Prohibition

Now Published: Prohibition and Percolation

Zachary Bartsch2 Comments

My new article, “Prohibition and Percolation: The Roaring Success of Coffee During US Alcohol Prohibition”, is now published in Southern Economic Journal. It’s the first statistical analysis of coffee imports and salience during prohibition. Other authors had speculated that coffee substituted alcohol after the 18th amendment, but I did the work of running the stats, creating indices, and checking for robustness.

My contributions include:

  • National and state indices for coffee and coffee shops from major and local newspapers.
  • A textual index of the same from book mentions.
  • I uncover that prohibition is when modern coffee shops became popular.
  • The surge in coffee imports was likely not related to trade policy or the end of World War I
  • Both demand for coffee and supply increased as part of an intentional industry effort to replace alcohol and saloons.
  • An easy to follow application of time series structural break tests.
  • An easy to follow application of a modern differences in differences method for state dry laws and coffee newspaper mentions.
  • Evidence from a variety of sources including patents, newspapers, trade data, Ngrams, naval conflicts, & Wholesale prices.

Generally, the empirical evidence and the main theory is straightforward. I learned several new empirical methods for this paper and the economic logic in the robustness section was a blast to puzzle-out. Finally, it was an easy article to be excited about since people are generally passionate about their coffee.

Bartsch, Zachary. 2025. “Prohibition and Percolation: The Roaring Success of Coffee During US Alcohol Prohibition.” Southern Economic Journal, ahead of print, September 22. https://doi.org/10.1002/soej.12794.

Coffee’s Supply & Demand Dance during Prohibition

Zachary BartschLeave a comment

I’ve written about coffee consumption during US alcohol prohibition in the past. I’ve also written about visualizing supply and demand. Many. Times. Today, I want to illustrate how to use supply and demand to reveal clues about the cause of a market’s volume and price changes. I’ll illustrate with an example of coffee consumption during prohibition.

The hypothesis is that alcohol prohibition would have caused consumers to substitute toward more easily accessible goods that were somewhat similar, such as coffee. To help analyze the problem, we have the competitive market model in our theoretical toolkit, which is often used for commodities. Together, the hypothesis and theory tell a story.

Substitution toward coffee would be modeled as greater demand, placing upward pressure on both US coffee imports and coffee prices. However, we know that the price in the long-run competitive market is driven back down to the minimum average cost by firm entry and exit. So, we should observe any changes in demand to be followed by a return to the baseline price. In the current case, increased demand and subsequent expansions of supply should also result in increasing trade volumes rather than decreasing.

Now that we have our hypothesis, theory, and model predictions sorted, we can look at the graph below which compares the price and volume data to the 1918 values. While prohibition’s enforcement by the Volstead act didn’t begin until 1920, “wartime prohibition” and eager congressmen effectively banned most alcohol in 1919. Consequently, the increase in both price and quantity reflects the increased demand for coffee. Suppliers responded by expanding production and bringing more supplies to market such that there were greater volumes by 1921 and the price was almost back down to its 1918 level. Demand again leaps in 1924-1926, increasing the price, until additional supplies put downward pressure on the price and further expanded the quantity transacted.

We see exactly what the hypothesis and theory predicted. There are punctuated jumps in demand, followed by supply-side adjustments that lower the price. Any volume declines are minor, and the overall trend is toward greater output. The supply & demand framework allows us to image the superimposed supply and demand curves that intersect and move along the observed price & quantity data. Increases toward the upper-right reflect demand increases. Changes plotted to the lower-right reflect supply increases. Of course, inflation and deflation account for some of the observed changes, but similar demand patterns aren’t present in the other commodity markets, such as for sugar or wheat. Therefore, we have good reason to believe that the coffee market dynamics were unique in the time period illustrated above.

*BTW, if you’re thinking that the interpretation is thrown off by WWI, then think again. Unlike most industries, US regulation of coffee transport and consumption was relatively light during the war, and US-Brazilian trade routes remained largely intact.

Prohibition Reversals

Zachary BartschLeave a comment

We have all heard of the prohibition era. Popularly, it refers to the period from 1920-1933 during which it was illegal to sell, transport, and import alcohol in the US. National prohibition was enacted by the 18th amendment and repealed by the 21st amendment. That’s the basic picture.

But did you know that there were state alcohol prohibitions prior to the national one? In fact, there were 3 major waves of state alcohol prohibitions. The first was in the 1850s, the 2nd was in the 1880s, and then the 3rd preceded the 18th amendment. The image below illustrates the number of states that had statewide dry policies. You can see the first two waves and then the tsunami just prior to 1920.

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“Studies Show”: Marijuana Legalization and Opioid Deaths

Jeremy HorpedahlLeave a comment

In his NY Times column today, Ross Douthat argues that legalizing marijuana is a big mistake. Douthat makes a number of arguments, but let me focus on one point he makes in the column: that recent research suggests legalizing marijuana increases opioid deaths. This point is made in just one sentence of the essay, so let me quote it in full:

There was hope, and some early evidence, that legal pot might substitute for opioid use, but some of the more recent data cuts the other way: A new paper published in the Journal of Health Economics finds that “legal medical marijuana, particularly when available through retail dispensaries, is associated with higher opioid mortality.”

Kudos to Mr. Douthat for actually linking to the paper. That’s what the internet is for! Yet so many writers in traditional news sources fail to do this.

Now, on to the paper itself. There is nothing untrue in what Douthat writes. First, there was plenty of “early evidence” that legalizing marijuana reduced opioid deaths. More on this in a moment. And the study he cites by Mathur and Ruhm is particularly well done. It is published in the top health economics journal. But the main point of the paper is to say “we think the rest of the literature is wrong, and we’re going to try really hard to convince you that we are right.”

What does the rest of this literature say? Here’s a brief tour (all of these are cited in Mathur and Ruhm). The variable in question is opioid deaths.

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The Social Drug of Prohibition

Zachary Bartsch1 Comment

Why does the average drinker consume alcohol? There are plenty of reasons, one of which is social. Alcohol, while inhibiting clarity, precision, and discretion, is a social lubricant. If you’re one of those drinking, then it’s enjoyable to be around other drinkers. Also, people build the habit of drinking *something* while socializing. We all know that prohibition resulted in bootlegging and tainted cocktails. But what were the legal alternatives? One was that you could purchase grape juice and make your own wine (that’s a story for another time). Another is to switch to another drug.

Alcohol is a depressant and arguably the most popular one in the US. It’s not a clear substitute for alcohol in terms of its direct effects on the body. However, it’s a liquid, safe, and tasty. That make is a good candidate for satisfying the physical urge to imbibe. But, importantly, it is also a social drug. People would get so hopped up on coffee and feed off of one another’s high that Charles the II of England banned coffee houses in order to prevent seditious fomentation. This brings us to an important characteristic of coffee. It’s a stimulant. You’d think that a stimulant would not be a substitute for alcohol. If anything, one might think that they are complements. Coffee helps to provide that kick in the pants after having an enjoyable night. But, the social feature makes coffee a good candidate to substitute alcohol, should the times be dire.

Illegal activity aside, people wanted an outlet for their physical and social proclivities. They wanted intoxication. Coffee provided exactly that. Conveniently, the continental US didn’t grow any of its own coffee. That means that imports and domestic consumption have a tight relationship.

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Chesterton on Prohibition, and Game Theory

Joy Buchanan1 Comment

English philosopher G.K. Chesterton traveled to America for a lecture tour. His observations are recorded in What I Saw in America (1922).

The book is not primarily about Prohibition nor is it mostly critical of America. He wrote one of his essays on Prohibition, which begins as follows:

This was 100 years ago, so start with this summary of the facts from Britannica:

Prohibition, legal prevention of the manufacture, sale, and transportation of alcoholic beverages in the United States from 1920 to 1933 under the terms of the Eighteenth Amendment. Although the temperance movement, which was widely supported, had succeeded in bringing about this legislation, millions of Americans were willing to drink liquor (distilled spirits) illegally…

Chesterton clearly is not a teetotaler, and I will not argue for or against temperance here. What was counterproductive about Prohibition is that elites passed a law that they would not abide by themselves.

Consider the decision by an individual to drink or not drink. For many people, drinking is social. If your friends are meeting at a bar, then you will drink at the bar to be with them. If your friends are going hiking with water bottles, then many people can pass the day without alcohol happily. We can model a game called Meeting Friends that has multiple equilibria.

Borrowing from Myerson (2009):

In such games, Schelling argued, anything in a game’s environment or history that focuses the players’ attention on one equilibrium may lead them to expect it, and so rationally to play it. This focal-point effect opens the door for cultural and environmental factors to influence rational behavior.

There was an opportunity for American elites to move social life to a new focal point after the 18th Amendment was passed. They could have led by example. Laws that do not follow norms cause problems, such as a large prison population arrested for drug offenses today. In 2021, I wrote about why attempts at drug prohibition helped the Taliban defeat the US coalition in Afghanistan.

Here’s my tweet thread last week about Chesterton and the American work ethic.

Myerson, R. B. (2009). Learning from Schelling’s strategy of conflict. Journal of Economic Literature, 47(4), 1109-25.