Under the original plan of colonization the Virginia settlers were to pool their goods at the magazine, the general storehouse in Jamestown. All of the products produced by the settlers, and all goods imported into the colony were to be first brought to the magazine. In 1620 the London Company made plans to abolish the magazine and open the trade to the public. The colony was then forced to rely on peripatetic merchant ships which came irregularly. These casual traders dealt directly with the planters, going about from plantation to plantation collecting their cargo. These merchants were without agents in the colonies, and they relied solely upon the chance of selling their goods as they passed the various plantation wharves. They usually sold their goods on credit, expecting to collect their dues in tobacco on the return trip the next year. Occasionally the crops were small, or they discovered that most of the tobacco had been sold or seized by other traders, and consequently they were forced to wait another year to collect from their debtors.
The planter soon discovered that he was in an equally precarious situation, and largely at the mercy of the merchant, for if he failed to sell on the terms offered, another ship might not come his way until the following year. The planter's bargaining power was also hampered by his ignorance of market conditions abroad. Such conditions encouraged the practices of engrossing and forestalling, by the merchants, to the point that much legislation was passed to prohibit such actions. Increasing competition by the Dutch traders gradually reduced the dependence of the planter on the casual trading merchant. The danger from pirates and frequent wars caused the English to inaugurate the convoy system, which also helped improve the market conditions. However, trading directly with the casual merchants was still common after 1625, and a few still operated as late as 1700.
The consignment system developed along with the system of casual trading, and it also operated upon the practice of the ships collecting cargo from the various plantations. Importation was based on the same idea: the ship which gathered the planters' tobacco usually brought goods from abroad. Originally the merchant acted only as the agent of the planter. He advanced him the total cost necessary to export and market the crop abroad, sold the crop on his client's account and placed the net proceeds to the planter's credit. Soon the merchant was advancing the planter goods and money beyond the amount of his net receipts; the planter frequently discovered that he was at the merchant's mercy and was forced to sell on the merchant's terms. To make matters worse, the tobacco was sold by the merchants to retailers in England on long term credit at the planter's risk. If the retailer went bankrupt, or his business failed, the planter not only lost his tobacco but still had to pay the total charges, freight, insurance, British duties, plus the agent's commission, which amounted to about eighteen pounds sterling in 1730. Planters frequently complained that their tobacco weighed much less in England that it did when it was inspected and weighed in the colony. There were reports that the stevedores were supplying certain patrons in England with tobacco of superior quality obtained by pilfering. An agent in England was certainly not apt to look after a planter's crop as though it were his own.
The gradual destruction of the fertility of the soil in the Tidewater country and the expansion of the tobacco industry into the back country made direct consignment less feasible. This, and the various other causes of dissatisfaction with the consignment system, led to the system of outright purchase in the colony. This new procedure was carried on largely by the outport merchants, especially the Scottish, who were doing quite a bit of illicit trading before the Union of 1707. Since the Tidewater business was controlled largely by the London merchants, the new Scottish traders penetrated the interior and established local trading posts or stores at convenient locations, many of which became the nuclei of towns. After the Union their share of the trade increased very rapidly, and at the beginning of hostilities in 1775 the Scots were purchasing almost one-half of all the tobacco brought to Great Britain. On the eve of the Revolution only about one-fourth of the Virginia tobacco was being shipped on consignment.
The factorage system appears to have been introduced in Virginia around 1625, and was actually a part of the consignment system. A factor was one who resided in the colony and served as a representative and the repository of the English merchant. With the establishment of a repository in the colony, trade became more regular, debtors less delinquent, and the problem of securing transportation for exports or imports was mitigated. Some of the factors were Englishmen sent over by the English firms, others were colonial merchants or planters who performed for the foreign firms on a commission basis. As the tobacco industry expanded beyond the limits of the navigable waters, it became the custom of the planters located near such streams to act as factors for their neighbors in the interior. By 1775 the factorage system had developed to the extent that one planter found four firms at Colchester, eleven at Dumfries, and twenty at Alexandria which would buy wheat, tobacco, and flour in exchange for British goods and northern manufactures.
The rise of a class of factors in Virginia, aided by the Scottish merchants, made it possible for the planters to break away from the London commercial agents. The Revolution cut the connection between England and the Virginia planters, but the factorage system was not destroyed. The merchants and businessmen in the former colonies simply replaced the English factors. Soon after the cessation of hostilities, England had reestablished her commercial predominance owing to the superior facilities and experience of British merchants in granting long term credits, and perhaps the preference of Americans for British goods. The British were again willing to extend to the planters the accustomed long term credits, but they were careful to grant it only to merchants of high standing.
Lax inspecting caused the buyers to lose faith in the inspectors' reputation and guarantee. As early as 1759 tobacco was being sold by displaying samples. It was quite natural then for the buyers to begin visiting the warehouses as the tobacco was being inspected, to enable them to purchase the better hogsheads directly from the original owner. But it seems that even as late as 1800 such practices were only occasional. While lax inspections caused a few buyers to visit the warehouses, the presence of these buyers led many of the planters to bring their tobacco to the warehouses most frequented by the buyers. As these buyers paid higher prices for the better tobacco, the ultimate result was the development of market towns and the disappearance of the tobacco note. Within a decade after the turn of the nineteenth century Richmond, Manchester, Petersburg, and Lynchburg had become major market towns.