The Economics of Prohibition

6 The Repeal of Prohibition

It seems certain, therefore, that the Eighteenth Amendment cannot be repealed, in whole or in part.

—(Irving Fisher, Prohibition Still at Its Worst)

The certainty Irving Fisher spoke of concerning the repeal of alcohol prohibition was also true of the first seventy-five years of narcotic prohibition. Repeal is only considered a viable option after all other measures have failed. Repeal and legalization have now come back into consideration, but they are still far from representing the views of the majority of the public.1

The repeal of prohibition is a radical proposal only in the sense that it goes to the root of the matter. The “matter” in this case is some combination of the failure of prohibition to address the problems of drug use and the negative results that prohibitions create. It is not radical in the sense that it has never been tried, would be unusual in content or results, or would represent some form of communism. Alcohol and tobacco prohibitions have been repealed and similar prohibitions have been repealed in other countries. In fact, the eventual repeal of the current prohibition is quite likely; the interesting and important question is, what will replace them?

A number of alternative policy regimes have been proposed to replace prohibition. Most of these suggestions involve some combination of government and market control. A likely scenario is that after repeal (first for marijuana, then narcotics) the products would simply be governed by existing interventionist measures. For example, narcotics would become a “by prescription only” drug and marijuana would be regulated and taxed like alcohol and tobacco. This would be a simple and politically feasible option.

While politically feasible and preferable to current conditions, such a solution suffers two important defects. First, interventionist measures were found to be politically unstable for products consumed by a minority of the electorate. This instability is due in part to the second defect of interventionism: its inability to correct true social problems and its tendency to create new ones.

Based on the results of my research, legalization is the option considered last but most likely to succeed. Decriminalization (the reduction in criminal status or regulation of an activity or product) as a substitute for prohibition is desired primarily as a politically expedient transition mechanism to legalization (to make an activity legal and subject to the normal market and legal constraints). As W. H. Hutt (1971) suggests, political viability should be the last consideration of the policy analyst, if it is to be considered at all.

Many of the early studies of prohibition were biased and flawed. The level of economic analysis and the methodology employed were simply inadequate to the task of studying prohibition and black markets. Early students of prohibition produced little in the way of an economic theory of prohibition.

The market-process approach to government intervention provides a general framework of analysis that, when applied to prohibition, yields valuable theoretical insights. Contributions from economics, history, sociology, and criminology support this market-process perspective.

History reveals that prohibitions were established on rent-seeking grounds. The original intent of temperance reformers was public spirited, but these reformers turned to political solutions, and temperance evolved into a political movement. The adoption of prohibitions was shown to be the goal of a coalition of politicians and bureaucrats, rent seeking on the part of professional and religious groups, and basic prejudice against certain minority and immigrant groups, such as Mexicans and blacks.

The first result derived from the market-process approach is an understanding of the undiscovered discovery process. Policymakers adopt prohibition policies in part because of their (and their constituents’) failure to recognize the market’s ability to correct for imperfections. The market does not make such corrections perfectly or instantaneously (as indicated by the model of perfect competition), and this is the case with prohibition. Temperance advocates were impatient, so they resorted to politically based solutions, eventually turning to prohibition.

The unsimulated discovery process (bureaucracy) plays a role in both the adoption of prohibition and its inability to achieve desired results. The bureaucratic nature of government is incompatible with successful experimentation, innovation, and entrepreneurship. Bureaucracy has no clear and objective mechanism for recognizing efficient solutions. Innovation and evaluation are further hampered in bureaucracy by the need to institute system-wide policies and rules.

The bureaucracy also hampers the market’s ability to produce desired solutions. For example, Sam Peltzman (1974) found that regulation stifled the “discovery process” in the pharmaceutical industry. The stifling of discovery in the market is more severe under prohibition than under regulation because prohibition negates the market, whereas regulation merely hampers it. Prohibition’s stifling of the discovery process extends to other areas, such as product quality, the availability of complements and substitutes, and product information.

Information is distorted by prohibition in many ways. In the infamous case of the nineteenth-century patent drugs, state prohibition laws and exemptions for patent medicines containing opiates resulted in the widespread addiction of unsuspecting consumers. Individuals seeking relief from addiction or attempting to avoid addiction were duped by the coexistence of state prohibition laws and the availability of legal narcotic preparations.

While such bureaucratic miscalculation might be treated as ignorance or the result of rent-seeking behavior, it must nonetheless be seen as a normal and predictable result of interventionist policies. A more recent example is the requirement of warning labels on cigarette packages; the unintended effect was an increase in consumption by teenagers of such alternative tobacco products as chewing and snuffing tobacco, for which warning labels were not required.

The “wholly superfluous discovery process” is a category of results that was found particularly where the black market supplants the legal market. In black markets, the incentives of suppliers tend to be completely dominated by the effects of prohibition. Crime and higher-potency drugs are the types of effects brought about by the new profit opportunities provided by prohibition. The new profit opportunities not only made prohibition more difficult to enforce, they produced results that ran counter to the goals of prohibition.

The question of the potency and quality of products has important implications for the possibility of effective prohibition. As more resources are devoted to the enforcement of prohibition (or penalties are increased) suppliers resort to increasing potency, higher-potency types of drugs and reduction in product quality, product attributes (such as safety and information), and complementary goods (such as needles, filters, and antidotes). These adjustments not only make prohibition more difficult to enforce, they produce results which are antithetical to the goals of prohibition. Most important, changes in potency and product quality counter the argument that the goals of prohibition are achieved because a smaller quantity is consumed.

The issues of crime and corruption have negative implications for the possibility of effective prohibition. As more resources are devoted to prohibition, the price of the prohibited product increases. This causes the real income of illegal-drug users to decline and creates profit opportunities for suppliers and public officials. As a result, total crime and corruption increase under prohibition. Crime and corruption make the enforcement of prohibition more difficult because crime increases the income of drug consumers and corruption decreases the costs to suppliers. Crime also increases as enforcement resources are diverted to prohibition. Prohibition-induced crime and corruption also exacerbate the problems that prohibition hopes to solve. Like potency and product quality, crime and corruption act as vents for avoiding the intentions of prohibition and make it more difficult and costly. The increases in crime and corruption due to prohibition hinder the attainment of effective prohibition.

IS EFFECTIVE PROHIBITION POSSIBLE?

It is possible to enact prohibitions under virtually any form of government, and in fact, prohibitions have been enacted by almost every presently existing national government and the United Nations. It is also now generally agreed that complete prohibition is impossible to achieve, except in the most limited sense (where there is little or no existing demand for the product or where there exist near-perfect legal substitutes). The political possibility of enacting prohibition and the impossibility of achieving complete prohibition, however, are not the issues raised here.

The debate about prohibition has centered on the costs and benefits of prohibition. The intended benefits of prohibition all depend on decreasing the quantity consumed. The costs of prohibition include the explicit cost of law enforcement and implicit costs, such as the opportunity cost of the courts and prisons, and the increased crime and corruption that result from prohibition. The cost of prohibition has been shown to be a function of the resources devoted to the enforcement of prohibition and to be greater than previously thought. An important but neglected cost is the stifling effect that prohibition has on the market-discovery process.

The case against prohibition presented here does not rest mainly on the cost of prohibition outweighing the benefits, but rather on the absence of benefits as the decrease in quantity is more than offset by higher potency, more dangerous types of drugs, and increased crime and corruption. Just as consumers have demonstrated that they will pay black-market prices for prohibited goods, however, supporters of prohibition have demonstrated that they will vote for increasing amounts of resources to enforce prohibition. This support continues despite the public’s recognition of the inability of these increased resources to bring about desirable results.

Randy Barnett (1987, 73–76) notes that Americans have become psychologically addicted to drug laws. He also realizes that other drug-law users, such as politicians, bureaucrats, researchers, and academics, ignore the costs of prohibition because of their “economic dependence” on such laws. Thomas S. Szasz (1985, 342–45 and elsewhere) makes the argument that the United States has become a therapeutic state (union of state and medicine), similar to the theocratic state. In a therapeutic state the interests of government and medicine dominate any concern about the costs of prohibitions.

The benefits of prohibition (if there are any) must be viewed by the economists as just as subjective as the value of lollipops or the Mona Lisa. Due to its political nature and a lack of market valuations, the value of prohibition simply cannot be definitively and accurately demonstrated. In fact, the current prohibitions were not and never have been subject to a popular vote. Policy experts and pollsters can provide no more than “best guesses” produced by politically motivated cost-benefit analysis and opinion surveys.

Fortunately, a more basic level of analysis is available for the economist to consider—the existence, rather than the perception or amount, of benefits. The neglect of this fundamental level of analysis can be attributed largely to the reduction in quantity demanded that is expected from prohibition and to the fact that the benefits of prohibition are perceived to be a function of the quantity consumed. If prohibition increases price, other things equal, there must be benefits. While prohibition certainly does increase price, it also increases potency and decreases quality. While not crucial to this argument, many, including Brecher (1972), have argued that prohibition increases the demand for and consumption of the prohibited product.

With regard to quantity consumed, increase in potency is a major factor in maintaining the real quantity-consumed constant. As to the quality of the product, it is greatly diminished by prohibition. The combination of increased potency and decreased quality makes the consumption of the product more dangerous and possibly more addictive. The substitution of more dangerous types of drugs has also been found to be a predictable effect of increased enforcement. Prohibition will deter some occasional users of a product but is unlikely to deter consumers who have an addiction to the prohibited good.2 Those who do curtail their consumption of prohibited drugs can easily substitute legal drugs, intoxicants, and narcotics.3

Prohibition does not eliminate access to the product and does not discourage the very type of consumption it was designed to discourage. Therefore, the argument that increased price reduces quantity consumed and therefore produces benefits has yet to be established either in theory or in fact. The quantity of drugs captured by law enforcement is not a benefit of prohibition; it is merely a cost of doing business in the black market.

Prohibition appears to be helpless in decreasing demand or in preventing increases in demand. Government statistics indicate that the consumption of marijuana has decreased or leveled off in recent years. Still, it would be a mistake to declare this a benefit of prohibition and increased enforcement. First, the statistics themselves are in some doubt. Marijuana production has increased in small plots and indoors, where information on production is difficult to ascertain, and the potency of marijuana has continued to increase. Potency-adjusted consumption of marijuana may have increased. Even if a decrease in consumption has occurred, it would not be a benefit of prohibition; quite the contrary. Government estimates of consumption have shown that the street price of marijuana has increased, the price of cocaine has decreased, and the consumption of cocaine has increased. These estimates are consistent with a shift in demand between substitute products, which is predictable as a result of increased enforcement.

In this book I have established the possibility of the impossibility of prohibition. The stronger case—that effective prohibition is impossible (that is, without any benefit)—is difficult to demonstrate and is subject to a variety of criticisms. A general criticism of the impossibility thesis is that all the possible benefits were not considered. Indeed, one point raised concerning the effects of prohibition is that not all the possible ramifications of prohibition may be known or apparent to either the examiner or the policymaker. For example, it could be claimed that prohibition can reduce expenditures on a certain product under certain conditions.4

In this book I have examined all the (well-intentioned) known arguments for prohibition. Many of these arguments I have explored in great detail. None of them can be shown to have demonstrated viable benefits, and no empirical study has been found to negate this conclusion adequately. Many of the arguments I examined here need further inspection and elaboration.

The termination of prohibition does not necessarily follow from the theoretical conclusion that prohibition is effectively impossible. Two important questions must first be raised. First, given the costs that prohibition has imposed, is termination a reasonable course to follow? For example, prohibition has resulted in higher-potency products and new, more dangerous drugs. Would repeal result in even higher potencies and more dangerous drugs? Second, despite a lack of benefits, might not prohibition still provide value? For instance, if we assume that the market does not induce improvements and the costs of prohibition can be ignored, might not prohibition provide value to society by taking a position (although futile) on an important issue? While these two questions do not deal directly with the economic results of prohibition, they are important policy considerations.

ALTERNATIVE POLICY REGIMES

Much of the debate about prohibition concerns how to enforce it and how much to spend on enforcement. I argue that enforcement cannot achieve the public-spirited goals of prohibition and that more resources will only make a bad situation worse.

Alternatives to prohibition involve some measure of decriminalization. Policy options such as nationalization (government drugstores), licensing requirements, price controls, taxation, regulation, a variety of maintenance programs, quarantine, education, and rehabilitation would be improvements over prohibition. Many of these reforms are questionable, however, in terms of their effectiveness, their ability to produce long-term solutions, and their stability as long-term public policy. These reforms have the additional liability of being specific to one prohibition, rather than being a general remedy for all prohibitions. Full legalization is an alternative to these interventionist reform measures. The major problems it poses are its political feasibility and stability.

Clague (1973) examined several strategies for dealing with heroin addiction, including prohibition, strict and permissive methadone maintenance programs, heroin maintenance, and quarantine. He then evaluated these schemes against seven criteria: amount of crime, number of addicts, well-being of addicts, police corruption, violation of civil liberties, legal deprivation of traditional liberties, and respect for law (in general). Based on his analysis, Clague ranked each scheme’s performance on the seven criteria on a five-point scale.5 He found that prohibition ranked last and heroin maintenance ranked the best.6

While heroin maintenance ranked the highest among the policies studied, Clague admits that for a variety of reasons, it is not “an ideal solution to the heroin problem” (1973, 267). In addition to maintaining addiction and several practical problems, government-sponsored maintenance programs involve taxpayer subsidies to addicts. This option creates resentment on the part of antidrug taxpayers and therefore political instability.7 John Kaplan (1983) also examined a variety of policy options for heroin. He also found that heroin maintenance and other options faced operational drawbacks and political obstacles.8

Moore (1973) suggested that a policy of heroin maintenance for addicts combined with prohibition would achieve price discrimination in the heroin market. Maintenance would reduce the costs of addiction to the addict and society, while prohibition would impose a greatly increased price on illegal heroin (over general prohibition) and therefore discourage experimentation with heroin. Moore’s “highly speculative discussion” was not meant to demonstrate which policy was most desirable but rather was intended to investigate the determinants of effective price and, with extension, demand for heroin. In this sense, Moore’s contribution is an important contribution to the a priori evaluation of various policies.

Fines have been suggested as an efficient substitute for imprisonment. If prohibition can be viewed as a form of price control, then fines could be substituted as a deterrent that would save prison resources. John R. Lott and Russel D. Roberts (1989) have examined this question and found that a legalization and price-control approach for traditional “victimless crimes” (for example, prohibitions) lacks the necessary incentives for effective enforcement. In addition, victimless crimes are difficult to monitor; the goods are highly mobile, a social stigma is attached to these goods, and the queuing or surpluses that result from price controls present special social problems. Therefore, what works in the enforcement of rent controls and minimum-wage laws does not work in the enforcement of prohibitions. Taxation is an often-suggested alternative to prohibition. Taxing marijuana is seen as a particularly viable option, but taxing opiates is not (Kaplan 1983, 150–51). The benefits of taxation include a reduction in crime and a deterrent to buying because of the higher cost, but the primary benefit is political. The revenue would make decriminalization more attractive to taxpayers and politicians. While the taxation option has much to recommend it, many of its beneficial aspects are reduced or eliminated as the tax rate increases.9 High tax rates would maintain the black market, smuggling, crime, and corruption, and have little positive impact on drug abuse and therefore would create the preconditions for introducing prohibition. Even an ad potere tax has drawbacks, such as sending signals to potential consumers that low-potency products are safe to consume.

The repeal of Prohibition in 1933 set the stage for policy experimentation.10 Some states remained dry, while others resorted to licensing requirements or state monopoly. The federal government employed taxes, tariffs, regulations, and license requirements. State governments imposed taxes and placed restrictions on the sale of alcohol. Regulations were placed on the potency of the product. For example, the potency of beer was limited to 3.2 percent in some states, although these regulations were primarily for taxation purposes. Additional interventions included age restrictions, advertising restrictions, local option, restrictions on the hours of sale, and price controls.11 Although legalization has been an improvement over prohibition, these interventions and the prohibition of other intoxicants, such as marijuana and cocaine, have resulted in mediocre results at best (see Sylbing 1985, and Sylbing and Persoon 1985). One benefit of legalization is the development of social institutions that deal directly or indirectly with the problems of addiction and drug abuse, such as Alcoholics Anonymous (formed in the mid-1930s), which today claims more than one million members.12

THE FREE-MARKET SOLUTION

Prohibition is effectively impossible in the economic sense. Alternative policies, such as government-sponsored maintenance programs, also exhibit problems but represent an improvement over prohibition. The free-market solution differs from these alternative policies in that it involves no government intervention.

The free market has traditionally been viewed as the cause rather than the cure for the problems of drug abuse. I maintain that the free-market solution involves voluntary choices of individuals within an environment of free entry, property rights, and a legal system. Entrepreneurs hire labor and purchase resources to produce, promote, and sell products to consumers. Consumers choose among diversified products in an attempt to maximize utility. Exchange results in gains to both parties and an efficient allocation of resources. Charitable and self-help groups form to solve social problems.

Prohibitionists would, of course, scoff at such a description as it applies to the market for drugs.13 Indeed, the market as it has been described here is not perfect. It is characterized by risk and uncertainty. Mistakes, such as addiction or overdoses, will no doubt occur in any system. The competition and the discovery process that characterize the development of a market promote solutions to the problems of drug abuse that prohibition seeks to solve.

The free-market solution would have many benefits:

1. A competitive price would ultimately free up resources for the consumption of such goods as food, clothing, shelter, and medical care.

2. The profit motive would stimulate producers to introduce goods with characteristics that enhance consumer satisfaction. Deadly products that survive in black markets would be eliminated. Producers would compete by improving their products to meet the desires of consumers. The market for a particular drug, such as alcohol, marijuana, or aspirin would be characterized by diversified products.

3. As with any dangerous product, suppliers would prefer regular customers who are familiar with the product, thereby reducing expenditures on marketing and their exposure to liability law. Suppliers would no longer enlist the services of minors to retail their products.

4. Information about product availability, price, and product quality would be available. Advertising would convey information about the unique features of a particular brand.

5. Producers would engage in product standardization, brand-name labeling, directions for use, product safety information, and so on.

6. The crime and corruption that result from prohibition, taxation, regulations, and other policy options would be eliminated.

7. Government expenditures on law enforcement, prisons, and courts could be reduced. Courts would not be as backlogged, prisons would be less crowded, and the police could concentrate resources on traditional crimes, such as murder, rape, and robbery. These changes might help promote respect for law and order.

8. Individuals would be directly responsible for their own use or nonuse of drugs. More resources and public attention could be devoted to education, treatment, maintenance, and rehabilitation.

9. Consumers would have access to the legal system to protect them against fraud and negligence on the part of the producer. Producers would no longer have to resort to violence to enforce contracts and ensure payments. Sales territories would be maintained by voluntary agreement rather than by violence.

10. Many of the products that have been prohibited have “legitimate” uses and were important products in the development of modern civilization. Legalization would allow for their use in these and other areas, and would promote general economic development.

This list covers many of the major benefits of the free-market solution. These benefits can be summarized as freeing up valuable resources, providing incentives for improvements, and eliminating the costs (both direct and unintended) of prohibition.

THE EXTENDED FREE-MARKET SOLUTION

The free-market solution as applied to one drug or all drugs would not achieve ideal results. Short-term adjustments to free-market conditions involve substantial costs. Discovering techniques to avoid and cure addiction and to develop new institutions and safer products would all take time. In fact, achieving “solutions” to the use of addictive products may take generations, rather than months and years.

Extending the free-market solution to areas other than the immediate market for drugs would help in the development of such solutions. Circumstances such as war, poverty, discrimination, and a loss of economic opportunity are associated with drug abuse and addiction. Applying the market solution throughout the economy, or to such specific markets as insurance, medicine, housing, and labor, also allows opportunity for improvement. Some of the possible benefits of the extended free-market solution follow.

1. Market economies use resources efficiently and produce higher standards of living. Market economies are characterized by capital accumulation and lower time preferences (longer time horizons).

2. Removal of barriers to entry into the medical profession would reduce the costs of health care and treatment for addiction. Removal of government-subsidized medical care would place the entire cost of drug abuse on the abuser, rather than providing a subsidy for abuse.

3. Insurance companies and employers could control and discriminate against persons who abuse drugs, placing a direct and visible cost on drug users and abusers.

4. Economists have found that more economic discrimination occurs in nationalized and regulated industries and occupations. Removal of these barriers would create economic opportunities for the disfranchised.

5. War has been found to play an important role in creating and stimulating the problems of drug abuse (and prohibitions). The absence of war would likely decrease the probability of prohibitions.

The extended free-market solution is a complement to the free-market alternative to prohibition and an important component of the ultimate solution to the problems of drug abuse. Both policies share two shortcomings. First, neither would produce ideal or immediate solutions. In fact, some people other than bureaucrats and interest groups would be hurt by this change in policy: for example, black marketeers and certain politicians and government researchers. Prohibition, of course, is even further from solving the problems, and all policy changes involve short-term adjustments. Second, the prospects for such policies are rather limited. Substantive changes in policy are difficult at best, and when they do occur they are almost always a substitution of one form of government intervention for another. Political possibility is not a direct criterion of economic analysis or policy recommendations, however.

After a century of experimentation with prohibition, solutions to the problems of drug abuse still elude our policymakers. The political infeasibility of the free-market solution, or any policy, has not deterred some economists from incorporating that policy into their analyses or their advocacy of reform. The changes in public sentiment that have occurred in the early 1990s suggest that repeal of the prohibition on narcotics is likely, and that their relegalization is possible. As in many other cases, real solutions to serious problems may be found only at the root and may be solved only with a revolution of ideas and dramatic change.

 

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14 During the late 1970s, a substantial portion of the population supported the decriminalization of marijuana, and the Carter administration seriously considered this possibility. The fiasco that overturned the movement is described by Patrick Anderson 1981.

15 Addicts and heavy users often do eventually end their use of addictive or harmful drugs, but this termination has mainly been attributed to aging or maturing rather than to higher prices or imprisonment.

16 Prohibition of certain drugs increases the sales of legal intoxicants such as alcohol. This substitution cannot be considered socially beneficial even without making the dubious comparison of the harmful or potentially harmful effects of drugs produced in the market to drugs produced in the black market.

17 It could then be argued that these decreased expenditures outweigh total costs and therefore effective prohibition is possible. Prohibition can reduce expenditures in only the most extreme and restrictive sense, however—that is, where demand is elastic and does not result in the substitution of other intoxicants. Most estimates of expenditures show that total expenditures during prohibition remain the same or increase from what would have been spent in the absence of prohibition. The first full year of National Alcohol Prohibition (1921) appears to be the only documented case of reduced expenditures (Warburton 1932, 170–71). He also noted, however, that “we must conclude that the adoption of national prohibition has failed to reduce the use of alcoholic beverages and has increased the sum spent on them.” No one argues that prohibition has reduced total expenditures on heroin, cocaine, or marijuana. In fact, it is well recognized that the national expenditure on products such as cocaine and marijuana are significantly higher with prohibition.

18 Clague freely admits his ranking is highly subjective and that in two instances he is unable to assign an ordinal ranking. His rankings are based on the long-term effects of the policies and do not consider short-run adjustments or the relative weight of each criterion.

19 He found that the quarantine scheme ranked high in several criteria but that serious problems in law, the Constitution, notions of justice, and increases in “resentment and alienation in many quarters” resulted in very low ranking in “legal deprivation of traditional liberties” and “respect for law.” Therefore, one would have to place little or negative importance on matters of justice, liberty, and respect for the law in order to rank quarantine above heroin maintenance.

20 Providing subsidies to drug addicts is just as abhorrent to certain taxpayers as providing taxpayer-subsidized abortions. Musto (1987, 64 and elsewhere) showed that the early narcotic-maintenance programs were “unwieldy and unpopular” and were quickly closed. In addition to creating resentment and costs to taxpayers, this policy tends to condone heroin use and reduces the perceived and real costs of addiction to the addict.

21 It should be noted that the difficulties associated with “free availability” were based on a “greatly increased addiction rate” and the public health and personal aspects associated with an increased addiction rate.

22 See Rodney T. Smith 1976 on government’s tendency to maximize net revenues and its impact on the alcohol industry.

23 For a history of the repeal movement, see Kyvig 1979. For an unsympathetic view on the repeal movement, see Dobyns 1940.

24 For a history of the plethora of policies enacted after repeal, see Harrison and Laine 1936.

25 A great deal of this organization’s success must be attributed to the anonymous status of its members. The organization does not advocate prohibition or severe restrictionism on the part of government to the problems of alcohol abuse.

26 Some critics of the market view it as “too practical,” focusing only on consumers’ or producers’ direct interests, rather than on political (i.e., the majority’s) interests. Other critics claim that the market solution is too “impractical,” that it does not address the problems of consumers and producers, or that such a substitution is “politically impossible.”

• 1See Friedman 1989.
• 2Ekelund and Tollison’s conclusions are based in part on Thornton 1986, an earlier version of chapter 4 of this book.
• 3Postmillennial pietists believe that there will be a thousand-year kingdom of God on earth and that it is man’s responsibility to establish the necessary conditions as a prerequisite for Jesus’ return.
• 4In a sobering passage, Newcomb (1886, 11–13) used the drinking of alcohol (i.e., “gratifying the morbid appetite”) to distinguish correctly between the sphere of moralists and the role of political economists—to separate “the totally different . . . questions whether an end is good and how an end can best be attained.” Newcomb suggests that the “economist might say in conclusion” that he knows “of no way in which a man can be made to accept that which he desires less in preference to that which he desires more, except positive restraint.”
• 5Boswell 1934, 48; also see Fox 1967, 104–5. Most American economists of this time took a dim view of alcohol use. It is interesting to note that Veblen built his concept of “conspicuous consumption” partly on the basis of goods such as alcohol, tobacco, and narcotics.
• 6Fisher’s main contributions to the study of Prohibition include those published in [1926] 1927, and 1930. A biography of Fisher by his son, Irving Norton Fisher (1956), details Fisher’s activist approach to social problems.
• 7The attention received for this distinction is described in Fisher’s biography (I. N. Fisher 1956, 48–50). Edgeworth’s review of Fisher’s dissertation appeared in the March 1893 issue of Economic Journal.
• 8For further illustration of Irving Fisher as a technocratic-type socialist, see his presidential address to the American Economic Association in 1919.
• 9Fisher himself considered the adoption of the Prohibition Amendment a premature act. He felt that more time was needed to establish a national consensus and to provide for education and policy development. Fisher often praised the indirect benefits of World War I, such as the collection of statistics by the federal government, the passage of Prohibition, the opportunity to study inflation, and the powerful jobs made available to economists. See I. N. Fisher 1956, 154; I. Fisher 1918 and 1919; and Rothbard 1989, 115.
• 10By 1933 Fisher must have been thoroughly disheartened with the course of events. A new age of prohibition and scientific management of the economy—a permanent prosperity—had come crashing down around him. Not only had Prohibition been repealed and the economy devastated by the Great Depression, he had lost his personal fortune on his own advice in the stock market. With respect to alcohol he turned his attention to the temperance movement by publishing three editions of a book on the evils of alcohol consumption.
• 11A search of the Index of Economic Journals showed Herman Feldman’s contributions were limited to two review articles and four monographs on labor policy.
• 12A Boston rubber company which employed almost 10,000 workers reported that company nurses made 30,000 visits in 1925 but could not state with any certainty that alcohol was the cause in more than six cases (Feldman 1930, 203).
• 13It is particularly interesting that Warburton was chosen to produce the entry on Prohibition, as Irving Fisher was one of the editors of the Encyclopedia.
• 14In recent years economists have led the fight to legalize—actually, to relegalize—drugs. The Nobel Prize-winning economist Milton Friedman has been the outspoken leader of the relegalization forces. His open letter to “Drug Czar” William Bennett, published in the Wall Street Journal, is just his latest salvo against the prohibitionist establishment. Friedman began this battle in the 1960s, writing in Newsweek that the prohibition of drugs was ineffective and that more reasonable and prudent approaches to the problems of drug abuse were available. He (with his wife, Rose Friedman) later attacked drug prohibition in Free to Choose and The Tyranny of the Status Quo, linking the harm it causes with the experience of alcohol prohibition in the 1920s. The Friedmans are careful observers of history who oppose drug prohibition both on ethical and practical grounds.
• 15The growing importance of and interest in prohibition has led some economists to include discussions of laws against alcohol, drugs, gambling, and pornography in their textbooks. Normally restrained and politically neutral, several writers of economic text books have taken a skeptical view of all prohibitions. For example, when examining the current drug prohibition, Edwin G. Dolan and John C. Goodman (1989, 35) present “misgivings raised on grounds of efficiency, equality, and liberty.” Robert B. Ekelund and Robert D. Tollison (1988, 108) find that “(e)conomic analysis casts doubts on the effects of directing increased resources into enforcement without careful analysis of the probable consequences of such programs,” and they suggest “that government expenditures would be better directed to the demand side of the problem.”
• 16Many of the founding members were raised in puritanical households of postmillennialist pietism. During their days as university students many became atheists, substituting a secular approach to perfectionism for the religious approach of their parents. Some, such as Richard T. Ely, adopted a prosocialist orientation, while others, such as John Bates Clark, adopted a “dog-eat-dog” evolutionary perspective on capitalism. What they shared was an evangelical outlook and a strong dislike of such products as alcohol.
• 17Many of the founding members were raised in puritanical households of postmillennialist pietism. During their days as university students many became atheists, substituting a secular approach to perfectionism for the religious approach of their parents. Some, such as Richard T. Ely, adopted a prosocialist orientation, while others, such as John Bates Clark, adopted a “dog-eat-dog” evolutionary perspective on capitalism. What they shared was an evangelical outlook and a strong dislike of such products as alcohol.
• 18On this argument, Patten formed the economic rationale for prohibition and helped set the alcohol agenda of American economists. Like William Graham Sumner and John Bates Clark, he perceived that survival of the fittest would eventually eliminate the drunkard from society. The interventionist bias in his education, however, propelled Patten to conclude that prohibition combined with evolutionary competition would achieve the desired results (total abstinence) much quicker than evolution alone.
• 19Fisher’s staunch support of Prohibition helped to insulate the policy from criticism. He wrote three books on Prohibition in which his academic status and objectivity thinly cloaked his avid support. He promoted the claims that Prohibition would reduce crime, improve the moral fabric of society, and increase productivity and the standard of living. Indeed, he maintained that Prohibition was partly responsible for the economic prosperity of the Roaring Twenties.
• 20The thesis was applauded by Francis Yisdro Edgeworth, who repudiated aspects of his own theory after reading Fisher’s work. Vilfredo Pareto wrote Fisher an eight-page letter in which he spoke scornfully of the “adversaries of mathematical methods,” and praised Fisher’s distinction between utility of “that which cannot be useful, and that which is really useful.” It was this distinction that Fisher used later in the analysis of alcohol consumption.
• 21To admirers of Fisher’s more scientific contributions, he appears eminently scientific and objective. His work on Prohibition reveals a thin layer of scientific veneer that is important for evaluating all his contributions, for Fisher was clearly an advocate of government intervention in the economy. A key insight into his viewpoint is illustrated by an excerpt from his speech to the Yale Socialist Club in November 1941.
• 22During World War I, Fisher volunteered his services to the Council on National Defense, where he was assigned the task of establishing wartime policy on alcohol. Under his direction the council recommended wartime prohibition and dry zones around all army cantonments. The alcohol interests blocked the first measure, which Fisher supported because he considered the war an excellent opportunity to experiment with prohibition. Fisher also surmised that this defeat provided the necessary impetus to bring about prohibition in 1920.
• 23In his final contribution on Prohibition (1930), Fisher uncharacteristically compromised with the wets by supporting the “right” to home production and consumption. He claimed that legalizing home production would reduce the requirements on law enforcement and eliminate the personal-liberty argument from the public debate. It is unclear whether Fisher used this as a last-ditch effort to save Prohibition or if he realized its futility. He admitted that such a modification would decrease the number of opponents of Prohibition by “thousands, if not millions” and would allow law enforcement to concentrate on bootleggers without compromising the closure of saloons. He also made one statement admitting the infeasibility of prohibition: “Yet, it is absurd to expect home production to be prevented by enforcement officers” (1930, 454). Both the admission of the infeasibility and the compromise are unique statements from Fisher, and they appear only on the last page of his last book on Prohibition.
• 24In Prohibition: Its Economic and Industrial Aspects (1930) Herman Feldman, an otherwise undistinguished economist, published an important contribution to the statistical investigation of the “economic” aspects of Prohibition. His book is based on twenty articles written for the Christian Science Monitor, and the statistical information derives from a detailed survey. The book is most impressive in its caution concerning the use of survey data, statistical analysis, and the conclusions made throughout the book.
• 25Feldman was also known for his survey of absenteeism. He surveyed industrialists concerning the absence or tardiness of workers on Mondays and the days following paydays. The survey asked whether the respondents felt Prohibition was the cause of any noticeable reduction in absenteeism. Information on the relationship between alcohol consumption and absenteeism prior to Prohibition was not available. Of the 287 responses to Feldman’s survey, less than half felt that there was considerable improvement in absenteeism. One-third of the respondents who did detect decreased absenteeism failed to attribute this improvement to Prohibition. Some employers even reported higher absenteeism and attributed the increase to Prohibition. One employer noted that “the stuff available to labor, and there is plenty of it, is so rotten that it takes the drinking man two or three days to get over his spree” (Feldman 1930, 211).
• 26By far the most thorough study of Prohibition was by Clark Warburton. His two main contributions were The Economic Results of Prohibition (1932) and his entry on Prohibition in the Encyclopedia of the Social Sciences (1934). Warburton’s book was initiated at the request of the Association against the Prohibition Amendment, from which he received financial support during the early stages of his investigation.