Essay on The Economics of Prohibition

Essay on The Economics of Prohibition

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Economics of Prohibition
Prohibition's supporters were initially surprised by what did not come to pass during the dry era. When the law went into effect, they expected sales of clothing and household goods to skyrocket. Real estate developers and landlords expected rents to rise as saloons closed and neighborhoods improved. Chewing gum, grape juice, and soft drink companies all expected growth. Theater producers expected new crowds as Americans looked for new ways to entertain themselves without alcohol. None of it came to pass.

Instead, the unintended consequences proved to be a decline in amusement and entertainment industries across the board. Restaurants failed, as they could no longer make a profit without legal liquor sales. Theater revenues declined rather than increase, and few of the other economic benefits that had been predicted came to pass.

On the whole, the initial economic effects of Prohibition were largely negative. The closing of breweries, distilleries and saloons led to the elimination of thousands of jobs, and in turn thousands more jobs were eliminated for barrel makers, truckers, waiters, and other related trades.

The unintended economic consequences of Prohibition didn't stop there. One of the most profound effects of Prohibition was on government tax revenues. Before Prohibition, many states relied heavily on excise taxes in liquor sales to fund their budgets. In New York, almost 75% of the state's revenue was derived from liquor taxes. With Prohibition in effect, that revenue was immediately lost. 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. The most lasting consequence was that many states and th...


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The greatest unintended consequence of Prohibition however, was the plainest to see. For over a decade, the law that was meant to foster temperance instead fostered intemperance and excess. The solution the United States had devised to address the problem of alcohol abuse had instead made the problem even worse. The statistics of the period are notoriously unreliable, but it is very clear that in many parts of the United States more people were drinking, and people were drinking more.

There is little doubt that Prohibition failed to achieve what it set out to do, and that its unintended consequences were far more far reaching than its few benefits. The ultimate lesson is two-fold. Watch out for solutions that end up worse than the problems they set out to solve, and remember that the Constitution is no place for experiments, noble or otherwise.

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