Prohibition was an economic disaster for the United States. Before Prohibition a large portion of the Federal budget was being funded by the excise tax on alcohol. The newly passed income tax, a tax promoted by the Prohibitionists, was a new source of income for the Federal Government, but the liquor tax was still paying a large portion of the national budget. When the 18th Amendment was passed, the economic growth brought about by the Great War was still in effect, so the damage to the economy was slow to catch up, but when it did, it came with a vengeance.
Prohibition destroyed a lot of jobs. Not only were distilleries, breweries and wineries put out of business, but also all of the tavern owners with their bartenders, servers and support staff. Some hotel bars and taverns did survive as restaurants and coffee houses, but not a large portion of these establishments were not needed as there were already such establishments in the economy. These people were forced into a change of careers.
Cooperages were also affected by the loss of the spirits industry. Barrels were still used to ship goods, but the demand was only a fraction of what there was before Prohibition when distilleries, breweries and wineries were purchasing barrels on a regular basis. Many cooperages simply went out of business because of a lack of business. This forced more people into an unemployed status.
Prohibition also hurt many other businesses that supported the spirits industry. Bottle manufacturing declined sharply as there was no more whiskey, beer and wine bottles needed by the spirits industry. Printers lost the business of making labels for those bottles. Railroads lost business shipping finished spirit products, as well as the raw materials used to make alcoholic beverages. Newspapers lost advertising revenue.
Most importantly, it hurt farmers. Grain prices dropped drastically. Two years before the 1929 stock market crash, farmers were burning their crops in the field because it would cost them more than they could get on the market to harvest the grain. Grain that could have been sold to distilleries and breweries.
The government did allow six companies to sell medicinal spirits during Prohibition, but these spirits were all existing stocks owned by the distilleries before Prohibition closed them down. The sales from these companies were only a small fraction of what they were selling before Prohibition. Taxes were still being paid, but nothing compared to the pre-Prohibition tax. The income tax collected from the workers and the companies still in existence was also only a fraction of what was collected before Prohibition. The national debt was growing.
When the stock market crashed in 1928, the Republican Party’s economic policy was that the government would borrow more money and invest it in infrastructure by building roads, bridges, dams and other such projects, creating jobs. The Democratic Party’s policy was that the government needed to balance the budget, get the government out of debt and that would cause the economy to grow.
They also favored the repeal of the 18th Amendment. They had lost in 1928 in a close race, but the depression made their case stronger. One of the arguments for repeal was that the amount of the Federal deficit was equal to one pre-Prohibition year of taxes collected on spirits. The Democrats won in 1932 and repeal followed the following year.
Those who do not learn from history are doomed to make the same mistakes over and over. There is still a growing Prohibition movement in America. The lesson they need to learn is that destroying the legal spirits industry hurt the economy and caused mass unemployment. It did not stop people from drinking, but most of the sales were done illegally with no taxes being paid to local, state and federal governments. The fact is that drinking became more common during Prohibition. Prohibition is a losing proposition.
Photos Courtesy of Michael Veach and Maggie Kimberl
October 21, 2020 at 9:04 pm
who wrote this article?
October 21, 2020 at 9:17 pm
October 12, 2022 at 8:36 pm
It’s a start. Three Republican Administrations violently enforced laws making a crime of production and trade. When the penalties were increased in March 1929, interest rates went wild. Stock prices began falling late August and banking panics worsened until repeal. Maybe Prohibition and The Crash were cause and effect?