Saloons of Invention

I was taken aback by the bottom line of Mike Andrews new working paper Bar Talk: closing the saloons during prohibition reduced patenting by ~15%. At first, I thought that seemed like a very large decline but bear in mind that saloons were the coffeehouses of the day devoted not just to drinking but to meeting, talking and learning. Indeed, they were much more common than coffeehouses today:

Saloons were once everywhere in America, from urban alleys to rural crossroads. They were about more than drinking; from the 1860s through 1920, they dominated social life for the laboring majority building a new industrial nation. By 1897 there were roughly a quarter of a million saloons, or 23 for every Starbucks franchise today.

…Saloons became salons, where survivors of the Industrial Revolution could drink and debate, politick and speechify.

The saloons also often combined social aspects with a mailbox depot, telegraph or telephone, and a payday lender so they were good places to talk shop.

Andrew’s compares countries that were forced dry by state prohibition laws with previously dry counties, so the estimates are local and from across the country. He has significant patent data including the location of inventors and a variety of important robustness tests. Women, for example, didn’t typically patronize the saloons but also continued to patent at similar rates in wet and dry counties. After taking it all in the results are large but plausible! Here’s the abstract to the paper:

To understand the importance of informal social interactions for invention, I examine a massive and involuntary disruption of informal social networks from U.S. history: alcohol prohibition. The enactment of state-level prohibition laws differentially treated counties depending on whether those counties were wet or dry prior to prohibition. After the imposition of state-level prohibition, previously wet counties had 8-18% fewer patents per year relative to consistently dry counties. The effect was largest in the first three years after the imposition of prohibition and rebounds thereafter. The effect was smaller for groups that were less likely to frequent saloons, namely women and particular ethnic groups. Next, I use the imposition of prohibition to document the sensitivity of collaboration patterns to shocks to the informal social network. As individuals rebuilt their networks following prohibition, they connected with new individuals and patented in new technology classes. Thus, while prohibition had only a temporary effect on the rate of invention, it had a lasting effect on the direction of inventive activity. Finally, I exploit the imposition of prohibition to show that informal and formal interactions are complements in the invention production function.

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