The Effects of Prohibition Era on the American Market

When one thinks of the 1920s, their mind usually goes to the glamorous aspects of the roaring 20s, not the economic challenges presented by Prohibition. One might picture Gatsby's lavish parties with secret alcohol being served or the famous gangster Al Capone. In reality, Prohibition negatively impacted citizens, crime rates and the economy. This essay will investigate the economic effects of Prohibition and it will explore how American markets found ways around national legislation including bootlegging, speakeasies and black market sellers. I am studying the Prohibition because I want to find out how it impacted the country from both a social and economic perspective in order to help my reader better understand the effect of governmental policies around consumption more broadly. The research will prove how Prohibition was unsuccessful both economically and socially.

First, understanding what kind of citizens supported Prohibition and how it came to pass is an important step to seeing how it all eventually went downhill. Georgia, the first American colony to try to enforce Prohibition selected its members carefully in order make sure this venture was successful. “Georgia’s founding father, James Oglethorpe, was also the father of the Prohibition” (Severn 17). Even though they were selective in choosing the colony’s original members, the new members began making rum and importing it from South Carolina. When the colony struggled and started to fail, Oglethorpe blamed it on the alcohol problem. They tried to fix the problem multiple times; the trustees asked the British parliament and King George II to fully enforce that law. They obliged, but it made almost no difference. That was only one small concentrated instance where Prohibition almost completely failed, but the government didn’t learn and still pursued the criminalization of alcohol many years later.

The overarching goal was to improve the health of U.S. citizens and reduce crime. At one point, alcohol was being so abused that American men were spending more money on liquor than on their own families. The law had tried to minimize alcohol usage in the past, but citizens claimed it was infringement on their rights. When they did put laws in place, people found ways around it, many of which were dangerous; this is comparable to other issues happening in the world today. “It is no mistake that President Herbert Hoover's 1928 description of Prohibition as ‘a great social and economic experiment, noble in motive and far-reaching in purpose’ entered the popular lexicon as ‘the noble experiment,’ It was unfortunate for the entire nation that the experiment failed as miserably as it did” (Burns). Hoover’s positioning Prohibition as a noble experiment was to show how it could support families. In retrospect, the government was wasting time on enforcing laws that could never work and were ultimately an infringement on personal rights.

At the time, there was a large group of supporters of Prohibition who generally belonged to the Women’s Christian Temperance Movement. Women and Protestants supported Prohibition. Those who did not were typically men and Catholics. Women supported it because they did not like how their husbands would spend money drinking and not be around to help with the family. Protestants disliked alcohol because heavy drinking was usually associated with Irish Catholic immigrants (Severn). All Prohibition accomplished was to raise crime rates and anger citizens. People started getting creative with ways to get around the laws. Even though law enforcement was encouraged to bust these liquor rings, they were no match for how many people were involved; speakeasies, bootleggers and other black market sellers emerged. One of the more popular options for higher class people with money were speakeasies. Speakeasies were private rooms in pre-existing establishments. Places such as restaurants or ice cream shops would have secret rooms; one would need to know the password to get in. These could be comparable to bars or nightclubs today. Alcohol would be served and there would usually also be some form of entertainment, such as a jazz singer or a band. Police raids did happen, but the patrons could leave out the back door and never have to interact with law enforcement. The Cotton Club was one of the highest regarded speakeasies, all of the ‘in’ New Yorkers knew about it. The Cotton Club was an all-white club with an all-white dress code. Only the entertainment and workers were allowed to wear black. This juxtaposition of black and white paralleled racial tensions. Most speakeasies were never discovered and some still operate today, although the secrecy isn’t necessary (Britannica).

Another method of avoiding the law was by bootlegging. Bootleggers were people who smuggled alcohol in the tops of their boots (hence the name bootleggers). They used this method to transport illegal rum to high paying customers. One of the most famous bootleggers was Al Capone. He cornered the bootlegging business in Chicago and was nicknamed Scarface. He was an Italian immigrant and part of a gang that ran other illegal businesses, such as brothels. Al Capone’s most recognizable crime was named the Valentine's Day Massacre. In that incident, seven members of an opposing gang were shot to eliminate competition for Capone. The murderers were never apprehended because they were dressed like policemen. Al Capone was never caught for his crimes against Prohibition, but he was finally apprehended for tax evasion. This example proves how much bootleggers could do without interference from the law. If Al Capone were more careful, then he wouldn’t have gone to jail. Bootleggers weren’t the only source of crime, black market organizations also participated in profiting off of Prohibition, selling and creating liquor rings (History.com).

A rise in black market organizations and organized crime followed the example and worked with bootleggers. Large scale liquor rings were put in place to coordinate transporting alcohol to other places. They employed unskilled workers who would be able to go easily unnoticed. When alcohol became illegal but was still in high demand, other establishments began to suffer to consequences. Alcohol-selling rings were set up and busted by cops, similarly to how drug rings are busted today. Gangs used organized crime to distribute alcohol and undercover policemen sometimes busted them, but the manpower of the police force versus the thriving bootlegging industry hardly compared (Hoyt).

It became difficult to bust every single person involved in the alcohol ring. “For example, during one time period more than, 7,000 arrests were made in New York for alcohol violations, and only 17 ended up being convicted” (Hoyt). It was futile for the law enforcement to try to apprehend everyone involved the crimes. There was also a lot of corruption and illegal payments that occurred. Law enforcement officers might be in cahoots with those who were committing the illegal acts. To complicate matters further, there were some exemptions when alcohol could be consumed legally. For example, a pharmacist could prescribe it and it could be used in religious ceremonies (Burns).

The economy was overall negatively impacted. During Prohibition, soda companies, chewing gum manufacturers and entertainment establishments, such as movie theaters, expected a large rise in their sales as people found other ways to entertain themselves without alcohol. Surprisingly, sales dropped and even restaurants began to fail when they were not able to sell alcohol (O’Neal 36). But, one of the of the biggest impacts to the economy was the loss of tax revenue. This was clearly an unintended consequence of the law. Because the bootleggers, speakeasies and black market sellers were not reporting their income, they were not paying taxes on it. Alcohol was subject to an excise tax (higher than on a normal good) and many states were dependent upon the revenue generated by the tax on alcohol. To make matters even worse for the states’ budgets, they were now spending even more on law enforcement to combat alcohol use. Less tax revenue and more spending led to budget deficits, which then led the states to increase income taxes to cover the gap (Burns).

Another big impact of Prohibition was unemployment. There were many people who had jobs in areas related to alcohol production and distribution when it was legal. When Prohibition passed, these people all lost their jobs. Without employment, they could not contribute to the economy. Some of these people who were law abiding citizens became a part of the underground economy.

The war on alcohol, otherwise known as Prohibition, was compared to the war on drugs by famous Nobel prize winning economist, Milton Friedman. He stated in an interview in 1991 when asked what would happen if drugs were legalized, “I see America with half the number of prisons, half the number of prisoners, ten thousand fewer homicides a year, inner cities in which there’s a chance for these poor people to live without being afraid for their lives, citizens who might be respectable who are now addicts not being subject to becoming criminals in order to get their drug, being able to get drugs for which they’re sure of the quality. You know, the same thing happened under Prohibition of alcohol as is happening now” (Perry). Milton Friedman believed that the government’s ban on drugs was responsible for the negative societal and economic impacts that were present with Prohibition, such as imprisoning people and even homicides. Friedman goes on to say, “Under Prohibition of alcohol, deaths from alcohol poisoning, from poisoning by things that were mixed in with the bootleg alcohol, went up sharply. Similarly under drug Prohibition, deaths from overdose, from adulterations, from adulterated substances have gone up” (Perry). So by making either drugs or alcohol illegal, society will suffer more dangerous consequences. Those who continue to use either drugs or alcohol were at increased risk of accidental poisonings. In fact, during Prohibition, statistics show that a great percentage of the population was drinking alcohol and this consumption was less safe. Prohibition made the alcohol problem worse (Burns).

All in all, Prohibition was a largely unsuccessful experiment by the government. Citizens rebelled and formed large scale ways to still access alcohol. Crime rates rose as all of this activity was illegal and the economy was negatively impacted. Places of business, like restaurants, could no longer operate without the help of liquor sales and people started finding entertainment in other ways, such as visiting speakeasies. Local and state economies suffered the loss of tax revenue from the previously legal alcohol sales. Unemployment rose when workers lost their jobs in alcohol-related industries. Prohibition can be compared to many current situations. For example, in areas where the government has legalized marijuana, tax revenues have risen and the cost of law enforcement for criminalizing the drug has gone down. It is important to look back and learn from history and not repeat its mistakes. As philosopher George Santayana said, “'Those who do not learn history are doomed to repeat it” (Claimont).