The 1920s Prohibition Experiment:
a Smashing Success
The twisted tale of how crime pays
Prohibition, we are told, was a horrible failure. Was it?
For the feds, the answer is a resounding No. Not if you add up the staggering tax revenues from liquor since 1933. Whether classified as a crime during prohibition or taxed heavily as a legal substance, liquor has yielded monstrous dividends for all levels of government. Today, liquor generates over $9 billion for the feds alone. In Canada, beer itself generates $6 billion in taxes every year.
What does this have to do with a law passed in 1919? The story, and its casualties, is sobering. Though it cost the lives of thousands of innocent people, prohibition proved to be the goose that laid the government’s golden eggs. Here’s how it unfolded.
The production, sale, transportation and consumption of alcohol in North America has proven a telling example of how crime works. Why alcohol was criminalized in 1920, and why it returned to legal status thirteen years later, had nothing to do with booze, morality or health. It was rooted almost entirely on the federal government’s thirst for cash and power, and their available sources of revenues.
Of course, that’s not how history textbooks explain it. The typical story cites a very determined and persistent temperance movement as the root of the prohibition.
On the face of it, the story seems to hold water. The First World War shifted priorities among both governments and civilians. As with food rationing, governments put in place new regulations limiting the sale of booze so more resources could be diverted to the war effort.
At the same time, with so many young men fighting and dying overseas, women gained considerable power including the right to vote, and politicians wanted to win that vote. When these women threw their support into a powerful temperance movement and lobbied the government to prohibit alcohol, politicians were motivated to listen. The Anti-Saloon League became one of the most successful lobby organizations in U.S. history. On top of all this, the war enemy was Germany and many breweries were owned by Germans, whom the temperance campaigners called alien enemies. Drink beer and you’re a traitor.
Both state and federal governments conceded to a decades-long moral campaign by church leaders, women’s groups and lobbyists, and turned alcohol into a crime.
That’s the textbook story. It’s true that these factors all influenced the ratification of the 18th Amendment to prohibit the manufacture of liquor. But for 50 years politicians had not been moved to act, and no wonder. A full 25% to 30% of federal revenues streamed directly from liquor taxes. If liquor sales suddenly stopped, the feds would lose $230 million out of a total $992 in tax revenues.
Why the change of heart?
In 1913, one year before the First World War, Woodrow Wilson passed the 16th Amendment. For the first time, the feds were authorized to levy tax on people’s incomes for the feds’ discretionary use. Income tax revenues started to roll in. By 1918, tax revenues had quadrupled over 1912, and by 1919 they were raking in $5 billion a year, over half of which came directly through income tax.
What did this new money mean for alcohol?
First, liquor taxes no longer acted as a core sales funnel. They now comprised only a fraction of IRS revenue. Second, the exponential jump in tax revenues was equipping the feds with the resources they needed to fight a new crime industry.
This second point is neither trivial nor incidental. Governments of all stripes and sizes are always looking for ways to expand their reach, power and influence. It’s both a growth strategy and a succession plan. As with any corporation, they do this first by growing revenues through taxes. With this cash flow they then grow their capital infrastructure. They create new departments, purchase capital assets, and hire new manpower. They take control of more people, geography, processes and industries. In turn, this inflated infrastructure generates new revenue sources through various types of new taxes, tariffs, licenses and fees.
By designating alcohol a crime, the feds would have an indisputable reason to get bigger. They would be authorized to create a department, buy buildings to manage it, hire people to administer it, hire police officers to enforce it, and hire even more people to judge and sentence offenders in court. They would need to make more room in prisons, hire more prison workers, and buy more guns for police. Since all this would cost money, they would then have reason to invent more taxes.
Though state and local governments would be expected to share the burden of enforcement and administration, the feds would hold the funding power and could wield control when necessary.
The table was set and the feds started to dance with the temperance lobby. In 1920 the 18th Amendment went into full force and they turned the taps off.
Two armies were born: government enforcers versus the liquor criminals.
The Temperance Movement had argued all along that criminalizing liquor would empty the prisons, sober up the drunks and get them working again, bring husbands back home to be with their wives, give children back to their fathers, eradicate gambling and prostitution, and enhance the moral fiber of society at large. In 1920 when prohibition began, the vocal proponent of the new law, evangelist Billy Sunday, declared with triumph, “Men will walk upright now, women will smile and the children will laugh.”
It didn’t quite work out that way. People did not stop drinking. In fact, Deborah Blum points out that during prohibition, alcoholism soared by about 300%. Mark Thornton shows that, in thirty cities within one year:
· incidents of crime rose 24%
· arrests for drunkenness and disorderly conduct rose 41%
· arrests of drunken drivers rose 81%
· thefts and burglaries rose 9%
· homicides, assault and battery rose 13%.
“Instead of emptying the prisons as its supporters had hoped it would,” Thornton adds, “prohibition quickly filled the prisons to capacity.” Overcrowded prisons became a serious problem. In that same year, policing budgets rose 11%, and would continue to rise throughout Prohibition.
These numbers disprove the conventional wisdom, that consumption of alcohol encourages violence and prohibition reduces it. As bartenders, vintners, brewers, distillers, waiters and saloonkeepers suddenly became unemployed, the prices of black-market liquor soared, and criminal activity ballooned with it. Al Capone crowned himself the CEO of the most powerful corporation in the nation, and the people who worked for him found themselves walking a tight rope of fear between him and the police. The same could be said for anyone producing moonshine.
The homicide rate rose sharply from 1920 to 1933. Capone’s boys and other gangs gained market share and greater profits by murdering their competition. After all, they couldn’t exactly sue for trademark infringement, hire lawyers or use the court system [Editor’s Note: unless they call Saul]. Murder proves an efficient alternative.
The Drug Enforcement Administration (DEA) may claim that the mind-altering effect of drugs and alcohol leads to homicide. But Professor Brendan Livingston of Rowan University demonstrates that the consumption of the prohibited substance has nothing to do with the murders. Without access to lawyers and the courts, players in the liquor game during the 1920s used guns instead.
After all, stealing illegal booze or property or using an illegal method of transport are not criminal acts under Prohibition. The only recourse for Capone and his competitors was well-armed private security and a shoot-to-kill policy. “Increased enforcement,” says Jeffrey Miron, Professor of Economics at Boston University, “will tend to increase violence.” In fact, the more money the feds spent on enforcing prohibition, the higher the homicide rate grew.
However, homicides were nothing compared to the other fatalities that ensued. Even the massive increases in arrests and incarcerations caused by the new law do not come close to the fatalities and serious injuries caused by bootleg alchohol. In 1927 alone, almost 12,000 people died from drinking it. By 1930, about 15,000 people were afflicted by jake leg, a paralysis of the hands and feet caused by drinking alcohol flavored with ginger root.
It wasn’t the ginger root that killed them. Here’s what happened. To disguise booze as a medicine, bootleggers laced it with ginger. When the feds caught on, bootleggers disguised the ginger taste using a chemical called tricresyl phosphate. They did not know this chemical was a neurotoxin that paralyzed extremities.
The deaths and permanent injuries due to tricresyl phosphate can be directly attributed to the government’s designation of liquor as a banned substance.
The worst culprit, however, was the federal government’s decision to poison industrial alcohol. In “The chemist’s war: the little-told story of how the U.S. government poisoned alcohol during Prohibition with deadly consequences,” (Slate, 2010) Deborah Blum points out that by 1927 industrial alcohol was poisoned by kerosene, brucine, gasoline, benzene, cadmium, iodine, zinc, mercury salts, nicotine, ether, formaldehyde, chloroform, camphor, carbolic acid, quinine, acetone and — most deadly — methyl alcohol.
And you thought an ouzo hangover was bad.
President Calvin Coolidge seemed to think these poisons were the best way to deter people from using industrial alcohol to get drunk. But Charles Norris, the chief medical examiner of New York City during the 1920s, called it “our national experiment in extermination.” By the time Prohibition ended, the federal poisoning program had killed at least 10,000 people.
Compare that number to the paltry 100 to 150 snuffed out by Al Capone. Compared to Coolidge, Capone was a petty thief.
Prohibition cost the federal government $11 billion in lost tax revenue and over $300 million to enforce. More important, it cost tens of thousands of people their lives. They would have survived the twenties if they had been left alone to imbibe in freedom.
Does this mean that, as many people conclude, prohibition was a failure? Maybe for the temperance movement. But not for the federal government — not by a long shot. While Capone was pocketing $100 million a year, government budgets, personnel, and infrastructure swelled to unprecedented girth. This alone constitutes a government success story. But it was only the beginning.
In 1933 the prohibition law was repealed, but not because the feds saw the fatalities they had caused. Instead, as Professor Donald Boudreaux of George Mason University concludes, they were shaken by a “gargantuan revenue shock.”
That revenue shock was the Wall Street crash. Only nine years into prohibition, the Great Depression loomed. Income tax revenues took a nose-dive, from $2.3 billion in 1930 to only $897 million in 1933. Fortunately for the FBI and the “untouchables,” Capone had been arrested for tax evasion before the crash, and before crime-fighting budgets had to be slashed.
By 1933, the feds were desperately searching for another reliable source of cash. Congress quickly repealed the 18th Amendment, turned the taps back on, and resumed collecting all those inebriating liquor taxes.
Now that liquor was legal again and people resumed paying tax on it, governments at all levels got creative. Since 1919 government resources had ballooned, and these resources were no longer fighting the Liquor Lords. So they needed to be put to work. Starting in 1933, law by law, governments introduced licenses, regulations, bylaws, and taxes upon taxes, for consumers, producers, retailers, and carriers. Talk about a cash cow. By 2024 the feds can expect to collect well over $10 billion in liquor tax.
The prohibition story supplies a perfect example of how and why governments create crime. It’s almost always a decision based on government benefits. Dangers to users, abstainers, drinkers, children, families, and communities are of no relevance. Designating alcohol as a banned substance led to loss and tragedy of a far more serious degree than alcohol ever could. But governments did it to grow their business. And it worked.
In essence, crime pays. While prohibition has been called a noble experiment by the temperance movement, it proved a lucrative experiment for American and Canadian governments. It helped them grow substantially over a single decade. When liquor was once again “allowed,” people were far more willing to submit to taxes in exchange for the freedom to drink and to stay out of prison. Liquor was designated a valued privilege that could be taxed any which way.
From the perspective of the IRS, the experiment proved a smashing success.
