In the absence of metal coins or modern banknotes, commodities have been used as money. The commodities most suitable are those held in high demand by traders and merchants. In colonial America, examples of these included beads, beaver belts, and tobacco. The latter is particularly interesting not only because of its particularly broad acceptance as money but because paper representations of tobacco holdings took the place of the physical commodity itself and became one of the earliest paper monies in America.
The predominant cash crop of the American South in its early colonial history was tobacco. Yet, the tobacco native to Virginia was too dark and bitter to English tastes. So, it took the introduction of tobacco from the Orinoco Basin in South America to kick off a tobacco boom in North America. The plant formed a key piece of early Virginia’s economy, particularly the region between the York and James rivers, where ‘sweet-scented’ tobacco abounded. Cities like Norfolk, Alexandria, and Richmond developed as centers for tobacco storage, inspection, and transportation.
However, tobacco was a labor-intensive crop to raise. Through the mid-17th century, this need was filled by indentured servants, who worked for a fixed number of years before emancipation to repay the cost of their trip to the New World, and thereafter by African slaves. The labor need solved, the industry could now grow quickly. The first samples of Virginia tobacco were sent to England in 1613. In 1617, 20,000 pounds of Virginia tobacco was exported and this amount doubled the following year. In 1700, Virginia shipped 22 million pounds of the crop to England.
Beginning in 1619, Virginia’s colonial government became more involved in the tobacco trade. New public warehouses and ports were created to store and export the harvest. As a quality control measure, the crop was inspected before acceptance by a warehouse. The inspectors would weigh and grade the harvest and low-quality tobacco, that appraised below 18 pence per pound, would be destroyed.
These measures were intended to weed out bad planters and support the remaining producers. The inspections prevented poor quality or tainted tobacco from dragging down prices paid for Virginia tobacco generally. Maryland, aiming to eliminate a discount paid for its crop on account of lacking such inspections, introduced a similar system in 1747.
Tobacco’s monetary role was the result of a chronic shortage of money in colonial North America. There was only a limited amount of gold and silver coin in circulation. Beads, tied in strands called wampum, were used in trade with Native Americans but was also recognized as money by colonists; wampum was made legal tender in Massachusetts. Beaver pelts also became a common medium of exchange.
Beads and pelts evolved into money since they were commonly used in barter. Eventually, these goods became so commonly transacted in that they became a kind of money in their own right, useful even to those who had no immediate need for those goods.
Tobacco, like the beads and beaver pelts, became a common medium of exchange. At first, colonists purchased imported goods by bartering for them with tobacco. Farmers would purchase supplies in exchange for their tobacco production. Soon enough, almost any purchase could be made with the crop. Tobacco became one of the most long-lasting forms of commodity money in American history, with a far longer history than the gold standard or fiat money.
Tobacco served as money in colonial Virginia as far back as 1618. The governor of the colony declared that tobacco be accepted as payment at a rate of three shillings (or 36 pence) per pound. The value of tobacco would fall measurably as production surged later in the century, and the prices of goods in terms of tobacco correspondingly rose. The government in London repealed the Virginia law making tobacco money in 1717 but it was reintroduced in 1755, this time at a rate of just two pence per pound.
Taxes, tithes, and fines could be paid in tobacco. The purchase of other commodities, indentured servants, and slaves could also be made in the crop. Government officials and clergy were paid in tobacco. Of course, these transactions were not usually settled in physical tobacco leaves. Rather than exchange the crop directly, promissory notes payable in tobacco were used in trade as a paper alternative. The use of these notes backed by tobacco may have encouraged the development of the inspection requirements.
The public warehouses themselves offered another paper alternative. For depositing tobacco in public warehouses, the depositor received a warehouse receipt, signed by the inspector and matched to an entry in a warehouse’s ‘crop book’. The receipt could be used to redeem the crop from the warehouse at a later date. Warehouse receipts for tobacco were used as paper money in Maryland, Virginia, Kentucky and even outside the American South.
Thus, tobacco could be used as money without physically transferring the crop. Still, the warehouse receipts vouched for the grade and quantity of the plant, helpful to anyone interested in actually taking physical delivery of the tobacco. Any one receipt would be accepted for as much as eighteen months after its issuance; any later and the tobacco backing the note might be too degraded to be of value. Under legislation passed in 1752, any tobacco left in a public warehouse after three years would be sold anyway.
Using physical tobacco, promises to deliver tobacco, or warehouse receipts for tobacco as money was particularly useful for planters because, since they could borrow money by loans denominated in tobacco, their revenues and expenses could be matched. Tobacco prices may have fallen sharply during the 17th century but the farmers could be insulated from disaster if the payments on their tobacco-denominated loans were also reduced as the value of the product fell. This advantage did not go unnoticed; in 1642, the General Assembly of Virginia even outlawed contracts calling for payment in gold or silver and there were only so many alternatives in an era before banknotes were universal.
Even well into the 18th century, tobacco maintained its status as money. Things began to change when Virginia started printing state-issued paper money during the Seven Years’ War, in the midpart of that century; it was one of the last American colonies to do so. By this point, so associated with tobacco was money that even the paper currency of New Jersey, not a tobacco-growing colony, featured a tobacco leaf on its design.
The economy of the American South began to grow beyond the tobacco crop in the late 18th century. A credit crisis in 1772 caused many lenders in Britain to demand repayment of their loans to Virginia tobacco planters. The American War of Independence, partially encouraged by this crisis, nearly decimated the industry. Production over the entirety of the years 1776 through 1782 was no larger than a single year’s production before the war. The monetary role of tobacco was also fading into history.
Tobacco was the most important agricultural commodity in the American South for the better part of two centuries. A system of inspection and warehousing meant holdings of the crop could be faithfully represented in paper form. Whether the commodity would have developed and maintained its money-like acceptance for so long without this system is open to question, but this no doubt helped. Tobacco promissory notes and warehouse receipts may have paved the way for Americans’ relatively early adoption of state-issued paper money.
More from the Tontine Coffee-House
1. Allen, Larry. The Encyclopedia of Money. ABC-CLIO, 2009.
2. Galbraith, John Kenneth. Money: Whence It Came, Where It Went. Houghton Mifflin Harcourt, 1975.
3. Hiden, Philip W. “The Money of Colonial Virginia.” The Virginia Magazine of History and Biography, vol. 51, no. 1, Jan. 1943, pp. 36–54.
4. Markham, Jerry W. A Financial History of the United States. Sharpe, 2002.
5. Salmon, Emily Jones, and Jones Salmon. “Tobacco in Colonial Virginia.” Encyclopedia Virginia, Virginia Humanities, 5 Feb. 2021.