The Cullen Bill and the Post-Prohibition Glass Bottle Monopoly

  “It was the keg, not the bottle that disappeared during prohibition, the heyday of the bootlegger.”
– Hugh J. McMackin, Secretary of the National Wholesale Wine and Liquor Dealers’ Association (July 22, 1935)

Figure 1- U.S. Pres. Franklin D. Roosevelt signing the Cullen-Harrison Act, which permitted the sale of low-alcohol beer (3.2% ABV) and wine, March 21, 1933. Upon signing the legislation, Roosevelt made his famous remark, “I think this would be a good time for a beer.”

The Repeal of Prohibition, as welcome as it was to the liquor industry, was well choreographed by the industry’s biggest players. One of the means with which these companies were able to seize control the trade was through the lobbying of government for favorable legislation. Their strategy was to maintain their position of dominance through simple, clever legal maneuvers and through the elimination of any unwanted competition by purchasing as many of the country’s remaining, intact distillery properties as possible. In effect, the old Whiskey Trust had returned, and this time, they had an unwitting government with little understanding of the liquor trade as an ally.    

In November 1932, Franklin Roosevelt was elected President on his campaign promises to bring an end to Prohibition. Only two months into his presidency, Roosevelt penned a message to Congress urging them toward Repeal and the big influx of tax dollars that would come with it. Roosevelt wrote on March 13, 1933:

To the Congress:

I recommend to the Congress the passage of legislation for the immediate modification of the Volstead Act, in order to legalize the manufacture and sale of beer and other beverages of such alcoholic content as is permissible under the Constitution; and to provide through such manufacture and sale, by substantial taxes, a proper and much-needed revenue for the Government. I deem action at this time to be of the highest importance.

8 days later, the Cullen-Harrison Act was passed. Named for its sponsors, Senator Pat Harrison and Representative Thomas H. Cullen, the bill was enacted by the United States Congress on March 21, 1933 and signed by President Franklin D. Roosevelt the following day. “The Cullen Act,” as it was called, legalized the sale of beer with an alcohol content of 3.2% (by weight) and wine of similarly low alcohol content. This was a precursor to the 21st amendment which wouldn’t be enacted for another 8 months. Tucked into the bill was language referencing the use of barrels and an assumed return to the pre-Prohibition norm of selling liquor in bulk. This language was unacceptable to the New York firms representing the Whiskey Trust who had been investing in the bottling industry during Prohibition. A return to wholesale bulk sales would mean the loss of the Whiskey Trust’s comfortable monopoly. To maintain their dominant position in the market, the Whiskey Trust launched a nationwide media and government lobbying campaign to undermine the return of bulk sales. The campaign described barrels as a boon to bootleggers and explained that barrels encouraged a return to intemperance. Barrels, they explained, would encourage rectifiers to adulterate whiskey and would damage the industry’s ability to maintain control of the liquor market. They appealed to the “drys” by implying that bulk liquor was going to drown the country in booze, and they appealed to the “wets” by implying that the easiest way to return to normal was to give the reins over to the “experts” (the devil they already knew) with all the means to make the smoothest transition. To understand why the Whiskey Trust was so adamant about maintaining their monopoly through bottle sales, we must first understand the trade before and during Prohibition.

Before Prohibition, the American liquor trade was a combination of both retail sales and wholesale bulk sales of liquor. Each approach to selling liquor required its own special license. Retail licenses were generally associated with liquor stores and rectifying houses. These liquor businesses ran most of the country’s bottling operations and were licensed to sell liquor in packages smaller than 1 gallon. Blending houses (rectifying warehouses) with storefronts in cities across the country purchased barrels of whiskey wholesale from distilleries out in “the country.” Rectifiers did not make their own liquor from scratch. Instead, they purchased the liquor going into their bottles labeled with their own brands in bulk from a distillery they did business with. Any distillation being done on site with a rectifiers license was to re-distill or refine high wines purchased elsewhere. For example, a liquor store with a rectifying license in Baltimore could sell a brand and call it “Mountain Laurel Spring Pure Rye,” then advertise their product in Baltimore newspapers as being “pure rye distilled from the cold mountain springs of the Monongahela Valley in Western Pennsylvania.” The whiskey, purchased from any number of rye whiskey makers, could have been blended or altered to create their own proprietary bottled product. If it sold well and earned a local reputation, the Baltimore firm would receive the credit and profit from its sale, not the distillery responsible for making it. This anonymity was the agreement between wholesale bulk seller and their customers. Wholesale licenses were usually associated with distilleries that did not wish to engage in direct sales to the public. A wholesale license only allowed distilleries to sell in quantities larger than 1 gallon, but larger package purchases could vary depending on the needs of the buyer. A hotel, for instance, may want keg sized barrels. A restaurant might prefer 10-gallon barrels for ease of handling, and a rectifier might want full-sized 48-gallon barrels for blending and bottling purposes. This variety of package sizes was advantageous to both distillers and cooperages who were dependent upon each other’s success. Small distilleries flourished in this pre-Prohibition market not only because bulk sales reduced their own on-site storage costs, but it also allowed them to avoid the costs associated with bottling and advertising. They could run a profitable business with only a few employees and sell their products to their local community without needing a salesforce or major marketing campaign to maintain profitability. The larger the distilling company, the more likely they were to have a wholesale license for their distillery (or distilleries) location and rectifying licenses for their many satellite locations across the country. Satellite locations allowed a company to distribute their products more easily. A distillery in the countryside may have been the production center, but the owner of the distillery usually kept an office in a major city and several (or many) warehouse locations in other cities where they could ship their barrels for bottling and distribution. The larger their distribution network, the further their sales would go. The Whiskey Trust put major efforts into buying up these larger companies with large distribution networks in place and essentially combined these businesses’ established networks under their own management.

When Prohibition effectively eliminated bulk sales, the Whiskey Trust (in the form of the American Spirits Manufacturing Company) was in the best position to manipulate the liquor trade- or what was left of it. They isolated their barrel aged, medicinal-quality whiskey stocks into a handful of warehouses and secured the necessary licenses to bottle and sell the contents of those hoarded barrels. In 1922, the Concentration Act ordered that the liquor stocks remaining in nearly 300 bonded warehouses across the country be consolidated into only 24 government-controlled warehouses. All liquor, before being legally shipped out of these warehouses to licensed buyers/sellers, was ordered to be bottled into sealed, government stamped pint bottles. The Whiskey Trust conveniently controlled over half of these concentration warehouses. Once the US government determined in 1927 that new whiskey would need to be manufactured to restore the country’s dwindling stockpile of medicinal whiskey, the Whiskey Trust invested heavily in its bottling capabilities to prepare for the financial windfall that this would create. At the end of the decade, the Whiskey Trust owned a controlling interest in the largest bottle manufacturing company in the world. Their majority stake in the Owens-Illinois Bottling Company also gave them ownership of many of the basic US patents for bottle manufacturing machinery. After Repeal, the Owens-Illinois Bottling Co. became one of National Distillers’ 10 largest stockholders with its president and vice-president serving on National Distillers’ board. The Whiskey Trust’s investments in glass bottle manufacturing was considerable, so when the country began to show signs of Prohibition nearing its end, new strategies to protect its investments needed to be considered.

The Cullen Act and its inclusion of provisions for bulk sales was clearly unacceptable to the Whiskey Trust (soon to rebrand itself as National Distillers in 1934). Almost immediately after going into effect on April 7, 1933, the Whiskey Trust launched their national campaign to undermine it. The negative propaganda ads were traced back to a major advertising agency in New York City called Erwin Wasey & Company which had been working under contract for the Whiskey Trust. The letters sent to sway the opinions of Congressional representatives against bulk sales were signed by Frank Getty, Erwin Wasey & Co.’s representative in Washington D.C. While Mr. Getty did not reveal the nature of his employment to the Congressmen he lobbied, the phone number listed on his letterhead matched that of Erwin Wasey & Co.’s New York office. The targeted ad campaign smeared the history of bulk sales and their use by rectifiers. It described a system where stamps and records would be removed at will, and unsafe barrels of rectified spirits would flood the market. These claims that somehow barrels were going to undermine the government’s efforts to control the trade were false but proved to be convincing enough. Perhaps 13 years was just enough time for Congress to completely forget what held the liquor industry together before the Whiskey Trust so obligingly offered to manage things. Before handing over the safeguarding of America’s whiskey in the early 1920s to a handful of powerful distilling companies that agreed to absorb the cost of its transportation, storage, and armed security, the government had worked in collaboration with all the nation’s distilleries. The cooperative and occasionally contentious partnership that existed between the Department of Internal Revenue and America’s distillers may have been estranged for 13 years, but that partnership had existed uninterrupted for 60 years before Prohibition.  

Before 1920, all whiskey produced by a distillery, regardless of the package it was shipped in, was overseen from grain to bottle by a gauger. A gauger or storekeeper was assigned as a representative of the US Department of Internal Revenue to monitor and record information on every raw material, length of pipe, piece of machinery, barrel, and drop of spirit moving in or out of the still house. This record keeping including tracing the movement of every government stamped barrel sold and transported to any rectifying house. When the contents of a stamped barrel were dumped for use by a rectifier (for blending, rectifying, re-distilling, etc.) that liquor was re-gauged by another government agent assigned to that licensed rectifying house. Most small distilleries making whiskey had one gauger/storekeeper while larger distilleries may have as many as half a dozen, each employed to keep records on specific activities within the distillery complex. Distilleries tolerated the government assuming the role of bookkeeper and tax assessor while the government tolerated the distiller assuming the role of maintenance worker, production manager, and, most importantly, taxpayer. The preposterous claim by the Whiskey Trust that barrels were any less monitored by the government than bottles was false. If anything, barrels enabled a government gauger to test (and deem safe) a larger amount of whiskey at once. Once a filled bottle was sealed, there was no way to test its contents. A barrel’s cost to a producer was far less than the cost of the 380 or so pint bottles it could fill. Not only was it less expensive to purchase a barrel (on its own) from a cooperage than it was to purchase +/- 380 pint bottles from a bottle manufacturer, the cost to ship that barrel was significantly less than the cost to ship its equivalent in bottles. (Cases of bottles take up much more room than a single barrel.) The Whiskey Trust was not concerned with the cost savings of barrels. Its concern was with the investments they had made over the last decade in bottling and with maintaining their exclusive rights to distribute these products.     

Another angle of attack employed by the Whiskey Trust to undermine bulk sales was their insistence that the use of barrels would encourage bootlegging. This may have been their most ridiculous claim because the bootlegging trade only existed to fill the needs of a demanding public. By insisting on bottle sales, the cost of aged spirits had ballooned to over 600% what it had been before Prohibition. These price hikes incentivized bootleggers to continue supplying cheaper booze to the public. Reusing bottles became illegal in 1935, so bottles were destroyed after each use which, incidently, was very beneficial to the glass bottle industry. The law insisted that every glass bottle be embossed with the words, “Federal Law Forbids Sale or Reuse of this Bottle.” This was meant to thwart the bootlegging industry, but it did not have its desired effect. Bootleggers were using 1-5 gallon jugs for distribution of their products and bartenders were known to be refilling bottles at their bars using these jugs. There was no proof other than hearsay that this was happening, but the tax collection numbers and the sales figures in the first years after Repeal bear this out. Profits from sales of bottled liquor in 1934 were only a third of what the government’s preliminary estimations had been, even with the population of the United States having grown by 26 million since 1920 and women now drinking more. The reality was that people weren’t drinking less, they were resorting back to buying illegally manufactured and less expensive liquor.

Another unfortunate casualty resulting from an end to bulk sales was the unionized cooperage. To be fair, the Whiskey Trust was not trying to rid the country of cooperages. They still needed barrels for the storage of their aged spirits in bonded warehouses. Their smear campaign even stressed that cooperages would not be damaged by the end of bulk sales because a growing whiskey industry would always need cooperage to age their spirits in. The government’s ignorance of the liquor industry, often used to great benefit by the Whiskey Trust, made this claim seem perfectly reasonable. In truth, the end of bulk sales would slowly bankrupt the cooperage industry. 70% of the liquor trade had been conducted through bulk sales before Prohibition. Only a very small percentage of the barrels made by cooperages were the 48-gallon size barrels used to age spirits in bonded warehouses. Most of the trade was in conducted by selling containers “no smaller than one gallon” to rectifying and blending houses, hotels, bars, restaurants, and other establishments. Those containers were usually 1-25 gallons in capacity. This variation in container size meant that the cooperage trade was able to utilize more of the milled timber coming out of sawmills. Very little stave material was wasted because even the smaller cuts of stave-quality wood could be made into smaller sized barrels/kegs. When the glass bottle industry, dominated by a single firm and controlled by the Whiskey Trust, was given the business after Repeal that for centuries had belonged to the cooperage industry, the die was cast. The Whiskey Trust’s own cooperage needs were being fulfilled by one of the largest cooperage firms in the country, the Chickasaw Wood Products Company with locations in Memphis, Tennessee and Louisville, Kentucky. (Unsurprisingly, the Chickasaw Wood Products Company were one of the only cooperages in the country to support an end to bulk sales.) National Distillers would not suffer even as other cooperages went out of business. The bulk sales market had been the lifeblood of the thriving cooperage industry for 200 years, but it would never recover from the post-Prohibition glass bottle monopoly.

Even as representatives for the cooperage industry, the brewing industry, and many of the country’s retail liquor associations swarmed on Washington in 1935 to defend their right to sell in bulk using barrels and kegs, the Whiskey Trusts’ campaign to undermine their efforts ultimately won out. The notorious Whiskey Trust was finally able to regain its monopolistic ability to dictate the nation’s liquor prices. The small distiller was eliminated in favor of the large producers. When the states became responsible for the management of their own sales and distribution, the idea of having a few producers fill their orders was a welcome one. The large distillers handled promotion and shipping and the country’s newly established state stores’ shelves were easily stocked. The monopoly given to the large producers after Repeal may have been an easy solution, but it was at the expense of the entire industry.