A Historical and Ethical Perspective
In 1984, all forms of gambling (lotteries, race tracks, casinos, and other forms of legalized betting) accounted for less than $15 billion in revenues. In 1995, these gaming activities generated $55.3 billion in revenues, nearly a 400 percent increase in eleven years. The surge in gaming activity in the United States has many social observers searching for reasons why gambling has become so socially acceptable. Gambling, particularly casino gambling, has become a means of salvation in terms of economic development for troubled urban areas ranging from Chicago to New Bedford, Massachusetts. But this interest in gambling as a method of raising revenue for states and providing economic relief for depressed areas is hardly unique in American history.
Four "waves" of state-sponsored gambling activity have occurred in U.S. history.
THE FIRST WAVE: STATE-SANCTIONED LOTTERIES (1607-1840s)
The first wave of gaming activity (1607-1840s) in the United States began with the landing of the first settlers but became much more widespread with the outbreak of the Revolutionary War. During this time, lotteries were the approved form of gaming. A few were sponsored by states to help finance their armies, but most were operated by nonprofit institutions such as colleges, local school systems, and hospitals to finance building projects or needed capital improvements.
For example, both Yale and Harvard (this rivalry started much earlier than football!) used lotteries to build dormitories. In 1747, the Connecticut legislature gave Yale a license to raise 7,500 [pounds sterling], while Harvard had to wait until 1765 to win approval from the Massachusetts legislature to conduct a lottery worth 3,200 [pounds sterling]. Harvard's was much less successful than Yale's, primarily because it had to compete with lotteries supporting troops fighting the French and Indian War.
During this wave of lottery activity, no state ever operated its own lottery. They were conducted by private operators after an organization or a worthy project such as the Erie Canal had received permission from state legislatures to do so.
These private operators of lotteries often proved less than honest, however. One famous scandal occurred in Washington, D.C., in 1823. Congress authorized a Grand National Lottery to pay for improvements to the city. Tickets were sold and the drawing took place, but before the winners could collect, the private agent who organized the lottery fled town with the money. While the majority of winners accepted their fate with resignation, the winner of the $100,000 grand prize sued the D.C. government, and the Supreme Court ruled that the city had to pay.
It was a sober reminder to local officials that authorizing lotteries could be dangerous, and the movement to ban lotteries began. From 1840 to 1860, all but two states prohibited lottery activity due to various scandals that occurred in the 1820s and '30s. However, it would take less than forty years for lotteries to once again explode on the national scene.
THE SECOND WAVE: NATIONAL LOTTERIES (1860s-1890s)
With the conclusion of the Civil War, the South had to find some method to finance the reconstruction of roads, bridges, school buildings, and various other social capital projects damaged in the war. The victorious North was in no mood to provide for its defeated cousins. Hence, southern legislatures allowed private operators to conduct lotteries to raise these sorely needed funds.
The primary difference between this period of lottery activity and the previous one is the scale of ticket sales. Whereas before sales were confined to local regions, these southern lotteries took on a national scope and ironically were particularly popular in the North. The most famous of these, conducted in Louisiana, was known as the Serpent. At the height of this lottery in the late 1880s, almost 50 percent of all mail coming into New Orleans was connected with it. …