Thomas Tooke

Tobacco: government taxes and monopoly in the early days.

In Tobacco on June 16, 2012 at 1:47 am

It is often assumed that the heavy taxing of Tobacco is a recent phenomenon. The study of History brings counter intuitive results.

It is to be noted that the Government have always being meddling with Tobacco.

As Jacobstein wrote in 1907.

” A European Market for tobacco had existed for about fifty years before permanent English settlements were made in America. At the opening of the seventeenth century its sale in England was large enough to arouse anxiety among the Bullionists, who hated to see the precious metals leaving the country in exchange for “worthless weed”. In order to check its consumption, Parliament increased the import tax on tobacco from two pence to six shillings ten pence per pound. That tobacco trade had gained some importance at this early date may be inferred from the fact that by 1601 some individuals thought it worth while to buy a monopoly on the manufacture and sale of tobacco pipes.

Fortunately for the colonists, there were economic and political forces at work abroad cooperating with their own efforts to capture and develop the market. England´s practical commercial policy laid emphasis on the necessity of having a favorable balance of trade, in order to prevent too much bullion from flowing out of the country. The House of Commons voted unanimously (1620) ” that importation of Spanish tobacco is one of the causes of want of money within the kingdom.” There,  when it was learned that tobacco could be grown in the Anglo-American colonies, Parliament decided to cut off importation of Spanish tobacco, which in 1621, amount to 60,000 pounds. In 1621 Parliament enacted a law practically prohibiting the importation of foreign tobacco by levying discriminating duties in favor of colonial tobacco and against all foreign tobacco. This preferential tariff remained in vogue during the entire colonial period, and was of the important factor in building up the tobacco industry on this continent. ”

“Later developments of the tobacco trade fully justified England´s policy, for she not only was able to import from her American colonies sufficient tobacco for home consumption, but profited greatly by supplying Europe with her surplus. ”

“Nor was the King himself disinterested in the expansion of tobacco trade. For in spite of his “Counterblaste” against the use of tobacco, King James I was not opposed to increasing his income by the sale of a monopoly in the trading of tobacco. Under the pretense that a monopoly enjoyed by a few individuals would check the consumption of tobacco, the King was able to harmonize his moral repulsion to tobacco with personal financial gain. In 1621 the patent yielded James I annually as much as 16,000 pounds. Out of deference to a protest from Virginia planters against the abuse of the Tobacco Monopoly, the patent was withdrawn in 1621, but again farmed out in 1625. The farmers of the customs demanded a tax of one shilling on each pound of tobacco imported into England. The colonists, which provided for a tax of only five per cent on all imported goods and maintained that the monopoly granted to the “Farmers of Revenue” was equivalent to an additional and illegal tax. The Virginia Company fought so stubbornly against the monopoly that the King yielded and finally withdrew all monopoly rights form the “Farmers of Revenue.”

If it was to the King´s interest to have the tobacco trade grow, since the value of the monopoly privilege varied directly with the extent of the business done, all the more so was it to the interest of the Virginia Company to encourage it.

In the first charter of Virginia (1606) the London Company was allowed to impose a tax of two and one-half per cent. and five per cent on all goods “trafficked bought or sold” by English citizens or foreigners respectively. It was by no mere coincidence that the Virginia company was always back of legislation that shut out foreign goods from England´s market whenever Virginia´s products could be substituted. Mr. Sandys, who was instrumental in pushing through this legislation, especially the prohibitory act of 1624, was the first treasurer of the Virginia Company. ”

Here a personal comment: It is clear that the Tobacco trade was never a trade which escaped the government regulation or taxes. It was from the beginning a powerful source of taxes and far from being a freely trade-able commodity, it was always traded under the watch of the different forms of government during the last couple of centuries.

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