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«Abstract From 1920 to 1933 the United States made it illegal to sell, manufacture, or transport liquor. Americans were thirsty and the Noble ...»

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Law of the Rum-Runners: Self-Enforcement

Mechanisms Given Weak Focal Points∗

Nicholas A. Snow†

October 14, 2007

Abstract

From 1920 to 1933 the United States made it illegal to sell, manufacture, or

transport liquor. Americans were thirsty and the Noble experiment proved a failure. Nowhere was the law ignored more than in Detroit. The city shared the Detroit

river with Windsor, Canada and with the river less then a mile wide at points the

liquor flowed into the city, in fact 75 percent of all the liquor that was imported into the United State during prohibition came through Detroit from Canada. Despite being outside the protection of the law, rum running was far from lawless. The rumrunners created focal points that acted as self-enforcing mechanisms. Trade flourished and the liquor industry was second only to automobiles.

∗ I would like to thank Mises Institute for funding to work on this paper and all the 2007 Mises Institute summer fellows, particularly Dan D’amico for their helpful comments. As usual all errors are my own.

† Comments and questions can be sent to nasnow@gmail.com 1 Introduction People can often concert their intentions or expectations with others if each knows that the other is trying to do the same. Most situations–perhaps every situation for people who are practiced at this kind of game–provide some clue for coordinating behavior, some focal point for each person’s expectation of what the other expects him to be expected to do. (Schelling, 1960, p.57) But rum-running was not totally lawless. It had its own commandments, its own unwritten constitution, statutes, and code of fair play. Rules were set and appended by the syndicates, the big shippers, and the small independents proud enough to call themselves “legitimate” rumrunners. Legitimate rumrunners learned that the size of their market depended to a great degree upon the ability to supply a product of fairly high quality. A reputation for bad quality or a fraudulently labeled product distributed to those who diluted the imported liquor, undercut the market and hurt all shippers. (Engelmann, 1979, p.94) National prohibition during the 1920s is often called the noble experiment. Many viewed the consumption of alcohol as an evil but it wasn’t until non-moral arguments were brought in, such as increased work efficiencies and crime reduction, that the prohibition movement gained momentum. It was seen to be a cure for poverty and crime. In the words of Billy Sunday1 on the eve of prohibition, Good bye John [Barleycorn].2 Youwere God’s worst enemy. You were hell’s best friend. I hate you with a perfect hatred. I love to hate you. The reign of tears is over, the slums will soon be a memory; we will turn our prisons into factories and our jails into storehouses and corncribs. Men will walk upright now, women will smile, and children will laugh. Hell will forever be for rent. (Quoted in Mason, 1995, p.36) But when prohibition came these predications were far from true. Rather then peace and William “Billy” Sunday was a nationally know revivalist and evangelist who was a former big league baseball player for the Chicago White Stockings and an ordained minister known for his charismatic crusade for prohibition.

Referring to the ballad of John Barleycorn which is a British folk song that represents alcoholic drinks.

This quote is from the obituary for John Barleycorn in which the Drys were celebrating the advent of prohibition.

quality of life the 18th amendment produced crime and corruption.3 All over the country people defied the liquor laws. This led to an increase in violence and corruption which eventually led to the 18th amendments repeal in 1933.4 Prohibition did, for the most part, decrease public drunkenness5 but it failed to stop drinking altogether. Despite enforcement attempts, enacted by the Volstead Act, a black market emerged where bootleggers and rumrunners supplied customers with drinks of all kinds, from homemade to imported liquor, beer, and wine. People drank a lot whether at home or in the speakeasies, blind pigs, roadhouses, and private clubs6 that made the 20s notorious. As Sann, noted (1957), This is one of the reasons–only one–why we call it the Lawless Decade [referring to the 1920s]. The law that had the greatest impact on the wide and wonderful land evoked the least obedience from the people. Liquor–good, bad, indifferent or deadly–flowed like a giant waterfall all during the thirteen wobbly years of the thing Herbert Hoover called “an experiment... noble in purpose.” Prohibition did, in a sense, create a lawlessness, in that it fostered a great deal of contempt for the governments laws, or at least for the law of prohibition. However, this lawlessness is too often extended farther than was true. The great deal of diversity of drinks offered under prohibition, some that were mentioned earlier, help to illustrate the extent of demand and as Thornton (1991) has shown prohibition does little to stop consumption altogether.

However, there is a leap in logic to say that the market for alcohol was lawless because it took place outside the oversight of governmental law. The black market for liquor during prohibition was far from lawless.

Black markets are distinguished from other markets in that they operate illegally. Apart from this they would operate just as any other market would. As Brennan and Buchanan At least in the eyes of the prohibitionists. Up until the great depression the country did enjoy prosperity.





Something which the Drys took credit for at the time. In truth, though, much of people’s fortunes were made through the illegal black market for liquor. For example the liquor industry was second only to automobiles in Detroit, See Engelmann (1979).

This will be explained further in section three.

For evidence of this in Detroit see Engelmann (1979), for evidence for the more rural area of Butte, Montana see Murphy (1997).

These are terms used for many of the drinking establishments that replaced the saloons after prohibition.

(1985) have shown a market without rules would hardly be conductive to trade and this is no different for black markets. Because they operate outside the central authority7 the rules must come from means other then a top-down authority. A great deal of literature exists on the subject of self-enforment mechanisms used to facilitate trade without government (see, for instance, Clay 1997; Dixit 2004; Greif 1989, 1993; Kranton 1996; Landa 1994; Leeson 2007a, 2007b, 2006a; Milgrom et al 1990; Stringham 2003; Zerbe and Anderson 2001). There is more than one way to facilitate trade in any given market using self-enforcing arrangements.

This can be done through multi-lateral punishment, signals of credibility, the emergence of norms, just to name a few. Market action that takes place without government is not lawless8. Law does not need to come about through legislation. Self-enforcement shows that in the absence of formal enforcement, agents or actors do not immediately and always fall into conflict. In fact, as Leeson et al (2006) show, “Private, informal institutional arrangements of self-enforcement create a stronger degree of mutually reassured expectations or cooperation by preventing and/or punishing antisocial behavior.” This paper will illustrate the order and cooperation brought about in the rum running industry in Detroit Michigan during prohibition. This is a perfect case study because Detroit had a major illegal liquor industry, one that was second only to the “legitimate” automobile industry, that is often remembered for its violence. The violence and organized crime that occurred often invoke the term, lawless but rum running on the Detroit River had more order then is admitted. Focal points emerged that acted as self-enforcing mechanisms and thus enabled an incredible amount of liquor to move between Windsor, Canada and Detroit along the Detroit River. While perfect order was far from achieved this case study does exemplify how order can be achieved without a government. The violence that took place in the market is explained by external forces not the instability of the self-enforcement mechanisms themselves. In essence the rumrunners’ self-enforcement mechanisms were focal points that Most black markets not only operate away from the central legal institutions but are also even face pressure from the enforcement of the goods being prohibited.

Lawless here meaning without order.

allowed all to coordinate their behavior and allow trade and business to take place. As I will show, the strength of the focal points were effected by outside forces allowing for more violence and conflict then there would have otherwise have been.

Section II will discuss the focal points of the rumrunners. Essentially there were nine commandments the rumrunners were expected to follow that acted as self-enforcing focal points. Section III will explain why the majority of the violence occurred. It all comes down to the strength of the focal points. Section IV will conclude.

2 Rumrunners and Focal Points

Prohibition became law in Michigan two years before the rest of the country. Almost immediately rum running became the norm for many in the state. Entrepreneurs saw an opportunity to smuggle liquor into the state from the start. First, in the two years preceding national prohibition rumrunners jumped into cars and smuggled liquor between Toledo, Ohio and Detroit. The forty miles of road known as Dixie highway soon because known more commonly as “Avenue de Booze” and “Rumrunners’ Runway” (Engelmann 1979). Once national prohibition took effect the major source of liquor changed from Ohio to Canada.9 Canada passed a law that allowed the retail of liquor to any non-prohibition country after January 1, 1920 and soon many along the great lakes area jumped in their boats and headed to Canada with a promised destination of Cuba, a promise they did not hold. Soon Detroit emerged as the major port for smuggling in liquor along the Canadian border, no doubt because the Detroit River separated Detroit from Windsor, Canada by just under a mile. As Roy A.

Haynes, the national Prohibition director, described the Detroit river, “The Lord probably could have built a river better suited for rum-smuggling, but the Lord probably never did” (Quoted in Mason 1995, p.39) In all 75 percent of all liquor that was imported into the United States during prohibition came from Canada into Detroit (Mason 1995, p. 39).

That is not to say the only source. Despite the large amount of liquor being smuggled in from Canada a large amount of bootlegging and home brewing took place throughout the state and for that matter the whole country.

A wide array of people could be found smuggling in liquor and with a large amount of clever means of doing so. Many could be described as Mom and Pop operations. One Smuggler said of the early days, “It was common people. They weren’t gangsters. The majority of the guys that were buying the whisky were all people like us that would go out and buy, invest their money, to try to make a little bit on it. It was all common people and neighbors together and one neighbor would land at another neighbor’s place and so forth. They never thought there was nothing criminal about it.” (Quoted in Engelmann, 1979, p.76) Soon rum running began to evolve into a more organized industry full of big and small shippers and even the formation of syndicates. With this formation came the emergence of laws and norms. Realistically these were welcomed by any “legitimate” rumrunner, meaning any rumrunner who had any long term plans to continue to supply liquor to “thirsty” people.

For Reputation, like in any other industry, is important and to not follow the laws and norms would most likely not be in their long run self-interest.10 Because rumrunners competed with other liquor suppliers like bootleggers, home brewers, and even east coast rumrunners they knew that in order to keep the size of their market up most of the rumrunners had to supply a high quality liquor that wasn’t too diluted. If too much low quality, highly diluted liquor came in from Canada all shippers were likely to be hurt by this. As Engelmann notes, “The ideal business in this respect, and the one to be emulated by aspiring rumrunners, was William McCoy of the Atlantic Coast Rum Row, whose product was sold as ’the real McCoy”’ (1979, p.94).

Those who recognized this importance realized they needed to take action themselves. It was important that the customers need not fear the quality of the liquor that was imported from Canada just as those who purchased their liquor from McCoy on Rum Row. Warnings were sent to those who diluted, corrupted, or poisoned their liquor. Thus emerged nine As we shall see in the next section many did not follow them and many did not last long, still reputation is very important.

inviolable commandments that helped to establish a dependable and smooth-running liquor industry. According to Engelmann (1979, p.94) they were, Thou shalt not use denatured or wood alcohol in “cutting” or diluting good Canadian liquor; thou shalt mind thine own business; thou shalt not cooperate with police authorities; thou shalt not cooperate with news paper reporters; thou shalt know nothing about nothing involving crimes on the river; thou shalt not steal from other rumrunners; thou shalt not default on debts because of capture by police; thou shalt not use counterfeit money to pay for liquor; thou shalt not undercut another’s market.



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