Was Prohibition Repealed Because of the Great Depression?

Updated on November 9, 2017
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Joel has an Associate of Arts degree from CSN and is majoring in Secondary Education and History at Nevada State College.

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In all of the successful amendments that have been passed and written into the United States Constitution, none have been as such a failure as the 18th Amendment, which prohibited the manufacturing, sale, and consumption of alcoholic beverages. The predicted effects and the actual effects were almost the exact opposite, leading to more trouble in the country, and eventually leading to its repeal thirteen years later. We are actually coming up on the 84th anniversary of the repeal, on December 5th. Something stands out about the year that it was repealed, 1933, in that it was during the Great Depression. When alcohol became legal again, it allowed the federal government to gain tax revenue from the sale of alcohol, a tax that would definitely be helpful during a time of economic crisis. That leads to a very interesting question: Was the Great Depression the driving factor that led to the repeal of the 18th amendment?

To begin, we have to go back to see why prohibition even occurred. After all, alcohol had been a big part of American history up to this point; when the settlers were first arriving to the New World, beer was a more healthy option than natural water, because it had no harmful bacteria in it that would lead to diseases like dysentery. It was such a large piece of American culture that taxes on customs duties and the sale of liquor accounted for more than two-thirds of federal tax revenue between 1870 and 1913 (Boudreaux.) Despite this economic strength, there were a lot of people who believed with good reason that alcohol led to violence and immoral behavior, and from the middle of the 19th century leading to 1919, there were groups that fought for alcohol prohibition. This was strengthened when it came to the point where there was one saloon for every 150-200 people (Graham,) which is a higher establishment-to-population ratio than we currently have for McDonald’s. Overall, the fight for prohibition was not unfounded, but the first hint we have that the economy was a big part of the decision was that the American government thought ahead when it came to enacting prohibition.

When the first Great War occurred, an income tax was implemented in 1914 to make up for the expenses of war, and was raised until it solely accounted for two-thirds of tax revenue, which is as much as alcohol had made before it (Bourdeaux.) When it reached that level in 1918, the country was economically ready for prohibition, and the 18th Amendment was passed. The amendment was an immediate failure, and was repealed in 1933 with the 21st Amendment. The reasons we usually hear for why it was repealed are not a secret: organized crime rates exploded, moonshine manufacturing spread, and the alcohol that was illegally produced and sold was actually killing people. These are solid reasons to repeal prohibition, but there is evidence that shows that these were not the main reasons for repeal. In 1925, the national death toll from alcohol poisoning had nearly quadrupled since 1920, and it was only getting higher (Thornton,) but prohibition was still in place for another eight years after this. If an amendment was failing so heavily that citizens were dying at a faster rate because of it, it should be the responsibility of Congress to fix the problem, but they had not, at least not until the Great Depression began four years later.

It was not until this economic crash that the economic consequences of prohibition were made clear; the federal government had lost $11 billion in potential alcohol tax revenue, while spending $300 million just trying to enforce the amendment (Lerner.) Now that the economic crash has had devastating effects on an international level, the government needed that lost revenue to boost the economy, especially since income taxes were no longer making the cut (Bourdeaux.) According to a magazine published in November of 1933, the Administration had promised to raise $250 million in from alcohol taxation (Fortune,) and raised the tax rates on alcohol immediately after the 21st Amendment was passed (Noyes.) They then continued to raise the taxes even after that, ending it with $3 per gallon, which would be the same as over $40 per gallon today.

It is a fact that a good amount of government decisions have economic effects in mind, with their decisions usually going for a beneficial outcome. Recently, states have been legalizing the sale of recreational marijuana, and they are going to get a good amount of tax revenue from those sales. During the Great Depression, taxes on individuals as well as corporations were raised heavily in order to fund social programs, so it is not any stretch that the government repealed prohibition mainly for the purpose of taxing alcohol. Seeing as it had taken so long to repeal even as crime and death rates quickly rose, it is hard to believe that those were the more important reasons that we learn about a lot in school. In the end, the American economy was saved due to our involvement in World War II, and so we will not know how much of a role the alcohol taxes really could have had in saving the economy.

References:

Boudreaux, Donald J. “Alcohol, Prohibition, and the Revenuers - Foundation for ...” Foundation for Economic Education, FEE, 1 Jan. 2008, www.bing.com/cr?IG=4BA44303487E4C56801457BD7B7E2E33&CID=2317D2E147C56DD50003D9CD46C36C64&rd=1&h=GSp3D6zOiAkcLIc4l2CSoIbCs2SI2ixUGkrFbWneG74&v=1&r=https%3a%2f%2ffee.org%2farticles%2falcohol-prohibition-and-the-revenuers%2f&p=DevEx,5068.1.

Graham, Colleen. “The United States Prohibition of Alcohol.” The Spruce, 22 July 2017, https://www.thespruce.com/united-states-prohibition-of-alcohol-760167

Lerner, Michael. “Prohibition: Unintended Consequences.” PBS, Public Broadcasting Service, www.pbs.org/kenburns/prohibition/unintended-consequences/.

Noyes, Charles E. “Taxation on Alcoholic Beverages.” CQ Press, SAGE Publishing, library.cqpress.com/cqresearcher/document.php?id=cqresearcher1941022800. Originally published February 28, 1941 via Editorial research reports 1941 (Vol. I).

Thornton, Mark. “Alcohol Prohibition Was a Failure.” Cato Institute, 17 July 1991, www.cato.org/publications/policy-analysis/alcohol-prohibition-was-failure.

“Whiskey and America: a post-Prohibition reunion.” Fortune, 1933, republished June 24, 2012 via Fortune.com.



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