Under the original plan of colonization the Virginia settlers were to
pool their goods at the magazine, the general storehouse in Jamestown.
All of the products produced by the settlers, and all goods imported
into the colony were to be first brought to the magazine. In 1620 the
London Company made plans to abolish the magazine and open the trade to
the public. The colony was then forced to rely on peripatetic merchant
ships which came irregularly. These casual traders dealt directly with
the planters, going about from plantation to plantation collecting
their cargo. These merchants were without agents in the colonies, and
they relied solely upon the chance of selling their goods as they
passed the various plantation wharves. They usually sold their goods on
credit, expecting to collect their dues in tobacco on the return trip
the next year. Occasionally the crops were small, or they discovered
that most of the tobacco had been sold or seized by other traders, and
consequently they were forced to wait another year to collect from
their debtors.
The planter soon discovered that he was in an equally precarious
situation, and largely at the mercy of the merchant, for if he failed
to sell on the terms offered, another ship might not come his way until
the following year. The planter's bargaining power was also hampered by
his ignorance of market conditions abroad. Such conditions encouraged
the practices of engrossing and forestalling, by the merchants, to the
point that much legislation was passed to prohibit such actions.
Increasing competition by the Dutch traders gradually reduced the
dependence of the planter on the casual trading merchant. The danger
from pirates and frequent wars caused the English to inaugurate the
convoy system, which also helped improve the market conditions.
However, trading directly with the casual merchants was still common
after 1625, and a few still operated as late as 1700.
The consignment system developed along with the system of casual
trading, and it also operated upon the practice of the ships collecting
cargo from the various plantations. Importation was based on the same
idea: the ship which gathered the planters' tobacco usually brought
goods from abroad. Originally the merchant acted only as the agent of
the planter. He advanced him the total cost necessary to export and
market the crop abroad, sold the crop on his client's account and
placed the net proceeds to the planter's credit. Soon the merchant was
advancing the planter goods and money beyond the amount of his net
receipts; the planter frequently discovered that he was at the
merchant's mercy and was forced to sell on the merchant's terms. To
make matters worse, the tobacco was sold by the merchants to retailers
in England on long term credit at the planter's risk. If the retailer
went bankrupt, or his business failed, the planter not only lost his
tobacco but still had to pay the total charges, freight, insurance,
British duties, plus the agent's commission, which amounted to about
eighteen pounds sterling in 1730. Planters frequently complained that
their tobacco weighed much less in England that it did when it was
inspected and weighed in the colony. There were reports that the
stevedores were supplying certain patrons in England with tobacco of
superior quality obtained by pilfering. An agent in England was
certainly not apt to look after a planter's crop as though it were his
own.
The gradual destruction of the fertility of the soil in the Tidewater
country and the expansion of the tobacco industry into the back country
made direct consignment less feasible. This, and the various other
causes of dissatisfaction with the consignment system, led to the
system of outright purchase in the colony. This new procedure was
carried on largely by the outport merchants, especially the Scottish,
who were doing quite a bit of illicit trading before the Union of 1707.
Since the Tidewater business was controlled largely by the London
merchants, the new Scottish traders penetrated the interior and
established local trading posts or stores at convenient locations, many
of which became the nuclei of towns. After the Union their share of the
trade increased very rapidly, and at the beginning of hostilities in
1775 the Scots were purchasing almost one-half of all the tobacco
brought to Great Britain. On the eve of the Revolution only about
one-fourth of the Virginia tobacco was being shipped on consignment.
The factorage system appears to have been introduced in Virginia around
1625, and was actually a part of the consignment system. A factor was
one who resided in the colony and served as a representative and the
repository of the English merchant. With the establishment of a
repository in the colony, trade became more regular, debtors less
delinquent, and the problem of securing transportation for exports or
imports was mitigated. Some of the factors were Englishmen sent over by
the English firms, others were colonial merchants or planters who
performed for the foreign firms on a commission basis. As the tobacco
industry expanded beyond the limits of the navigable waters, it became
the custom of the planters located near such streams to act as factors
for their neighbors in the interior. By 1775 the factorage system had
developed to the extent that one planter found four firms at
Colchester, eleven at Dumfries, and twenty at Alexandria which would
buy wheat, tobacco, and flour in exchange for British goods and
northern manufactures.
The rise of a class of factors in Virginia, aided by the Scottish
merchants, made it possible for the planters to break away from the
London commercial agents. The Revolution cut the connection between
England and the Virginia planters, but the factorage system was not
destroyed. The merchants and businessmen in the former colonies simply
replaced the English factors. Soon after the cessation of hostilities,
England had reestablished her commercial predominance owing to the
superior facilities and experience of British merchants in granting
long term credits, and perhaps the preference of Americans for British
goods. The British were again willing to extend to the planters the
accustomed long term credits, but they were careful to grant it only to
merchants of high standing.
Lax inspecting caused the buyers to lose faith in the inspectors'
reputation and guarantee. As early as 1759 tobacco was being sold by
displaying samples. It was quite natural then for the buyers to begin
visiting the warehouses as the tobacco was being inspected, to enable
them to purchase the better hogsheads directly from the original owner.
But it seems that even as late as 1800 such practices were only
occasional. While lax inspections caused a few buyers to visit the
warehouses, the presence of these buyers led many of the planters to
bring their tobacco to the warehouses most frequented by the buyers. As
these buyers paid higher prices for the better tobacco, the ultimate
result was the development of market towns and the disappearance of the
tobacco note. Within a decade after the turn of the nineteenth century
Richmond, Manchester, Petersburg, and Lynchburg had become major market
towns.