The situation in the Highlands

An outbreak of moonshine distilling

The situation of distilling in the Highlands was radically different from the Lowlands. Highland distilleries were not huge industrial plants like in Southern Scotland.
Distilleries were merely owned by local farmers sometimes joining in cooperatives, and the production was not that massive. Highland production represented less than 10%, but on the other hand, no concession to quality has been done. The Highland whiskies were much better, but also much more expensive than the Lowland ones. 
Distillation was never the main activity, and nearly no one was dependent on it for his livelihood. Generally, local peat was used to heat the stills, and some people began encouraging the use of Lowland coal, as peat reserves are not inexhaustible.
Despite this facts, many distilleries were forced to close, due to a strengthening of the distillation laws. Tax increases were also problem for the Highland producers. This situation, combined to a increasing demand or good whisky from the Lowlands encouraged the rebirth of moonshine distilling and smuggling.
Distilleries like Ardbegowned by Alexander Stewart and Craigentinny in Edinburgh bankrupted.
Distilleries in Campbeltown (which were officially excluded from the Highlands in 1795) were driven underground. Also in Speyside, moonshine distilling and smuggling were raising again. 
Moonshine distilling and smuggling became part of the local traditions, and remained unpunished because of the complicity of local authorities. 

New hard times for the distilleries

Catastrophic harvests during the first years of the 19th century made the government take the decision to prohibit distillation, as the grain was hard needed for food production. In addition to bad harvests, the Napoleonic wars on the continent made import of grain nearly impossible. This import restrictions did apply to brandy too. Many notables had to change their drinking habits and started drinking whisky. The successive taxes increases during the first years of the century had a limited effect on local consumption.
The consumption of whisky was resuming and the great Lowlands distilleries knew a new era of prosperity. English marked was opened again, but only to big producers, as the law oblige exporters to produce their spirit in stills of at least 3000 gallons. 
The Highland distilleries did not benefit from this new conditions, and their problems with illegal distillation remained. Starvation in North Scotland continued, and the landlords joined (slightly) the authorities to fight moonshine distilling, arguing that grain was so hard needed for food processing that is was a crime to use in for producing whisky. However many landlords collected part of their rents in whisky.

Dealing illicit distillation a decisive blow

The authorities began to understand that the only way to kill moonshine distilling was a liberalisation of the rules and a significant decrease of the taxes on whisky. So, in 1816 taxes were divided by 3 and the use of smaller stills (at least 40 gallons) was allowed again. The effect was nearly immediate. The number of distilleries acting in the Highlands increased from 12 to 39 in 1817 and to 57 in 1859, and from 24 to 68 in the Lowlands. 
The use of smaller stills made the use of other distillation techniques possible, with often better results. Legal distilleries, owning greater stills, found it very difficult to produce whisky with a quality comparable to the one produced illegally.
However, starvation broke out again the same year, and at the same time a new increase of moonshine distilling, due to lack at grain. And the struggle between excise men and moonshine distillers began again. Harder than ever. 
The promulgation of the "Excise Act" in 1823, decreasing the taxes again, and the end of the 12 months notice for exports to England meant the end of the monopoly of the Steins and Haigs in the Lowlands and the monopoly of moonshine distillers in the Highlands.
Encouraging measures made the generalisation of use of malt instead of grain (used in the big distilleries in the Lowlands) in the distillation process possible and contribute greatly to the increase of the quality of Scotch whisky. 
Legal restriction were nearly disappeared, and the success of the whisky industry was from now depending of the market laws. 

The industrial revolution in the Lowlands 

New developments in the case Scotch whisky producers vs Gin producers

The industrial development of Scotland quickened during the 1780's. The textile industry became very important, and some very great cotton mills were build in those days. One of them was the Deanstoncotton mill which was active for about 200 years before closing in 1960. A few years later it was converted in a whisky distillery. The building of those great plants required machinery, and encouraged the iron founding and engineering industry, which in turn need coal, helping development of coal mining.
At that time, the whisky industry was important to the Scottish industry, especially in the Lowlands (see history before 1787), but was loosing the price war against the London gin producers. 
Very bad news for the Scottish distilleries was the promulgation of the Lowland Licence Act, which required a 12 months from the distilleries working for the English market. This meant that the Lowlands distilleries just must cease trading for one year, which had catastrophic consequences on the Scottish industry. 
In addition, the distilleries were required to word from wash stills of at least 200 gallons and spirit stills of at least 50 gallons. And the duty on spirits exported to England rose.
The consequences of all those measures did not only affect the distilleries, but also the agriculture which was recently geared to produce barley for the distilleries and relied on draff to feed their cattle. 

Consequences of the new measures

Amongst the first victims of this new measures, Sandeman & Graham, the London agents of the great Kilbagie distillery, belonging to James Stein. The 5 most important distilleries in those days ceased trading: Kennetpans, Kincaple, Hattonburn, Lochrin and Canonmills (all of them were related to the Stein or Haig families). This 5 distilleries were responsible for about 50% of the Lowlands production. Their debts approach 700.000£ (about 20.000.000£ at 2000 prices) and had consequences on the Scottish banks, creditors of the distillers. 
Those 5 distilleries were not the only ones to cease trading. Many other followed, amongst them: Underwood near Falkirk, Anderston in Glasgow, Cunningham Park in Ayr, Ailnamuir, Ferintosh and Doghillock.

Reaction of the industry

Those difficulties did not drive the Stein and Haigs out of the whisky-making history. Their creditors realized the problems were largely due to changes in the law and accepted to help them to re-enter the trade. First of all, both families ceased supplying the English market and registered for Scottish market. 
One of the consequences of this next strategy of both families was a flood of cheap and harsh whisky on the Scottish market. 
New taxes, intended to help financing the war against the revolutionary France, were introduced. And again the reaction of the industry was an increase of the produced quantity and a decrease of its quality. The tax was on the still capacity, and distilleries decided to produce more with the same stills, e.g. produce faster. Stills were charged up to 25 times a day (against 1 or 2 in the traditional process). 
But this massive production made some technical improvements necessary. One of the changes in the making process was the pre-heating of the wash. Very large stills, designed for massive production were installed. 
The cheap whisky produced that way overrunning Scotland led to a great increase of the whisky consumption in the country. 
Taxes rose again to finance war against Spain and France, and the making process of whisky continued its evolution until the end of the 18th century, with still the same decrease in the quality as a consequence. Stills were charged up to 90 times a day in those days in Lowlands. Lowland distilleries produced about 90% of the whisky in Scotland.

A preferential treatment for the Highlands

Special measures were taken in favour of the Highlands, partially to compensate the consequences of the food shortage. The idea was to encourage the small moonshine distilleries to become legal ones. The law determined a maximum size for the stills, and just authorized the use of local barley, and as a compensation, the level of the taxes was sensibly reduced. The tax on the malt has even been suppressed. On the other hand, any infraction would be severely repressed, and the landlords were considered as responsible for offences by the people living on their estates. 
The latest measure made the landlords very angry. The Lowlands producers said this was discrimination, as they did not benefit from preferential measures. This protest actions obliged the government to take some new measures in 1785. Any export of Highland whisky has been prohibited outside the Highlands, and the responsibility of the landlords has been suppressed in case of infractions by their people.

A new outbreak of moonshine spirit

The export prohibition made to the Highland whiskies (which quality was much higher than in the Lowlands), gave a second life to smuggling.
The main difference between whisky from the Highlands and Lowlands came from the shape of the stills. The stills in the Highlands were better shaped to produce quality spirit.

Industrial revolution

At the beginning of the industrial revolution, the distilleries belonging to the Stein and Haig were the biggest industrial plants in Scotland.
The huge production increase and the export to England was considered by the rich London gin merchants as a very bad news, and they began to fight against the growing importance of Scottish whisky. An implacable price war began between the gin and the whisky producers. The whisky producers were obliged to sell their whisky under the cost price.
Another consequence of the actions by the gin merchants lobby was an increase of the taxes on the Scottish spirit. This just affected the Lowlands whisky, as the Highlands could not be exported, due to the export prohibition. 
The reaction of the Lowlands industry against the sudden increase of their production costs was a technologic move, making faster production possible for less money. It is obvious that such a move could not have beneficial effects on the quality of the Lowlands whisky. 
Another reaction was an increase of the Highland whiskies prices, due to the supply and demand economical law, even if the whole business was only based on smuggling, as the Highlands whisky could not be exported. 
The economical importance of whisky in Scotland dates back to this period, which was the beginning of the capitalist era. In those days already, whisky was the major industry in the country.

Better times for legal distilleries

While the government was fighting hard against the moonshine distillers, the legal distilleries experienced a significant improvement of their activities. From the 1780's, number of legal distilleries has been founded in the Lowlands.
Two great families especially enjoyed from this expansion: the Stein (allied to the Haig) and the Philp, owners of the Kilbagie, Kennetpans and Dolls distilleries. Kilbalgie, belonging to the Stein will become the biggest distillery of Scotland, and will later be converted in a paper mill which is still active currently. The Stein, allied to the Haig founded the Canonmills and Lochrin distilleries in Edinburgh and Kincaple in St Andrews at the same period. Other distilleries were born too in those days, like Blackhall (Alexander Dewar), Underwood and Hattonburn. This distilleries became quickly the heart of the economic life in the Lowlands. Their production waste was used to feed the cattle, and the distilleries were rapidly considered as essential to the local agriculture. On the other hand, they offered great prospects to the local coal mines.

First whisky export

The production in the Lowlands had reached such a level that the local market has become to small, and the Stein were looking for other outlets. They sold their whisky to the gin producers who used it for rectification of their blends. 
The pernicious effect of this was that the local barley production was insufficient to cover the needs of the distilleries, and the first imports of barley from England and Europe took place during this period. 
Thanks to this import, the industry survived the very bad harvests between 1782 and 1784 which caused a starvation on the whole Scottish territory, and especially in the Highlands. This did not impeach the distilleries to go on with their production, provoking riots by hungry people.
The government supported the distilleries, because of their economic importance.

1784: Wash Act

An intensification of the controls by the excise administration on the legal distilleries permitted the Wash Act to be published in 1784. The spirit of this law was a simplification of the taxation method. The taxation level was also considerably decreased in Scotland and in England, because the independence war in America was ended.
Instead of taxing the "low wines" and the spirit separately, only the washwas taken into consideration under the new law. The tax was based on the assumption that 5 gallons of wash produced 1 gallon of spirit between 55% and 65%. This system was accompanied by very strict controls, which could took place any time in day or night. 

Government reaction against the first moonshine distilleries.

The first measures taken by the authorities were not really efficient. They first forbid the use of small stills (less than 500 gallons for wash stills and less than 100 gallons for spirit stills). hey also sealed the stills, in order to avoid them working without authorisation. The pernicious effect of this laws was that new distilleries had to cease their activities (they nearly all disappeared in no time), but did not affect the greatest one (Ferintosh) at all. Another effect was a new important extension of moonshine distillery.
The number of moonshine distilleries was estimated at about 400, for 8 official ones in 1777 in the city of Edinburgh.

About alcohol drinking in Scotland during the 18th century

The alcohol consumption was very important in those days. Whisky was drunk besides beer and wine. The "normal" consumption was about one dram (1/3 pint) at 60% a day.
The technical progresses made it possible to produce quite better alcohol. This enabled to drink whisky on its own, and not as earlier, just in cordials (with aromatic herbs and sugar added, to hide the bad taste of the whisky at that time) or in punch.

Production increase and illegal distillation

For some unclear reasons, a significant increase of the production of official whisky happened in 1777, going from 70.000 gallons a year to 190.000 in 1779. One of the reasons was that the new distilleries continued producing whisky partly with non malted barley (cheaper because of the taxes), to be able to fight against the home production.
Protectionist measures have also been taken against foreign alcohols (brandy and wine) to protect the local agriculture. 
At the same period, the government entirely forbid the production of home made whisky, authorising the excise agents to seize or destroy all the private stills all over Scotland. This was the beginning of the war against moonshine distillers. 
This new measures have been preceded two years earlier by severe restrictions on the size of authorized home stills, which were no more allowed to exceed a capacity of 2 gallons (against 10 previously). 
The major reason for the government to prohibit the private stills was the need to finance the war against the American colonies. A bonus was even paid to anybody who made it possible for the excise agents to find an illegal still. This money was usually reinvested in a new still... This was another governmental measure proving its inefficiency in the fight against moonshine distilling.

Fight against alcoholism in England

In order to fight against the devastating effects of alcoholism in those times, England decided to increase seriously the taxes on gin produced on its territory as well as on the genever produced in Holland. However, the "Gin Act" of 1736 did not mention the Scottish uisge beata.
The effect was immediate, and the result was a huge progression of production of uisge beata in Scotland. The production increased from about 100.000 gallons in 1708 to 250.000 gallons in 1736. However, according to documents from that time, the great majority of the production was absorbed by the local market. 
In the same period, the gaelic term "uisge beata" to design water of life has been altered and corrupted, to become uisky of whisky. 
A new important increase of the production happened round 1750, and again it appears that the local marked absorbed it nearly entirely.
This is one of the curiosities of history. The distilleries increase their production in order to take advantage of a lack in a low in England, hoping to export their whisky, but in fact only contributed in a worrying increase of alcoholism on their own territory.
Lots of distilleries have been created in those days. One of them was the Dolls distillery (later renamed Glenochil) which has been founded in 1746 and Gilcomstan (in Aberdeen) in 1751.

Restrictions to distillation

A disastrous harvest in 1756 obliged the government to forbid distillation on the whole territory. The whisky production decreased by 90% in a few months. This did not impeach home distilleries to continue, of course. Home distillation was not prohibited in those days, if intended for own consumption only, but it was strictly forbidden to sell home made whisky.
The times were hard, and the recently founded Gilcomston distillery has been reconverted into a brewery in 1763. The times were hard for legal distilleries.
The general prohibition about production of alcohol in the legal distilleries encouraged the private producers to sell their alcohol. Lots of people broke the law. 
Private production became very important from 1760. It was nearly ten times more important than the official one (which fell beneath 50.000 gallons a year). But the global production was very close to the production before the prohibition. The era of moonshine distilling was born.