Whenever I receive a book to review that is written by some hotshot Ivy Leaguer,
I brace myself for all the deception and tomfoolery that I will have to endure. Peter
Andreass Smuggler Nation, however, turned out to be a very pleasant surprise.
Indeed, I can recommend this book to anyone interested in reading a true history
of America and becoming better informed about issues ranging from marijuana
legalization to immigration reform.
The first point to be made about the book is that smuggling in America
has been around since colonial days and will continue into the foreseeable future.
Second, smuggling has played a very prominent role, rather than a subsidiary
one, throughout our history. Indeed, it has often played a pivotal role in important
events or episodes in American history. Third, smuggling is the result of
prohibitions and protective tariffs, and the cumulative impact of these policies
has been a driving force for the establishment of big government and the police
state in America.
Andreas makes it clear that the policies that create incentives to smuggle are
irrational, ineffective, and often counterproductive. He also makes it clear that
Americans have been duped by self-promoting politicians, self-interested bureaucrats,
moralistic crusaders, and a compliant press into supporting various prohibitions
to suppress vice. It is also interesting to note that smugglers were often considered
heroesif not by the majority, then certainly by the consumers they served. Many
of the wealthy and prominent families in American history, including several of our
Founding Fathers, first grew rich on profits from smuggling.
The book, which consists of sixteen chapters divided into five sections, is well
written and packed with interesting information and tidbits of American history.
However, I focus here on the three chapters for which I have the most expertise.
The first covers the Unions Civil War blockade of the South. Andreas clearly
describes the unappreciated importance of the naval aspects of the war as well as
NorthSouth trade during the war, the Confederacys grand miscalculation regarding
King Cotton and the blockade, and the for-profit and largely nonviolent battle
between blockaders and blockade runners.
However, although the author seems uneasy with the conclusion, he wrongly
concludes, along with many historians, that the Union blockade was a success.
Blockades do raise transport costs and prices. They do reduce the amount of trade.
However, higher prices are both profit incentives that keep important goods flowing
as well as incentives to economize. Higher prices also opened up bribery opportunities,
which kept goods flowing over the border between Union and Confederacy.
Therefore, we should never expect blockades to be truly successful.
In a series of papers, one of which Andreas cites, my coauthors and I have
questioned the apparent success of the Union blockade. Instead, we found that a long
series of ill-conceived Confederate policies were implemented that discouraged blockade
running. This culminated in the Confederate Trade Legislation of 1864. This
legislation prohibited the importation of a long list of luxury goods, put controls
on the importation of other goods, and commandeered half of all cargo space
on blockade runners for use by the Confederate government. Not surprisingly, entrepreneurs
in the blockade-running business were immediately and thoroughly discouraged
from further runs. This legislation was particularly discouraging for crew
members, who were allocated a small space in which they imported luxury goods.
The profits that they gained by selling the luxuries was an important part of their pay
for running the blockade. (For an example of the papers that cover this topic, see
Robert B. Ekelund Jr. and Mark Thornton, The Confederate Blockade of the
South, Quarterly Journal of Austrian Economics 4, no. 1 [Spring 2001]: 2342.)
The chapter on alcohol prohibition is particularly good and entertaining.
Throughout history, we implemented several foolish and counterproductive efforts
to control alcohol in one way or another in America. The most noticeable of these
efforts, the Eighteenth Amendment to the Constitution, prohibited alcohol and
would turn out to be the biggest social mistake since the days of slavery.
Andreas does a good job of explaining how disruptive Prohibition was to the
lives of ordinary Americans as well as the harmful legacy it had on the rule of law
in America. He even correctly notes that the repeal of Prohibition, the Twenty-first
Amendment, was brought about because of money. In this case, it was the need for
tax revenues during the early years of the Great Depression. However, his explanation
for the adoption of the Eighteenth Amendment is less convincing because it restslargely on distrust of the Germans after World War I. The money explanation rests
on two factors: (1) the new income tax meant that Congress was no longer so
dependent on alcohol and import taxes for their revenues because the income tax
brought in more money than expected; and (2) John D. Rockefeller donated huge
sums of money to groups such as the Anti-Saloon League to help them prohibit
alcohol fuel for cars, the biggest competitor to his gasoline sales.
Although alcohol prohibition might be characterized as the biggest scam
in American history, it is safe to say that drug prohibition is the longest-running
scam in American history. I was glad to see that Andreas concludes that there
were no major social problems associated with these prohibited drugs prior to the
governments efforts to ban them, and there likewise was no popular support for
the bans. Indeed, the Harrison Narcotics Tax Act of 1914 was only a regulatory
effort that was turned into a prohibition by bureaucrats and the courts. The same
thing happened years later with the Marijuana Tax Act of 1937.
Support for both prohibitions was based on ignorance, prejudice, and religion
as well as on bureaucratic interests and special interests. Andreas does sneak in a
public-interest justification for the Pure Food and Drug Act of 1906, but doctors
and pharmacists were clearly acting in their self-interest and merely used the public
interest as cover for their activities. They basically split up the market so that doctors
prescribed the drugs and pharmacists sold the drugs. Prior to this legislation, both
groups were competing in both markets.
The chapter on drug prohibition is a good place to bring out two concepts
in economics that generally appear throughout the book but are not labeled as such.
The first is the Alchian and Allen effect. This finding says that if you add a fixed cost
to two goods that consumers view as substitutes, you make the more expensive good
relatively cheaper. The Alchian and Allen effect explains why blockade runners smuggled
high-price, low-bulk luxury goods instead of corn. It is also why bootleggers
smuggled whiskey rather than beer and why drug cartels switched from marijuana
to cocaine when the government increased law enforcement budgets and prison
terms. Like many other writers on this subject, including Steve Levitt, Andreas treats
the introduction and expansion of the cocaine business in the early 1980s as something
that simply happened. Clearly, however, it was the expansion of budgets, prison
terms, and the South Florida Drug Task Force that increased the risks of smuggling
drugs (a fixed cost), which led smugglers to switch from bulky marijuana to compact
and potent cocaine.
The second concept is the Baptists and bootleggers effect. The phrase was
coined by economist Bruce Yandle, but it dates back to Murray Rothbard and earlier.
It says that certain special-interest groups with diametrically opposed views may
nevertheless work toward a common goal and may even directly support one another.
In the case of alcohol, some Baptists are opposed to the drinking of alcohol and
support prohibition. But bootleggers also support prohibition, which keeps the price
high and provides profit opportunities. You see this phenomenon throughout thebook in various forms. Andreas, for example, tells us that textile machinery was both
heavy and bulky and therefore difficult to smuggle, leading some to merely smuggle
the plans for building such machinery. The Baptist-and-bootlegger effect underscores
the fact that all such protectionism and prohibitions were private-interest scams that
were not in the public interest.
In summary, this book tells the history of wrongheaded policies of protectionism
and prohibition in American history. Very often the policies were invoked to address
spurious or even nonexistent social problems. As the truth is told, these policies
never serve the public interest and are usually counterproductive to the goals they
are designed to achieve. The legacy costs of these policies are huge, including the
weakening of the rule of law and the Constitution as well as giving us 1984-style big
government and the police state. Specialists in such diverse areas as immigration
reform, intellectual property, criminology, logistics, and terrorism will find the
book both interesting and useful. Those who like to read about American history
will find a different picture of the past.
Buy Smuggler Nation: How Illicit Trade Made America at Amazon.com for $22.19 (Hardcover)
Buy Smuggler Nation: How Illicit Trade Made America at Amazon.com for $9.99 (Kindle)
Volume 18 Number 4
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