Conceived in Liberty Volume 2 - Ludwig von Mises Institute

British merchant-creditors, that is, by inducing the government to interfere in
the process of collecting contracted debts. In 1708, Maryland passed a law
decreeing that debtors might escape a debt by declaring bankruptcy, but the
Crown disallowed the law on the cogent ground that the planters might easily
defraud their creditors. Virginia, in 1749, allowed planters to pay debts in
depreciated Virginia paper currency; all such laws were also disallowed by the
Crown as invasion of the creditors' property. And, in 1732, Parliament specified
that the lands and slaves of the planters were liable for their debts.
The tobacco merchants have had a bad historical press. The general assumption
has been that the merchants purchasing tobacco "exploited" the tobacco
planters, doing so both as creditors and as payers of supposedly excessively
low prices. But middlemen no more "exploit" their customers or suppliers
than does any other group on the free market. All prices, whether selling or
purchasing, are set by supply and demand in the ultimate service of consumers.
Neither is anyone forced to go into debt; on the market, the creditor supplies
a valuable service for which he is paid by the debtor.
There were essentially two methods by which planters sold their tobacco in
the eighteenth century. The large coastal planters sold to London merchants
on consignment, shipping the tobacco from their wharves for sale abroad;
serving as agents of the planters, the merchants were obviously in no position
to do any exploiting. The small upland planters, on the other hand, not being
in a position to finance or take risks for the longer period, sold their tobacco
outright to Scottish merchants, who established stores in Virginia to buy the
product and then resold it at Glasgow.
The Scottish, merchants did try to form agreements to lower the prices they
had to pay for tobacco, but even if they had succeeded, this would not have
been "exploitation," for they would then have been forced to be content with
smaller amounts of tobacco. The marginal tobacco farmers, hit by lower prices
in relation to their costs, would have shifted to other lines of work. But such
buyer-cartel agreements could not succeed in the face of free competition and
the force of the market. Thus in 1770 an Alexandria merchant complained
that "there are too many purchasers pushing one another," and three years
later protested that he only bid up the price of tobacco to meet competition:
"I am sorry to observe that a few wrongheaded men have it in their power to
affect the price." And newly established merchants, attracted by any temporary
success in pushing down prices, had to bid up their buying prices in
order to attract the business of suppliers. Thus, merchant-factor James Robinson
reported gloomily in 1769 that the price of tobacco would be "extravagantly
high" because of amounts offered by new merchants in Fredericksburg
and Falmouth. Some months later he reported with equal concern that he
would have to abandon his refusal to buy tobacco for more than twenty-five
shillings because of the competition of new stores. And when merchants at
Dumfries, Virginia, tried to lower the buying prices in 1770, other merchants
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