A legitimate pharmacist around the corner or down the street could deal with that; people who still needed their Sal Hepatica, their Carter’s Little Liver Pills, or their Ivory soap weren’t going to get their orders filled at the Hell Hole. Much more problematic from a competitive standpoint were the legitimate drugstores that operated by illusion. They sold the same conventional remedies and toilet items they’d always sold and kept a licensed pharmacist stationed behind an elevated counter, but those were mostly for show. These stores made so much money selling liquor that they could keep prices on their other products low enough “to seriously injure the legitimate drug business,” according to a Senate inquiry. Sherman Billingsley, later the operator of the celebrated speakeasy the Stork Club, got his start in the New York booze business by buying up majority interests in drugstores in the Bronx, Brooklyn, and Harlem; moving into midtown Manhattan, wrote Ralph Blumenthal in The Stork Club, Billingsley later “opened new drugstores around the homes and apartments of showgirls he courted, flamboyantly naming the businesses after them.”
Hoping to block the opening of faux pharmacies that were really just liquor retailers, Ambrose Hunsberger, president of the Philadelphia Organization of Retail Druggists, proposed that the Prohibition Bureau withhold a medicinal liquor license from any new drugstore until after its first full year of operation. Of course, critics could reasonably point out that such a regulation might provide a very comfortable advantage to a liquor-dispensing druggist who had already been around for a while.
Take, for instance, Charles Walgreen, who had built his Chicago-based chain from nine locations in 1916 to twenty just four years later. In 1922 Walgreens introduced the milk shake, which family historians have credited with the chain’s next growth spurt. But it’s doubtful that milk shakes alone were responsible for Walgreens rocketing expansion from 20 stores to an astonishing 525 during the 1920s. Something Charles Walgreen Jr. told an interviewer many years later suggests another possibility. The elder Walgreen worried about fire breaking out in his stores, his son recalled, but this apprehension transcended concern for his employees: he “wanted the fire department to get in as fast as possible and get out as fast as possible,” Charles Jr. remembered, “because whenever they came in we’d always lose a case of liquor from the back.”
OPPORTUNITY BRED INGENUITY. The most successful entrepreneur in the early stages of the medicinal liquor business, a clever Chicago lawyer named George Remus, looked at Prohibition and, he said, “saw a chance to make a clean-up.” Few had a better view of the possibilities than Remus: he’d been a pharmacist before attending law school, and his work as a criminal defense lawyer enabled him to study the levers and gears of illegal enterprise. Like rumrunner Bill McCoy he was a teetotaler, his perspective on liquor unaffected by personal tastes or unclouded by personal habit. He cared only about the money, and his care was rewarded. In one year Remus deposited $2.8 million into one of his many bank accounts—the equivalent, in 2009, of more than $32 million.
The Chicago lawyer had found his way to Cincinnati like a dowser searching for water, the stick twitching violently when Remus realized that 80 percent of America’s bonded whiskey was stored in distillery warehouses within three hundred miles of Fountain Square. Each of these bonded facilities was regularly patrolled by a government “gauger” charged with monitoring the wholesale trade in medicinal liquor. (Monitoring the wholesale trade in withdrawal permits—you could buy counterfeits at $6 to $8—was someone else’s responsibility.) The gauger would take an inventory of how much was on hand, add to that the amount withdrawn since his last count by totting up the accumulated permits, and determine whether the sum of the two numbers matched the previous month’s inventory figure. This measurement system also determined the amount of taxes owed on the released medicinal liquor.
When Remus bought a distillery, what he was really acquiring was all the bonded inventory that had accumulated before January 16, 1920. The fourteen distilleries (and millions of gallons) he purchased included small brands like Rugby, such established names as Fleischmann’s, and his greatest prize, Jack Daniel’s, whose distillery had been relocated to St. Louis after Tennessee went dry in the wake of the Levy’s gin scandal of 1908. All that whiskey was perfectly legal so long as it lay dormant in those bonded warehouses. It was also perfectly legal when Remus, the former druggist, purchased a pharmacy in Covington, Kentucky, renamed it the Kentucky Drug Company, and began withdrawing the whiskey he owned, in thousand-case lots, for distribution in the medicinal market. But it was not at all legal when the drug company’s trucks were hijacked by Remus’s own employees, a brilliant stratagem that diverted all that liquid medicine into the bootleg market—a bootleg market that differed from the drugstore market in two financially appealing ways: fewer middlemen, no taxes.
From Death Valley, his farm northwest of Cincinnati—so named because of the hired gunmen who patrolled the road that led to it—Remus ran a business so vast that it grossed as much as $25 million in a single year and so complex that it employed hundreds of drivers, guards, salesmen, office personnel, and warehouse workers. Plus, of course, the lawyers, politicians, Prohibition agents, police officers, and other confederates necessary to any self-respecting criminal operation. In St. Louis, in addition to the cash he handed out to sheriff’s deputies, tax collectors, court clerks, and the like, he had been careful to enrich members of both the Republican and Democratic city committees. This was of great help to him when, no longer content with removing measured quantities of medicinal liquor, Remus began to have his men tap the barrels in the Jack Daniel’s distillery, draining the contents through a web of hoses and pipes directly into waiting tanker trucks. Gaugers he had not paid off did not notice that the liquor in the missing barrels had been replaced by booze-scented water. Gaugers he did pay off noticed nothing at all. Eventually, though, even Remus’s profligate bribery failed him. “A few men have tried to corner the wheat market, only to find there is too much wheat in the world,” Remus told an interviewer in 1925. “I tried to corner the graft market, but I learned there isn’t enough money in the world to buy up all the public officials who demand a share.”*
CRIMINAL BEHAVIOR was not always a necessary element in the creation of medicinal alcohol fortunes. As Prohibition began, twenty-nine million gallons of liquor reposed inside bonded warehouses, aging impatiently in both cask and bottle. Bourbon distillers who had done very well in the days when liquor was legal now saw an opportunity to do even better without ever coming into direct contact with the illegal trade. The Wathen brothers of Louisville, makers of Old Grand-Dad, reorganized as the American Medicinal Spirits Company and eventually gathered fifty-eight additional brands under that name. Employees of the Brown-Forman Company witnessed a particularly momentous day in 1926, as a train bearing a dozen armed guards and 6,750 legal gallons of Old Forester departed the distillery on Howard Street in Louisville. It was bound for the warehouse of a Boston druggist confident he could resell 54,000 pints of fine bourbon in the local medicinal market.
The size of the Brown-Forman shipment headed for Boston, noted the Louisville Herald-Post with the hand-wringing concern of a local booster, was evidence that “because of the heavy demand for medicinal whiskey the . . . warehouses in Kentucky were fast being emptied,” and it was therefore “necessary to renew the manufacture of the Kentucky product to supply the legitimate demand.” Not really; by this point Brown-Forman had addressed its shrinking supply by purchasing the entire stock of one of its competitors, Early Times.
Early Times had inventory; Brown-Forman had a sales apparatus. David Schulte of New York had neither. Schulte had begun his working life picking strawberries on eastern Long Island, soon became a clerk in a Manhattan tobacco store, and with remarkable speed established a chain of cigar stores and a booming wholesale grocery business. Once Prohibition began he demonstrated that one needn’t be a distiller or a druggist to make a killing in medicinal liquor. In 1925 Schulte bought the Old Overholt rye dist
illery in western Pennsylvania, once the semihobby of Andrew Mellon and Henry Clay Frick, from the Mellon-controlled Union Trust Company for $4.5 million, inventory included—then turned around and sold it all to a marketer of medicinal spirits for $7.7 million. Time once said Schulte’s name was “a symbol of hard-earned wealth,” but in the 1920s, wealth that came from medicinal liquor came very, very easily.
NOT EVERY STATE countenanced the medicinal use of alcohol. Twelve forbade it entirely, and nine more allowed doctors to prescribe only pure, tasteless, undiluted alcohol—no medicinal Old Grand-Dad, no therapeutic Jack Daniel’s, no curative “Rare Old Jamaica Rum / Imported in Wood / Exceptionally Fine.” (This fairly unscientific description appeared in a price list “for physicians and dentists . . . for Medicinal Purposes Only” issued by the wholesale drug division of the S. S. Pierce Company of Boston.) When both the governor and the attorney general of Indiana publicly acknowledged that they had “secretly” obtained whiskey for severely ill members of their families, in contravention of state law, the fundamentalist Reverend John Roach Straton of New York’s Calvary Baptist Church weighed in. Said Straton, “They should have permitted members of their families to have died and have died themselves rather than violate their oaths of office.”
But no state regulated such alcohol-laden substances as perfume and toilet water, paint and varnish, antifreeze and smokeless gunpowder. Even drys as extreme as Straton had to tolerate the production and distribution of felt hats, photographic film, smelling salts, and pencils, all of which required alcohol in the manufacturing process. The Volstead Act had not carved out an exception for nonpotable alcohol so much as it had made the alcohol that people drank the exception. Of the “hundreds of uses” for alcohol, said Prohibition Commissioner Roy Haynes, “only one is outlawed” by the Volstead Act. Unsurprisingly, that one illicit use deformed the entire legal trade in industrial alcohol. Between 1920 and 1925 American production of legally manufactured industrial alcohol nearly tripled; by 1930 it had doubled once more. Impartial authorities placed the quantity diverted to the bootleg trade at 60 million gallons in a single year. Diluted to 80 proof, that was the equivalent of 150 million gallons, or 750 million fifths, of drinkable liquor. If that seemed like a lot for a nation of 115 million—including infants, children, and abstainers—there was a ready explanation: in a bizarre role reversal, some of it was actually being exported to Canada, where it could be sold at lower prices than that country’s legal, taxed liquor. As a consequence, Treasury Department officials found themselves participating in an international conference addressing a problem defined succinctly in the New York Herald Tribune: “how to keep America from forcing its illegal liquor on a friendly neighbor.”
In the United States, a gallon of alcohol flowed into the bootleg trade through a process that was only superficially complicated. The law required it to be denatured before it could leave the distilling plant—that is, made undrinkable by the addition of a noxious substance. Some of the seventy-six government-approved denaturants were unpleasant but fairly mild, like soap, menthol crystals, or various emetics; others, including formaldehyde, sulphuric acid, and iodine, were out-and-out poisonous. But removing the odious additives by redistillation or other procedures was a process any self-respecting chemist could engineer. One of the noted practitioners of this alchemy was Anastassoff Sreben, a Bulgarian-born chemist who worked his magic behind the false fronts of the Southern Disinfectant Company, the Chicago Essential Oil and Chemical Company, and various other enterprises based in a single building on the North Side of Chicago. Other firms named in the same indictment included Vidor Perfumeries, Temson Spice, Puritan Cosmetics, and the Sheik Toilet Preparations Company.
The names were fraudulent. These were “cover houses,” whose ostensible businesses required large quantities of industrial alcohol. “Ostensible” is the operative word. A permit was required to withdraw alcohol from a distilling plant for, say, delivery to a manufacturer of aftershave lotion. The permit holder’s only further obligation was to present to federal authorities a receipt establishing that the goods had indeed been delivered to the aftershave company. Whether the company in fact made aftershave was beyond the jurisdiction of the Prohibition Bureau. Enforcement agents would have to deal with the withdrawn alcohol only after it had been diluted, flavored, colored, placed in bottles bearing counterfeit labels, and shipped out to a thirsty public.
Roy Haynes tried to explain away the preposterous system that made this all so easy. “It seems better to take the risk” of industrial alcohol being diverted for beverage use, he said, “than to make the regulations so onerous that honest people cannot secure the alcohol they need” for their manufacturing businesses. Emory Buckner, U.S. attorney for the Southern District of New York, saw it differently: the industrial alcohol business, he said, was “a perfect carnival of corruption.”
In this carnival, Philadelphia was the big top. New York area “cutting plants,” as they were called, may have pumped out more product (by one informed estimate, almost a million gallons a month). Many other cities produced so much they had to throw some away; in Paducah, Kentucky, the superintendent of city construction warned that “this stuff they have been pouring into the sewers is eating the life out of the sewer lining.” But nowhere else in the country did the industrial alcohol racket capture its market as quickly and run as smoothly as it did in Philadelphia. This was partly due to the city’s proximity to the enormous complex of small-to medium-sized chemical factories that had been drawn to the Delaware Valley by the magnetic force of the DuPont Corporation. It was also due to an extraordinarily efficient criminal operation known as the Seventh Street Gang, under the direction of a gambler and fight promoter named Max “Boo Boo” Hoff. Operating as the Quaker Industrial Alcohol Company, the Glenwood Industrial Alcohol Company, and the Consolidated Ethyl Products Company, Hoff and his associates ran a vertical enterprise, beginning with the manufacture of alcohol, then managing its diversion to cover houses, its reformulation and repackaging as liquor in a cutting plant, and its wholesale distribution. Hoff and his confederates produced almost 1.5 million gallons of undiluted alcohol in a single year—diluted to 80 proof, 3.375 million gallons of regular-strength booze. Philadelphia alone couldn’t absorb this output; in one two-week stretch in 1925 Hoff and company sent forty loaded freight cars to St. Louis, Chicago, and St. Paul.
The man Mayor W. Freeland Kendrick hired to deal with this geyser of illegal liquor and all the other rampant violations of the Prohibition laws was Marine General Smedley P. Butler. A two-time winner of the Medal of Honor, Butler was appointed Philadelphia’s director of public safety in late 1923. Known as “Old Gimlet Eye” or “the Fighting Quaker,” he was a sinewy five-foot-four package of intense ambition, zealous determination, and considerable tactical brilliance. He had lied his way into the U.S. Marine Corps when he was only sixteen and gone on to command American troops in China during the Boxer Rebellion; in various expeditionary incursions into Nicaragua, Honduras, Panama, Mexico, and the Philippines; in putting down an insurrection in Haiti; and in the enormous American military encampment at Brest, France, during World War I. Butler was granted a leave from the Marine Corps by Calvin Coolidge, over the objection of the navy secretary, so he could clean up Philadelphia. On taking the job he announced that he would not only confront the bootleggers, the saloon owners, and the corrupt cops, but also those members of the city elite who thought themselves above the law. “The day has passed in Philadelphia when societies and organizations can hold banquets in big hotels and serve liquor,” he said. He also said he would succeed in Philadelphia or be “torn apart in the attempt.”
This story could end no other way: Butler failed miserably. Hoff’s operation was so lucrative it could afford to buy off the head of the police department’s Detective Bureau, hundreds of street cops, and the necessary complement of federal agents. A grand jury estimated the annual graft collected by members of the police department alone at $2 million. The
bounty was so rich it led to cops bribing other cops, most notoriously by paying for the privilege of assignment to the department’s elite enforcement squad, where the opportunities for payoffs were almost limitless. The political world was covered by Hoff’s choice of a lawyer: Congressman Benjamin Golder, a vital gear in the Republican machine that dominated Philadelphia politics.
Hoff’s reach extended into the city’s commercial establishment as well. His productive relationship with the Reading Railroad was built on a shipping agreement covering a territory stretching west to Minnesota and north to the Canadian border. He financed the expansion of his business through the otherwise respectable Union National Bank, which laundered his cash flow by lending him money on no other collateral than the $10 million he kept under pseudonymous names in fourteen separate accounts. Boo Boo Hoff, said a district attorney who tried (and failed) to put him in jail, was “like a giant spider in the middle of a great web with eyes in front and behind.” He was “a man who sees everything, knows everything and controls everything in the underworld.”
The revelation of Union National’s complicity in Hoff’s racket led to the resignation of its president, Joseph S. McCulloch, and the sale of Union National to another bank. Newspapers began referring to Philadelphia as “the Wall Street of the Rum Ring.” Butler returned to active duty in the Marine Corps, leading an expeditionary force into China in 1927. “Trying to enforce the law in Philadelphia,” he said when he had reached the end of the line as director of public safety, “was worse than any battle I was ever in.” He also said, “Sherman was right about war, but he was never head of police in Philadelphia.”
Last Call: The Rise and Fall of Prohibition Page 27