The Economics of Prohibition

Adam Foster

By Irving Fisher

This article starts out with Irving Fisher announcing his views of prohibition and looking to present them with other economists with opposing views. He soon found out, after writing to many other supposedly anti-prohibition economists, that there was no one that was willing to take up the opposite point of view. They said that either Fisher was mistaken on their point of views, or that it was just not worth focusing on the economics of prohibition. Fisher also wrote to the all American economists listed in “Minerva” and to the all American teachers of statistics. He has not received an acceptance from anyone on opposing prohibition.

The article then goes on with Professor Blackmar, a Sociology professor from the University of Kansas, to show an example of how public opinion affects liquor laws and how it reflects the principles involved with national prohibition. Kansas is taken for example because it has been through a great struggle for over forty years with the liquor problem. Kansas had a persistent public opinion for the sale and consumption of alcohol. The only objections were from small towns which were opposing the sale of alcohol. The states around Kansas soon began to break laws and bring in alcohol illegally and bootleg. They tried to break down the laws against liquor. Soon, the Federal government began to issue licenses which interfered with the enforcement.

The people of Kansas would set up a proposition to weaken the laws or to set up a vote for the laws. Each time a proposition was made, the legislature would shoot it down and make the laws stronger. The article suggests that National prohibition would not go the same way. In 1914, Kansas consumed less than three gallons per capita of all alcohol as opposed to twenty two and a half gallons per capita in all other states including prohibition states. Then a “bone dry” law was issued in Kansas and this reduced consumption to the point to where it was pretty much dry. After the Federal government let down their enforcement for a few years, the consumption went back up and home brewing became common. Soon after though, it returned to the old conditions and there was less consumption and enforcement went back up. When the enforcement rose in Kansas, there was soon less drinking, an increase in city property value, better living conditions, and savings accounts increased.

Professor Carver of Harvard University brought up the question “Is prohibition worth enforcing?” opposed to “can prohibition be enforced.” He said if the people can agree that prohibition should be enforced, then they could come up with laws to enforce it. Canada has a government dispensing law going on. He suggests to wait and see if this is effective there before we try a government dispensing system here.

As far as saving money from prohibition laws, Carver suggests that it was an advance in wages as well as how spending increased after saving the money from what would go to drinking. People bought all sorts of goods due to their income increase from not drinking. Carver also says that since alcohol consumption decreased, dependability increased. This is what makes people do better in life, less drinking making more dependability. Other economists such as Mr. Leroy Peavey, the president of the Babson Statistical Organization, said liquor is detrimental to the health and skill of any man. It lowers production and increases wages of man. He contacted some leading business firms throughout the country and concluded that about eighty-five percent of the people report that production conditions are way better today than the pre-Volstead days.

Henry Leland, and automobile manufacturer of Detroit, wrote Fisher a paper explaining his point of views. His views were undoubtedly in favor for prohibition. He had experience in running a plant with one to six thousand men while getting to know the welfare of their families. He said that the open saloon, brewery, and distillery were the most wasteful and most destructive forces in the country. He says they are the forces of suffering and cruelty to women and children and that they are the biggest crime influencers of the world. In 1920, there were 22 million savings accounts. In 1925, after prohibition set in, there were 43 million savings accounts. This is definitely the positive side of prohibition. I’m beginning to think that prohibition was an excellent thing especially for the 1920’s with all the war and depression coming. In a Cadillac plant, Monday mornings were actually a day off for those who needed to sober up! After the eighteenth amendment, this changed and Mondays were the same as any other morning. People began to save and buy food and clothing.

Professor Tippets of the University of Iowa has a rural point of view. Being from a different part of the country he suggests that as the real income of the industrial worker has gone up, it has been at the expense of the agriculture industry. Many industrial workers could have saved money from not drinking, or they could have made more money from industrialization expanding. He says that the prices of agriculture had declined which has helped the industrial worker prosper. He also suggests that the savings accounts had increased because of a steady movement from transfer deposits to savings accounts. This is could be because the banks needed a 3 percent reserve against their demand deposits. Having more savings lets the banks get a lower reserve.

After professor Tyson of Pittsburg, and other economists, suggested that Fisher’s book was inadequate and needed more facts, Fisher replied and concluded his views. He pointed out that in Norway, they allowed 21 percent alcohol drinks and nothing over. People overthrew this prohibition and wanted the liberty to drink more than that. He says that the only way is to do what Kansas had done. Kansas tightened up on the laws every time the people tried to get them loosened. This eventually made people accept these laws and drinking became minimal. It shows by experience that when you loosen up laws of prohibition, then eventually the laws are useless. He suggests and concludes that the only solution is to totally get rid of all liquor traffic.