Category Archives: Economics of Prohibition

Mark Thornton's first few pages in Economics of Prohibition suggest that one way to lower alcohol consumption is to introduce "new and greater quantities of recreational and leisure activities as substitutes for alcohol." (28) If, via economic progress, life is so much fun for an average worker that the pleasures of drunkenness pale in comparison with other, less dangerous, enjoyments, then heavy drinking is sure to decline.

Let's consider private crime first.

1. Prohibition raises the prices of drugs. Non-addicts, both poor and not, will as the first effect lessen their consumption. But poor addicts will find their real wages reduced greatly and may choose to engage in criminal activities, such as robbery.

2. The costs of doing business to a midlevel drug boss consist not inconsiderably in the risk of being imprisoned by the state or killed by rivals or underlings. This cost is largely the same whether the drug dealer controls a larger territory or smaller. (In addition, a business cannot evenly rotate for long: it ether grows or shrinks. Our drug dealer needs to go up, if he wants to stay ahead and stay alive.) Since the costs are fixed, the profits can be dramatically enhanced by a capture of a neighboring drug lord's territory.

3. Both users and dealers of drugs are already outlaws as far as the state is concerned; the step from a non-violent outlaw to violent one is much smaller than from a respected businessman to violent outlaw, so the people's moral restraint is weakened.

4. The state's role here is not to protect transactions between drug dealers and their customers but on the contrary, to disrupt them. One dealer cannot sue another one in a court of law and have the executive branch of the government enforce the verdict. Enforcement is "private," which leads to greater violence overall.

5. In the illegal drug industry, creative advance is limited. Innovation is deterred. (1) There are high costs or even impossibility of advertising. (2) There is the difficulty of finding decent scientists who would agree to work illegally. (3) There is little quality control: I cannot look for customer reviews of drug retailers and their goods on the web. (4) The business favors highly concentrated and very potent drugs, because they are easier to smuggle, but those are hardly the most fun or safe drugs. (5) I cannot order online but must shop at the local market. Since prohibition makes it harder for drug producers to compete with each other for customers by continuously offering to the them better and cheaper products, it becomes so much more lucrative to go to war.

Now to government crimes.

1. Both drug producers and consumers are essentially peaceful individuals who hurt nobody. When the state imprisons then, it commits a grave injustice.

2. The money used to finance drug enforcement activities is transferred from enforcement of property crimes; so the latter increase via being deterred less efficiently.

3. There is more corruption of government officials under prohibition.

4. Taxes are raised in order to pay for drug enforcement, which is a crime, insofar as taxation is theft.

5. Asset forfeiture, nighttime police raids, draconian punishments are monstrous violations of civil rights.

As an unholy combination of the two, there is lessened respect for the law as a whole, since anti-drug laws are so obviously wicked. Some people may come cynically to despise all law -- even good law, and turn to crime for that reason.

When law enforcement intercepts and captures drug shipments, they create pure waste. This is because the government simply destroys these drugs. But they represent million of dollars worth of capital goods and human labor spent on producing them. These factors of production are revealed to have been expended in vain.

... not tax.

Legalize and not regulate.

Just legalize and butt out of the new free market completely.

The people serving prison sentences for non-violent drug offenses are not some demons locked in hell and forgotten.

They are not degenerate drug fiends, as if some undead filth, whom we, as if in a video game, are trying to wipe off the face of the earth.

From a utilitarian perspective, they remain full-fledged citizens whose welfare counts 100% in the total that we as lawgivers are trying to maximize.

Their great suffering cannot be neglected in our calculations. If properly taken into account, I think it alone condemns the drug prohibition.

If it's a regular old good like potatoes or pens, then its prohibition is not justified. Why should consumers be prevented from buying whatever pleasures they see fit?

If it's a peculiar good in that it harms the user gravely, then having it mutate into a super-potent super-rotten version on the black market is the exact opposite of what we want.

Again, the higher potency and lower quality (because that's one way to decrease costs and prices of a prohibited substance) of heroin would be a deterrent to regular consumers if heroin were a regular good. But they are an attraction to addicts and those who use it immoderately and imprudently if heroin is an "evil" good.

As a result, it is at least unclear that more people would ruin their lives with heroin abuse under freedom than they do nowadays under prohibition.

I like how Thornton mentions that people became "impatient" with the speed at which society improved and decided to force improvement by using the state.

But as Mises argues, capitalism (and peace, as Thornton adds), "deproletarianizes all strata of society. It raises the standard of living of the masses of the manual workers to such a height that they too turn into 'bourgeois' and think and act like well-to-do burghers." (HA, 669) Let us trust in this supremely effective civilizing process to diminish stupid and imprudent abuse of drugs rather than the state.

There will always be even under laissez-faire the underclass, i.e., a class of "lumpen-proles." But it is tiny and becomes ever smaller: the payoffs to self-control increase with economic improvement. The opportunity cost of messing oneself up with hard drugs is not enjoying all the legitimate goods the market has to offer. Becoming an addict or destroying one's health or losing one's savings are unhappy actions.

Hence, reality itself deters abuse.

It won't do to hurt society so enormously as the prohibitionists have done in order futilely to try to save these aberrations from themselves.