The Whiskey Ring

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The Whiskey Ring

Unread postby bourbonv » Wed Oct 10, 2007 7:21 pm

In 1875, During the Grant Administration, there was a huge scandal in the whiskey industry quickly named in the papers "The Whiskey Ring". What happened was that there were some corrupt government officials working for the Internal Revenue Service that made deals with distillers to allow the distillers to make tax free whiskey in return for a share of the extra profits made on the whiskey. The secretary of the treasury, Benjamin Bistrow got wind of the fraud and the government busted 16 distilleries in St.Louis, Milwaukee and Chicago, with over 240 distillers and revenue agents, including the chief cleric for the Revenue Agency and O.E Babcock personal secretary to President Grant, facing indictments. Babcock was acquitted in 1876 but many others either plead guilty or were convicted, but many received a pardon from President Grant. The rumor was that the plan was developed as a way to fund Grant's political campaign and the whole affair placed a big black mark on his administration.

For the distillers this led to a tightening of government regulations and oversight. The fact that for the next 100 years, the distiller had to have a government agent with him to unlock a warehouse is a prime example of these regulations and enforcement. Another example is that every pipe in the distillery had to be able to be observed by the government guager to make sure it was not being tapped into and alcohol diverted. These regulations seem pretty strict and costly to the distiller, adding cost to the product and cutting into profits, but I am beginning to think the distillers might have purposely made them so.

The reasons the distillers want these tough, costly regulations are the the same reasons they supported the excise tax on whiskey. The regulations kept over production down and prices up and they also made it almost impossible for the small distiller to operate legally. They were doing what Alexander Hamilton wanted to happen with the whiskey tax - making distilling a big business, not a cottage industry.
Mike Veach
"Our people live almost exclusively on whiskey" - E H Taylor, Jr. 25 April 1873
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Unread postby cowdery » Wed Oct 10, 2007 9:15 pm

They finally have their wish, but things could quickly get out of hand with all of these new microdistilleries. That won't be good for anyone. The cost of entry used to be prohibitive. It isn't now. Although, as a practical matter, the cost of aging seems to be keeping entry into the true whiskey segment cost prohibitive.

A good, succinct capsule history of the Ring.
- Chuck Cowdery

Author of Bourbon, Straight
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Unread postby bourbonv » Thu Oct 11, 2007 9:08 am

Chuck,
Thanks.

Microdistilleries are becoming cheaper and many can get out of hand, but the problem of over production will probably be non-existant. The aging facilities will keep that from happening because they will be a cost most micro-distillers will not make. They nwill have to settle on much smaller facilities instead of the 20,000 barrel or larger warehouses used by the big distillers. The problem with micro-distillers will be settled out in the market place. If they make a good bourbon or rye, they will be financial stable and thrive. If not they will loose money and go out of business quickly. At least that is my hope.
Mike Veach
"Our people live almost exclusively on whiskey" - E H Taylor, Jr. 25 April 1873
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