The Economics of Prohibition

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The Economics of Prohibition

Postby palmspringsbum » Fri Sep 15, 2006 12:57 pm

Ludwig von Mises Institute wrote:
The Economics of Prohibition

By Mark Thornton
Posted on 9/15/2006
The Ludwig von Mises Institute

[This article is excerpted from chapter one of The Economics of Prohibition.]

Prohibition has an ever-increasing impact on our daily life. In the United States, prohibition against certain drugs, involving "wars" on them, has become one of our most visible and hotly debated national problems. The purpose of the following investigation is to improve our understanding of the origins and results of prohibition, and therefore indirectly to contribute to future policymaking, shifting it toward rationality.

At the core of this book, one of the first theoretical investigations of prohibition, is an economic theory of prohibition, which defines prohibition as a government decree against the exchange of a good or service. Recent studies of decrees against cocaine, heroin, and marijuana suggest that these prohibitions impose heavy costs and are extremely difficult to enforce. Beyond such costs and enforcement difficulties, however, I argue that effective prohibition is impossible to achieve, because the unintended consequences of prohibition itself preclude any benefits.

The only long-term solution to the problems engendered by the "misuse" of a product, I maintain, is legalization of that product. With legalization, as opposed to decriminalization and other forms of government interventionism, the government treats the misused product or service as if it were soybeans, computer chips, or pencils. The market is controlled by self-interest and normal legal constraints, such as product-liability law.

This book may be viewed as a challenge to prohibitionists to present a theory that describes the benefits of prohibition. It may also be seen as a challenge to those who recommend that prohibition be replaced with some form of decriminalization. While it may be a good transition policy, decriminalization (government drugstores, high taxation, high fines, etc.) would maintain a black market, is an unstable policy, and does not create the necessary preconditions for reversing or limiting drug abuse.

I have made use of historical analysis and applications of theory in this book, incorporating the disciplines of economics, history, criminology, sociology, and political science as needed. I have avoided using such items as estimates of elasticity and regression analysis because they are transient, unnecessary, and provide a false sense of certainty.

The historical perspective transforms what might appear to be an implausible position into an eminently sensible one. The important historical aspects I examine include the role of economists in prohibitions, the origins of prohibitions, product quality, crime rates, and political corruption during prohibitions.

There is little doubt about the importance of prohibition in American history and its role in social problems. The prohibition of alcohol sales was a crucial aspect of trade and tension with the indigenous Indian Population. Temperance (along with slavery) was the primary reform movement in antebellum America, and prohibition was a determining political issue at the state and local level.

After the Civil War, prohibitionism spread from New England both west and south. Although sometimes perceived as a lull in the drive for prohibition, the period from 1860 to 1900 saw the establishment of the building blocks of successful national prohibitions.

Addiction was discovered, the Prohibition party was formed, groups such as the Women's Christian Temperance Union and the Anti-Saloon League were established, and a wave of prohibitions at the state and local level were enacted on alcohol, cocaine, opium, morphine, gambling, and prostitution.

The Progressive Era (1900-1920) marks the pinnacle of American prohibitionism. As America "progressed" to become an imperial power, it did so in part on the international prohibition of narcotics and the Harrison Narcotics Act. The act also helped the medical and drug industries "progress" toward the exalted monopoly status that they now enjoy.

The Progressive Era also witnessed wartime prohibition of alcohol and National Alcohol Prohibition (the Eighteenth Amendment to the US Constitution). Never have so many been deceived about so much by so few. The Eighteenth Amendment and the Volstead Act, which established the mechanism of the amendment's enforcement, would be decisive and negative factors in American life and culture for over a decade.

The failure of Prohibition helped remove it temporarily from public attention. Not only was the "noble experiment" an embarrassment, events such as the Great Depression and World War II dominated public concern. Marijuana prohibition in 1937 was relatively insignificant — a mere side effect of narcotics and alcohol prohibitions.

The current prohibitions against narcotics originated with war and foreign-policy considerations in the Far East. In the 1960s foreign-policy considerations which resulted in war in Vietnam brought about increased consumption of drugs and the ensuing intensified war on drugs.

One early lesson from American history is the unmistakable interaction between war, intemperance, and prohibition. Avoiding war is perhaps the most important thing a government can do to avoid intemperance, addiction, and drug abuse. Conversely, drug abuse and prohibitions are a significant long-term cost of war.

History also supports the finding that prohibition is impossible to achieve in the economic sense. Legislatures do enact prohibitions and establish penalties and enforcement bureaus. The actions of these bureaus to enforce prohibition decrees have an effect, and when a prohibition survives long enough to be enforced it is successful in a political sense. I argue, however, that prohibitions have no socially desirable effect.

Of course prohibition should not be evaluated against a higher standard than other laws. Murder is against the law, but not all murderers are apprehended, convicted, and punished. Likewise, to expect complete or perfect prohibition is unrealistic. Rather, prohibition will be measured against its public-spirited intentions, that is, to reduce consumption of a good in order indirectly to reduce social ills (such as crime, destruction of free will, drug-related deaths) and to promote social goals (family life, democracy, health, and economic development).

To the extent that prohibitions result in increased prices, they produce increased crime and political corruption. Higher prices for a prohibited product also result in the substitution of related products and the innovation of more dangerous substitutes. Prohibited products tend to be more dangerous than legal substitutes in many respects, the result of prohibition, not the product itself.

Therefore, to assume that more severe penalties or increased enforcement will result in the substitution of legal for prohibited products is to make an invalid conclusion. Prohibitions on drugs cause potency to increase. Therefore, the assumption that higher prices achieve the goals of prohibition is unfounded. Given all such considerations, the case for prohibition remains unfounded even if the indirect connection between the consumption of certain products and social ills does exist.

The attempt to understand all human action (as opposed to just commercial activity) as rational represents a revolution in thought. Applied to policy decisions, this revolution is called public-choice economics, and from this perspective it is unacceptable to present prohibition as an ignorant, irrational, or impossible social policy.

Economists now suspect that any net losses to society produced by government policies are the result of rent seeking rather than ignorance or irrationality on the part of policymakers. Rent seeking is a search for privilege and personal gain through the political process. Rent seeking is distinguished from corruption in that rent seeking is legal and corruption is not.

History reveals that prohibitions are indeed classic examples of the co-opting of public-spirited intentions by rent seekers within the political process, thereby explaining the existence of what at first appears to be irrational policies.

This rationality-based method for the study of human action was labeled praxeology by the Austrian economist Ludwig von Mises. His student F. A. Hayek, a Nobel laureate, called it the logic of choice. Contemporary economists will recognize this approach as developed by Gary Becker. Other social scientists, notably political scientists, criminologists, and psychologists, will no doubt recognize this rationality-based approach as one which has become part of their own disciplines.

Although such an outcome is unintentional on my part, this book will prove threatening to many. Some will label the theory in it doctrinaire, apologetic, capitalistic, or liberal. Specialists may find it lacking for neglecting the role of addiction or for failing to consider certain estimates of elasticity, particular chemical compositions, or the role that unusual circumstances have played in particular markets at points in time.

In fact, however, many of the problems that economists and other social scientists have had with prohibition is that they have proceeded with investigation of specific markets without the benefit of a general theory.

One last warning is in order, and it cannot be emphasized enough. The markets in which prohibition has been deployed, such as gambling, intoxicants, and prostitution, have existed for a long time and will continue long after I and my book turn to dust. Prostitution is the world's oldest profession; people have been using intoxicants for as long as history can record; and men and women are risk-taking, fun-loving creatures. Most human beings live for leisure, not for labor. Labor is merely a means to an end.

No matter how deplorable the above activities appear to some, they are "leisure" to others. The only consistently successful method for raising the standards of leisure to higher levels is to allow economic development to take place. Individuals who use certain products or activities to self-destruct have problems far worse than the visible ones. Prohibition of these goods or services will have little impact in such cases.

It is also important to recognize that the problems in these markets (disease, fraud, broken families, and so on) are not the result of a lack of government involvement. Indeed, these markets have been historically characterized by extensive government involvement prior to the enactment of prohibition.

It is hoped that this book will stimulate debate, in both the academic and policy communities, even among those who disagree with aspects of it, and by that debate move us to a more rational public policy.

<hr class=postrule>
<small>Mark Thornton teaches economics at Auburn University. He is a senior resident fellowat the Ludwig von Mises Institute in Auburn, Alabama, and is the Book Review Editor for the Quarterly Journal of Austrian Economics. He is co-author of Tariffs, Blockades, and Inflation: The Economics of the Civil War. Send him mail. Comment on the blog.

This article is excerpted from Professor Thornton's book The Economics of Prohibition.</small>

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Legalizing Crime

Postby Midnight toker » Fri Sep 22, 2006 10:15 am

Best Syndication wrote:Legalizing Crime

Best Syndication
Submitted by Adrian Dunbaker on September 21, 2006 - 7:53pm.

"Those who have the command of the arms in a country are masters of the state, and have it in their power to make what revolutions they please. [Thus,] there is no end to observations on the difference between the measures likely to be pursued by a minister backed by a standing army, and those of a court awed by the fear of an armed people."

Aristotle (384-322 BC), Greek philosopher

The state has a monopoly on behaviour usually deemed criminal. It murders, kidnaps, and locks up people. Sovereignty has come to be identified with the unbridled - and exclusive - exercise of violence. The emergence of modern international law has narrowed the field of permissible conduct. A sovereign can no longer commit genocide or ethnic cleansing with impunity, for instance.

Many acts - such as the waging of aggressive war, the mistreatment of minorities, the suppression of the freedom of association - hitherto sovereign privilege, have thankfully been criminalized. Many politicians, hitherto immune to international prosecution, are no longer so. Consider Yugoslavia's Milosevic and Chile's Pinochet.

But, the irony is that a similar trend of criminalization - within national legal systems - allows governments to oppress their citizenry to an extent previously unknown. Hitherto civil torts, permissible acts, and common behaviour patterns are routinely criminalized by legislators and regulators. Precious few are decriminalized.

Consider, for instance, the criminalization in the Economic Espionage Act (1996) of the misappropriation of trade secrets and the criminalization of the violation of copyrights in the Digital Millennium Copyright Act (2000) – both in the USA. These used to be civil torts. They still are in many countries. Drug use, common behaviour in England only 50 years ago – is now criminal. The list goes on.

Criminal laws pertaining to property have malignantly proliferated and pervaded every economic and private interaction. The result is a bewildering multitude of laws, regulations statutes, and acts.

The average Babylonian could have memorizes and assimilated the Hammurabic code 37 centuries ago - it was short, simple, and intuitively just.

English criminal law - partly applicable in many of its former colonies, such as India, Pakistan, Canada, and Australia - is a mishmash of overlapping and contradictory statutes - some of these hundreds of years old - and court decisions, collectively known as "case law".

Despite the publishing of a Model Penal Code in 1962 by the American Law Institute, the criminal provisions of various states within the USA often conflict. The typical American can't hope to get acquainted with even a negligible fraction of his country's fiendishly complex and hopelessly brobdignagian criminal code. Such inevitable ignorance breeds criminal behaviour - sometimes inadvertently - and transforms many upright citizens into delinquents.

In the land of the free - the USA - close to 2 million adults are behind bars and another 4.5 million are on probation, most of them on drug charges. The costs of criminalization - both financial and social - are mind boggling. According to "The Economist", America's prison system cost it $54 billion a year - disregarding the price tag of law enforcement, the judiciary, lost product, and rehabilitation.

What constitutes a crime? A clear and consistent definition has yet to transpire.

There are five types of criminal behaviour: crimes against oneself, or "victimless crimes" (such as suicide, abortion, and the consumption of drugs), crimes against others (such as murder or mugging), crimes among consenting adults (such as incest, and in certain countries, homosexuality and euthanasia), crimes against collectives (such as treason, genocide, or ethnic cleansing), and crimes against the international community and world order (such as executing prisoners of war). The last two categories often overlap.

The Encyclopaedia Britannica provides this definition of a crime: "The intentional commission of an act usually deemed socially harmful or dangerous and specifically defined, prohibited, and punishable under the criminal law."

But who decides what is socially harmful? What about acts committed unintentionally (known as "strict liability offences" in the parlance)? How can we establish intention - "mens rea", or the "guilty mind" - beyond a reasonable doubt?

A much tighter definition would be: "The commission of an act punishable under the criminal law." A crime is what the law - state law, kinship law, religious law, or any other widely accepted law - says is a crime. Legal systems and texts often conflict.

Murderous blood feuds are legitimate according to the 15th century "Qanoon", still applicable in large parts of Albania. Killing one's infant daughters and old relatives is socially condoned - though illegal - in India, China, Alaska, and parts of Africa. Genocide may have been legally sanctioned in Germany and Rwanda - but is strictly forbidden under international law.

Laws being the outcomes of compromises and power plays, there is only a tenuous connection between justice and morality. Some "crimes" are categorical imperatives. Helping the Jews in Nazi Germany was a criminal act - yet a highly moral one.

The ethical nature of some crimes depends on circumstances, timing, and cultural context. Murder is a vile deed - but assassinating Saddam Hussein may be morally commendable. Killing an embryo is a crime in some countries - but not so killing a fetus. A "status offence" is not a criminal act if committed by an adult. Mutilating the body of a live baby is heinous - but this is the essence of Jewish circumcision. In some societies, criminal guilt is collective. All Americans are held blameworthy by the Arab street for the choices and actions of their leaders. All Jews are accomplices in the "crimes" of the "Zionists".

In all societies, crime is a growth industry. Millions of professionals - judges, police officers, criminologists, psychologists, journalists, publishers, prosecutors, lawyers, social workers, probation officers, wardens, sociologists, non-governmental-organizations, weapons manufacturers, laboratory technicians, graphologists, and private detectives - derive their livelihood, parasitically, from crime. They often perpetuate models of punishment and retribution that lead to recidivism rather than to to the reintegration of criminals in society and their rehabilitation.

Organized in vocal interest groups and lobbies, they harp on the insecurities and phobias of the alienated urbanites. They consume ever growing budgets and rejoice with every new behaviour criminalized by exasperated lawmakers. In the majority of countries, the justice system is a dismal failure and law enforcement agencies are part of the problem, not its solution.

The sad truth is that many types of crime are considered by people to be normative and common behaviours and, thus, go unreported. Victim surveys and self-report studies conducted by criminologists reveal that most crimes go unreported. The protracted fad of criminalization has rendered criminal many perfectly acceptable and recurring behaviours and acts. Homosexuality, abortion, gambling, prostitution, pornography, and suicide have all been criminal offences at one time or another.

But the quintessential example of over-criminalization is drug abuse.

There is scant medical evidence that soft drugs such as cannabis or MDMA ("Ecstasy") - and even cocaine - have an irreversible effect on brain chemistry or functioning. Last month an almighty row erupted in Britain when Jon Cole, an addiction researcher at Liverpool University, claimed, to quote "The Economist" quoting the "Psychologist", that:

"Experimental evidence suggesting a link between Ecstasy use and problems such as nerve damage and brain impairment is flawed ... using this ill-substantiated cause-and-effect to tell the 'chemical generation' that they are brain damaged when they are not creates public health problems of its own."

Moreover, it is commonly accepted that alcohol abuse and nicotine abuse can be at least as harmful as the abuse of marijuana, for instance. Yet, though somewhat curbed, alcohol consumption and cigarette smoking are legal. In contrast, users of cocaine - only a century ago recommended by doctors as tranquilizer - face life in jail in many countries, death in others. Almost everywhere pot smokers are confronted with prison terms.

The "war on drugs" - one of the most expensive and protracted in history - has failed abysmally. Drugs are more abundant and cheaper than ever. The social costs have been staggering: the emergence of violent crime where none existed before, the destabilization of drug-producing countries, the collusion of drug traffickers with terrorists, and the death of millions - law enforcement agents, criminals, and users.

Few doubt that legalizing most drugs would have a beneficial effect. Crime empires would crumble overnight, users would be assured of the quality of the products they consume, and the addicted few would not be incarcerated or stigmatized - but rather treated and rehabilitated.

That soft, largely harmless, drugs continue to be illicit is the outcome of compounded political and economic pressures by lobby and interest groups of manufacturers of legal drugs, law enforcement agencies, the judicial system, and the aforementioned long list of those who benefit from the status quo.

Only a popular movement can lead to the decriminalization of the more innocuous drugs. But such a crusade should be part of a larger campaign to reverse the overall tide of criminalization. Many "crimes" should revert to their erstwhile status as civil torts. Others should be wiped off the statute books altogether. Hundreds of thousands should be pardoned and allowed to reintegrate in society, unencumbered by a past of transgressions against an inane and inflationary penal code.

This, admittedly, will reduce the leverage the state has today against its citizens and its ability to intrude on their lives, preferences, privacy, and leisure. Bureaucrats and politicians may find this abhorrent. Freedom loving people should rejoice.

APPENDIX - Should Drugs be Legalized?

The decriminalization of drugs is a tangled issue involving many separate moral/ethical and practical strands which can, probably, be summarized thus:

(a) Whose body is it anyway? Where do I start and the government begins? What gives the state the right to intervene in decisions pertaining only to my self and contravene them?


The government exercises similar "rights" in other cases (abortion, military conscription, sex)

(b) Is the government the optimal moral agent, the best or the right arbiter, as far as drug abuse is concerned?


For instance, governments collaborate with the illicit drug trade when it fits their realpolitik purposes.

(c) Is substance abuse a personal or a social choice? Can one limit the implications, repercussions and outcomes of one's choices in general and of the choice to abuse drugs, in particular? If the drug abuser in effect makes decisions for others, too - does it justify the intervention of the state? Is the state the agent of society, is it the only agent of society and is it the right agent of society in the case of drug abuse?

(d) What is the difference (in rigorous philosophical principle) between legal and illegal substances? Is it something in the nature of the substances? In the usage and what follows? In the structure of society? Is it a moral fashion?


Does scientific research support or refute common myths and ethos regarding drugs and their abuse?

Is scientific research influenced by the current anti-drugs crusade and hype? Are certain facts suppressed and certain subjects left unexplored?

(e) Should drugs be decriminalized for certain purposes (e.g., marijuana and glaucoma)? If so, where should the line be drawn and by whom?


Recreational drugs sometimes alleviate depression. Should this use be permitted?
<hr clss=postrule>
<small>Sam Vaknin ( ) is the author of Malignant Self Love - Narcissism Revisited and After the Rain - How the West Lost the East. He served as a columnist for Global Politician, Central Europe Review, PopMatters, Bellaonline, and eBookWeb, a United Press International (UPI) Senior Business Correspondent, and the editor of mental health and Central East Europe categories in The Open Directory and Suite101.

Until recently, he served as the Economic Advisor to the Government of Macedonia.

Visit Sam's Web site at</small>

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Commentary: Legalize drugs to stop violence

Postby palmspringsbum » Thu Apr 02, 2009 8:48 pm

CNN wrote:Commentary: Legalize drugs to stop violence

By Jeffrey A. Miron
Special to CNN
24 Mar 2009

<span class=postbold>Editor's note: Jeffrey A. Miron is senior lecturer in economics at Harvard University.</span>

<table class=posttable align=right><tr><td class=postcell><img class=postimg src=bin/miron_jeffrey.jpg title="Economist Jeffrey Miron says legalizing drugs would greatly reduce violence.
"></td></tr></table>CAMBRIDGE, Massachusetts (CNN) -- Over the past two years, drug violence in Mexico has become a fixture of the daily news. Some of this violence pits drug cartels against one another; some involves confrontations between law enforcement and traffickers.

Recent estimates suggest thousands have lost their lives in this "war on drugs."

The U.S. and Mexican responses to this violence have been predictable: more troops and police, greater border controls and expanded enforcement of every kind. Escalation is the wrong response, however; drug prohibition is the cause of the violence.

Prohibition creates violence because it drives the drug market underground. This means buyers and sellers cannot resolve their disputes with lawsuits, arbitration or advertising, so they resort to violence instead.

Violence was common in the alcohol industry when it was banned during Prohibition, but not before or after.

Violence is the norm in illicit gambling markets but not in legal ones. Violence is routine when prostitution is banned but not when it's permitted. Violence results from policies that create black markets, not from the characteristics of the good or activity in question.

The only way to reduce violence, therefore, is to legalize drugs. Fortuitously, legalization is the right policy for a slew of other reasons.

Prohibition of drugs corrupts politicians and law enforcement by putting police, prosecutors, judges and politicians in the position to threaten the profits of an illicit trade. This is why bribery, threats and kidnapping are common for prohibited industries but rare otherwise. Mexico's recent history illustrates this dramatically.

Prohibition erodes protections against unreasonable search and seizure because neither party to a drug transaction has an incentive to report the activity to the police. Thus, enforcement requires intrusive tactics such as warrantless searches or undercover buys. The victimless nature of this so-called crime also encourages police to engage in racial profiling.

Prohibition has disastrous implications for national security. By eradicating coca plants in Colombia or poppy fields in Afghanistan, prohibition breeds resentment of the United States. By enriching those who produce and supply drugs, prohibition supports terrorists who sell protection services to drug traffickers.

Prohibition harms the public health. Patients suffering from cancer, glaucoma and other conditions cannot use marijuana under the laws of most states or the federal government despite abundant evidence of its efficacy. Terminally ill patients cannot always get adequate pain medication because doctors may fear prosecution by the Drug Enforcement Administration.

Drug users face restrictions on clean syringes that cause them to share contaminated needles, thereby spreading HIV, hepatitis and other blood-borne diseases.

Prohibitions breed disrespect for the law because despite draconian penalties and extensive enforcement, huge numbers of people still violate prohibition. This means those who break the law, and those who do not, learn that obeying laws is for suckers.

Prohibition is a drain on the public purse. Federal, state and local governments spend roughly $44 billion per year to enforce drug prohibition. These same governments forego roughly $33 billion per year in tax revenue they could collect from legalized drugs, assuming these were taxed at rates similar to those on alcohol and tobacco. Under prohibition, these revenues accrue to traffickers as increased profits.

The right policy, therefore, is to legalize drugs while using regulation and taxation to dampen irresponsible behavior related to drug use, such as driving under the influence. This makes more sense than prohibition because it avoids creation of a black market. This approach also allows those who believe they benefit from drug use to do so, as long as they do not harm others. Do you think it's time to legalize marijuana?

Legalization is desirable for all drugs, not just marijuana. The health risks of marijuana are lower than those of many other drugs, but that is not the crucial issue. Much of the traffic from Mexico or Colombia is for cocaine, heroin and other drugs, while marijuana production is increasingly domestic. Legalizing only marijuana would therefore fail to achieve many benefits of broader legalization.

It is impossible to reconcile respect for individual liberty with drug prohibition. The U.S. has been at the forefront of this puritanical policy for almost a century, with disastrous consequences at home and abroad.

The U.S. repealed Prohibition of alcohol at the height of the Great Depression, in part because of increasing violence and in part because of diminishing tax revenues. Similar concerns apply today, and Attorney General Eric Holder's recent announcement that the Drug Enforcement Administration will not raid medical marijuana distributors in California suggests an openness in the Obama administration to rethinking current practice.

Perhaps history will repeat itself, and the U.S. will abandon one of its most disastrous policy experiments.

<small>The opinions expressed in this commentary are solely those of Jeffrey Miron.</small>

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