Boom Crack I
If once public opinion is convinced that the increase in the quantity of money will continue and never come to an end, and that consequently the prices of all commodities and services will not cease to rise, everybody becomes eager to buy as much as possible and to restrict his cash holding to a minimum size. For under these circumstances the regular costs incurred by holding cash are increased by the losses caused by the progressive fall in purchasing power. The advantages of holding cash must be paid for by sacrifices which are deemed unreasonably burdensome. This phenomenon was, in the great European inflations of the 'twenties, called flight into real goods (Flucht in die Sachwerte) or crack-up boom (Katastrophenhausse).5
Boom Crack I
In other words: hyperinflation would be possible without destroying the money completely. The crack-up boom, as Mises pointed out, would unfold only when people come to the conclusion that the central bank will expand the money supply at ever-greater rates:
But then finally the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The crack-up boom appears. Everybody is anxious to swap his money against "real" goods, no matter whether he needs them or not, no matter how much money he has to pay for them. Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scrap paper. Nobody wants to give away anything against them.7
Should investors in such a situation expect that the government and its central bank would opt for bailouts financed through additional money creation, the demand for money and fixed claims would most likely dry up. This would make it necessary for the central bank to extend ever-greater amounts of money to struggling borrowers in order to prevent the spread of bankruptcies. The larger the amount of outstanding debt is, the larger will be the potential increase in the money supply. The more the money supply grows, the more likely it is that there will be hyperinflation and a potential breakdown of money demand: the unfolding of a crack-up boom.
The crack epidemic was a surge of crack cocaine use in major cities across the United States throughout the entirety of the 1980s and the early 1990s. This resulted in a number of social consequences, such as increasing crime and violence in American inner city neighborhoods, a resulting backlash in the form of tough on crime policies, and a massive spike in incarceration rates.
In the early 1980s, the majority of cocaine being shipped to the United States was landing in Miami, and originated in Colombia, trafficked through the Bahamas and Dominican Republic. Soon there was a huge glut of cocaine powder in these islands, which caused the price to drop by as much as 80 percent. Faced with dropping prices for their illegal product, drug dealers made a decision to convert the powder to "crack", a solid smokable form of cocaine, that could be sold in smaller quantities, to more people. It was cheap, simple to produce, ready to use, and highly profitable for dealers to develop. As early as 1981, reports of crack were appearing in Los Angeles, Oakland, New York, Miami, Houston, and in the Caribbean.
The word "crack" may have first appeared in a media publication in the sub-headline of a Rolling Stone article on May 1, 1980 entitled "Freebase: A Treacherous Obsession: The Rise of Crack cocaine and the Fall of Addicts destroyed by the Drug". The article said that freebase made it's "strongest inroads" in the music industry of Los Angeles and at this time, in 1980, the similar crack form had just been starting (and in a few years would become predominant and also move to the East Coast and elsewhere). The article describes both the earlier Free Base method of purifying cocaine to make it smokable which started in 1974 and the newer but similar crack making process. Freebase was made by users who would combine cocaine with baking soda and water and then extract the base salt, "freeing it" with ammonia. This achieves a lower melting point and when heated with a lighter the vapors are inhaled (but the substance was dangerously flammable). A less volatile but similar process was developed by dealers around 1980 where street cocaine is dissolved in a solution of water and baking soda and then dried out into "crack rocks". As the rocks are heated, it makes a crackling sound and this is how the substance got its name. It wasn't until 1985 after an article in the New York Times describing crack use in the Bronx, New York entitled "A New Purified form of Cocaine causes Alarm as Abuse Increases that within a year, more than a thousand press stories were published.
Initially, crack had higher purity than street powder. Around 1984, powder cocaine was available on the street at an average of 55 percent purity for $100 per gram (equivalent to $261 in 2021), and crack was sold at average purity levels of 80-plus percent for the same price. In some major cities, such as New York, Chicago, Los Angeles, San Francisco, Philadelphia, Baltimore, Houston and Detroit, one dose of crack could be obtained for as little as $2.50 (equivalent to $7 in 2021).
In 1985, cocaine-related hospital emergencies rose by 12 percent, from 23,500 to 26,300. In 1986, these incidents increased 110 percent, from 26,300 to 55,200. Between 1984 and 1987, cocaine incidents increased to 94,000. By 1987, crack was reported to be available in the District of Columbia and all but four states in the United States.
Some scholars have cited the crack "epidemic" as an example of a moral panic, noting that the explosion in use and trafficking of the drug actually occurred after the media coverage of the drug as an "epidemic".
The same index used by Fryer, Levitt and Murphy was then implemented in a study that investigated the effects of crack cocaine across the United States. In cities with populations over 350,000 the instances of crack cocaine were twice as high as those in cities with a population less than 350,000. These indicators show that the use of crack cocaine was much higher in urban areas.
States and regions with concentrated urban populations were affected at a much higher rate, while states with primarily rural populations were least affected. Maryland, New York and New Mexico had the highest instances of crack cocaine use, while Idaho, Minnesota and Vermont had the lowest instances of crack cocaine use.
A 2018 study found that the crack epidemic had long-run consequences for crime, contributing to the doubling of the murder rate of young Black males soon after the start of the epidemic, and that the murder rate was still 70 percent higher 17 years after crack's arrival. The paper estimated that eight percent of the murders in 2000 are due to the long-run effects of the emergence of crack markets, and that the elevated murder rates for young Black males can explain a significant part of the gap in life expectancy between black and white males.
Crack cocaine use and distribution became popular in cities that were in a state of social and economic chaos such as New York, Los Angeles and Atlanta, and particularly in their low-income inner city neighborhoods with high African American concentrations. "As a result of the low-skill levels and minimal initial resource outlay required to sell crack, systemic violence flourished as a growing army of young, enthusiastic inner-city crack sellers attempt to defend their economic investment." Once the drug became embedded in the particular communities, the economic environment that was best suited for its survival caused further social disintegration within that city.
In 1986, the U.S. Congress passed laws that created a 100 to 1 sentencing disparity for the possession or trafficking of crack when compared to penalties for powder cocaine, widely criticized as discriminatory against African-Americans and other racial minorities, who were more likely to use crack than powder cocaine. This 100:1 ratio was mandated by federal law in 1986. Persons convicted in federal court of possession of 5 grams of crack cocaine received a minimum mandatory sentence of 5 years in federal prison. On the other hand, possession of 500 grams of powder cocaine carries the same sentence. In 2010, the Fair Sentencing Act cut the sentencing disparity to 18:1.
A number of authors have discussed race and the crack epidemic, including Memphis Black writer Demico Boothe, who spent 12 years in federal prison after being arrested for the first-time offense of selling crack cocaine at the age of 18, published the book, "Why Are So Many Black Men in Prison?" in 2007.
Writer and lawyer Michelle Alexander's book The New Jim Crow: Mass Incarceration in the Age of Colorblindness argues that punitive laws against drugs like crack cocaine adopted under the Reagan Administration's War on drugs resulted in harsh social consequences, including large numbers of young Black men imprisoned for long sentences, the exacerbation of drug crime despite a decrease in illegal drug use in the United States, increased police brutality against the Black community resulting in injury and death for many black men, women, and children.
According to Alexander, society turned to racist criminal justice policies to avoid exhibiting obvious racism. She writes that, since African Americans were the majority users of crack cocaine, it provided a platform for the government to create laws that were specific to crack. She claims that this was an effective way to imprison Black people without having to do the same to white Americans. Alexander writes that felony drug convictions for crack cocaine fell disproportionately on young Black men, who then lost access to voting, housing, and employment opportunities, which then led to increased violent crime in poor Black communities.