SEPARATE REPORT OF HENRY W. ANDERSON

CONTENTS

Introduction

I. The causes for existing conditions

II. Consideration of suggested remedies

III. Proposed plan of liquor control

1. The principles and requirements of the plan

2. The scope and structure of the plan

3. The practical operation of the plan

Conclusion

Introduction

This Commission was created for the purpose of making a "thorough inquiry into the problem of the enforcement of prohibition under the Eighteenth Amendment and laws enacted in pursuance thereof, together with the enforcement of other laws." The essential purpose was not so much to find that abuses existed in law observance and enforcement, for this was already known, as to ascertain the nature and extent of these abuses and the causes therefor, and to suggest definite and constructive remedies. This purpose was clearly stated by the President in a brief address to the Commission at the time of its organization in which he said: "It is my hope the Commission shall secure accurate determinations of fact and cause, following them with constructive, courageous conclusions, which will bring public understanding and command public support of its solutions."

After eighteen months of investigation and study the Commission is now submitting its report on the problem of prohibition enforcement. I am unable to agree with some of the discussion in the report, or to concur in some of the conclusions--especially Conclusions numbered 6 and 9 as they are expressed, and Recommendations 3 and 8. My chief objections to the report, however, are due to its failure to draw definite conclusions as to certain essential aspects of the problem, or to present constructive remedies. The right is reserved therein to the members of the Commission to express their individual views as to any matters contained in or omitted from the report in separate or supplemental statements to be annexed thereto. I am signing the report subject to this reservation.

With the essential facts as stated in the report I concur. Confronted by these facts, I am forced to the view that the causes for existing conditions and the solution of the present problem must be sought in fundamental social and economic principles which are ignored or violated in the existing system of national prohibition. These causes should be critically analyzed to the end that they may be understood and effective remedies devised to meet them. The essential conclusions, both as to present enforcement and the enforceability of the existing law, should be clearly stated.

A constructive solution of this problem should now be proposed. It is my purpose to do this--to present as a substitute for the present system a definite plan of liquor control, in conformity with our scheme of government, based upon sound social, political and economic principles, the essential elements of which have been tested in our own experience, and which, if adopted, will in my view provide a solution of the problem. The facts stated and discussed in the report of the Commission can lead only to one conclusion. The Eighteenth Amendment and the National Prohibition Act have not been and are not being observed. They have not been and are not being enforced. We have prohibition in law but not in fact. The abolition in law of the commercialized liquor traffic and the licensed saloon operated entirely for private profit was the greatest step forward ever taken in America looking to the control of that traffic. The saloon is gone forever. It belongs as completely to the past as the institution of human slavery.

On the other hand the effort to go further and to make the entire population of the United States total abstainers in disregard of the demand deeply rooted in the habits and customs of the people, ran counter to fundamental social and economic principles the operations of which are beyond the control of government.

As a result we are confronted by new evils of far-reaching and disturbing consequence. We are in grave danger of losing all that has been gained through the abolition of the legalized liquor traffic and the saloon. The fruitless efforts at enforcement are creating public disregard not only for this law but for all laws. Public corruption through the purchase of official protection for this illegal traffic is widespread and notorious. The courts are cluttered with prohibition cases to an extent which seriously affects the entire administration of justice. The prisons, Sate and National, are overflowing, but the number of lawbreakers still increases. The people are being poisoned with bad and unregulated liquor to the permanent detriment of the public health and the ultimate increase of dependency and crime. The illicit producer, the bootlegger and the speakeasy are reaping a rich harvest of profits, and are becoming daily more securely entrenched. The enormous revenues (estimated at from two to three billion dollars per annum) placed in the hands of the lawless and criminal elements of society through this illegal traffic are not only enabling them to carry on this business in defiance of the government, but to organize and develop other lines of criminal activity to an extent which threatens social and economic security. The country is growing restive under these conditions. The situation demands some definite and constructive relief.

The liquor question is obscuring thought, dominating public discussion, and excluding from consideration other matters of vital concern, to an extent far beyond its actual importance in our social and economic life. It must be solved or the social and political interests of our country may be seriously compromised.

We should profit by the lessons of our own history. America way the only nation of the civilized world which had to invoke the horrors of civil war to rid itself of the blight of human slavery. We allowed emotion and prejudice to obscure thought, and tampered with the situation by evasion and compromise, with tragic results. We are doing the same today. The whole world, including America, after years of suffering, is in a condition of social unrest and economic depression. Confidence in the integrity and capacity of government is shaken. It is no time for tampering with this problem. A definite solution is demanded.

We learn from experience. Progress is attained through the constant process of trial and error. Organized society has not exhausted its resources for dealing with the liquor question. Between the one extreme of a legalized traffic conducted solely for private profit, and the other extreme of absolute prohibition, lies a great middle ground of unexplored territory. Social organization is never absolute; the truth is generally to be found in this middle ground.

The abolition of the legalized traffic conducted solely for private profit has cleared the field. Holding at any cost the position thus gained we can take it as a point of departure for a new offensive against the existing evils. Then, by methods adapted to present conditions, based upon sound principles and experience, we can accomplish their defeat. If other means of evading reasonable social restraints are then devised we may by proper modification of the line of action conquer them, and continue in this process until through effective control and higher social development the ultimate objective shall be obtained.

I. THE CAUSES FOR EXISTING CONDITIONS

No law can be enforced unless it has the general support of the normally law abiding elements of the community.

The conception of natural or inherent rights of the individual as limitations upon the power of government and of majorities has been generally accepted in America since the Declaration of Independence. Whether this is sound it is useless to enquire. The existence of this conception is a stubborn fact of first magnitude. The distinction in principle between temperance and absolute prohibition by law is manifest. Public opinion is substantially unanimous in support of the abolition of the legalized saloon. But a large number of those who favor temperance and are unalterably opposed to the commercialized liquor traffic, including many who do not use alcoholic beverages in any way, regard the effort to enforce total abstinence by law upon the temperate and intemperate alike as unsound in principle and as an undue extension of governmental power over the personal conduct of the citizen. They feel that the present law attempted too much--went too far in its invasion of personal rights. This state of opinion among a large and increasing proportion of the normally law abiding people of the country is an important factor in the situation. It has its sources in fundamental principles and political conceptions which are beyond the reach of government. This attitude of public opinion constitutes an insuperable obstacle to the observance and enforcement of the law.

Another fundamental cause for existing conditions is to be found in the character and structure of the Eighteenth Amendment. That Amendment is a rigid mandate controlling both Congress and the states. It is the first instance in our history in which the effort has been made by Constitutional provision to extend the police control of the federal government to every individual and every home in the United States. The practical and political difficulties which have resulted therefrom are manifest. It imposed upon the federal government the obligation to enforce a police regulation over 3,500,000 square miles of territory, requiring total abstinence on the part of 122,000,000 people who had been accustomed to consume over 2,000,000,000 gallons of alcoholic beverages per annum. This was certainly an ambitious undertaking for any government.

The cooperation of the several States was contemplated but the Amendment inevitably operated to defeat this expectation. It aroused the traditional jealousy of the States and the people thereof as the right of local self-government in matters affecting personal habits and conduct. As a result no less than eight states, containing one-fourth of the entire population of the United States, either have no enforcement law or have repealed or voted to repeal such laws. The people of other states are obviously contemplating similar action. Many states are indifferent as to enforcement. Comparatively few are actively of effectively cooperating in the enforcement of the prohibition laws. In view of the statement of every Federal Director, or Commissioner of Prohibition, from the beginning, confirmed by the unanimous finding of this Commission, that the National Prohibition Act cannot be enforced without the cooperation of the states, this situation seems to require only a simple syllogism to demonstrate that this law cannot be enforced at all.

Even more important and controlling causes for the existing situation are to be found in the social, political and economic conditions to which the law is sought to be applied.

The Eighteenth Amendment and the National Prohibition Act undertake to establish one uniform rule of conduct as to alcoholic beverages for over one hundred and twenty million people throughout the territory of the United States. This large and widely scattered population contains elements of nearly every race in the world. Many of them are but recently derived from their parent stocks. They still cling, in a greater or less degree, to the social conceptions of the races from which they sprang, and to the habits and customs of their inheritance.

The social, political, and economic views of these elements and groups are correspondingly varied and often conflicting. This variety or conflict of view finds direct expression in their personal habits, and is reflected in the thought and political organizations of the communities in which they live. Some of the political divisions of the country have had centuries of existence with settled habits and fixed social customs. Others are but the recent outgrowths of frontier life and have all those characteristics of independence, and of resentments of social control, incident to pioneer conditions.

Few things are so stubborn and unyielding as habits and conceptions of personal or political conduct which have their roots in racial instincts or social traditions. As a consequence of this truth--so often ignored--the development of that social and institutional cohesion which is essential to the spirit and fact of nationality is always a matter of slow and painful evolution. It can not be hurried by mandate of law. It comes only through the influence of association and understanding, through the development of common ideals and interests, the reluctant yielding of individual freedom to the demands of social organization.

Experience indicates that if the effort is made to force this development by legal mandate the result is social discomfort and resentment, frequently finding expression in passive refusal to observe the law, or in resistance. If normal development is sought to be unduly limited or restrained it finds expression in social unrest or disorder and, if carried to its ultimate conclusion, in revolution.

The operation of these principles has been manifest in every stage of the social and political life of the United States. The original colonists came to America with minds strongly influenced by the principles of individual liberty which dominated the thought of Europe during the seventeenth and eighteenth centuries. This individual consciousness was accentuated by conditions of life in the New World. It found its first united expression in the American Revolution. Even then these separate and independent communities were held together with difficulty for the protection of their common interests and in the face of a common enemy. When the war was over they, jealous of any central control, immediately began to draw apart.

The resulting disorganization and the dominant influence of a few great leaders made possible the adoption of the Federal Constitution. The declared purpose of that instrument was to bring about a "more perfect union." The people were not ready for nationality. It was not attempted. The federal government was given control only over matters of general interest. The states remained as agencies through which the varied and sometimes divergent interests and social conceptions of the several localities might find expression; as schools for the training of the people in the difficult adventure of self government and for the gradual development of social, political, and economic life into a more cohesive nationality.

As the older communities became settled and individual freedom of action became limited by necessary social restraints, the more adventurous elements moved on to the frontier. New states were organized to begin again the difficult process of social adjustment. The frontier only disappeared late in the last century.

In the meantime, successive tides of immigration have brought into this confused and divergent social order new elements of various races, customs and ideals which have created strong cross currents in the stream of American life and have tended to affect its flow.

Under modern conditions, the progress of the United States toward that stage of social uniformity and cohesion which would admit of national regulation of matters affecting personal habit and conduct has been more rapid than that of older nations, but it appears yet to be far from actual attainment. The social and economic outlook, habits and customs of the urban and industrial communities of the East are necessarily different from those of the agricultural communities of the South or West, of the more recently settled areas of the frontier. Those of different races and nationalities are still more widely divergent. If a topographic map should be made of the social conditions and stages of institutional development of the entire United States, it would present an aspect as rough, and with variations as acute as the physical surface of the country. If we should then undertake to fit one rigid plane to every part of this highly irregular and unyielding surface, it would give some idea of the difficulties of adjusting a national law of this character to every community and to each individual of the United States.

These conditions are clearly reflected in the attitude of individuals and communities toward the observance and enforcement of the prohibition laws. Those who had been accustomed to use alcoholic beverages--who saw no harm in their moderate use and no reason why they should be denied this privilege--sought other sources of supply in disregard of the law. Public irritation and resentment developed. There was a revisal of sectionalism due to the feeling in urban and industrial communities that the law was an effort on the part of the agricultural sections to force their social ideals upon other sections to force their social ideals upon other sections to which those ideals were not adapted. On the other hand, there was, on the part of those communities which favored the law, resentment against those which resisted its enforcement. These things are not only prejudicial to the observance and enforcement of the prohibition law; they go much further, and affect adversely the normal operations of our entire national life.

The economic conditions to which the Amendment and law are to be applied are of equally fundamental character and of even more conclusive significance. It has already been stated that prior to the adoption of the Amendment, the people of the United States consumed more than two billion gallons of alcoholic liquors per annum. Neither the Amendment nor the law could eradicate this demand. It had its sources in the customs and habits of the people themselves. The business and agencies through which the demand had been legally supplied were destroyed. The supply within the country, except that in private possession or in bonded warehouses, disappeared. The legal channels of supply from beyond our borders were obliterated. The demand remained.

Where a demand exists and that demand can be supplied at an adequate profit, the supply will reach the point of demand. Interference with or obstruction of the sources or channels of supply may affect the cost, and thus for a time reduce the effective demand as to those who are unable or unwilling to pay the increased price, but to the extent that the sources of the demand will provide the profit necessary for the supply the demand will be met. It was due to this elementary law that in the earlier years of prohibition, before the agencies of illegal domestic production could be developed, the purchase and use of alcoholic liquors were more largely confined to persons of means who could afford to pay the higher cost.

The operation of this economic law explains the failure of state regulation and state prohibition. State regulation undertook to control the supply at the point of outlet and sale. It did not touch the demand. Generally no effort was made to control the amount or source of supply or the profit. Such regulation therefore operated to increase the pressure of the supply at the point of attempted control and thus to increase sales to overcome this obstruction. It thus tended to augment the very evils which it sought to prevent. State prohibition undertook to control the supply at its source or point of entry but could not eradicate the demand, hence the supply reached the point of demand either through channels beyond the control of the state or through illegal production within the state.

When national prohibition was adopted, the operation of this principle was merely extended. During the earlier period of national prohibition, the existing sources of supply were the liquor in bonded warehouses, the diversion of industrial alcohol and the smuggling from other countries. Since it was less difficult to open illegal channels for a supply which already existed than to create illegal agencies for new production, the supply during these earlier years came largely from these sources. The withdrawals from bonded warehouses upon illegal or improperly granted permits were at first considerable. This was afterwards checked or the supply was exhausted. The diversion of industrial alcohol was extensive in the earlier years of prohibition, and appears to have reached its maximum at about 1925 and 1926. As other sources of domestic supply have been developed this has decreased. Smuggling reached its highest point at about 1926. With the development of less costly means of domestic supply smuggling has gradually decreased until it is now in large measure confined to the more expensive foreign wines and liquors, purveyed to people of means. In the meantime methods and agencies of illicit distilling, brewing and wine making have been developed and improved to a point where the existing demand is to a large extent supplied from these sources. The amount and quality are steadily rising and the prices falling. There is clear evidence that the drinking among some of the less prosperous classes of the population is increasing to a corresponding degree. Unless means are devised which will be far more effective than any yet employed or suggested to check this process it will inevitably continue, regardless of the present law, until the demand reaches the point of saturation approximating that which existed prior to the adoption of the Eighteenth Amendment.

It was the hope of many that with National Prohibition there would be a gradual decrease in the demand for alcoholic beverages until in a reasonable time it would substantially disappear. In the present study of the subject nothing has been discovered in past experience, or in operation of social and economic principles which would furnish any foundation for this hope. The lessons of human experience, the operations of economic law and the evidence as to present tendencies all indicate the contrary. In addition to the essential principles stated, the existence of an unregulated supply of alcoholic liquors at falling prices, the psychological appeal in gratifying a forbidden taste, the adventure of breaking a sumptuary law and the romance which surrounds the leaders of this illicit traffic, all have their profound effect, especially upon youth, and clearly indicate that the hope that there would be a decrease in demand was and is an illusion.

It would be difficult to find a more complete example of the force of the inexorable laws of supply and demand and of the principles discussed in their operation against the government than in the history and effect of prohibition in the United States.

This need not continue. The essential principles of successful strategy applied by organized society against its enemies, military or civil, are always the same--to hold them in check as far as practicable, while striking at their basic resources. With the illegal liquor traffic the prime resource lies in the profits of the business. Remove this and the business will end. The irresistible forces of social and economic law may be directed against this traffic with quite as decisive results as they have hitherto, under state regulation and state and national prohibition, been directed against the government and in favor of the lawbreaker. This may be demonstrated by a few simple and familiar illustrations from both military and economic history.

In the Civil War in America the northern armies, with all the power and resources of the federal government, could not get to Richmond in four years. In the meantime the navy was closing the ports and cutting off the supplies of food and munitions. When this was finally accomplished the southern armies were helpless. The more men they had the weaker they were. They surrendered in the field. Also in the World War the armies were blocked. It then became a question of supply. When the submarine campaign failed and the allied blockade succeeded with the addition of American resources, the armies of the central powers crumbled. The same was true of the Grand Army of Napoleon at Moscow. The Russians did not fight him directly. They cut off his supplies. The result was prompt and decisive.

The same principles have operated in our regulation of industrial corporations. So long as the states of the federal government undertook to regulate railroads by direct or frontal attack it was of no avail. The resources of these corporations were too large, their influence too great. They controlled industry through rebates and sometimes exercised their influence through corruption. Their activities affected the entire social and business life of America. With their immense financial and political power the problem was far more difficult than the present problem of the control of the liquor traffic. When the federal government, through the Interstate Commerce Commission, took control of the revenues through the fixing of rates, limited the return based on value, controlled the expenditures for construction and operation as well as the issue of securities, fixed the method of keeping accounts, regulated the operations, stopped rebating and eliminated passes and special privileges--thus controlling the sources of their power--the problem was solved. These measures of control must be constantly perfected and changed to meet new conditions, but the Commission has flexible powers readily adapted to this end. We have thus established in principle and in operation the best and most effective system of public regulation of privately owned and operated agencies in the world, and have solved a problem which once seemed insoluble in the face of the opposition of the most powerful financial interests in America. They now accept and approve the system.

The same is true as to the Federal Reserve Banks. The most difficult of all things to regulate and control is money. For nearly a century our banking system was a source of constantly recurring trouble. Finally the Federal Reserve Banks were established, with profits limited to a fixed percentage on the capital, owned and operated privately under government regulation. These institutions are not primarily interested in profit, for beyond the limited return this goes to the government. Both national and state banks are members of the system. The Federal Reserve Board with large and flexible powers can meet changing conditions in different sections of the country. In its essentials the problem which vexed America for years and caused many social and economic evils is solved.

The same principles that operated successfully in military strategy and in the regulation and control of legal, yet recalcitrant, corporate interest may be applied to the struggle of organized society against lawlessness in any form, including the liquor traffic. So long as human nature remains unchanged and lawlessness is profitable it will persist. Make lawlessness unprofitable by holding it in check as far as practicable and by using the forces of social and economic law against it, instead of trying to enforce direct control in violation of those principles, and the results will be successful.

The principles of economic law are fundamental. They cannot be resisted or ignored. Against their ultimate operation the mandates of laws and constitutions and the powers of government appear to be no more effective than the broom of King Canute against the tides of the sea.

There are other secondary or contributing causes for existing conditions such as matters of organization and incidents of enforcement, some of which are discussed in the report. I do not concur in the view there expressed that "general unfitness" of the organization, especially in the earlier years of national prohibition, was in "large measure" responsible for the "public disfavor in which prohibition fell". The difficulties encountered in the creation of the organization and training of personnel for a task of this character are manifest, but these cannot properly be appraised apart from a consideration of the conditions of social and economic confusion in the period following the World War. There was, and probably is, a considerable amount of bribery and corruption in the organization. This cannot be condoned. It is only fair, however, to the men engaged in this task to consider its nature and circumstances before issuing verdicts of general condemnation based upon individual cases of delinquency. Men have moral as well as physical limitations. If the people provide a law of this character and then send into action for its enforcement, throughout the territory of the United States, a small field force of from 1,000 to 1,500 underpaid men against a lawless army running into tens of thousands, possessed of financial resources amounting to billions, ready to buy protection at any cost, the people must expect unsatisfactory results and heavy moral casualties. These conditions, to the extent that they have existed, have naturally tended to discredit the law. The same is true as to public killings, unwarranted searches and seizures, deaths from poisoned alcohol and other similar incidents of enforcement. There is a feeling on the part of many people, including earnest supporters of this law, that there must be some effective means of solving this problem which would not require the shooting of people upon the highways, the invasion of the sanctity of the home or the poisoning by the government of substances which are known to be used in beverages--especially where the purchase and use of such beverages is not even an offense against the law. These incidents of enforcement organization and method are deplorable. They have been contributing causes for the present state of irritation and resentment. I cannot find, however, that they have been or are fundamental or controlling factors in the larger situation. The understanding and ultimate solution of this problem must be found not in these incidental causes, but in those major causes which have their sources in the social and economic principles by which society itself is controlled, which human laws, constitutions and governments are powerless to resist.

It might be within the physical powers of the federal government for a time to substantially enforce the Eighteenth Amendment and the National Prohibition Act. But under existing conditions this would require the creation of a field organization running high into the thousands, with courts, prosecuting agencies, prisons, and other institutions in proportion, and would demand expenditures and measures beyond the practical and political limitations of federal power. This would inevitably lead to social and political consequences more disastrous than the evils sought to be remedied. Even then the force of social and economic laws would ultimately prevail. These laws cannot be destroyed by governments, but often in the course of human history governments have been destroyed by them.

Upon a consideration of the facts presented in the report of the Commission, and of the causes herein discussed, I am compelled to find that the Eighteenth Amendment and the National Prohibition Act will not be observed, and cannot be enforced.

II CONSIDERATION OF SUGGESTED REMEDIES

Many plans for meeting the existing situation have been suggested. They tend either to ignore essential limitations in our system of government, or are opposed to the lessons of experience, or violate fundamental social or economic principles. Only a few of the more important will be mentioned.

The proposal for the repeal of the Eighteenth Amendment, remitting the problem to the control of the several states, is strongly urged. I am unqualifiedly opposed to such repeal.

The repeal of the Amendment would immediately result in the restoration of the liquor traffic and the saloon as they existed at the time of the adoption of the Amendment in those states not having state prohibition laws. The return of the licensed saloon should not be permitted anywhere in the United States under any conditions.

For fundamental reasons already discussed, state regulation and state prohibition substantially failed before the adoption of the Eighteenth Amendment. With further improvements in means of transportation and other social and economic changes which have since taken place, those measures would be even less effective today. I can see no sound reason for going back to systems which have already failed, and which afford no reasonable probability of future success.

As to the repeal of the National Prohibition Act, leaving the Amendment unchanged, the objections seem equally conclusive. This would be open nullification by Congress of a Constitutional provision. The repeal of the law would leave the Amendment without any provision for its enforcement. It would remain as a limitation upon the powers of both Congress and the States. No system of regulation or control -- except State prohibition -- could be adopted or continued since this would be prohibited by the Amendment. The license to the violators of the law and general social confusion which would result are difficult to measure.

The proposal that the law be amended so as to permit the sale of light wine and beer is objectionable both on principle and from a practical standpoint. If the limit of alcoholic content were placed so low that the beverage sold would not be intoxicating in fact it would not satisfy the demand. If it were placed high enough to be intoxicating in fact, it would to that extent be nullification of the Amendment. Under this plan, we would have saloons for the sale of light wine and beer, and bootlegging as to liquors of higher alcoholic content. We would then have the evils of both systems and the benefits of neither. The opportunities for evasion of the law as to prohibited liquors would be enormously increased. Norway tried a system of prohibition as to liquors of an alcoholic content of more than 12 percent. It failed. There were international complications involved, but chiefly because of the domestic evils resulting from the system, it has been abandoned and a system similar in principle to that of Sweden has been substituted.

The various suggestions as to National or State dispensaries cannot be accepted, for obvious reasons. Whatever may have been the results in other countries, a system of this kind is certainly not adapted to the political conditions or to the dual system of government in the United States. Our past experience with this system has been unfortunate.

I regret that I cannot concur in the view that further trial be made of the existing system before reaching a final conclusion as to its enforceability. Aside from the difficulties as to the future determination of the results of this trial, in my view a study of the facts and existing conditions, as presented in the report, and of the fundamental and controlling causes therefore, leads inevitably to the conclusion that the Amendment and law cannot be enforced.

I concur in the recommendation of the report that the Eighteenth Amendment be modified as therein stated. But the National Prohibition Act would still be in force. No substantial change in the Act, or substitute therefore, is suggested. We cannot stop there. We have found that the law is not being observed or enforced. We have found causes for these conditions which clearly show that it cannot be enforced by any means within the reasonable limitations of federal power. An effort must be made at least to find some effective solution for the problem. I shall therefore go further and present as a substitute for the existing law, should the Amendment be modified, a complete plan of liquor control.

III PROPOSED PLAN OF LIQUOR CONTROL

Any plan for the control of the liquor traffic must meet three fundamental requirements, (1) it must be based upon sound social, political and economic principles; (2) it must be adequate to scope and structure to meet every element of the problem; and (3) it must be practical in operation.

1. The Principles and Requirements of the Plan

The essential principles and requirements to which any plan of liquor control must conform may be briefly stated.

(a) It must preserve the benefits which have been gained through the abolition of the legalized liquor traffic and the saloon conducted solely for private profit.

(b) It must provide for the effective control and regulation of individual conduct with respect to the use of alcoholic liquors to the extent that such conduct is anti-social or injurious to others; but it must respect and protect freedom of individual action when that is not anti-social or injurious to the community. This will remove public irritation and resentment against the law, and will insure that support from the normally law-abiding elements of the community which is essential to its observance and effective enforcement.

(c) It must be sufficiently flexible to admit of ready adaptation to changing conditions and methods of evasion. It must restore the traditional balance between the functions of the Federal and State governments, defining the duties of each with sufficient clearness to prevent overlapping, and leaving sufficient elasticity to permit of mutual adjustment. It must give to the federal government adequate power to insure uniformity of control as to those aspects of the problem which are of general concern or proper federal cognizance. It must leave to the states the maximum of discretion consistent therewith, both as to the policy to be adopted in dealing with the problem, and as to methods of local control, to the end that it may be adapted to the public sentiment of the people and to local conditions within the states. This would permit of the ready adjustment of the plan to the varied social, racial and institutional conditions existing throughout the United States and within the several states.

(d) It must conform to the requirements of sound economic principles, and recognize the irresistible power of the law of supply and demand. It must take the profit out of every phase of the illegal traffic, and employ the force of economic law to defeat that traffic, instead of attempting to oppose the principles, permitting them to operate in favor of the law-breaker. We have seen that the failure to conform to this requirement has operated to defeat every system for the regulation or control of the liquor traffic in America.

(e) Finally, the profits of the liquor traffic should be used for the destruction of that traffic and the prevention of crime. To the extent that the demand for alcoholic beverages cannot be prevented it must be tolerated, but the supply should be restricted to the full extent that this can be done without opening the way for the profitable operations of the illegal traffic. To this end the demand, insofar as it cannot be prevented, should be supplied by privately owned and operated agencies created for this purpose under strict government regulation. They should be required to supply wholesome products at prices and under conditions to be fixed by Federal and State commissions. By thus furnishing a better product at lower prices it would at once become impossible for the illicit traffic to continue. The profits in excess of a return, fixed by law, on the capital invested should go into the treasury of the federal or state government, as the case might be. After paying all expenses of the governments in connection therewith the remainder of such profits should be segregated into special funds, federal or state, to be appropriated by Congress and the respective state legislatures in their discretion for education, public health, the improvement of housing conditions and other social purposes of similar nature. In this way, instead of having the proceeds of this traffic go to finance lawless and criminal activities as at present, they would be used to eliminate the breeding grounds of crime and ultimately to remove those conditions which are most potential in inducing the excessive use of intoxicating beverages.

2. The Scope and Structure of the Plan

I

It is proposed that as soon as practicable, by appropriate action of Congress and of the States, the Eighteenth Amendment be modified or revised, as recommended by the Commission, to read as follows:

"The Congress shall have power to regulate or to prohibit the manufacture, traffic in or transportation of intoxicating liquors within, the importation thereof into, and the exportation thereof from the United States and all territory subject to the jurisdiction thereof, for beverage purposes."

This modification would bring the Amendment into conformity with the traditional principles of our system of government. By conferring power upon Congress, it would give to the Amendment the necessary flexibility. The power to prohibit should be given to the end that if the proposed modification is adopted the National Prohibition Act would continue in force thereunder until Congress enacted some other plan, thus avoiding any break in the system of control and preventing the restoration of the saloon anywhere in the United States. Under the proposed Amendment as modified, Congress would have full power (1) to continue the present system of absolute national prohibition, or (2) to remit the matter in whole or in part to the States, or (3) to adopt any system of effective control. Since greater flexibility is one of the outstanding needs of the present system, this modification should be made even if the policy of absolute national prohibition is to be continued.

II

That Congress should then create a bipartisan National Commission on Liquor Control, which should have full power under such laws as Congress might enact to regulate and control the manufacture, importation, exportation, transportation in interstate commerce, and also the sale, as and to the extent hereinafter stated, of intoxicating liquors of more than one-half or one percentum alcoholic content, for beverage purposes; and to exercise similar regulation and control over alcoholic liquors for other purposes, and of industrial alcohol, to the full extent necessary to render the system of control of such liquors for beverage purposes effective. The powers of the Commission as to the regulation and control of the traffic indicated and of the agencies created for the purposes thereof should be fully as complete as those of the Interstate Commerce Commission over railroads and should in every respect be adequate for the purposes of the plan.

III

That Congress should create a National Corporation for the purposes of the plan, all of the stock of which should be privately owned, or in its discretion a number of such corporations, such as one for each judicial circuit, with the powers and duties generally stated below. Since one corporation, with branches throughout the country, would simplify operation and regulation, the plan will be stated on that basis. This corporation should have the usual powers of a commercial corporation to the extent necessary for the purposes of the plan except as herein limited. It should be vested with the exclusive right and power (to be exercised under the control and regulations of the National Commission) of manufacture, importation, exportation and transportation in interstate commerce, and of sale as and to the extent hereafter stated, of all alcoholic liquors for beverage, as well as for medicinal and sacramental purposes in, within or from the territory of the United States or subject to the jurisdiction thereof. The charter of the corporation should contain appropriate provisions for amendment or repeal by Congress; for the issue and redemption of its securities; limiting the return upon its capital; and providing for its operation and management, all of which should be subject to the control of the Commission.

The financial plan of the corporation, to be fixed in its charter and in operation subject to the control of the Commission, should provide for an issue of stock of only one class to be sold at par, to be entitled to cumulative dividends limited to such rate upon the actual capital invested as might be determined by Congress, or with its authority by the Commission. A rate of not less than 5% nor more than 7% is suggested. The corporation should be permitted to retain from its earnings not exceeding 2% per annum on its invested capital as a reserve against contingencies and as an amortization fund for the retirement of its capital should Congress desire to change the plan of control, or for any other reason. This fund should be held, used and invested under orders of the Commission. All earnings in excess of the permitted return and amortization fund should be paid into the treasury of the United States to be held as a special fund to be disposed of by Congress as hereinafter provided.

In the event of the liquidation of the corporation for any cause, it should be done under the direction of the Commission. After payment of its obligations and the par value of its stock with any accumulated dividends thereon the remainder of its assets, including any balance of the reserve or amortization fund, should be paid into the treasury of the United States to be held as a part of the special fund.

IV

It should be required by law that alcoholic liquors for beverage, medicinal or sacramental purposes of over one-half of one percent alcoholic content by volume (not including industrial alcohol) might be manufactured, imported, exported, transported in interstate commerce, or sold as and to the extent thereafter stated, solely by the National Corporation, or its branches approved by and operating under such bonds as to their employees as might be prescribed by the Commission. The Commission should have power to prescribe the alcoholic content of the various kinds and grades of liquors.

All alcoholic liquors so acquired or produced should be promptly placed in bonded warehouses of the Corporation, which should be located at convenient points throughout the country approved by the Commission. Before shipment, every container thereof should bear a label of the Corporation showing the kind, amount and alcoholic content of the liquor contained therein, certified by the Corporation. The Corporation should only be allowed to make sales and shipment of such liquors in any state to a corporate agency created by such state, similar in general character to the National corporation, for the purpose of the purchase and distribution and local sale of such liquors within the state if and to the extent permitted by the laws thereof. If the State at its option elected not to adopt the system, it could establish or continue prohibition, in which event it would have to enforce its own laws within the State, but the federal law would not permit sales or shipments into that State by the National Corporation except through the State in bond. Every aspect of the operations outlined would be subject to the control and regulation of the Commission and appropriate penalties would be prescribed for violations of the law or of such regulations.

V

The price at which the various liquors should be sold by the National Corporation should be fixed or approved by the Commission after hearing in proper cases, and should be posted at appropriate places. The prices should be based primarily upon and scaled upward on the basis of alcoholic content -- the lower prices on low alcoholic content liquors such as light wine and beer, and the highest prices practicable on high alcoholic content liquors, such as whiskies and brandies. The prices should be such as on the one hand to limit the use and, on the other hand, not high enough to permit the illegal traffic in or sale of such liquors. The price should be adequate to provide for the operating requirements of the National Corporation on the basis of accounting and expense to be approved by the Commission; for a small ad valorem tax which might be imposed by the government to provide for its expenses in connection with the system; for the permitted return upon the invested capital of the Corporation; and for the reserve or amortization fund. The entire remaining revenue would go into the special fund in the treasury of the United States to be disposed of by Congress. The price should be as nearly uniform as possible throughout the country.

VI

The National Corporation should sell and transport only to state agencies created for the purposes of local distribution and sale within the state. This would be entirely optional with the State. If any State desired to establish or continue prohibition, it could do so. In the event it would have to enforce its own law within the State, but would be protected by the federal government from any supply from outside. If a State commission and a State corporation similar in character and structure to the National agencies discussed, with similar powers and functions within the State. The State agencies would have to conform in general outline to a plan prescribed by the National Commission in order to insure uniformity throughout the country as to matters of general consequence, but as to local questions they would be subject entirely to State control and could easily be adapted to the varied social and economic conditions within the State. Matters of price, return and other financial and operating details within the State would be controlled by the State commission along the same lines as already discussed, and the surplus revenues from operations within the State would go into the State treasury as a special fund to be disposed of by the legislature of the State. The State agency would purchase from the nearest branch of the National Corporation, and shipments would be made in bottles or containers under the seal of that corporation to such branch of the State agency as might be directed. The State agency would, with the approval of the State commission, establish branches and local sales agencies at convenient points. The State could permit local option as to the establishment of a sales agency in any given community. These agencies should be in buildings where no other commercial activity is carried on, should be open only at certain hours of the day, on such business days as might be prescribed by state law or regulation. The sales employees should be required to give surety bonds to insure good character and protect against abuses. Sales should be permitted only in original packages or units under seal of the National Corporation and not opened within a limited distance of the agency. Other necessary regulations would be prescribed by the State commission as to local operations.

Sales should be limited to persons holding license books, which should be issued by the State agency nearest the fixed abode or voting place of the holder under regulations of the Commission. The bolder should be required to sign an agreement in this book to account for the purchases made thereunder at any time on request and to the satisfaction of the State corporation or State commission. This book should be good for purchase at any state agency in the United States, subject to regulations of the National and State commissions. All purchases should be entered in this book and the entry signed by the employee making the sale. The amount of wine and beer below an alcoholic content to be fixed from time to time by the appropriate Commission might or might not be limited, but the amount of high alcoholic liquors should be limited to a reasonable quantity in any month, having regard to the proper use by the purchaser with a view to limiting the use and preventing purchases for illegitimate purposes. The requirement for accounting for purchases would further protect this situation. Special permits could be issued under regulations upon showing of special requirements, and provision could be made for limited special books for foreign visitors and transients. Upon conviction for violation of the law, for drunkenness or other cause provided by law, the book could be cancelled for such time as might be prescribed. All state and national regulations should seek to restrict sales and use as far as may be done, without leaving a possible demand which could be supplied at a profit by bootleggers. The essential purpose must be to drive the illicit producer and trader out of business and keep them out by directing against them the force of the law of supply and demand, and fixing prices with which they cannot possibly complete. Within these limits, the regulations should operate to reduce the demand. No advertisement of alcoholic liquors or solicitations of purchasers should be permitted.

VII

The excess revenues from the operations of the national corporation would go into the federal treasury, and those from the operations of the state corporation and its branches would go into the state treasury. These revenues, which now go entirely to the lawless and criminal classes, would undoubtedly be very large. They would be subject to disposition by Congress and the state legislatures respectively. They should be set aside as special funds in the respective treasuries, and used for educational purposes, especially as to the evils resulting from the use of alcoholic beverages and for the eradication and prevention of those conditions which cause excessive drinking, or which tend to create a demand for intoxicating beverages.

To this end, it is proposed that the revenues derived by the federal government from the plan, including the excess earnings of the National Corporation, should be set aside in the Treasury as a special fund from which the expenses of the Government, including those of the National Commission incurred in connection with the system, should first be paid. The Commission should be required to collect accurate facts and statistics as to the operation and social economic results of the system in the United States and of systems of liquor control in all foreign countries and the effects of such systems, and of the use of intoxicating liquors upon individual, social and economic life; to publish the same in bulletins for distribution without cost to colleges, schools, libraries, and other educational agencies, and to individuals. These publications should be in popular terms but should be scientific and factual, similar to those now issued by the scientific agencies of the government. The cost thereof, including distribution, should be paid out of this fund.

Such proportion of the remainder of the fund as Congress might determine should be distributed among the several states upon an equitable basis and should be used by them as stated below. The remainder of the fund should be appropriated by Congress to be used by the proper federal agencies for scientific investigations of social and economic conditions related to crime and dependency at their source, to the extent that these matters are within the proper cognizance of the federal government.

The larger proportion of the National fund could be apportioned to the states since matters of social regulation and improvement are properly within their jurisdiction. After paying the expenses of the State Commission and other regulation expenses, the State could use the surplus revenues derived from the excess earnings of the State Corporation (if created), together with its proportion of the National fund, for education, public health (including medical services for the poorer rural districts) the improvement of housing conditions and elimination of slums urban and rural, the prevention and abatement of delinquency, the care of the poor, the improvement of economic security, and other similar social activities which tend to eliminate the sources of crime and delinquency, and to remove those conditions of social and economic hardship and stress by which the demand for alcoholic stimulants is largely induced.

3. The Practical Operation of the Plan

Every principle and feature of this plan, except as to the specific use of excess profits, is now in operation either in the present system of government regulation of railroads, or in the Federal Reserve Bank system, or in both. The principle and practice of private ownership and operation under government regulation are too well established to require discussion. Even as to the use of the excess profits (which is only a suggestion and not an essential part of the structure of the plan) the same principle is in operation with respect to both railroads and banks. The profits of railroads in excess of 5-3/4 per centum return fixed on value are subject to recapture and use under government control for the development of the transportation services. The profits of the Federal Reserve Banks in excess of the limited return on capital and a permitted reserve go into the federal treasury.

Any statement of a plan of this character covering so large a field may seem complicated. In operation it would be simple. All liquor imported or produced would be the property of the National Corporation, and would be put into bonded warehouses at convenient points under strict government regulation and control. Accurate accounts thereof would be kept as prescribed by the Commission. It could be sold and transported only to state agencies under seal of the National Corporation and proper regulations. There would be no leakage in this process because (1) the essential employees of the Corporation would be bonded, (2) the product would have to be accounted for to the Commission, and (3) there would be no demand for or profit in illegal liquor so long as a reasonable supply could be obtained legally. Smuggling and illicit production would end since no one would buy bootleg liquor of doubtful quality at high prices when good liquor could be obtained at fair prices. The profit in the illegal traffic would be eliminated.

When the liquor reaches the State agency, it could be sold only under national and state regulations. Sales could be made only to holders of permit books. These books would be issued under regulations of the State Commission, with safeguards against transfer or improper use, and would be subject to cancellation for any violation of the laws or regulations. The amount which any holder could purchase, certainly of high alcoholic content liquors, would be limited as far as it might be possible to do so without opening a demand for an illegal supply. The holder would be required to sign an agreement to account for all purchases on request. The amount purchased would be entered in the book and the entry signed by a bonded employee of the corporation. The liquor so purchased would be in the original package or container of the National Corporation, bearing its seal and showing the alcoholic content. The prices to the purchaser would be fixed from time to time by the State Commission to meet existing local conditions, subject to adjustment by the National Commission for the purpose of general uniformity as in the case of intrastate rates of railroads.

If a State elected to continue prohibition, it could do so. It would enforce its own laws within the State. Full protection would be provided against shipments from without the State. There would be only two possible sources of supply of legal liquor. The federal law would prohibit shipments of liquor by the National Corporation into such State. This source would be completely controlled. Purchases of liquors under the plan in an adjoining state would also be effectively controlled. No liquor could be obtained except on permit books issued as above stated. The amount of the purchase would thus be limited to personal requirements, and the purchaser would have to account for the same on request of the State agency. It would be impossible to secure liquor for illegal shipment or sale.

Illegal production in an adjoining State would be prevented by economic law as well as by federal and state statues. The illegal producer could not manufacture and sell bootleg liquor in competition with good liquor supplied by the State agency at lower prices than he could meet. Deprived of a local market, he certainly could not manufacture for the purpose of shipment into another State having prohibition, in violation of the laws of both States and of the federal law. The door would thus be effectively closed against every source of supply from without the State.

An analysis of this plan of control both as to structure and operation shows that it meets every aspect of the present problem; that it is in conformity with the principles and requirements outlined above. It is predicted upon our own successful experience in dealing with problems involving similar principles of private ownership and operation with adequate government regulation. It fully preserves the benefits gained through the abolition of the legalized traffic and the saloon. It is flexible and may readily be adapted to varying local conditions as well as to new situations or new efforts at evasion which may arise. It is in conformity with our political system, contemplates effective action of both state and federal governments in their appropriate jurisdictions, and the adjustment of these activities to each other with a maximum of discretion to the States consistent with effective liquor control.

It also conforms to essential economic principles and brings the force of these principles into play against the smuggler, illicit producer and bootlegger, instead of permitting them to operate as at present against the government and in favor of the criminal class. To the extent that there is an unavoidable and existing demand for alcoholic beverages, it meets that demand by legal but controlled supply of wholesale products, instead of having it supplied with dangerous or deleterious stuff through illegal channels. It takes from the lawless and criminal classes the enormous profits of the present illegal traffic, by which public service is being corrupted, and crime developed and organized, and applies these resources to educating the people as to the evils resulting from the use of alcoholic liquors, the elimination of the chief sources of crime, and the relief of the social and economic stress which tends to produce the desire and demand for alcoholic stimulants. It tends through effective control and the operation of natural laws to progressively reduce the demand and ultimately to eliminate this evil from our social and economic life. It should result in an effective solution of the present problem.

CONCLUSION

The problems of American life may best be solved through the study of our own experience in the successful application of sound principles, under our system of dual governments, to our peculiar social and economic conditions.

A study of the conditions in or experience of other countries is helpful only to the extent that it illustrates the operation of principles which underlie and are common to all social and economic organization.

It was with this thought in mind that the plan for the regulation and control of the liquor traffic herein presented was developed. When it became evident as a result of the present investigation and study that the existing system of national prohibition was not being observed or enforced, that owing to social and economic conditions in the United States, and to the operation of fundamental social and economic laws, it could not be enforced, a study was first made of our own experience in applying the principles involved in this problem to other phases of our national organization, and the results of that experience. It was found that in the familiar system of joint state and federal regulation of railroads, extending over a period of forty years, every principle involved in the present problem of liquor control had been successfully applied to conditions different as to the facts, but similar as to the essentials. The same was found to be true in less degree with the Federal Reserve Bank system. These two agencies present a body of experience in the successful application of fundamental social and economic laws to varied and complicated human conditions not to be found elsewhere. The present plan was then formulated, based upon those principles and that experience.

A study was then made of foreign systems of liquor control. Some of the countries were visited, interviews held with government officials and citizens of every class, and checked by personal investigations of the operations of the several systems. The system which has been in force in Sweden for more than ten years, which is similar as to many principles but different as to many details from the plan herein proposed, is by far the most successful of any existing system of liquor control. These studies abroad entirely confirmed the view that the plan proposed is sound in principle and practical in operation; that it is adapted to our system of government, and to social and economic conditions in America; that if adopted, it should remove this vexing problem from our political life, and result in its constructive solution.

We must not lose what has been gained by the abolition of the saloon. We can neither ignore the appalling conditions which this Commission has found to exist, and to be steadily growing worse, nor submit to their continuance. The time has arrived when the interest of our country we should lay aside theories and emotions, free our minds from the blinding influence of prejudice and meet the problem as it exists. Forgetting those things which are behind we must bring into action against existing evils the great reserve of American common sense, guided by practical and successful experience. By this means, we shall advance the cause of temperance and achieve an effective solution of the liquor problem.

As appears from their separate statements filed with the report, this plan is recommended for consideration by Commissioners KENYON, LOESCH, MACKINTOSH, McCORMICK and POUND. The endorsements of Commissions KENYON and McCORMICK are subject to the condition stated in their memoranda to the effect that they favor a further trial of the present law before definitely recommending the adoption of a substitute.

HENRY W. ANDERSON

Washington, D.C., January 7, 1931.