5 April 2018

How tobacco made the South rich

By Bhu Srinivasan

This article is the second in a series of excerpts from America Inc: The 400-year history of American capitalism by Bhu Srinivasan. Here Srinivasan explains how the growing tobacco industry in the United States set up the South to become an economic powerhouse.

It is hard to overstate tobacco’s role in eighteenth-century America. In 1700 the total value of the American colonial exports to ports in England was £395,000; tobacco from Maryland and Virginia accounted for nearly 80 per cent of this total. Fur, the next-largest export item, accounted for around 5 per cent.

By this point, earlier generations of Virginians had amassed the largest parcels of farmable land for their families and, more important, waterfront access to rivers or Chesapeake Bay, which meant the ability to load tobacco directly onto trading vessels. The most prominent among such planters, Robert Carter, had accumulated 300,000 acres of tobacco lands along with hundreds of slaves. Other men, while not as successful, had scaled to collectively dominate tobacco production. Not only did the largest tobacco farmers achieve lower costs of production than the average small farmer, but their profits were often used to add more slaves. And unlike smaller operations with two or three slaves, which inhibited family formation, the largest operations enabled entire slave communities to develop and reproduce, with each new slave birth being a human dividend of sorts.

Predictably, with such concentration of wealth, the men who grew tobacco controlled Virginia politics. In 1705 the majority of men who owned over two thousand acres were justices or burgesses, the equivalent of legislators, land and power going hand in hand. As these men died, their property and slaves were left to their heirs. One generation into the eighteenth century, Virginia’s most esteemed citizens composed a landed aristocracy. These men of vast inherited wealth rarely worked: The formula of hired overseers getting the most out of slaves and land was largely set. The men and women who did the most work inherited a less fortunate condition by birth. And this too presented a developing advantage. Unlike the African-born slave, the native-born slave had never known freedom or any identity that conflicted with his owner’s economic purpose, with each subsequent generation further removed from all ancestral knowledge. And the slave too now had generations of his extended family living in bondage within close proximity, making any run to freedom an impossibly large sacrifice for most, familial bonds serving the role of invisible shackles.

For the southern gentleman, inversely, ease of living by birthright became his hallmark. “In their hospitality, drinking, gaming, horse racing, and dancing,” wrote Joseph Robert in The Story of Tobacco in America, was a “hedonism” intrinsic to the nature of growing a vice such as tobacco. Unlike a prudish New England town or a Quaker community egalitarian in spirit, the South was a place where the distinction between those at the very top and those at the very bottom was easy to see. The exalted had family crests imprinted on their china, the dark and lowly had no legal right to a family, and poor whites without slaves were masters of little but themselves. From this hierarchical society came many of the architects of American liberty.

But all this decadence had disadvantages. Much like the modern oil state that fails to develop any other economic capacity, single-commodity Virginia was highly susceptible to the overseas price of tobacco. As the revenue from tobacco sustained the high forms of living, one way to smooth out temporary price drops was to borrow against future crops. To Robert, “the tobacco planter had in him enough of the frontiersman to be incurably optimistic, and enough of the English landed gentry to desire a high standard of living. The combination meant piling on debt.” The Virginia gentleman without significant debts was a rarity.

The enabler was often a London-based factor. The factor was a combination of a trader and an agent. The wealthy tobacco planter sent his tobacco to his factor in England; the factor sold the tobacco and then usually arranged to pay for the English luxury goods that were needed for good living: wine, books, tailored clothing, linens, furnishings, and china. When the tobacco crop or prices in the market were insufficient, the factor advanced money against future crop harvests at an appropriate rate of interest. To the factor, the system had the advantage of keeping the gentleman planter, no matter how wealthy or powerful, captive to both the relationship and the prices of his next year’s crop. Even the two most famous Virginians in history, George Washington and Thomas Jefferson, would not escape the clutches of their factors.

This dependency on overseas factors seems to have had its roots in the geographic features of Virginia. As Chesapeake Bay offered hundreds of inlets, large plantations with water access directly loaded tobacco onto ships headed for distant ports. As a result, Virginia never developed the central port of call or commodity market that it would have had if this trade had been centralised in a single place; such a port would have easily emerged as the largest financial centre in eighteenth-century America based on the trading volume. In the 1760s Virginia’s largest port, in Hampton, handled a minor fraction of the tobacco exports flowing out of Virginia and Maryland, even though the port was close to the mouth of Chesapeake Bay. Despite controlling access to the Atlantic Ocean for both Maryland and itself, Virginia failed to build any lasting economic competency or significant urban centre on the Chesapeake.

Thus Virginia ceded the vital functions of shipping and trade finance to cities in the North. Functions for trading hubs required the type of work known today as white collar: coordinating logistics, arranging for insurance, negotiating trade terms, extending trade capital, maintaining wholesale facilities, and others. Trading spawned other activity. Trading ports were the prime conduits of information, the aggregate of which Adam Smith would call the “invisible hand” of the market: information used by entrepreneurs and businessmen to adjust their activity to maximise profit. The more dynamic the information flow, the more fluid the opportunities were to profit from the shifting tides of the market. The more fluid the opportunities, the easier it was for new entrants and upstarts to make a name. Eventually this would lead to a far wider and greater set of urban opportunities in the North than in the single-crop colonies of the South.

In the present, however, the South dominated economically. In 1765, Virginia and Maryland’s tobacco, along with Carolina’s rice, combined to represent 80 percent of American exports. Leading up to the American Revolution, South Carolina by itself exported more in terms of pounds sterling than all the northern colonies combined. The South Carolina of 1770, it must be noted, while having far fewer than Virginia’s 187,000 slaves, was a majority slave colony: 75,000 of its total population of 125,000 had masters. And Virginia had more blacks than the state of New York had whites. As such, the numbers were startling and undeniable: On the eve of liberty, the majority of American exports, decades before cotton entered the equation, were produced by slave labour.

Yet it was Virginia’s soil that proved to be fertile ground for new ideas on freedom and governance, supplying many of the intellectual foundations, as well as the great contradictions, of the American experiment.

Bhu Srinivasan is a media entrepreneur whose career has spanned digital media, pop culture, technology, publishing and financial content. He is the author of 'America Inc.'