Tobacco played a prominent role in the development of the American colonies. The "stinking weed" dominated the economy of the Chesapeake Bay colonies and became the first colonial-produced commodity subjected to mercantilist restrictions. Although today tobacco is condemned and its consumption discouraged for its negative health consequences, it is after all an agricultural product, and the nature of tobacco production is similar to most other crops. The British mercantilist laws protected British merchants from foreign competitors by requiting all tobacco to be shipped to England, and the colonies sometimes imposed their own crop control measures to secure higher prices. Present-day agricultural programs throughout the developed world also protect domestic farmers from foreign competition and impose crop controls to reduce farm surpluses. There is much that can be learned from the study of mercantilism and the colonial crop controls to help us to appreciate some of the problems of present-day agricultural market regulation.
The sheer economic waste resulting from mercantilist trade barriers (including higher prices to consumers, dislocations of capital, and colonial warfare) has been well known since the time of Adam Smith. More recently, economists Robert Ekelund and Robert Tollison (1981) have analyzed British mercantilism as a rent-seeking society. (1) Protectionist favors were supplied by both the king and the Parliament and demanded by the domestic British merchants. There was brisk competition among the monopoly seekers and also competition between the two monopoly suppliers. A sort of perverse bidding for special, protectionist favors took place, and because resources had to be expended both to acquire and maintain these favors, most of the wealth transferred from the public to the monopolists was probably dissipated as well.
Ekelund and Tollison described the battle between the king and Parliament to secure the power to supply protectionist favors, but they ignored the impact of mercantilism and the role of rent seeking in the colonies. This article examines the effects of economic regulations on the chief crop grown in the colonies of Virginia and Maryland. Colonial tobacco became subject to both mercantilist laws emanating from Britain and homegrown crop-control measures. The British laws reserved the exclusive access to colonial tobacco to the British merchants and levied hefty customs duties on tobacco. Colonial crop-control schemes attempted to prop up the price of tobacco before it boarded British ships.
Both the British and the colonial cartel-like regulations proved to be very costly and ultimately unsustainable. From this study of history, we can draw some important lessons for agricultural policies today.
Birth of the Royal Tobacco Monopoly
Virginia was colonized in 1607 as a proprietary company for the purpose of making money. The original settlers expected to find gold, but that hope was abandoned by 1608. In 1612, John Rolfe discovered another kind of gold in the form of a green leaf. About the same time, settlers were allowed to privately own land and reap the rewards of their own efforts. Tobacco could be grown in Virginia and sold profitably in England. Tobacco soon became the major export. Most of the world production of the weed soon came from Virginia and Maryland. Tobacco even became the primary medium of exchange in the Chesapeake colonies. Taxes, debts, and wages were denominated in pounds of tobacco. Even artisans, innkeepers, and other nonfarmers often planted tobacco patches to raise extra cash (Bruce 1907: 20, 210, 220; Bethell 1998: 33-36; Middleton 1953: 112-21).
King James I personally detested tobacco declaring it to be "loathsome to the eye, hateful to the nose, harmful to the brain" and "dangerous to the lungs." Nonetheless the tobacco experiment had proven profitable in Virginia, and in 1621 a bill was introduced in Parliament to prohibit planting tobacco in England and prohibit the importation of tobacco from anywhere except Virginia and the British Indies. …