The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.

Friedrich Hayek’s famous insight about economics applies not only to politicians’ grandiose plans to centrally plan an entire economy. It applies to politicians’ desire to centrally control consumers’ choices as well.

Perhaps, the futility of the government’s efforts to regulate consumer choice is best illustrated by its constant failure to control what types of alcohol people are permitted to drink, or even whether they can drink alcohol at all. This penchant for government to exert control over our alcohol consumption is neither confined to the U.S., nor even a modern creation.

As Kevin Kosar documents in his excellent book, Moonshine: A Global History, governments from Ancient China to Ancient Mesopotamia have been defining which types of alcoholic drinks are legal, and therefore acceptable for people to drink, and which types of alcoholic drinks are illegal, and therefore unacceptable for people to drink.

Kosar’s book has much to offer to spirit enthusiasts. And, while I can’t imagine enjoying spirits made from carrots or horse milk, Kosar’s documentation of all sorts of exotic spirits is certainly interesting. But, from an economics perspective, it is the regulatory lessons that are invaluable. In fact, the growth of the modern regulatory state, as well as the modern system of government taxation, are hardly inseparable from the growth in our production and consumption of alcohol.

The unintended consequence created by the over-regulation of alcohol, and all regulations create unintended consequences, is the global growth of moonshine. As Kosar notes, while Americans may associate moonshine with poor people in Appalachia, or Prohibition of the 1920s, moonshine is a global phenomenon.

Moonshine is simply any alcohol that a government has decreed to be illegally distilled; or the smuggling into the country any alcohol that a government has commanded should not be consumed.

The emergence of moonshine is the natural consequence of two opposing forces: people’s desire to drink alcohol and governments’ desire to interfere in those consumption choices.

One story documented by Kosar is particularly powerful. Although distilling alcohol is a difficult undertaking, and can be very dangerous for the distiller, there are widespread, and documented, distilling operations in prisons in such divergent places as California, Ireland, and São Paulo, Brazil.

Prisons, of course, enforce the strictest version of alcohol control – it is completely prohibited. Yet, just like the Prohibition of the 1920s, enterprising people find a way around alcohol prohibitions, despite the great personal risks, in order to profit from providing alcoholic drinks (moonshine) to willing consumers.

On the other side of this transaction, prisoners are also willing to accept great personal risks by consuming illegal alcoholic products. Not only do consumers of moonshine face punishment if their drinking is discovered by the prison authorities, poorly made moonshine can cause blindness or even death.

The willing acceptance of great risks has important lessons for legislators and regulators, and not just for alcohol restrictions. The most important lesson is summarized by the opening quote by Friedrich Hayek.

The history of moonshine exemplifies the consequences from overly intrusive legislative intentions. Legislation that attempts to design industries, or establish approved consumption patterns that conflict with the values of the electorate, create more problems than they solve.

A similar caveat applies to the regulators who are attempting to implement the legislation. Designing effective regulation requires, first and foremost, humility on the part of the government. The purpose of regulations is to carry out the intent of legislation passed by Congress or the state legislatures. The history of moonshine should teach regulators that their pronouncements should be as simple and focused as possible. All regulations should be no more burdensome, or prescriptive, than necessary.

Beyond interesting reading, an understanding of the history of moonshine has a great deal to teach modern political leaders. First and foremost, no group of politicians has the necessary knowledge to centrally manage complex industries – at least not well.

 

Wayne Winegarden, Ph.D. is the Managing Editor for EconoSTATS and a Sr. Fellow in Business and Economics at the Pacific Research Institute

 

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