An Economic Analysis of Organized Crime During Prohibition
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University of Tennessee, Knoxville TRACE: Tennessee Research and Creative Exchange Supervised Undergraduate Student Research Chancellor’s Honors Program Projects and Creative Work Spring 4-1999 The Bootlegging Business: An Economic Analysis of Organized Crime During Prohibition Leslie Nicole Logan University of Tennessee - Knoxville Follow this and additional works at: https://trace.tennessee.edu/utk_chanhonoproj Recommended Citation Logan, Leslie Nicole, "The Bootlegging Business: An Economic Analysis of Organized Crime During Prohibition" (1999). Chancellor’s Honors Program Projects. https://trace.tennessee.edu/utk_chanhonoproj/323 This is brought to you for free and open access by the Supervised Undergraduate Student Research and Creative Work at TRACE: Tennessee Research and Creative Exchange. It has been accepted for inclusion in Chancellor’s Honors Program Projects by an authorized administrator of TRACE: Tennessee Research and Creative Exchange. For more information, please contact [email protected]. UNIVERSITY HONORS PROGRAM SE,NIOR PROJECT - APPROVAL N a me: __h~~J'~~_~_~S1:'____________________________________ _ College: __~~_____________ Department: _______________________ Faculty Mentor: -fu"O~± _______________________________ PROJECT TITLE: ~_£9.!i\:.~~~-~-;.-.fk.--~~- --b~v--~-hc.~-£:.IC~~-:LJ~~~:;\::~~~1~~--- -~-~-~---------~-------~---~~----------~----------------- I have reviewed this completed senior honors thesis with this student and certify that it is a project commensurate with honors level undergraduate research in this field. ~ _ \i :i:t::d: -~~-=~~~------------------, Faculty Mentor ---~--------------- Comments (Optional): , The Bootle!~g Bosmess: All EuOIOli~ Aulysis of tguized lliJoe Dormg ProltihitiOD Leslie Logan Abstract The subjects oforganized crime and economics seem two very different topics for research. This paper is an attempt to reconcile the two in order to examine organized crime in the framework ofeconomic analysis. In specific, it deals with the organized criminal activities during the period ofprohibition. The central task ofthe paper is to determine whether or not organized criminals used economic patterns in establishing the very lucrative trade in illicit liquor during the period. In order to achieve the fullest understanding ofthis, the paper also includes discussions ofthe history ofprohibition in America, a summary ofthe economy ofthe period, and a brief history oforganized crime. However, the true body ofthe work is found in the section.8*, which is the analysis ofcriminal activity using economics. The analysis shows a clear linkage between the business patterns prevalent at the time and those activities undertaken by organized criminals. Consolidation and monopolization are the most common similarity. However, tools such as the dominant firm model are also utilized successfully. Specialization is a major topic ofdiscussion, and a major tool used by organized crime. The hypothesis that organized criminals during prohibition used economic reasoning to plan their activities is clearly supported. The differences between the organized criminals and legitimate businessmen ofthe day seem to be the former's penchant for violence and willingness to repeatedly break the law. Tattle of UOltelts Introduction .....1 The Drying ofAmerica .....3 TemperancePamphk~ The Backdrop .... .11 Changing Times .....20 The Organization .....25 The Practice .....29 Photo Insert The Game .....35 Photo Inserts The Ru1es .....46 Graph Inserts The Resu1ts .....58 Conclusion .....62 Bibliography Introduction Economics and organized crime seem, at least on the surface, to be two subjects which have few common themes. How, then, can organized crime be analyzed using an economic framework? This paper is an attempt to answer that question. Very little has been written on the subject of organized crime which involves economic analysis. The vast majority ofthe work centers around a style which can be considered popular history. Driven by the legends and the folklore which are prevalent in American society, organized crime and its notorious faces have become very famous. Work of a more theoretical nature is also in existence, attempting to define and explain the phenomenon that has become American organized crime. Frederic Homer's Guns and Garlic is one very good example ofthis. However, research confined to organized crime in the period of prohibition yields little of value. The historical works on the period vary. Those written almost immediately after prohibition are complimentary ofthe experiment and virtually ignore the ramifications and existence of organized crime. Later works highlight such activities at the risk of overemphasis. None ofthem specifically deal with organized crime during prohibition in an economic context. Perhaps Humbert Nelli's The Big Business ojOrganized Crime comes closest, emphasizing the entrepreneurial tendencies and motives of gangsters. The shortcoming in Nelli's work, however, is that he specifically limits his research to Italian organized crime. By doing so, he has eliminated many ofthe noteworthy players ofthe period and presented a somewhat disjointed chronology. The best work on the subject of organized crime during prohibition is Herbert Asbury's The Great Illusion. This book provides a chronological look at prohibition and the temperance movement. However, there is little specific reference to the economic aspects of these events. Did the activities of organized criminals during prohibition mirror established economic patterns? Did they involve economic innovations? The attempt to answer these questions is the basis of this work. To that end, a series of other questions must first be answered. Firstly, one must discern how and why prohibition was adopted and why the adoption occurred in the 1920s. Secondly, the impact of prohibition, especially on the economy, must be understood. However, to adequately analyze the affect on the economy, the economic context must be decided. At this point it becomes necessary to examine the nature of organized crime. The links to other countries and other time periods must be made. The differences between these manifestations of organized crime and those which occurred during prohibition are essential as a starting point for deeper analysis. The focus ofthe paper is organized criminal activity which occurred between January of 1920 and 1932. For practical reasons, the analysis will be limited to activities in New York and Chicago, both ofwhich were major crime centers ofthe era. This activity will be presented chronologically. The famous faces and events ofthe era will also be a focus. The paper will then move to the central question. The basic economic functions of criminal organization, as theorized by Frederic Homer, will be presented examined with narrowed focus on the period ofprohibition. I will argue that criminal organization mirrored other economic organization of the period. Based on this analysis of organized crime and available statistics, prohibition will be critiqued, in an attempt to highlight possible reasons for the rather obvious failure ofthe legal 2 experiment. An examination ofthe enforcement practices of the federal and state governments will be the focus of this section. Also central to this section of the paper is the question of whether or not prohibition was responsible for the growth in organized crime which occurred. It is possible that there are other factors which caused organized crime to expand during the period, despite the fact that most scholars point to prohibition. The basic hypothesis ofthe work is that criminal organizations act with a definite plan, much the same as business. The motivations of the organization are to create and maximize profits. Being unlimited by legal considerations, such tactics often look very different from those utilized in the business world. However, several of the tactics used by organized crime are direct parallels to strategies which benefit legitimate corporations. During prohibition, profits were available at levels sufficient to induce a rapid modification and expansion of such strategies. Thus, prohibition was a prerequisite for the explosion of business oriented organized crime. The Drying of America Before understanding what prohibition was and how it affected America, it is necessary to understand how it came about. There were numerous roots and causes for the temperance movement in America. Throughout the years the public image of alcohol and drinking changed dramatically. The progression from the early stages ofthe United States' temperance efforts to prohibition is ofvital importance for understanding the role prohibition played in American society. 3 Early America was far from dry. Everyone drank alcohol in some form, regardless of age or sex. Puritans, staunch believers in self-control, were the first of America's distillers (Asbury 8). Alcohol was considered "God's gift to mankind and a panacea for almost every type of ailment" (Behr 7). Alcoholic drinks were an essential part of cultural life. Any houseguest was immediately given a drink and considered rude if he refused to drink it. It was not uncommon to receive part of one's wages in kind, with goods or services being substituted for money. Often these payments included alcohol (Asbury 8). In many ofthe colonies it was used as a form of currency, easing this arrangement. Employers and employees had a kind of "unwritten agreement" that certain days were allowed off so that one could drink heavily without