Praising and defending markets are among the useful tasks performed by an economist. David Herzberg, a historian, tells the story of a market that is challenging to defend. His White Market Drugs is a history of addiction crises in America. Pharmaceutical drugs, it turns out, are a good example of creative destruction. Getting the right policies on drugs is a challenging task.

Medicine–drug divide / Herzberg understands markets. Here is what he means by “white markets”: “legal and medically approved social institutions within which the vast majority of American experiences with psychoactive drugs and addiction have taken place.” White market drugs are “sedatives, stimulants, and opioids.” The “white” in the moniker means legal markets, as opposed to illegal black markets. Also, there is a racial connotation: White market consumers are “the doctor-visiting classes: people who were white, native born, Protestant, middle-aged, and middle class.” Racial minorities and immigrants shop in what the author calls “informal markets.”

The existence of different markets owes to “the medicine–drug divide.” This divide pervades and biases our thinking. People think “medicines” are legitimate and “drugs” are illegitimate. People buy and sell medicines in white markets; they buy and sell drugs in informal markets. Doctors prescribe medicine to patients who need medical care; dealers sell drugs to recreational users. The author proclaims, “Both law and custom are designed to promote access to medicines while prohibiting use of drugs.” The medicine–drug divide is counterproductive. Too many white market consumers become addicts; too many informal market consumers become prison inmates.

Herzberg blames addiction crises on the profit motive. He claims, “Profit-driven drug markets follow a predictable damaging cycle.” He continues:

Companies hype new medicines as safe and beneficial and sell with insufficient regard to consumer safety; a health crisis ensues as consumers are left ill equipped to make informed decisions; authorities respond with consumer protections and destructive drug wars; the pharmaceutical industry devises strategies to circumvent the new restrictions and start the cycle over again.

First wave / There have been three addiction crises in the United States. The first involved opioids beginning around the turn of the 20th century. The second involved sedatives and stimulants spanning the middle of the 20th century. The third, familiar to contemporary Americans, involved all three white-market drugs and began at the turn of the 21st century.

Americans began consuming opium at the end of the 19th century. In the white market, the opiate of choice was morphine; in the informal market, it was “smoking opium.” Consumption became excessive and the concept of “addiction” was born.

A political coalition made of “therapeutic reformers” and “consumer advocates” sought to regulate morphine as medicine. Another coalition made of “moral crusaders and anti-immigration activists” sought to prohibit smoking opium as a drug.

The 1914 Harrison Act was the significant federal anti-drug legislation of the era. Therapeutic reformers got what they wanted: doctors would decide who gets opioids. Consumer advocates got what they wanted: “strong regulation.” The act required producers, doctors, and pharmacists to pay sales taxes. Only patients with a doctor’s prescription were permitted to possess opioids. The taxes and prescriptions created a paper trail for monitoring.

Although moral crusaders expected the act to prevent anyone from taking opioids for recreation or to maintain a habit, they would be disappointed. Buyers and sellers who could not legally transact migrated to the informal market. According to Herzberg, the primary accomplishment of the Harrison Act was the unintended consequence of creating and fortifying legal versus illegal markets for opioids.

Aside from transforming opium into pain relievers, manufacturers developed synthetic drugs such as barbiturates to relieve insomnia. Manufacturers’ determination to sell barbiturates plus consumers’ zeal for the drug led to a peak in sales per capita during the late 1940s. To halt the addiction and overdoses that accompanied the sales peak, policymakers rallied to incorporate barbiturates into the Harrison Act during the 1950s. The effort failed because of a lack of support from key players such as doctors, pharmacists, and the Committee on Drug Addiction. Herzberg implies that by using barbiturates as a model, “the pharmaceutical industry crowded in with a host of new drugs such as amphetamine stimulants and so-called minor tranquilizers.”

Second wave / Thus was born the second addiction crisis, in the late 1960s. The data are telling. “By 1962” Herzberg reports, “the [Food and Drug Administration] estimated that eight billion [amphetamine] pills, or a remarkable forty-three per person, were being sold annually.” He does not cite a similar estimate for tranquilizers, though he reports that American doctors wrote 85 million prescriptions for tranquilizers in 1965, when the U.S. population was about 200 million.

“It is difficult to assess how many people actually suffered specifically from addiction,” the author admits, “because there was no effort to measure this statistic at the time.” Nevertheless, he is confident that “white market sedatives and stimulants were responsible for far more addiction and harm than informal-market drugs like heroin.” Scholars estimate that people addicted to pharmaceuticals “probably numbered in the millions,” compared to 600,000 addicted to heroin around 1970. Likewise, estimated fatal overdose rates for “sedatives alone” exceeded those for heroin during the 1950s through the 1970s.

Controlled Substances Act / The second wave of addiction and overdose motivated consumer advocates and “medicalizers,” who advocated treatment for addicts, to formulate a policy response. They produced the Controlled Substances Act of 1970, which regulated the supply side to protect consumers. Herzberg describes it as follows:

The new law weakened criminal punishments for informal-market consumers, while strengthening policing of major white market commercial actors (i.e., drug companies and physicians). It also included a provision that held at least the potential for a much deeper transformation: an administrative mechanism to change the legal status of any substance without an act of Congress. This mechanism was related to the law’s central reform, the creation of a Schedule of Controlled Substances that included both the drugs formerly known as “narcotics” (under the Harrison Act) and those formerly known as “dangerous drugs” (under the Drug Abuse Control Amendments).

This nuanced the distinction between medicines and drugs. Schedule I listed prohibited substances such as heroin and marijuana. Schedule II listed substances likely to be addictive such as morphine, which could be prescribed by a doctor. And so on down to substances on Schedule V, which posed minimal risk of addiction, such as cough syrup. Manufacturers faced production quotas on Schedule I and Schedule II substances. The FDA and the attorney general determined whether and where a substance would be on the Schedule.

Another supply-side regulation worth mentioning is that the Committee on Drug Addiction would assess the addictiveness of sedatives and stimulants before manufacturers could introduce them to the market. Herzberg endorses the Controlled Substances Act except for its “complete opposition to nonmedical drug use.”

Third wave / Given that estimates of fatal overdoses per person stopped rising during the 1970s and 1980s, the new policies appear to have been effective. Fatal overdoses began to increase, however, during the 1990s. Deaths from opioids rose from less than five per 100,000 to over 20 per 100,000 after 2010.

Herzberg sees four causes of this third wave of addiction and overdose that began around the turn of the 21st century. First, politicians lost faith in treatment and renewed the war on drugs. Second, politicians deregulated parts of the economy, including FDA drug approval. Despite referring to the “so-called drug lag,” the author points out that diverse groups criticized the FDA approval process, including politicians of both parties, “ideological warriors,” and patients suffering from AIDS and cancer. Third, there was a “revolution in American psychiatry”: The American Psychiatric Association switched from defining mental disorders based on their causes to their symptoms. The number of mental disorders increased and “the proliferation of new mental illnesses was a boon to pharmaceutical companies selling psychoactive medications.” Fourth, some members of the “pain reform movement” urged increased use of opioids to treat not only cancer patients and the terminally ill, but “pain patients” in general.

Herzberg writes at length about the way that opioid manufacturers — Purdue Pharma in particular — used the pain reform movement to increase sales. Manufacturers subsidized “radical pain reformers” to preach the “new gospel of opioids,” the message of which was that opioid addiction was nothing to worry about and that long-term pain should be treated with opioids. The author provides evidence that Purdue Parma captured the FDA as well as “professional and state regulatory bodies.” Whereas doctors had been reluctant to prescribe opioids, state medical boards now listened to arguments that doctors who wrote too few prescriptions for opioids might be committing malpractice by leaving their patients in pain. Also, the industry informed consumers that pain was “a medical problem” that could be solved with opioids.

According to a graph furnished by the author, opioid sales per person rose six-fold from 1990 to the peak around 2010. Cases of addiction and overdose accompanied the rising sales. Although Herzberg portrays pharmaceutical industry marketing techniques as quite effective and a primary cause of the crisis, he addresses confounding factors. For example, most opioid addicts were recreational users and did not have a doctor’s prescription. In the end, the author remains critical of industry behavior enabled by inadequate regulation.

What to do? / Herzberg gives us his idea of good drug policy, “one that charts a narrow path between the Scylla of prohibition and the Charybdis of the ‘free market.’ ” He generally approves of “strong federal regulation” and “robust regulatory controls.” He specifically approves of the tactics of the Federal Bureau of Narcotics (FBN) in white markets after the Harrison Act of 1914. For example, the FBN set import quotas on opium and determined which companies would get how much. The FBN countered “marketing hype” that downplayed the risk of addiction with analysis from the Committee on Drug Addiction. The long-time head of the FBN, Harry J. Anslinger, insisted on approving pharmaceutical industry marketing strategies. Herzberg deems these regulations a success because “per capita medical opioid sales stayed relatively flat for most of the twentieth century.” He sees a cost as well: “relatively little exploration of the benefits of opioids or how to provide them safely.”

Herzberg admires “the consumer protection innovations of the 1970s” related to the Controlled Substances Act. In general, they are supply-side regulations that aim to protect consumers. Specific regulations included requirements on what information labels must display, identification of and scrutiny of doctors who were heavy prescribers, and limits on prescription refills. He offers this evidence for the benefit of these policies: “The 1970s saw declines in both the overall volume of sedative and stimulant use, and the overall volume of emergency room visits and fatal overdoses linked to those drugs.”

Aside from tactical regulations, Herzberg recommends a principle of “harm reduction” that distinguishes between “safe and unsafe use rather than medical and nonmedical use.” Recognizing that there are both benefits and costs of pharmaceutical drugs, he imagines that regulating the market for drugs could be like regulating the market for cars. That approach to policy seems sensible. At the same time, we should be as wary of government officials wielding and enforcing monopoly power as we are of unethical capitalists seeking profits.

Herzberg’s history proves that good drug policy is difficult to achieve. Perhaps the difficulty is rooted as much in human nature as it is in the role of markets and government.