Daniel Okrent (Last Call) answers readers’ questions about Prohibition on the Freakonomics Blog:
No factor played a larger role in the repeal of Prohibition than the government’s desperate need for revenue as the country fell into the grip of the Depression. Before Prohibition’s advent, a substantial amount of federal revenue came from the excise tax on alcohol. As the collection of income taxes and capital gains taxes plummeted between 1930 and 1933, politicians realized that the return of liquor and beer could help shore up federal finances. In fact, in the first post-repeal year, 1934, fully nine percent of federal revenue came from the revived alcohol tax.
In today’s political climate, where no one seems to be willing to raise income-tax rates, both state and federal governments are turning increasingly to excise taxes, use taxes and other levies that could easily be applied to marijuana. Californians will be voting on such a measure — it’s actually called the “Regulate, Control and Tax Cannabis Act” — this November.
Despite rumors to the contrary, Prohibition did reduce drinking:
At the end of Prohibition, Americans were consuming approximately 70 percent as much alcohol as they had in 1914. (Demographic historians use that as a base year, as many states began to pass sharply restrictive liquor laws around that time.)
In fact, it wasn’t until 1973 that we returned to pre-Prohibition levels of alcohol consumption, and only a few years later the per capita consumption figure began to decline again. Even now, we’re only inching our way back to the 1914 high-water mark. (Or maybe I should call it the “high-alcohol mark”!)
One figure we’ll never reach again: the 7.5 gallons of absolute alcohol the average American drank in 1830 – the equivalent of 90 fifths of 80-proof liquor, or nearly three times as much as we consume today.
What did the mobsters do when Prohibition was repealed?
Some went straight: the Bronfmans, who controlled Seagram’s, used the production facilities, distribution relationships and brand recognition they had built during Prohibition to become one of North America’s wealthiest families, dominating the distilling industry. Others stayed crooked: the national crime syndicate that reigned for decades after repeal was the product of inter-city peace pacts and cooperation agreements forged at two conferences – one in Atlantic City, the other in Chicago – during Prohibition.
And some took a middle path. In the years after Prohibition, culminating in a major effort after World War II, one-time bootleggers from eight different states east of the Mississippi decided to look west in an effort to find a way not just to preserve their fortunes, but also to enhance them. Their solution: they invented Las Vegas.