Alcohol, like most desired substances, has a complex relationship with economics. And economics is one element of society that moves in a pendulum-like way, as it reacts to various social and political forces.
Once something is desired, it is valued, and it becomes both a commodity and a currency in itself.
Both of these things are true with alcohol, and because of its currency, it also has offered an additional level of value by way of revenue streams from taxes.
Taxes have been around since antiquity. The first known system of taxation was in Ancient Egypt around 3000BC. However, beer was so popular in ancient Egypt that no ruler dared to put a tax on it. It was Cleopatra who first came up with the radical idea 400 and we know that Octroi taxes were levied on wine in Rome in the early first century. 401
Since this time, taxes have come and gone, varying in their purpose, size and complexity.
For instance, the consumption of gin in Britain rose substantially in the late 1600s. The government had allowed unlicensed gin production and at the same time imposed a heavy tax on all imported spirits. This created a market for poor-quality grain that was unfit for brewing beer and thousands of gin-shops sprang up throughout England, a period known as the Gin Craze. This picture reflects society’s growing concerns with the effects of alcohol abuse on society (especially depraved mothers!).
To counter this unforeseen result of protectionism, the 1736 Gin Act imposed high taxes on retailers- which led to riots in the streets. The prohibitive duty was gradually reduced and finally abolished in 1742, helping to end the gin epidemic. 402
In the colonies, alcohol continued to be used to pay the wages of slaves, and in Russia and other Eastern European countries, country labourers were paid with vodka. This practice of substituting alcohol for wages was a perfect way to keep the poor on the labour treadmill. The desire for alcohol kept them working.
The history of taxing alcohol sees the pendulum swinging from one extreme to the other. From outright revolution (the Whiskey Insurrection of 1794) to flexible tax laws, these restrictions are not just about reducing alcohol consumption. Taxes and regulation have often been used to increase the amount in treasury’s coffers.
For instance in the US during the Civil War, congress needed new sources of revenue. In 1862, it imposed a tax of 20 cents per proof gallon, raised to 60 cents in 1864 and then to $2.00. Moonshining increased, and taxes were lowered to 50 cents in 1868. This was low enough that there was little incentive for moonishing and resulted in a large increase in revenue. From the Civil war through the first World War and up to Prohibition, alcohol taxes were heavily relied on as sources of revenue. Every year from 1890 to 1916, alcohol tax revenues exceeded 30% of all federal tax revenues and as much as 80% of tax revenue from internal sources. 403
In 1724 Bernard Mandeville pointed out that while alcohol (specifically gin) induced vice its manufacture created numerous respectable jobs: toolmakers, corn-reapers, maltsters and carriage-drivers, for example. 404
It was the industrial revolution that would change the way alcohol was used as currency. Before the 1800s, alcohol was a major factor in workers lives. Workers drank to get through the harvest crisis, to celebrate after it and to allay fatigue and boredom of rural life, as well as often being paid with it.
Once new machines and factory structures became the new work environment, payment of alcohol for work done was seen as inappropriate, as work now required regular attendance, high productivity and focus.
Once the industrial revolution began, the temperance movement began to include economic arguments in their campaign against alcohol. This can be seen in this comment on the movement by the Bishop of Norwich in 1837; “Temperance societies are most instrumental in raising tens of thousand from degraded profligacy to virtuous and industrial habits”. This quote hints at the reduced role of alcohol a society that aimed for industrial efficiency.
The more future-oriented workers and union leaders also saw alcohol as a barrier to achieving self-respect and independence, as workers that were either paid in alcohol or drank away their wages were seen as unreliable and dangerous.
The use of alcohol as a tool to cope with fatigue and obliterate misery, is in many ways a by-product of civilization itself. Hunter- gatherers did not need drugs to help them cope with grinding labour from dawn to dusk and we can only assume they didn’t need it to help deal with boredom or an unfulfilled life.
Alcohol and economics has become a complex web since the industrial revolution. As an industry, it is worth billions.
In European countries, alcohol excise duties amounted to €25 billion in 2001. 405
Alcohol is also associated with a number of jobs, including over three-quarters of a million in drinks production (mainly wine). Further jobs will also be related to alcohol elsewhere in the supply chain, e.g. in pubs or shops.
Based on a review of existing studies, the total tangible cost of alcohol to EU society in 2003 was estimated to be €125bn (€79bn-€220bn), equivalent to 1.3% GDP, which is roughly the same value as that found recently for tobacco. The intangible costs show the value people place on pain, suffering and lost life that occurs due to the criminal, social and health harms caused by alcohol. In 2003 these were estimated to be €270bn, with other ways of valuing the same harms producing estimates between €150bn and €760bn. 405
The economic value of the alcohol industry is still emphasised by the UK government. Policy documents aiming to reduce ‘harms’ associated with alcohol are framed by the acknowledgements of the value of alcohol to the UK economy. The 2004 Alcohol Strategy for England, produced to account for concern that the implementation of the 2003 Licensing Act would lead to an increase in alcohol-related harms, was careful to observe that the latest statistics available showed that the alcohol industry was worth over £30bn, and supported a million jobs. 405
It is hard to place a value on the amount of smuggling in the EU, although the European High Level Group on Fraud has estimated that €1.5bn was lost to alcohol fraud in 1996. 406
We are now at the point where governments understand the scientifically proven bad effects of alcohol on health and body. They understand that the economic costs are outweighing the profits from taxes and the industry.
All modern approaches to alcohol regulation have been a mix of two general approaches: To reduce excess drinking directly (through education, counseling, persuasion, etc) and to reduce excess drinking by restricting availability or raising the price (licensing, regulations, taxes, etc).
The most important finding from the economics literature is that consumers tend to drink less ethanol, and have fewer alcohol-related problems, when alcoholic beverage prices are increased or alcohol availability is restricted. 407
A study released in 2005 found that the the rate of drinking seemed to increase as the wage packet got bigger. 408
However, addiction psychologist Stanton Peele believes “Poorer and less educated people are more afraid of alcohol because they are more susceptible to public health and educational messages.” 409
The Surprising Economics of Alcohol Consumption