ECONOMIC BENEFITS of PROHIBITION PROFESSOR IRVING FISHER Yate University THE AMERICAN ISSUE PRESS, WESTERVILLE, OHIO ECONOMIC BENEFITS OF PROHIBITION By PROFESSOR IRVING FISHER, Yah UniversHy (Editor’s Note : The following is the statement of Professor Fisher, world known economist, made before the United States Senate Judiciary Subcommittee on Prohibition, April, 1926.) Since scientific research has shown that alcoholic bev- erages slow down the human machine, and since the hu- man machine is the most important machine in industry, we should expect the use of alcoholic beverages to slow down industry, and we should expect prohibition, if en- forced, to speed up industry. Experiments show that two to four glasses of beer a day will impair the work done in typesetting by 8 per cent, increase the time required for heavy mountain marches 22 per cent, and impair ac- curacy of shooting under severe army tests 30 per cent. Joss, in careful experiments made with students, found that one to two glasses of beer reduced the capacity of students to do mental arithmetic 12 per cent. Assuming the total alcohol used in the United States to be consumed uniformly among its families and assum- ming, as in the typesetting experiment (the minimum of the above figures), that each daily glass of beer reduced productivity 2 to 4 per cent, it follows that the produc- tivity of labor would be increased from 10 to 20 per cent by effective prohibition. But if, as is the fact, the con- sumption is unequally distributed, the impairment will, of course, be greater. . . . More direct evidence is available. In Russia, textile mills increased productivity 8 per cent after vodka pro- hibition — this in spite of the fact that in textile mills the pace is almost rigidly fixed by machinery. The Russian Minister of Finance reported that, in mining districts, the increased productivity had been 30 per cent. Ob- servers in Finland found in mining districts an increase of 50 per cent after prohibition. All of us know that industrial efficiency was one of the chief reasons for prohibition. Frederick W. Taylor, the 2 chief apostle of scientific management, favored prohibi- tion and predicted its coming on just these grounds. A Connecticut manufacturer, who made a careful reck- oning before prohibition as to what drunkenness among his employees cost him, thought that the elimination of drunkenness alone, without the elimination of moderate drinking, would increase his factory output over 20 per cent. In view of all these and other facts, it seems safe to conclude that labor productivity should be increased by at least 10 per cent through prohibition. Wages Increased Such an increase in productivity ought to find expres- sion in increased wages and profits, especially in terri- tory that was wet before prohibition. Now let us see how this has worked out in actual fact. The national in- come in 1919, the year before prohibition took effect, was estimated at $66,000,000,000 by the National Bureau of Economic Research, our chief authority for such statis- tics. About three-fourths of this consisted of wages and profits, or $50,000,000,000. Let us assume that the re- mainder (interest, rent, etc.) was not increased through prohibition. Most of the $50,000,000,000 was produced in wet territory where the large cities and industries are. A rough study shows that two-thirds of our national wealth, three-fourths of our corporate incomes, and four- fifths of our personal incomes subject to the income tax, were in this wet territory. It follows that at least two- thirds of the nation’s wages and profits (and perhaps even three-fourths) were produced in wet area, or over $33,000,000,000. Applying the minimum estimate of 10 per cent, we calculate that AT LEAST $3,300,000,000 should be added to our national production by prohibi- tion — or would be added if prohibition were well en- forced — simply through the release of human energy and skill. This $3,300,000 is 5 per cent of the total income of the whole United States in 1919. It is in addition to $2,000,- 000,000 that were saved merely by transferring our en- ergies from alcohol production to something possessing 3 true value. In fact, the $2,000,000,000 loss from alcohol production would have been $3,000,000,000 or $4,000,000,- 000 today were it not for prohibition, or let us say (in accordance with various other estimates) another 5 per cent of our total income. In a nutshell, then, prohibition saves 5 per cent that used to be wasted out of our incomes, and adds another 5 per cent into the bargain. Prohibition Worth Six Billions This double gain, through the transfer of energy and the increase of energy, is over $6,000,000,000— without counting any savings in the cost of jails, almshouses, asylums, etc., or any economic savings from reducing the death rate. Turning now to experience since prohibition, we ask. Is there any sign of such an increase in national income? There is! Vv’e find that the “real” wages of labor per hour, after making all due allowance for changes in the purchasing power of the dollar, increased 36 per cent between July, 1914, and January, 1925; also that most of this sudden improvement came immediately after prohibition. Between 1892 and 1919, inclusive, “real” wages re- mained almost stationary. The fluctuations never ex- ceeded 4 per cent above or below the average level for those twenty-eight years (excepting only once, in 1897, when it was nearly 7 per cent above). Likewise, be- ginning with 1920, at a higher level, real wages have remained almost as uniform. This new level is 28 per cent above the old level. To repeat this striking fact in other words: With the coming of prohibition, wages suddenly rose from their old level, which they had kept without much change for over a quarter of a century, to a new level where it now is, a third higher than the old. Profits have also risen, as has the total income of the country, but the figures for profits are not so nearly up to date. All of us, however, know of our present abound- 4 ing prosperity. This is one reason for our unprecedented stock market. Savings Mount Furthermore, the statistics of vartous types of personal savings, such as the assets of building and loan associa- tions or the assets of life insurance companies, sho-w a substantially greater rate of growth during the period 1920-25 than during the period 1915-20. This increased rate of growth is particularly marked if those assets are expressed in terms of purchasing power, that is in “1913 dollars.” The foregoing facts fit perfectly with the theory that prohibition should increase wages and profits by at least 5 per cent. Indeed, they leave a margin six times that figure to take account of other causes, as well as of the fact that this 5 per cent is a safe minimum and also of the fact that prohibition is not fully enforced. Person- ally I am Inclined to believe that prohibition has saved and added much more than the $6,000,000,000 that I have estimated as a safe minimum. But it is always better to keep on the safe side, and to mention no higher figure specifically; for even a paltry $6,000,000,000 a year is well worth saving! This is one reason why Gary, Leland and other indus- trialists believe in prohibition. If prohibition enforce- ment cost us even $1,000,000,000 a year, it would be well worth while purely as an economic investment. These conclusions are confirmed by Mr. Hoover who, in a speech made before the United States Chamber of Commerce, said: ■‘Exhaustive study from many angles of produc- tion over average periods ten years apart, before and since the War, would indicate that while our productivity should have increased about 15 per cent, due to the increase in population, yet the actual in- crease has been from 25 to 30 per cent, indicating an increase of efficiency of somewhere from 10 to 15 per cent.” Mr. Hoover also said: 5 “In addition to elimination of waste, we have had the benefit of notable advances in science, improve- ment in methods of management, and prohibition.” Professor Carver of Harvard says: “Anyone who attempts to explain all these amaz- ing signs of prosperity among our working classes without mentioning prohibition seems to me as ex- treme as the one who would explain them on the ground of prohibition alone. I cannot explain them except by bringing in prohibition as a contributing factor. You heard labor leaders denounce prohibition last week because they resented its interference with “personal lib- erty.” But I noticed they did not say that it increased poverty. Listen to what the late Warren S. Stone, Grand Chief of the Brotherhood of Locomotive Engineers, has to say on the subject: “There are some people who labor under the de- lusion that they are going to have the prohibition law modified or abolished. Someone should wake them from their Rip Van Winkle sleep. I wish they could go with me for thirty days as I travel over this broad land and see the homes being erected everywhere, note the accounts being opened in savings banks, see the families out together in parks, recreation and community centers, children well-fed, with shoes to wear, and warm clothing, going to school; see prosperity, happiness and sun- shine where formerly there were only squalor and misery. All this as a result of prohibition. We are not going back to the old condition of things with their misery, want and poverty — never again. PRO- HIBITION HAS COME TO STAYl When prohibition came, we were told that to destroy the saloon was to destroy that much business, that sa- loons help “make money circulate.” This is what in the classroom we call “economic nonsense.” Today I think such talk seems nonsensical to almost everybody. No 6 one has the hardihood to revive such statements, in view of our prosperity since prohibition. But we do hear it said that prohibition is costly to administer and that it deprives us of a source of revenue for taxes. This also is “economic nonsense,” since the real source of taxation is income. Not only income taxes, but all taxes, are paid out of income. Prohibition has added $6,000,000,000 a year to this stream of income, the source of all taxes. It is, therefore, penny-wise and pound-foolish to argue that prohibition destroys revenue. It simply requires a transfer of taxes from alcoholic bev- erages to non-alcoholic beverages, and to the other pro- ductions to which our energies have been transferred. Liquor Traffic a Parasite The simple truth is, prohibition has simply replaced a parasitic industry by constructive industries. Breweries and saloons have given place to something more valu- able. A survey made by Robert Corradini, of the World League Against Alcoholism, of conditions in the Bow- ery, formerly one of the densest saloon districts of New York City, showed that saloons have been replaced by restaurants, clothing establishments, groceries, candy shops, shoe stores, hardware stores, jewelry shops, banks, etc. The value of the land on these sites has not fallen as was predicted, but in most cases risen. Even Milwaukee, the city that beer made famous, has been improved industrially through prohibition. This I have found to be the verdict of the best qualified judges. Turning the picture around, and, just as prohibition increases prosperity, it decreases poverty. A sub-com- mittee of the Committee of Fifty for the investigation of the liquor problem published, in 1899, a volume on the economic aspects of the problem. The investigation covered a period of about three years and was carried on under the general direction of my colleague, Prof. Henry W. Farnam, of Yale University. The general conclusions of this investigation were that, of the pov- erty which came under the notice of the charity organi- zation societies, about 25 per cent could be traced, di- 7 rectly or indirectly, to the use of liquor; of the poverty found in almshouses, about 37 per cent. In the investi- gation of crime the conclusion was reached that liquor was a first cause in 31 per cent of the criminals studied and that it entered in as a cause, directly or indirectly, in 50 per cent. Breadlines Vanish Experience with prohibition confirms tTiese conclu- sions. For instance, the New York City Bowery Mis- sion statistical report shows the abandonment of the bread line and the reduction in other evidences of pov- erty. Cora F. Stoddard, in an article on “Prohibition and Youth,” published in 1925, reported that the Boston Family Welfare Society, toward the end of 1923, made an intensive study of forty-eight families that had been brought to the society’s attention before 1919, chiefly for trouble caused by intemperance. Drinking had stopped entirely in thirteen of the forty-eight families and sixteen of the fifty-nine drinking members had become abstainers. She reported that in almost all of the families health con- ditions had improved, affecting the working ability of the men, of the wives and of the growing children, and put- ting all the families virtually on a basis of self-support. Even though drinking somewhat, the majority of the men were working more steadily and holding their jobs better. There are now fewer paupers in the almshouses of the United States than there have been in twenty years. The number of paupers per 100,000 of population was the lowest in the history of the country, according to the last United States census of almshouses. PRINTED IN U. S, A.