Published by The Daily Bell – March 02 2014
Introduction: Mark Thornton is Senior Fellow at the Ludwig von Mises Institute, with articles published often in the Mises Daily. He serves as the Book Review Editor of the Quarterly Journal of Austrian Economics and was a member of the Editorial Board of the Journal of Libertarian Studies. He has served as the editor of the Austrian Economics Newsletter and as a member of the graduate faculties of Auburn University and Columbus State University. He has also taught economics at Auburn University at Montgomery and Trinity University in Texas.
Mark served as Assistant Superintendent of Banking and economic advisor to Governor Fob James of Alabama (1997-1999) and he was awarded the University Research Award at Columbus State University in 2002. His publications include The Economics of Prohibition (1991), Tariffs, Blockades, and Inflation: The Economics of the Civil War (2004), The Bastiat Collection (2007), and The Quotable Mises (2005). Mark Thornton is a graduate of St. Bonaventure University and received his PhD in economics from Auburn University.
Daily Bell: Hello there. Let’s jump right in. We’ll cover marijuana regulation, in particular, in this interview. Given the recent legalization in Uruguay, pending changes in many US states as well as new regulations governing production and distribution of medical marijuana in Canada, we wanted to get your take on what’s happening.
Your 1991 book, The Economics of Prohibition, is as timely as ever now and you’ve written quite a number of provocative articles on marijuana legalization more recently. Tell us a bit about the book and about your position on the issue now.
Mark Thornton: The book was a byproduct of my PhD dissertation, which I completed at Auburn University in late 1989. It was an old-fashioned dissertation with a review of the literature, a chapter on the history of prohibition in America, a theory chapter and two application chapters, one on potency and one on crime. The final chapter addresses the repeal of prohibition. The nice thing about the old-fashioned dissertation is that you are constantly rechecking your work: theory, history and applications. I think that is why it has held up so well. I have had to rethink things over the last two decades, but there have been no radical changes in my thinking. Time has only served to confirm what I wrote a quarter-century ago.
The main takeaway of the book is that the policy of prohibition is a failure. It provides no demonstrable social benefits while coming at a high cost and nearly uncountable negative unintended consequences.
Daily Bell: Please explain how prohibition “inevitably creates incentives for producers to increase the potency of drugs and alcohol products distributed via the black market,” as the description of your book states.
Mark Thornton: The more the government acts to suppress a market with more police, severe penalties and new tactics the higher they drive up prices and the more incentive black marketeers have to invest in ways of protecting themselves against detection, arrest and penalties. One of the primary ways of doing this is to increase the potency of the product or to switch to higher potency products. It’s more bang for the buck. Instead of smuggling wine, a truckload of 10% alcohol, why not smuggle a vanload of whiskey that is 90% alcohol? Why try to bring weak potency marijuana into the country when you can smuggle marijuana that is 5 or 10 times more potent, or why not switch to cocaine and heroin smuggling where a million doses can be smuggled in a single suitcase? Marijuana is not a true gateway drug that leads people to heroin. Stricter prohibition leads black markets from weak marijuana to heroin.
My students are often skeptical of this analysis. Perhaps drug dealers are not smart enough to figure this out, they think. Then I ask them about what happens at an Auburn University football game. “If you went tailgating before the game, what alcohol drink would you most likely see people drinking?” The answer is nearly unanimous – beer. Then I ask them, “Once you get into the stadium (where alcohol is prohibited) what type of alcohol are you most likely going to see consumed?” The students’ eyes bug out and I have seen a jaw or two actually drop because they know the answer is some type of high potency liquor.
Prohibition is like on Star Trek when they encounter a “spatial anomaly” that acts as an “energy-dampening field.” It’s kind of like the Chinese handcuffs of science fiction – the more energy you use to break free of the Chinese handcuffs or the spatial anomaly, the more stuck you become and the more you get dragged closer to the spatial anomaly. With prohibition, the more the government tries to enforce it, the higher the price and the more effort that will be exerted to overcome the prohibition, whether that is higher potency, more dangerous concentrated drugs, larger bribes, more powerful guns …
Daily Bell: What are the effects of prohibition policies on crime rates and government corruption rates?
Mark Thornton: Prohibition is the major cause of crime. There are the crimes associated with buying and selling prohibited products like heroin and services like prostitution. Then there are crimes and violence associated with prohibition like those related to street gangs and organized crime, such as drive-by shootings, mafia “hits,” racketeering, etc. Violence basically replaces the rule of law when markets are prohibited.
Prohibition is the fountainhead of corruption. Without prohibition, corruption would be limited to things like elections and government contracts. With prohibition an enormous incentive (due to high prices) is created for black marketeers to offer bribes to law enforcement, the judicial system, bureaucrats and politicians to protect the bribe payer from being caught and punished. In addition, the bribe payer may offer government officials information about competitors, making law enforcement look competent and keeping prices high.
Daily Bell: You offer both public policy alternatives and truly free-market solutions. Can you summarize?
Mark Thornton: I think the best solution is outright legalization along with the elimination of the moral hazards associated with government welfare and other subsidies. Legalization brings the rule of law into play. This means an enormous reduction in violence and crime. It also means that entrepreneurs are subject to laws preventing them from hurting or defrauding customers. They can be sued for damages. They would also want to develop better products, a good reputation and good will over time, instead of killing their customers with bad drugs.
Eliminating the government’s “social safety net” is also important. People have to realize that they have to take care of themselves or rely on friends, family and charities. Government handouts send the wrong signal: ‘Become a hopeless addict or get so fat that you cannot work and you get a government check’ is the wrong message. The message and incentive should be to work hard and stay sober and you get a good life.
Daily Bell: Some more questions… Why does prohibition keep happening in the West?
Mark Thornton: Remember that America was founded by people with peculiar religious views. They were suppressed in their home country so they came here. Many of their views were to suppress consumption and live a pious and virtuous life. In the colonial days we had restrictions and prohibitions and early in the 19th century there was a significant temperance movement driven by zealous religious views. This morphed into a political movement to restrict and outlaw alcohol. Those efforts failed and were repealed prior to the Civil War and only reemerged in the late 19th century. So this view that we can perfect the world for the second coming of God has been with us a long time.
Also note that America has long been one of the leading producers of alcohol and tobacco since its early days. This means that the final push for one prohibition or another involves special interest groups. John D. Rockefeller was a devout Christian who opposed alcohol, but he also faced competition from the alcohol industry as a fuel for the emerging automobile industry. So it is not surprising that he bankrolled the Prohibition movement after WWI. Bet you did not realize that!
Daily Bell: Why is prohibition so attractive to ruling elites?
Mark Thornton: The power to prohibit the consumption of a product gives the State an entry to controlling the production and consumption of just about anything. If the State can prohibit alcohol as a dangerous product, then it can prohibit dangerous books or anything else. This is what the ruling elites want. They don’t want restrictions on their power based on natural rights, the Constitution, or anything else. They have two weapons to destroy the concept of America and our rights. They use fear and “patriotism” against us.
Daily Bell: What is it in human nature that seeks prohibition?
Mark Thornton: Well, it is basically that prohibitions in our daily lives are good things that we eventually recognize, as mature people, are good for us. I’m not talking about government prohibitions here. I’m referring to the rules that good parents require of their children. “You are not permitted to play until your homework is done and your room is clean.” It also refers to commercial rules such as “No shoes, no service.” Or it could be a rule that there is no smoking or talking on cell phones allowed at your place of worship. These prohibitions are easily enforced and benefit the greater good in many ways, plus they are voluntary in the sense that you choose either to smoke or to pray. Some people just don’t realize that such rules of conduct cannot carry over to the larger political society.
Daily Bell: The big question is, “How is it happening – and why?” Is it simply time or are the elites that seem to control the regulatory process finally in favor of allowing decriminalization and even legalization?
Mark Thornton: I’ve seen this coming since the 1980s. I thought that we would get medical marijuana decriminalization after 2000, marijuana legalization after 2010 and liberalization of narcotic laws after 2020. The harder the State chooses to push the War on Drugs, the more the negative consequences are revealed to the general public. Ultimately it is ideology that drives events and peoples’ attitudes towards marijuana have continued to change in a positive direction. When people find out that cannabis is as close as it comes to a medical “cure-all” with no side effects or even a high, they are mad as hell at the State. For example, this recent episode of Reason TV.
Daily Bell: We’ve written that there may be a number of reasons why the globalist cabal behind the West’s economic system might want marijuana legalized – including the possibility that it will provide an economic stimulus. Your thoughts?
Mark Thornton: The economic benefits of legalizing marijuana and hemp are enormous and are too many to detail here. I think you are correct to be suspicious, but a legal industry partly controlled by “the globalist cabal” is still better than what we have today.
Daily Bell: You asked in a 2013 article, “Is Pot Too Potent to Legalize?” You had a very interesting conclusion about “super potent pot” being the result of “government prohibition.” Can you explain?
Mark Thornton: Sure. Before the war on drugs marijuana was not very potent and did not produce a major high. The more the State pushed prohibition, the more growers and dealers did to increase the THC content and to reduce the CBD content so that a one-ounce bag of marijuana represented more units of consumption that produced a more intense high. CBD, which has become prominent as a medical cure, does not get you high and actually offsets the high from THC.
By increasing law enforcement budgets and penalties they have increased the incentive to increase potency and to switch to even more potent drugs, like cocaine and heroin. The most recent product to hit the market looks like a piece of paper and is nearly pure THC. One small hit will throw you for a loop! This is the thing that I am probably most famous for, the Iron Law of Prohibition.
Daily Bell: Can you explain what will happen to pot once it is legalized? It seems to us that people will demand many different kinds of pot and that there will be numerous changes in the market – and even vendors that provide substantial variety.
Mark Thornton: The market will change enormously. That is the most important thing that people do not understand about prohibition. Prohibition changes everything about the market and the product – everything! Therefore, people tend to think that if we legalize we will only get more of the problems of prohibition when, in fact, we will cure the problems of prohibition.
In contrast, if we go from prohibition to legalization we should also imagine that everything will change, as well. The general direction will be that things will be more commercial. People will still grow pot in their backyard gardens, but you will also see standardization of products, higher quality (not necessarily higher potency), a wide variety of product types, economies of scale, etc. It will eventually look more like the alcohol, tobacco and over-the-counter drug markets. Plus, there will be an enormous market for medical applications.
Daily Bell: You’ve come out in favor of legalization of marijuana in several eloquent articles. Why do you think it was made illegal in the first place?
Mark Thornton: I think that hemp was thought to be an effective competitor for cotton and synthetic fibers in terms of textile products and paper production. If you make marijuana illegal you also prohibit its sister plant, hemp (which does not get you high), and therefore, you increase the profits for cotton and whoever has the patents on synthetic fibers.
Daily Bell: Will it soon be legal worldwide?
Mark Thornton: Well, my guess 25 years ago was that marijuana legalization and decriminalization would be important or dominant worldwide by the end of this decade. I’ll stick with that guess, but I think things will speed up in the next economic crisis, which could be just around the corner.
Daily Bell: We think it is an extraordinary investment opportunity. Your view?
Mark Thornton: Yes it is, but I’m not an investment advisor so I’m not prepared to be precise on how to make money on it. There are some penny stocks that have done very well; however, I would keep your eyes on the big corporations that attempt to take advantage of the opportunities.
Daily Bell: Another topic … You specialize in business cycles. We’d like to get your thoughts on this incredible “rubber ball” of a stock market and how and why it keeps bouncing higher. What explains the performance of the market best – Austrian economics or Keynesian?
Mark Thornton: Both sides can take credit for now. The Keynesians argue that government stimulus can cure an economy so they could make an empirical argument. If they are right then we should have a super great economy and a booming stock market. The Austrian argument for the super high stock market is the result of government manipulation. You drive the interest rate to zero and add a trillion dollars of deficit spending and you increase stock prices. No need to get into all the channels of how that works here. It all boils down to the issue of whether the future holds the genuine prosperity that Keynesians contend or if there will be another crisis and crash, as most Austrians contend.
Daily Bell: Is it possible, finally, that this crazy stock market run-up is intended to go much higher before ending in a crash that will provide further justification for an expanded, internationalist monetary system?
Mark Thornton: I never thought they would push the system as far as they have. In the old days they never resorted to the limits that Bernanke has resorted to. In other words, the Fed would pull back before it became too late and the cycles would be relatively manageable. They may have gone too far this time and pushed us onto a path of what Mises called the “crack-up boom.” That could very well lead to a reworking of the world monetary system.
Daily Bell: This brings us to a final topic, which is perhaps the most significant issue that academic libertarians have to face: whether the standard libertarian analysis that analyzes government force ought to be accompanied by analysis of the actions of a deeper banking cartel. As “conspiratorial” as that sounds, Murray Rothbard was a proponent of this sort of analysis – at least to a degree – and recognized deeper forces at work, though his writings do not ordinarily deal with them. Comment?
Mark Thornton: People used to make fun of conspiracy theorists and sometimes with good reason. The idea that there was a conspiracy(s) to defraud the general public had to be suppressed at every turn by the ruling elites and their minions. Now we know through the social sciences, like public choice theory and history, that most everything about politics is a conspiracy. We know that campaign contributions are just a legalized form of bribery. We know that the Federal Reserve is a cartelizing device for banks and that they and Congress came to the rescue of the big banks and that there is a revolving door between big banks, the federal government and the Federal Reserve and other federal bank and financial regulatory agencies. We now know that conspiracies are endemic in our political process almost as a matter of definition.
What we do not know is if there is a single conspiracy behind all the individual conspiracies. My guess is there is not, but this does not completely discount the possibility of a massive unified conspiracy in such areas as banking or the defense industry.
Daily Bell: We noticed in a recent debate with the anti-usury crowd that the libertarian position regarding the Industrial Revolution – that it was a remarkable and wonderful event – came under attack. The pushback had to do with the idea that the Revolution was inevitably taken over by the power elite and thus provided fewer benefits to individuals than it might have otherwise. It became used as a tool of oppression as well as one of increased freedom. Comment?
Mark Thornton: I think it is correct to say that the power elite did have their hand in the cookie jar that was the Industrial Revolution. That was certainly the case in England and France. Mercantilist policies in France, for example, restricted entry into certain professions, which benefitted those with jobs and government’s favored firms. The king got more tax revenues but consumers paid the higher prices and had fewer good jobs. England provided defense services for the trading companies. England would go to war paid for by debt, war contractors would reap immense profits and the debt would be paid for with higher taxes on the working class. The conclusion is that the Industrial Revolution was a great thing but, once again, the “ruling elite” skimmed off most of the cream.
Daily Bell: Any other points you want to make or articles or books you want to mention? Any recent books or particular articles you would like to draw our attention to, perhaps upcoming Mises Institute events?
Mark Thornton: The Austrian Economics Research Conference is March 20-22 at the Mises Institute in Auburn, Alabama. The headline speakers are James Grant and Judge Andrew P. Napolitano. 2014 marks the 40th anniversary of the awarding of the Nobel Prize in Economic Sciences to Friedrich A. Hayek and Gunnar Myrdal. It is also the 40th anniversary of The Austrian Economics Conference at South Royalton, Vermont. These two events are widely believed to have marked the revival of modern Austrian economics. We will be celebrating both of these events with papers and panels at AERC 2014. Most of the participants at South Royalton went on to academic careers and a number of them will be participating in this conference.
My next book, The Bastiat Reader, will be available for sale very soon. It’s kind of like a greatest hits album of Frederic Bastiat, one of the greatest economic writers of all time.
Daily Bell: Thanks for your time.
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