clear that Prohibition fueled mobsters who grew rich supplying illegal booze. So, recognizing the futility of Prohibition, Americans repealed it in 1934.

This popular belief is completely mistaken. Here's what really happened:

National alcohol prohibition did begin on Jan. 16, 1920, following ratification of the 18th Amendment and enactment of the Volstead Act.

Speakeasies and gangster violence did become familiar during the 1920s.

And Americans did indeed keep drinking.

But contrary to popular belief, the 1920s witnessed virtually no sympathy for ending Prohibition. Neither citizens nor politicians concluded from the obvious failure of Prohibition that it should end.

As historian Norman Clark reports:

"Before 1930 few people called for outright repeal of the (18th) Amendment. No amendment had ever been repealed, and it was clear that few Americans were moved to political action yet by the partial successes or failures of the Eighteenth. ... The repeal movement, which since the early 1920s had been a sullen and hopeless expression of minority discontent, astounded even its most dedicated supporters when it suddenly gained political momentum."

What happened in 1930 that suddenly gave the repeal movement political muscle? The answer is the Great Depression and the ravages that it inflicted on federal income-tax revenues.

Prior to the creation in 1913 of the national income tax, about a third of Uncle Sam's annual revenue came from liquor taxes. (The bulk of Uncle Sam's revenues came from customs duties.) Not so after 1913. Especially after the income tax surprised politicians during World War I with its incredible ability to rake in tax revenue, the importance of liquor taxation fell precipitously.

By 1920, the income tax supplied two-thirds of Uncle Sam's revenues and nine times more revenue than was then supplied by liquor taxes and customs duties combined. In research that I did with University of Michigan law professor Adam Pritchard, we found that bulging income-tax revenues made it possible for Congress finally to give in to the decades-old movement for alcohol prohibition.

Before the income tax, Congress effectively ignored such calls because to prohibit alcohol sales then would have hit Congress hard in the place it guards most zealously: its purse. But once a new and much more intoxicating source of revenue was discovered, the cost to politicians of pandering to the puritans and other anti-liquor lobbies dramatically fell.

Prohibition was launched.

Despite pleas throughout the 1920s by journalist H.L. Mencken and a tiny handful of other sensible people to end Prohibition, Congress gave no hint that it would repeal this folly. Prohibition appeared to be here to stay -- until income-tax revenues nose-dived in the early 1930s.

From 1930 to 1931, income-tax revenues fell by 15 percent.

In 1932 they fell another 37 percent; 1932 income-tax revenues were 46 percent lower than just two years earlier. And by 1933 they were fully 60 percent lower than in 1930.

With no end of the Depression in sight, Washington got anxious for a substitute source of revenue.

That source was liquor sales.

Jouett Shouse, president of the Association Against the Prohibition Amendment, was a powerful figure in the Democratic Party that had just nominated Franklin Roosevelt as its candidate for the White House. Shouse emphasized that ending Prohibition would boost government revenue.

And a House leader of Congress' successful attempt to propose the Prohibition-ending 21st Amendment said in 1934 that "if (anti-prohibitionists) had not had the opportunity of using that argument, that repeal meant needed revenue for our government, we would not have had repeal for at least 10 years."

There's no doubt that widespread understanding of Prohibition's futility and of its ugly, unintended side-effects made it easier for Congress to repeal the 18th Amendment. But these public sentiments were insufficient, by themselves, to end the war on alcohol.

Ending it required a gargantuan revenue shock -- to the U.S. Treasury.

So, if the history of alcohol prohibition is a guide, drug prohibition will not end merely because there are many sound, sensible and humane reasons to end it. Instead, it will end only if and when Congress gets desperate for another revenue source.

That's the sorry logic of politics and Prohibition.

Don Boudreaux is chairman of the economics department at George Mason University.  This article originally appeared in the Pittsburgh Tribune-Review.

Comments

|7.31.07 @ 12:05PM|#

Well then, we should be in pretty good shape to end the WOD soon!

Travis|7.31.07 @ 12:10PM|#

You wanna fund social security, and medicare? Make ganja leagal, and tax it.

|7.31.07 @ 12:14PM|#

You mean FDR just wanted more money to spend his way.Say it's not so.

The AntiHumanist|7.31.07 @ 12:15PM|#

America actually might end its War on Drugs sooner than we imagine: with future Social Security and Medicare deficits, the more politically-agreeable option, in my opinion, would be to legalize and tax marijuana, etc. rather than increase income and payroll taxes or restrict entitlements.

|7.31.07 @ 12:16PM|#

One issue is the massive infrastructure dedicated to fighting the War on Drugs. Think of the budgets of every police department in the country, just for starters. The entrenched interests built on tax dollars to fight the WOD will resist any effort to end the war, regardless of the tax revenues that would come from legalization.

jimmydageek|7.31.07 @ 12:21PM|#

You wanna fund social security, and medicare? Make ganja leagal, and tax it.

Are you kidding me? Make it legal and you'll have a bunch of stoned retirees and medicare recipients with a major case of the munchies. It's bad enough we have to pay for them to be lazy...I don't want to have to pay for their smokes and eating frenzies also...

Russ 2000|7.31.07 @ 12:41PM|#

You mean FDR just wanted more money to spend his way.

Yep. To build highways. Drinking and driving have always mixed.

Russ 2000|7.31.07 @ 12:42PM|#

The entrenched interests built on tax dollars to fight the WOD will resist any effort to end the war, regardless of the tax revenues that would come from legalization.

Nah. They'll just have a War On Something Else that the infrastructure can be used on.

Robert|7.31.07 @ 12:50PM|#

This is what I've been telling people for years, unfortunately -- that it would take another great depression. Another, lesser reason that was advanced for repeal is that the liquor industry, from mfg. to bars, would put people to work at a time when unemployment was worse than the revenue problem; of course, that work was already being done, just off the books. But it was too late for the industry not to lose a significant mfg. share to Canada, which we see to this day.

|7.31.07 @ 12:57PM|#

Good, article. It all seems so obvious now, gives perspective to the current prohibition. On the bright side, given the increase in demands on entitlement programs and deficient spending, I put the next depression is due in 5... 4... 3...

|7.31.07 @ 1:02PM|#

They'll just have a War On Something Else

Already dialed in, thanks.

I have long thought that Bush missed a major opportunity when he didn't re-task the DEA to focus on "Homeland Security". Its everything they already do, only with a quasi-legitimate purpose.

bill|7.31.07 @ 1:02PM|#

The next depression is due when the Banker's decide it is their interest to have one.

|7.31.07 @ 1:09PM|#

Russ 2000,Fdr didn't build the highway system.He brought S.S.,farm subsidies and tried to nationalise indutry.His legacy is making the feds the countries sugar daddies.

|7.31.07 @ 1:25PM|#

Taxation explains a lot of history. Not only did the need for more taxes end prohibition, but it was taxes that actually started it! Since the liquor tax was a major source of revenue, the politicians ignored the temperance tantrums for decades. But then we got the income tax, and suddenly gub'ment was awash in revenue. Getting rid of the liquor tax (along with the liquor) became feasible.

David Flores|7.31.07 @ 2:00PM|#

Color me unconvinced:

The article relies on the views of a lobbyist and one quote from one congressman as evidence that tax revenues were a guiding concern, and never actually provides figures detailing the increase in tax revenues that was brought about by repealing prohibition.

If I were a history professor grading this essay I'd give it a B- and ask the author to provide more documentation to show that tax revenues were on other legislators' minds at the time of the repeal.

I did RTFA :)|7.31.07 @ 2:07PM|#

Since the liquor tax was a major source of revenue, the politicians ignored the temperance tantrums for decades. But then we got the income tax, and suddenly gub'ment was awash in revenue. Getting rid of the liquor tax (along with the liquor) became feasible.

Brandybuck, you're right, and I could just swear I've read that somewhere before... but where? Oh wait, here it is - right there in Boudreaux's article itself!

[B]ulging income-tax revenues made it possible for Congress finally to give in to the decades-old movement for alcohol prohibition.

Before the income tax, Congress effectively ignored such calls because to prohibit alcohol sales then would have hit Congress hard in the place it guards most zealously: its purse. But once a new and much more intoxicating source of revenue was discovered, the cost to politicians of pandering to the puritans and other anti-liquor lobbies dramatically fell.

|7.31.07 @ 2:21PM|#

I'll second Mr. Flores lack of being convinced by this article. Not that it doesn't have a reasonable premise, just that major revisionism can't be had on such flimsy evidence...I've read before of urban politicians, especially with significant ethnic populations among their electorate, opposing prohibition quite strongly. For example Al Smith was against it (though he punted on the issue when he ran in 1928 as back then the Democratic party was this bipolar monster split between Southern "Dixiecrats" who were social conservatives and Northern more urban Democrats who were more cosmopolitan [if only folks like SIV could realize this when they conflate the "Democrats" or 1920 or 1930 with the current party in which the Southern social conservatives have lost most of their sway and gone to their home in the GOP]).

|7.31.07 @ 2:50PM|#

Not surprising when you consider the only reason consuming alcohol from your own still is a crime, is because you're cutting the federal taxman out of the loop.

|7.31.07 @ 3:23PM|#

I consider the monetary end of the argument to be one of our most effective arguments in helping to end the WOD. A lot of good could be done by eliminating the $7.7 billion cost of prohibition. Add to that the taxation of legalized drugs and ending the WOD becomes a no-brainer for many voters.

|7.31.07 @ 4:07PM|#

as Matthew said:
Not surprising when you consider the only reason consuming alcohol from your own still is a crime, is because you're cutting the federal taxman out of the loop.

I had the same thought. Distilling your own spirits isn't difficult and, unless you're a total idiot (i.e., using a car radiator or something), not a health hazard. It's not significantly more dangerous than, say, home canning. I believe it's done quite a bit in some of the Scandinavian countries. If you're not selling the product the only major reason for keeping it illegal is to make sure you pay the taxman.

I actually thought that, at one time, it was allowed under federal law. The head of a household could produce up to 20 gallons a year for personal consumption, similiar to the homebrewing of beer and wine (which I think is 200 gallons). Can someone confirm if I'm just hallucinating this, or if indeed they tightened this up since the '70's or something?

|7.31.07 @ 4:36PM|#

j.a.l.

I've got a book that tells how to set up a home still (with the advice not to do it because it's illegal), "The Moonshiner's Manual" circa the 70's. It says that a 'head of household' is entitled to brew up to 200 gallons of beer, but it's illegal to separate the alchol (by distilling) and has been since Prohibition. Just another hallucination. (Keep that still clean, or you get stuff that can kill you.)

|7.31.07 @ 5:06PM|#

just another lurker ,
Sadly, you are hallucinating.
:-)

In the fine state of Washington, it is legal to own a still and even legal to use a still, just not legal to consume the results. For that reason, mine is just for fuel additives. All goes into my gas tank.

And the reason it is so popular in the scandinavian countries, is because . . . wait for it . . . they have the world's highest alcohol taxes.

|7.31.07 @ 5:09PM|#

This also reminds me of the Federal Firearms act of 1934. Many people don't realize it is perfectly legal to own a machinegun in the United States (federal law), there is however, a $200.00 transfer tax whenever there is an ownership change. Why is that?
Simple. Just fucking because, that's why.

/arrggh, don't get me started

|7.31.07 @ 8:23PM|#

Although I agree with the author that money moves government to action, the simple fact remains that the reason why an upswell in public support never occured to repeal the 18th ammendment was because the ammendment didn't work. Anyone could get beer, wine or liquor anytime they wanted. As far as John Q. Public was concerned the 18th ammendment didn't have to be repealed.

The same paradyne is going on now with drugs. It doesn't matter how many laws you pass, anyone that wants drugs can get them. When the government really feels the pinch it will legalize and tax drugs. No question. For the users - is it necessary to legalize drugs? Not really

As an economist the author is myopic and sees only what is revelent to his expertise. Unfortunately he ignores the obvious.

One other thing....governments will always find a way to generate revenue, and they will specifically tax the part of the citizenry that is least likey to launch a successful campaign against it.

Look at cigarrette taxes. Driving my car to and from work spews more toxic gas than a smoker can generate in a lifetime. Do we tax cars for health reasons? No, we tax the terrible "smokers".

Taxing alcohol made perfect sense in the 1930s as a money generator because the tax was specific. It was only levied on those terrible "drunkards".

Get it now?

|7.31.07 @ 11:31PM|#

"The same paradyne is going on now with drugs. It doesn't matter how many laws you pass, anyone that wants drugs can get them."

This may be true as far as it goes, but it's still a nonsense. I can get cocaine anytime I want it (not often) but the illegality of it still changes my approach big time. If the wife and I are taking a weekend in Vegas we might buy a few 8-balls for the trip but we're mighty nervous on the drive. Bad luck with a cop means we're going to prison and losing our children (we've had a small run-in with those cunts many years ago). For fuck's sake, legalise all this dogfood today and we'll all be better off.

herodotus|7.31.07 @ 11:46PM|#

"Color me unconvinced:

The article relies on the views of a lobbyist and one quote from one congressman as evidence that tax revenues were a guiding concern, and never actually provides figures detailing the increase in tax revenues that was brought about by repealing prohibition.

If I were a history professor grading this essay I'd give it a B- and ask the author to provide more documentation to show that tax revenues were on other legislators' minds at the time of the repeal."

I don't know, it has as much documentation as most journalistic essays of similar length.

I mean, history students aren't allowed to quote 'confidential sources' either, but that doesn't stop some award winning journalists from doing just that.

Lets face it, journalism is a pretty loose discipline when it comes to rigorous demonstrations and whatnot.

But I agree, some references would be nice.

Thomas Paine\'s Goiter|8.1.07 @ 12:05AM|#

paradyne

Really?! Is this like "for all intensive purposes"?