The Virginia Tobacco Act of 1713 created the most advanced form of a commodity monetary standard found in the American colonies. Under the provisions of the act planters brought their tobacco to public warehouses, where it was weighed, graded, and stored. The planters received paper notes that were titles of ownership to the tobacco, and these notes circulated as money. Any recipient of these tobacco notes had the option of claiming the tobacco and taking possession of it.
The American colonies, struggling with a shortage of precious metal specie for transacting business, turned to several expedients, including allowing certain commodities to be acceptable in the payment of debts. Several of the northern and middle colonies had a whole list of commodities that could be used in the payment of debts at prices mandated by the government. The colony of Virginia, however, relied almost exclusively on tobacco as a medium of exchange to compensate for the shortage of specie. The government accepted tobacco in the payment of taxes and government officials and the Anglican clergy received payment in tobacco.
Tobacco as a medium of exchange, however, shared many of the defects of other commodities used for that purpose. For one thing, the quality of tobacco varied substantially and debtors always wanted to pay off debts with the lowest grade possible. Owners of tobacco also found ways to pass off lower grades of tobacco for higher grades. In 1705 the Virginia House of Burgesses enacted a law against passing off hogsheads of tobacco that had trashy tobacco packed underneath a top layer of quality tobacco. Another disadvantage of tobacco lay in its bulk and weight, which made it difficult to transport for the purposes of exchanging ownership.
The Tobacco Act of 1713 called for the construction of a number of public warehouses for the storage of tobacco. Each warehouse employed agents who weighed and graded the tobacco that a planter brought in for storage. The agents then issued to the planter notes or warehouse receipts vouching for the grade and quantity of the tobacco. These tobacco notes allowed the ownership of the tobacco to change hands without removing the tobacco. This form of tobacco money resolved many of the difficulties with the tobacco standard and decreased the inconvenience to those who received tobacco in payment of debts, effectively increasing the value of tobacco money.
The act drew strong protest from critics who were against any sort of cheap money or paper-money plan. Because of vehement opposition, the House of Burgesses was later forced to pass a law assessing penalties for burning the newly built tobacco warehouses. In 1730 the House of Burgesses enacted additional legislation that further strengthened the government’s system for inspecting and grading tobacco and providing for the rejection of tobacco that failed to meet certain quality standards. This act made Virginian tobacco more attractive in export markets.
The system of tobacco notes worked sufficiently well to delay the introduction of real paper money in Virginia until 1755, making Virginia one of the last colonies to adopt paper money. Virginia’s experience with the tobacco standard demonstrates that gold is not the only commodity that may serve as a monetary standard. Any commodity that is universally in demand and acceptable in trade can serve as a standard to support paper money.
Brock, Leslie V. 1975. The Currency of the American Colonies, 1700–1764.
Galbraith, John Kenneth. 1975. Money: Whence it Came, Where It Went.
Nettels, Curtis P. 1934. The Money Supply of the American Colonies before 1720.