Straight Whiskey and Bad Regulation: The 1906 Pure Food and Drugs Act's extension to whiskey was intended to protect distillers, not consumers.

• Author: Scheck, Macy

Whiskey was one of the many products regulated by the Pure Food and Drugs Act of 1906. Public health crusaders at the time claimed that whiskey regulation was in the public interest because rectifiers--non-distillers who purchase and then blend whiskeys and other additives to create specific profiles, and who favor neutral spirits to replicate the taste and appearance of straight, barrel-aged whiskey--often added poisonous ingredients. It is estimated that 50-90 percent of whiskey sold in the United States at the time was rectified, ranging from simple combinations of whiskeys and blends of whiskeys and other flavorings, to more adulterated products that falsely claimed to be high-quality bourbons and other whiskeys.

In recent research, we used consumption data, reports on chemical tests of whiskey, trade book recipes, and reported deaths and poisonings from whiskey to search for evidence to support the public interest rationale for regulating whiskey. We found little evidence that there was a problem with poisoned whiskey. Entrepreneurs in the whiskey industry faced a strong profit incentive to make investments to assure consumers of the safety and quality of their products. These investments included:

* imparting distinctive and hard-to-reproduce characteristics in their whiskey

* adopting brand names

* creating exclusive dealer agreements

* transitioning from selling their whiskey from barrels to packaging it in sealed bottles

Whiskey producers successfully developed these mechanisms to demonstrate to consumers their products' genuineness and quality.

Jointly, these efforts provide evidence in support of the public choice interpretation of whiskey regulation presented by Clayton Coppin and Jack High in their 1999 book The Politics of Purity. According to Coppin and High, the extension of the Pure Food and Drugs Act to whiskey was driven by straight whiskey distillers seeking to regulate their primary competition--rectifiers--out of existence. But, in fairness, evidence of special interest politics alone does not rule out the existence of genuine public safety concerns necessitating whiskey regulation. In fact, regulation that benefits special interest groups is often most successful in the presence of real or perceived public health or safety concerns that provide the special interest groups with a public-spirited rationale for regulation, as Bruce Yandle explained in Regulation some four decades ago. (See "Bootleggers and Baptists: The Education of a Regulatory Economist," May-June 1983.)

The consensus among regulatory economists is that most regulation is public interest in origin, meaning that the politicians enacting the regulation had legitimate public safety concerns. These efforts are then captured by special interest groups through the regulatory process via revolving doors and industry interaction and influence. However, whiskey regulation provides a historical example of a major federal regulation that was driven by special interests from its origins under demonstrably false and unjustified public interest rationales.

EARLY WHISKEY HISTORY

Before the industrial revolution, whiskey was sold locally in small, unaged batches directly to the consumer. It was not until after the industrial revolution that large-scale industrial distillers emerged. Two distinct types of whiskey production appeared: straight and rectified. Straight whiskey was aged in government-bonded warehouses under the 1897 Bottle-in-Bond Act, while rectified whiskey...