The Economics of Prohibition

by Mark Thornton

  General economic progress also helped to bring the average American increasingly into contact with doctors, health-care facilities, and the multipurpose narcotic. It was also this progress that helped bring the problems of drug abuse and addiction to the attention of the general public after the Civil War: “The United States always had a ‘drug problem,’ though the public remained uninformed about it. But rapid communication eroded that ignorance after 1865. Like the railroad station and the courthouse, the sanitarium was becoming a monument to civilization” (Morgan 1974, 3). In fact, the term “addiction” was coined long after the Civil War by the Swedish doctor Magnus Huss (1807–90). The realization of narcotic addiction brought about efforts by doctors and patent-medicine companies to discover the cause, the cure, and methods to reduce abuse. Some progress was made in understanding the cause and cure of addiction, even by modern standards.

  The Professional Movement

  The American Medical Association (AMA), founded in 1847, and the American Pharmaceutical Association (APhA), founded in 1852, played important roles in the prohibition movement. They began as splinter groups within the medical and drug-dispensing industries. Their goals centered on the establishment of professional standards in order to restrict entry. This desire to implement standards initially aroused both suspicion and opposition from within their own ranks.

  A common interest of the associations was the regulation of sellers of narcotics as a means of the advancement of the associates’ economic goals and as a cure for growing social problems. Both associations also supported the call for alcohol prohibition. Another common interest was the destruction of an economic rival—the patent-drug industry.

  The patent-drug industry had gained a substantial advantage over doctors and pharmacists as the result of improving technology, commercial practices, transportation, and communication. Patent medicines could be purchased anywhere by mail, while doctors and pharmacists were generally located in populated areas.

  The AMA and the APhA were not completely united on policy matters. Indeed, much of the rent-seeking battles hinged on the competition between pharmacists and doctors who dispensed their own medicines. Despite this rivalry, Musto claims that “Physicians and pharmacists were vocal and effective in their lobbying efforts. Each saw that in addition to aiding the public welfare, strict narcotic laws could be a distinct advantage for institutional development if great care was exercised in their framing” (1987, 14).

  The two professions were not the only two pressure groups involved in developing narcotics legislation. The National Drug Wholesalers Association, the Association of Retail Druggists, and other groups also participated. Public opinion was such that by the turn of the century it was not so much a matter of whether something should be done but rather what should be done, and more specifically how prohibition should be established. This situation provided a natural invitation for the medical and pharmaceutical industries to assist, as experts, in the development of antinarcotic legislation, and indeed the ultimate legislative outcome was largely determined by the interests of these groups.11

  The Harrison Narcotics Act

  The Harrison Narcotics Act was passed in 1914. It represents the first federal regulation to restrict the sale of drugs and is the basis of the current prohibition against narcotics. The Harrison Act represents the culmination of the haphazard work of a variety of interest groups joined against narcotics. According to Eldridge “The enactment of the Harrison Act marked an embarkation upon a totally new approach to the narcotics problem. That approach can best be described as an effort which set out to control the non-medical use of narcotics and evolved into the prohibition of non-medical uses and the control of medical uses” (1967, 9).

  The first laws against the smoking of opium were passed in the western states. The use of opium was spread by the Chinese who migrated with the construction of railroads and used opium for a variety of medicinal and recreational purposes. The laws, often explicitly discriminatory against Chinese immigrants, were largely ineffective, because the Chinese formed close-knit social structures. In addition, there was no organized enforcement mechanism. To the extent these laws were effective, however, they tended to stimulate the use of less conspicuous forms of opium (that is, smokeless), the mail-order drug business, smuggling, and illicit opium dens.

  Cocaine was viewed as a wonder drug and was used as an ingredient in a variety of commercial products, such as wine, Coca-Cola, and tonics. States began to ban the open sale of cocaine after 1900. In the South, cocaine prohibitions were in part based on the fear that blacks would substitute cocaine for alcohol after alcohol sales had been prohibited. It was claimed that cocaine use made blacks crazed criminals and violent rapists, as well as impervious to .32 caliber bullets.

  A major source of opiates was patent medicines. Only a small proportion of these products was consumed by persons who became addicted to them. Most patent medicine was used for pain relief and disease without addiction, or by babies who could not carry on a habit. Many addicts continued their addictions with patent medicines, while some unwittingly did so with opium-based addiction cures.

  The real tragedy of the patent-medicine episode was the addiction of unsuspecting (and previously unaddicted) consumers. Many states banned opium, morphine, and heroin about the turn of the century, but the bans were largely ineffective for a variety of reasons. The most notable reason was that patent-medicine companies could readily obtain exemptions from the bans. These exemptions resulted in the widespread availability in unmarked form of a prohibited substance. The consequent addiction of many unsuspecting consumers can be attributed to state prohibitions and the exemptions granted rather than to the callousness or stupidity of patent-medicine companies.

  The year 1906 was a watershed in the development of the national prohibition of narcotics. Media accounts of “abuse” by patent-medicine companies and the widespread failure of state bans helped promote a consensus on drug-abuse policy. The District of Columbia Pharmacy Act and the Pure Food and Drug Act were both passed in 1906 in order to halt the abuses by patent-drug companies and unlicensed competitors.

  The Pure Food and Drug Act of 1906 was the first important piece of federal legislation directed at drug abuse. It mandated that patent-medicine companies list the ingredients of their products on the label. The result attributed to this legislation was the decline in sales of patent medicines.12 The success of passing the act gave political experience and encouragement to the AMA, the APhA, and the wholesale-drug industry. The success of the law in limiting competition also encouraged them to increase their legislative efforts.

  The Pharmacy Act was a trial balloon promulgated with the consent of the trade associations, physicians, and pharmacists. Indeed, the law was based on a model law, developed by the American Pharmaceutical Association, that exempted physicians who sold medicine to their own patients. This law had the effect of controlling competition from unlicensed (and unorganized) sellers of drugs, such as door-to-door salesmen. The final version of the law was a compromise between reformers, physicians, pharmacists, the drug industry, and Congress (Musto 1987, 21–22).

  The Spanish-American War had officially moved the United States into the ranks of the world’s imperialist-colonial powers. Addiction and a newfound influence in the Far East brought narcotics use to a new level of importance. Western countries had used military power to open up the opium trade and to extend trading opportunities in China. The United States sought to increase its influence with China, lessen China’s concern over the widespread discrimination against immigrant Chinese, and stop the source of its own drug problems by establishing international agreements on the control of narcotics.

  Theodore Roosevelt promoted the Second Hague Peace Conference in order to establish an international agreement on the elimination of opium abuse. During the conference, in 1909, Congress quickly enacted a ban on the importation of smoking opium to relieve the embarrassment of the United States’ delegation over a lack of
federal laws of its own. This was the only legislation that would not offend the special-interest groups and could be quickly passed by Congress. This face-saving maneuver, however, did not achieve the original goals of Roosevelt or placate those interested in using that international forum as a method of imposing more restrictive domestic measures on narcotics use.

  Continued attempts by the federal government (politicians) to gain influence in China and to control domestic narcotic sales led to the drafting of the Foster Anti-Narcotic Bill. Although it never passed Congress, the bill formed the basis of the Harrison Act. Based on the federal government’s revenue powers, the bill was comprehensive and imposed heavy penalties on violators. The bill was to apply to all products containing even minute amounts of opiates, cocaine, chloral hydrate, or cannabis. It required that sellers keep extensive records, pay license fees, and purchase bonds and revenue stamps. Penalties consisted of fines of $500 to $5,000 and imprisonment from one to five years.

  The Foster bill was not popular with the drug interests because it placed the blame and the financial burden on pharmacists, physicians, and drug companies. Wholesale druggists and drug manufacturers attacked the inclusion of cannabis, the costly reporting requirements, and the severe penalties imposed by the bill. The American Pharmaceutical Association, social reformers, and bureaucrats wanted strong legislation, covering even cannabis and caffeine. Because of a lack of agreement between these groups, the Foster bill was eventually defeated (Musto 1987, 40–48).

  The effort to control narcotics was placed in the hands of Congressman Francis Burton Harrison. In response, the American Pharmaceutical Association organized the National Drug Trade Conference, which consisted of the American Association of Pharmaceutical Chemists, the National Association of Medicinal Products, the National Association of Retail Druggists, and the National Wholesale Druggists’ Association, all of which opposed aspects of a Foster-type bill.

  In seeking a compromise between political and industry interests, Harrison squashed the influence of the reformers and bureaucrats. Harrison sought the direct counsel of the National Drug Trade Council in order to rewrite the Foster bill for passage. The American Medical Association had nearly quadrupled its membership from 1900 to 1913, and its interest was to obtain legislation which did not impinge on the rights of doctors to sell drugs. The pharmacists’ lobby had long sought a monopoly on dispensing drugs. The sale of medicines by doctors was of decreasing importance, however, and the APhA was content with equal and less stringent record-keeping requirements. Musto described the final version of the Harrison Act as a series of compromises between the drug interests, the medical profession, reformers, and bureaucrats:

  The descendant of the stricter Foster bill, the Harrison bill of 1913 had incorporated numerous compromises. Records were simplified; standard order blanks would be filled in by any purchaser of narcotics and kept for two years so that the revenue agents could inspect them at will. Physicians could dispense drugs without keeping records if in actual attendance on their patients. Numerous patent medicines containing no more than the permitted amounts of morphine, cocaine, opium, and heroin could continue to be sold by mail order and in general stores. Everyone dealing in narcotics except the consumer would have to be registered. Retail dealers or practicing physicians could obtain a tax stamp for one dollar a year. No bond was required, the drugs were not taxed by weight, and chloral hydrate and cannabis were omitted in the final version. (1987, 51–65)

  In other words, the legislation gave pharmacists and doctors a carefully divided monopoly over the sale of narcotics, without offending related industries and without imposing much cost or burden on the monopolists themselves. At the same time, it did remove the influence, power, and control of bureaucrats, which was a notable feature of the Foster bill.

  With the passage of the Harrison Act, the Bureau of Internal Revenue began to administer the new law. It had experience in collecting taxes, issuing revenue stamps, and registering participants. The bureau began to explore its authority and to answer practical questions of the law. It issued new regulations that placed increased burdens on sellers of narcotics and that conflicted with the interest groups’ interpretation of the law. Second, and more important, was its assault on the maintenance of narcotic addicts.

  The Bureau of Internal Revenue sought to eliminate addict maintenance by physicians, but these efforts were continually rebuffed by the courts. It was not until 1919 that the maintenance of addiction, and therefore strict prohibition of narcotics, was established. The prohibition was based on an amendment that strengthened the Harrison Act and on a favorable Supreme Court decision that upheld the elimination of maintenance programs.

  The dramatic change in policy is linked to the enactment of (alcohol) Prohibition in 1919, the concerted efforts of bureaucrats, and events relating to World War I. The Prohibition amendment gave added authority to arguments for narcotics prohibition. It also established the fear that people deprived of alcohol would turn to narcotics. The Treasury Department’s Special Committee on Narcotics produced a report, Traffic in Narcotic Drugs, in which questionable statistics (based on survey information) were used to paint a grim picture of future narcotics use in the absence of a total prohibition. In addition, World War I added fuel to the prohibition fires. Concern for efficiency, the Communist threat, and wartime patriotism helped to provide public support for measures that had been considered unconstitutional. As a result, the Narcotics Division of the Prohibition Unit of the Treasury Department was able to establish what was essentially a prohibition on narcotics.

  In retrospect, the haphazard rent-seeking process that led to the current narcotics prohibition was not a sensible basis for legislation. Political influence in China, the promotion of medical-interest groups, Prohibition, and the initial problems associated with narcotics were one-time factors which no longer exist as support for prohibition.

  NATIONAL MARIJUANA PROHIBITION

  Prohibition seems incompatible with the historical, cultural, and economic significance of marijuana. As Ernest L. Abel notes, “Cannabis is undoubtedly one of the world’s most remarkable plants. Virtually every part of it has been used and valued at one time or another. Its roots have been boiled to make medicine; its seeds have been eaten as food by both animals and men, been crushed to make industrial oils, and been thrown onto blazing fires to release the minute intoxicating cannabinoids within; the fibers along its stem have been prized above all other fibers because of their strength and durability; and its resin-laden leaves have been chewed, steeped in boiling water, or smoked as a medicine and an intoxicant” (1980, 269–70). Marijuana prohibition is also a curiosity because it was enacted before the use of marijuana as a recreational drug became widespread. These questions and the current importance of marijuana in the underground economy have led researchers to examine the origins of marijuana prohibition.

  Two hypotheses have dominated the discussion of the origins of marijuana prohibition. The first is the “Anslinger hypothesis” developed by Howard Becker in the 1950s. Howard Becker (1963) argues that the Federal Narcotics Bureau, headed by the former Prohibition commissioner Harry Anslinger, played an entrepreneurial role in bringing marijuana to the attention of the general public. For example, Anslinger is responsible for developing the “killer weed” concept, and virtually all the popular articles published before the passage of the Marijuana Tax Act of 1937 acknowledge the help of his bureau and its publications.

  Becker does not say the bureau sought this legislation, or why it did so at that time. Joel Fort (1969) argues that the bureau was seeking publicity, while Erich Goode (1972) maintains that the bureau was seeking to impose its own morality on society. Donald T. Dickson (1968) contends that the bureau was merely following its self-interest in the form of bureaucratic growth and survival of the budget cuts of the Great Depression. Jerome L. Himmelstein (1983) argues that the bureau was trying to sustain itself by limiting its responsibility and maintaining only a policy-setting ro
le. All these hypotheses have some validity, although no single one, nor any combination of them, fully explains the origin of marijuana prohibition.

  The “Mexican hypothesis,” as developed by David F. Musto (1973) and John Helmer (1975), suggests that marijuana prohibition was a reaction against Mexican immigrants and others, such as blacks and lower-class urbanites. This hypothesis was based on spread of marijuana use to the general population during the 1920s and early 1930s, the presence of bigotry against the Mexicans, and the willingness of Mexicans to underbid whites in labor markets during the Great Depression.

  It is evident that bigotry likely played an important role in the demand for prohibition. The Chinese, Germans, and Irish are prominent examples of discrimination through prohibition. From the evidence presented by Richard J. Bonnie and Charles Whitebread II (1974), it is clear that there was little widespread public concern with marijuana use in 1937, nor was there a public outcry for marijuana prohibition that was not linked in some way with the bureau or its publications.

  The passage of the Marijuana Tax Act occurred without much publicity and did not become a significant policy until the recreational use of marijuana increased during the 1960s. The Anslinger hypothesis and the Mexican hypothesis are complementary; together they improve our understanding of the causes, justifications, and purposes of marijuana prohibition. At the same time, these two explanations appear to be incomplete answers to the question of the origins of marijuana prohibition. A more complete explanation may be achieved by placing the two competing hypotheses in historical context, with reference to the preceding prohibitions.