Good Distiller, Bad Distiller: Dishonesty and Honesty in Markets and Politics in Early American Whiskey

Abstract

Can variances in institutional structures between markets and governments lead actors to engage in morally divergent behavior? We explore the behavior of early American whiskey distillers in both the market and political sphere. Whiskey distillers attempted to engage in dishonest behavior in both the market and in politics. Dishonest behavior in the market was hampered by market competition in the long term. In a market where it was difficult for consumers to detect hidden impurities, and thus there was a possibility for distillers to earn fraudulent profits, market competition led distillers to find innovative ways to assure consumers of the genuineness and quality of their product. Distillers adopted five mechanisms to help consumers overcome the asymmetric information problem; 1) brand names, 2) quality control measures that imparted distinct characteristics to the whiskey, 3) leveraging the reputation of local dealers, 4) advertisements, including advertising rewards for reporting on producers manufacturing imitation products, and 5) the adoption of sealed bottles. In the political arena, under the pretense of protecting consumers, distillers lobbied to pass the Bottled-in-Bond Act of 1897 and the Pure Food and Drug Act of 1906 to stifle competition from rectifiers who were producing cheaper whiskey-flavored alcohol spirits. Honest outcomes prevailed in the distillers’ market dealings but dishonest outcomes prevailed in their politicking.