Professor Pecquet teaches economics at Southwest Texas State University in San Marcos, Texas.
The British colonized Virginia in 1607, and by 1612 they were growing tobacco. It soon became the colony’s major export. But heavy reliance upon tobacco proved troublesome for the Virginians. Small changes in the supply could produce large changes in tobacco’s price.
The tugs of demand and supply altered the price of tobacco and produced the “trade cycle” of the Chesapeake Bay colonies. Under British mercantilist law, all tobacco had to be shipped directly to England. English merchants marketed the tobacco products to the rest of the world. As new markets were opened and new uses for tobacco were discovered, the demand for tobacco increased and so did the price. A “tobacco boom” in Virginia would be followed by increased migration to the colony. This in turn led to an increase in supply, depressing the price and ending the boom.
Occasionally a “tobacco bust” occurred when favorable weather fostered overproduction and slashed tobacco prices. Sometimes war severed the colonies from their markets, which also hurt the growers. During the 17th century the overall trend for tobacco prices was down, as the colonists learned better cultivating techniques.
From time to time, colonial authorities imposed crop restrictions upon the growers. The chief purpose of these regulations was to maintain an “adequate” price for tobacco in much the same way that crop controls and price supports do in 20th-century America. In both cases crop restrictions may enrich the farmers, but only at the expense of consumers. Moreover, since restrictions discourage or destroy production, a net decrease in wealth results.
What farmers needed then (as they do today) was insurance to protect them against uncertainty in the prices of their products. Today, this might be achieved through the commodity futures markets. In the 17th century, Virginians could purchase bills of exchange. These bills entitled the holder to buy merchandise on credit. The prices of tobacco and bills of exchange varied inversely, since the bills amounted to claims upon future merchandise that colonists could purchase with the present tobacco crop. By altering his portfolio, a colonist could effectively insure his assets.
The colonial assembly began to restrict directly the number of tobacco plants with the inspection law of 1629- 1630. This law limited the number of plants to 2,000 per family member. Subsequently, these crop restrictions became more limiting. Family members not engaged in tobacco cultivation were no longer counted. Later, only nine leaves per plant could be cultivated. In 1633, the assembly reduced the maximum number of plants to 1,500 for each family member engaged in tobacco production.
These limitations drastically altered the planting habits of the Virginia colonists. The fertility of the plantations already under cultivation tended to decline with each successive planting season. This tended to reduce the size of the tobacco plants. The planters tried to improve their crops by fertilizing the lands with cattle manure. This, however, tainted the flavor of the tobacco.
The best way to comply with the crop restrictions and still maximize the value of the tobacco crop was to grow the tallest and highest quality tobacco possible. This could be done only on virgin land. By the end of 1637, the colonists discovered that the best tobacco-growing lands were along streams.
Virginia planters hastily attempted to secure the new land before gaining legal title. They intended to retain their old land and homes while cultivating the new ground with their legal quotas of tobacco plants. The primary costs of securing the land included the expenses of clearing the forests, the construction of usually unsubstantial living quarters for the workmen—and the increased danger of Indian attacks. Frontier tobacco plantations could not be easily defended by the colonial militia. Over one-third of the laborers had to be stationed on guard duty.
Almost no one would have predicted that the crop limitations of the 1630s would increase tensions with the nearby Indian tribes. Economic theory, however, predicts that whenever the government creates an artificial benefit for some group in society, people will expend resources to avail themselves of these benefits. Thus, if the government attempts to support agricultural producers by imposing a price floor on farm products, farmers tend to grow more crops. If the government doesn’t wish to stockpile farm produce, it must then restrict agricultural production. It can limit acreage, but this encourages farmers to work the allowable acres more intensively. It can limit the number of plants in the field, as did the Virginia colonial assembly, but this only induces the farmers to increase their production costs in other ways which maximize the value of each plant instead of cultivating many smaller plants. These costs may be incurred due to increased fertilization, relocation, and so on.
Basic economics argues that, in the long run, additional costs of production will arise to eliminate the benefits of crop restrictions to the recipients, it worked this way in 17th-century Virginia, as it must today. Only the particular manner in which these expenses manifested themselves—in the form of increased risk of Indian attacks—was unusual. Moreover, as costly as these crop restrictions were, they did not prevent the decline in tobacco prices. By 1639, the price of tobacco dropped below subsistence levels. The colonial authorities passed new regulations that permitted destruction of a large part of the crop. This policy, too, produced only disaster. It not only destroyed the fruits of over half of Virginia’s productive resources, to the extent that it did support tobacco prices it encouraged more lands to be brought under cultivation.
Throughout its colonial history, Virginia attempted many other crop control schemes. After the 1630s, most of them proved ineffective for yet another reason. Maryland became a major competitor in growing tobacco. Any restriction of the Virginia crop could be replaced by increased production from its neighbor. Crop restriction schemes required collusion between the two colonies. The Maryland economy, however, was more diversified than Virginia’s. The many non-tobacco growers were unlikely to vote for measures designed to increase the price of tobacco when they had to obtain the weed in order to pay their taxes and settle their debt accounts. Thus, the Maryland assembly seldom approved crop restriction proposals. Competition replaced monopoly in the field of tobacco production.