The Politics of Prohibition

by Don Boudreaux on July 25, 2007

in Food and Drink, History, Myths and Fallacies, Nanny State, Politics, Regulation, Taxes

Why did the U.S. government prohibit alcohol starting in 1920?  And why did it end this ignoble "experiment" in 1933?  I have a theory.  (Hint: the reason for both the launch and the sinking of alcohol prohibition centers on tax revenue.)

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Slocum July 25, 2007 at 9:09 am

Is anybody running and publicizing the numbers for, say, legalizing pot? Pointing out how much tax revenue is now lost because marijuana is not now subject to sales and "sin" taxes? It has to be a pretty big number, doesn't it?

apb July 25, 2007 at 9:44 am

Great job!!! Always follow the money.

vidyohs July 25, 2007 at 9:57 am

The website below quotes the Grace Commission Report;

One third of income taxes "owed" is wasted on typical governmnetal stupidity, one third is not collected due to the underground economy and non-filers, and the one third that is finally collected goes entirely to pay the interest on the the phony money we are loaned by the Fed. Not one dime is spent on what people expect or think of as services.

With that in mind I am skeptical of the accuracy of this statement in your piece (linked):
"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"

That would mean that one third of what was "owed" was supplying two thirds of the total revenues, and I just find that hard to believe.

If your statement is accurate then the country was in sad shape indeed and had been for a very very long time.

tarran July 25, 2007 at 10:42 am

Uhm, viyohds, perhaps you might want to check out the historical statistics on the national debt:

Note that the national debt was only 22 billion at the beginning of Prohibition and end of prohibition. To back up Dr Boudreaux's point, the national debt plunged to 16 billion in the mid 20's before shooting back up to 22 billion as the Depression hit.

how much interest was being paid on 22 billion dollars? At most 3 billion I would think, probably closer to 1 billion. The Grace commission took a snapshot half a century later of a very dynamic system.

Incidentally its interesting to note that when the Depression finally ended in 1948 (when Truman abandoned alot of Roosevelt's disastrous economic policies) the national debt was 252 billion dollars, having gone up by an order of magnitude.

Robert S. Porter July 25, 2007 at 11:22 am

The real reason that prohibition started in 1920 is because they gave women the vote. There's a reason the Nineteenth Amendment came after prohibition.

John July 25, 2007 at 12:28 pm

It is strange that the government nickels and dimes us at every turn looking to raise revenue, the failure of our current War On Drug policy, but does not legalize marijuana for tax purposes.

But then again when one looks at the $40 billion dollars a year the Fed gives to enforcement, court, prison and drug education. With the state and local funders chipping in an additional $20 billion for imprisonment, policing and prosecution.

I am sure there are some very well financed special interest groups keeping the status quo regarding the War On Drugs.

Keith July 25, 2007 at 12:42 pm

"I am sure there are some very well financed special interest groups keeping the status quo regarding the War On Drugs."

Yeah, its called law enforcement (FBI, DEA, Customs, ATF, state police, local police, police unions, etc.).

tarran July 25, 2007 at 1:49 pm

If you want to see exactly how depraved some DEA agnest are, you should go check out the wsbsite DEA Watch.

A few years back they had quite the interesting debate:

"Colombia eggheads scheme to put DEA out of business,"
"Word on the street is a group of Colombian scientists are developing a moth they call "Noyesi's" to wipe out cocaine production by eating the plant. Should this scheme succeed cocaine as we know it could be history… and a good portion of our work could be wiped out in a matter of months. Should cocaine and all of its related narcotics disappear, our nation, and others, could suffer a serious economic recession. Needless to say, should this insect plan prove effective in Colombia, some wise-a** bright boy will develop a bug that will devour opium poppies. Such a disaster will truly send our agency up S**t Creek… Without heroin and coke to do battle with we will be left with only marijuana, meth and the piddly-a** drugs."

Another guy responded:
""That is why we need to get behind President Bush's goal of outlawing all, repeat all, forms and reasons for abortion. With abortion, birth control (bc) pills and emergency bc outlawed a new, underground illegal drug industry will spring up overnight. This industry will be fueled by thousands of chemistry and pre-med majors making bc drugs and devices in their labs, garages and attics. Hundreds of thousands of pervert fathers and serial rapists who want to impregnate their daughters and/or as many women possible before getting caught won't care about finally getting caught as long as they know they will leave behind dozens of rape-babies that the new Bush Abortion Laws will prohibit being aborted. Advocates of anti-abortion laws that include rape and incest pregnancies will say: 'Even incest and rapebabies are children that God wants.'
… Thousands of nurses will moonlight as abortionists. And almost every women's gym, diet center and beauty salon will provide abortion services or referrals to their most loyal and trusted clients. The illegal abortion industry will do for DEA what cocaine and heroin never could because not everyone will use those two drugs… but everyone screws. Science will one day do away with heroin and cocaine, but nothing will do away with sex. We need to support our president's anti-abortion agenda to save our jobs, to guarantee our children's and grandkid's college tuitions, but most of all… to preserve our Gold Badge."

DEA watch has archived the exchange and you have to download some kind of Windows decryption program to read them. However, I read that exchange with my own eyes on DEA watch's website.

This post on Stop the Drug War accurately reflects the content of that discussion.

Brad Hutchings July 25, 2007 at 2:02 pm

Coming soon to a website near you… "Legalize Marijuana – The government needs the money." T-shirts, bumper stickers, screensavers, baby jumpers, dog bandanas, and thank you note stationery.

John July 25, 2007 at 4:25 pm

For those of you are fans of Dr. Milton Friedman, here is narrative by Kevin Zeese.

The Futility of Drug Prohibition
By Kevin Zeese

P.S. one major problem I see with Legalized Marijuana is we would loose all the cool action stories on TV and the moves. You know – good guy vs. bad drug dealer – with the car chases and crashing. Things blowing up. Lots and lots of shooting. It’s hard to beat the action of a good drug movie. ;-)

Sam Grove July 25, 2007 at 9:43 pm

I'm awaiting delivery of my hemp fiber hat.

M. Hodak July 26, 2007 at 12:43 am

So, the post should have been called "The Economics of Prohibition."

Great point about why we should be pessimistic about an early end to the drug war. The sheeple will back any nonsense perpetrated in the name of "protecting our children."

Sonya D. Jones (conservative, public-interest lawyer) July 26, 2007 at 1:11 am

Robert – prohibition came before women got the right to vote, but I do believe they were closely related.

Actually, lots of problems in government taxation, but even more so with spending, began when women were categorically given the right to vote. Stupid, stupid idea. That privilege should be reserved for those who have a vested interest in this country (property ownership) and those who can read English. Women hate me.

Hans Luftner July 26, 2007 at 12:16 pm

Women deserve as much right as men do to determine who should be my ruler, which is to say none.

M. Hodak July 26, 2007 at 9:30 pm

I care as little for a paternalistic state as I do for maternalistic one. I distinctly remembering as a teen that the main benefit to becoming an adult would be to not have anyone telling me what to do any more. (Cue laugh track.)

Ray G July 27, 2007 at 1:07 am

I was reading of some interesting correlations between women gaining the franchise, and some relatively "feel good" legislation that soon followed. As soon as I remember where that was, maybe I'll come back with a copy of the url. . .

spencer July 27, 2007 at 4:58 pm

You might want to take a look at:

Repealing National Prohibition
by David Kyvig
Copyright 1979 by the University of Chicago
The story of the campaign to repeal alcohol prohibition in America

He reports in detail the anti prohibition battle from the time the 18th amendment was first passed until it was repealed.

He gives the revenue argument short shift and points out that it was part of the argument made against prohibition as early as 1926. His detailed history implies that the revenue side of the story played a very minor role.

Half Sigma July 28, 2007 at 2:20 pm

It's well known that women's suffrage led to prohibition, as other commenters above have already noted.

Nate July 30, 2007 at 11:56 pm

Well, Don, I hope that is true. Then Bush may be the best anti- Drug War crusader our country's had in a while. Sweet irony.

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