Isegoria

We used to make stuff, and now we make protocols, David Brooks recently claimed. But the 19th and 20th centuries were also “knowledge economies”, David Foster says:

The value of a Boulton & Watt steam engine was not in the “stuff” it was made out of (which could be purchased for a far lower amount than you would pay for the steam engine itself) but rather for the design knowledge contributed by James Watt and the manufacturing process knowledge (protocol knowledge) contributed by Matthew Boulton..and for innumerable additions to that knowledge base by their employees. To take a more recent example, the early 20th century assembly line as implemented by Henry Ford, and the kinds of precise work planning and industrial engineering developed by Taylor and the Gilbreths, certainly represent “protocols” just as much as do Wal-Mart’s supply-chain management procedures.

One could argue that a “protocol” in the form of pure software has no variable cost, unlike a physical product. But in reality, the software is only usable when it is incarnated into a physical device such as a computer. And many of the highest-value forms of software are in fact sold only as an embedded part of a physical device: iPhones, aircraft autopilots, and CNC machine tools, for example. And Wal-Mart obtains financial value from its supply-chain management expertise only when the results of that expertise are sold in the form of “stuff.”

The most important “protocols” are the ones that nudge “stationary bandits” — that is, politicians — toward the least destructive means of collecting economic rents — or getting their cut.

Prohibition should remind us, Thomas Fleming says, that Congress, scientists and economists seized by the noble desire to achieve some great moral goal may be abysmally wrong:

Today most people think Prohibition was fueled by puritanical Protestants who believed drinking alcohol was a sin. But the vocal minority who made Prohibition law believed they were marching in the footsteps of the abolitionists who sponsored a civil war to end another moral evil—slavery.

At least as important was the belief that Prohibition would produce health and wealth. Yale economist Irving Fisher, the best-known economist in the nation in the early 20th century, predicted that a ban on alcohol would guarantee a 20% rise in industrial productivity. He cited “scientific” tests that proved alcohol diminished a worker’s efficiency by as much as 30%. [...] His book, How to Live: Rules for Healthful Living Based on Modern Science, was a best seller.

Fleming presents a timeline:

The weapon of choice was the local option law by which a majority of voters could ban alcohol from a town, county or state. By 1900, 37 states had these laws and the machinery of petitions, letters, telegrams, parades and mass meetings was worked out. More than 20,000 Anti-Saloon League (ASL) speakers were preaching Prohibition in church halls and other public platforms around the country.

Soon whole states had banned alcohol. In 1907, Oklahoma entered the Union with a dry Constitution. In 1913, Congress passed a law banning the shipment of “intoxicating liquor of any kind” into dry states, making it impossible for individuals to buy a bottle of whiskey without travelling quite a distance to get it. Angry citizens and liquor industry spokesman appealed to the courts.

The outbreak of World War I in 1914 enabled the ASL and its ally, the Woman’s Christian Temperance Union, to go national. In 1914 and 1916, federal elections created Congresses in which “drys” outnumbered “wets” by 2-1. Many leading Americans such as ex-President Theodore Roosevelt urged the United States to side with England and France against Germany. The ASL shrewdly supported preparedness. They argued an alcohol-free America would be far better able to defend itself against the threat of German militarism.

In April 1917, President Woodrow Wilson went before Congress and called for a war to make the world safe for democracy. In the same month, the Supreme Court upheld the constitutionality of the 1913 law banning the shipment of alcohol into dry states. The ASL said the two events constituted a sign from God and used it to turn more states dry.

On May 17, 1917, Congress forbade the sale of liquor to all men in uniform. The drys promptly launched a new slogan: “Shall the many have food or the few drink?” Congress, worried about feeding 100 million Americans and our hungry allies, responded with a ban on the use of grain to make alcohol.

On Dec. 22, 1917, Congress passed the 18th Amendment, turning the whole nation dry — if and when two-thirds of the states ratified it. The ASL unleashed its 20,000 orators on the German Americans, with their numerous brewers a chief target. The drys repeatedly linked liquor to disloyalty and even treason. Beer drinking was a sign of sympathy for the German Kaiser and his army of “Huns.”

The ratification process moved slowly at first. By the fall of 1918, only 14 states had approved the 18th Amendment. To speed things up, the drys in Congress tacked a rider on a vital agricultural appropriation bill, establishing national Prohibition as of July 1, 1919.

In the White House, President Wilson’s Irish-American adviser, Joseph Tumulty, urged Wilson to veto the bill. Tumulty warned it would alienate millions of ethnic Democrats in the big cities in the upcoming midterm elections. Tumulty called the Dry rider “mob legislation pure and simple.” But Wilson conferred with other members of his cabinet, who recommended signing it. Wilson had been re-elected in 1916 by a heavy percentage of dry states. The president signed the bill and, as Tumulty predicted, outraged Irish and German Americans voted Republican and the Democrats lost Congress.

The political change was bad news for President Wilson and his dream of negotiating a “peace without victory.” But the drys still had a majority in Congress. Emboldened, they now passed the Volstead Act, which spelled out the language of the 18th Amendment in minute detail. The bill banned all drinks that contained more than 0.5 percent of alcohol, making wine and beer also illegal, and empowered local police and state and federal agents to arrest and imprison anyone who broke the law. President Wilson thought this was much too drastic and vetoed the bill. The House and Senate easily overrode the veto, without any serious debate. The Volstead Act destroyed the liquor industry, the seventh-largest business in the U.S. and tens of thousands of people lost their jobs.

Prohibition naturally bred contempt for the law and put a lot of money into criminal hands.

Don Boudreaux explains why Prohibition really got repealed:

What happened in 1930 that suddenly gave the repeal movement political muscle? The answer is the Great Depression and the ravages that it inflicted on federal income-tax revenues.

Prior to the creation in 1913 of the national income tax, about a third of Uncle Sam’s annual revenue came from liquor taxes. (The bulk of Uncle Sam’s revenues came from customs duties.) Not so after 1913. Especially after the income tax surprised politicians during World War I with its incredible ability to rake in tax revenue, the importance of liquor taxation fell precipitously.

By 1920, the income tax supplied two-thirds of Uncle Sam’s revenues and nine times more revenue than was then supplied by liquor taxes and customs duties combined. In research that I did with University of Michigan law professor Adam Pritchard, we found that bulging income-tax revenues made it possible for Congress finally to give in to the decades-old movement for alcohol prohibition.

Before the income tax, Congress effectively ignored such calls because to prohibit alcohol sales then would have hit Congress hard in the place it guards most zealously: its purse. But once a new and much more intoxicating source of revenue was discovered, the cost to politicians of pandering to the puritans and other anti-liquor lobbies dramatically fell.

Prohibition was launched.

Despite pleas throughout the 1920s by journalist H.L. Mencken and a tiny handful of other sensible people to end Prohibition, Congress gave no hint that it would repeal this folly. Prohibition appeared to be here to stay — until income-tax revenues nose-dived in the early 1930s.