The Economics Of... Prohibition
When Americans think of prohibition, we fondly remember outlawing the sale of alcohol across our nation in the 1920s. We think of flapper styles, speakeasy dancing, and home-brewed binge drinking… basically one big party of a decade! As we enter another ‘20s in America, we look back on how far we have come from the temperance movement and ask, how does alcohol play a part in our contemporary social structure and economy? Are we the same rebellious citizens as our predecessors in response to restriction, or can we protect our freedoms responsibly with the help of modern insight? Prohibition extends beyond the trendy bar themes of today’s metropolitan entertainment centers; it has tangible financial and health effects around the world. Culture largely decides the direction of our municipalities’ decisions on recreational freedom, which is where education and universal conversations work in tangent for the economic benefit of citizens globally.
One of the most well-known and commercialized examples of prohibition is that of the 1920s in America, sprung from the temperance movement at the end of the 19th century in New England. Temperance societies in communities across the nation were formed by the motivations of multiple groups lobbying in tangent: women’s desire to preserve peaceful households, the Anti-Saloon League’s view of saloon culture as ungodly, and factory owners’ aversions to accidents and desire for increased efficiency in workers (History.com). The final push that rendered congressional support for the 18th amendment to our Constitution, which banned sale of alcohol across the nation effective 1920, was President Woodrow Wilson’s temporary order of prohibition to conserve grain for food production at the start of World War I. Many states expected spending on household goods, theatre entertainment, and substitute consumables to increase when prohibition took effect, but the loss of liquor sales and industry jobs had an overwhelmingly negative economic impact. According to PBS, “[i]n New York, almost 75% of the state's revenue was derived from liquor taxes […] At the national level, Prohibition cost the federal government a total of $11 billion in lost tax revenue, while costing over $300 million to enforce.” As the Great Depression economically plagued America into 1932, voters rallied for the reinstitution of the alcohol industry as a source of job growth and to stifle the rising urban violence from bootleg gangs. This resulted in President Franklin D. Roosevelt’s election on a platform of repealing prohibition and promoting the 21st amendment to the Constitution, ratified in 1933.
Considering the overwhelming consequences on welfare and our economy during American prohibition, what role has prohibition played around the world? The earliest recorded attempt at specifically banning the sale of alcohol is found in the Code of Hammurbai a Babylonian code of law of ancient Mesopotamia from 1772 BCE: "[i]f a beer seller do not receive barley as the price for beer, but if she receive money or make the beer a measure smaller than the barley measure received, they shall throw her into the water." However, the early 20th century saw widespread prohibition legislation as a result of the universal women’s suffrage movement in territories such as Iceland, Norway, the Russian Empire, Finland, and provinces of Canada. While most of these modern efforts failed, the prohibition legislation that endures is largely derived from religious necessity, such as in the Islamic faith. Alcohol and other vices are often categorized as “khabaa’ith,” or “evil and filthy things,” that distract humans from the will of one’s god, according to Islam: Questions and Answers- Jurisprudence and Islamic Rulings by Muhammad Seed Abdul-Rahman. This argument has shown itself compelling enough to place at the center of legislation in Iran, Malaysia, Saudi Arabia, along with other countries, which restricts intrastate commerce and challenges international alcohol manufacturers to market creatively. The global non-alcoholic beer and wine market has a predicted compound annual growth rate (CGAR) of at least 7%, according to Global Market Insights, from $20 billion in 2018 to a predicated $30 billion in 2025. There is promise for the economic contributions of this growing industry: “For instance, in Europe, branding the product as 0% alcohol-free will boost the business growth as non-alcoholic beer is not subject to excise duty. In addition, industry participants that provide food for consumption on premises do not require liquor license to serve beers containing less than 3.5% ABV which will further support the market advancement over the forecast timeframe” (Global Market Insights).
Besides religious restrictions, what is the main motivation for prohibition in modern global communities? According to the non-alcoholic beer and wine industry, it’s health, and their products are contributing to the solution. “Rising prevalence of cardiovascular diseases among the young and geriatric population owing to consumption of high alcoholic drinks has urged the manufacturers to develop low and alcohol-free wine and beverage variants […]” (Global Market Insights). Harvard Health Publishing, Harvard Medical School’s health blog, identifies the main negative consequences of excessive alcohol consumption are liver disease, high blood pressure, and risk of certain cancers. American Liver Foundation claims that approximately 88,000 Americans die every year from overconsumption of alcohol. In a random sample of Medicare beneficiaries from 2005 to 2014, costs for hepatocellular carcinoma (HCC), the world’s primary liver cancer, costs rose 46% for inpatient and 169% for outpatient healthcare (American Association for the Study of Liver Diseases).
Regardless of motivation, humankind’s affinity towards legislation restricting the sale of consumer goods is both a practical and controversial right. Whether it is household and workplace safety or maintaining a pure spirit and body, intent behind all prohibition movements can be traced back to our desire to protect ourselves and our society. Like with any restriction on trade, the shift in supply and demand creates short-term and long-term consequences, such an economic depression or the creation of a new market. As there is always an adjustment back towards equilibrium in economics, so too is there a natural flexibility in human legislation. And where there is money and alcohol involved, in America we say, “give us beer & balance the budget!”
""Favorable government policies and standards towards the promotion of alcohol substitute drinks will foster myriad opportunities for industry participants.” " -- Kunal Ahuja and Amit Rawat from Global Market Insights, July 2019
Works Cited
Abdul-Rahman, Muhammad Saed. Islam: Questions and Answers. MSA Publication Ltd., 2004.
Ahuja, Kunal, and Amit Rawat. “Non-Alcoholic Wine and Beer Market Share - Forecast Report 2025.” Global Market Insights, Inc., July 2019, www.gminsights.com/industry-analysis/non-alcoholic-wine-and-beer-market.
“Alcohol-Related Liver Disease.” Liverfoundation.com, American Liver Foundation, liverfoundation.org/wp-content/uploads/2017/10/Alcohol-At-A-Glance.pdf.
“Liver Cancer Combined with Other Liver Diseases Driving Higher Death Rate and Health Care Costs for US Seniors: AASLD.” American Association for the Study of Liver Diseases, www.aasld.org/liver-cancer-combined-other-liver-diseases-driving-higher-death-rate-and-health-care-costs-us.
“Prohibition.” History.com, A&E Television Networks, 29 Oct. 2009, www.history.com/topics/roaring-twenties/prohibition.
“Prohibition.” Wikipedia, Wikimedia Foundation, 2 Apr. 2020, en.wikipedia.org/wiki/Prohibition.
“Prohibition: Unintended Consequences.” PBS, Public Broadcasting Service, www.pbs.org/kenburns/prohibition/unintended-consequences/.
Shmerling, Robert H. “Sorting out the Health Effects of Alcohol.” Harvard Health Blog, 8 Aug. 2018, www.health.harvard.edu/blog/sorting-out-the-health-effects-of-alcohol-2018080614427.