The Credit, Barter, and Three-Way Systems of Payment

Let's pretend you're living with your family in Upper Canada in the first half of the nineteenth century. You own a productive farm, and keep sheep and chickens in addition to various crops such as apples, wheat, and barley. Life is good - you have everything you need. One day while in the village, you pass by the General Store and lo and behold there's a window full of things you want: Fabrics for making new clothes for the family, spices to make just about everything taste better, and tools that will make farm work easier. Remember, life is good, and you decide to head in to the store. After a few of your items have been wrapped in paper, the shopkeeper gives you the total. How are you going to pay for these luxuries? 

Responding to the needs of their customers, and accepting of the fact that currency was scarce in most rural communities, shopkeepers offered many of their goods on credit. (Fraser, 86) The prices of purchased goods were noted in an account book (ledger) or on a bill.  From time to time, most customers paid all or part of that bill by service, cash or trade.  In order for the credit-based system to work, not only did the customers have to be honest, trustworthy and able to pay off their debts in a timely fashion, but the shop owner had to be equally as honest, trustworthy, and able to bear the various debts of often an entire village.  In many cases, the shop owner was a man in good circumstances and was able to wait until sales of crops or livestock enabled farmers to pay for items purchased throughout the year.

Crysler's Store, Upper Canada Village
Morriston Ontario

A shop could quite easily fail due to bad debts, or the inability of the store owner to collect in a timely manner.  Collection of debts could be tricky for the shop owner.  If he came on too strong, he would lose the customer (and the money). If he was too lenient, he might end up out of business, unable to pay his own debts. Opening a store where family and neighbourly ties are stronger was an effective way to stay in business.  By knowing his customers on a more intimate level, the credit system had a better chance of succeeding. (Fleming, 141) The shop owner could appeal to his friends (who presumably wished him to succeed) to pay off their debts, and could visit them with a kindly reminder when they did not.  Knowing your customers had another advantage, for it allowed the shop owner to “avoid sales to those who would not pay, and to increase sales, especially of goods that carried the highest mark-up, to those most likely to pay”. (McCalla, 401)

There were a number of ways in which a family or individual could repay the store owner for items purchased on credit.  The three most popular methods include payment through service or labour; delayed payment using cash, or payment through trade.  Payment through service or labour included for example, splitting and piling wood for the shop owner, lending the shop owner a horse or ox for a project, or lending skills such as blacksmithing, etc. (Fleming, 127-129) Payment using cash occurred whenever the family or individual had some to spare – usually in the fall of each year, after the “threshing” or the “killing”. (Sherck) It was also not uncommon for the shop owner to institute a monthly collection whereby accounts were required to be settled by the end of each calendar month.

Some debts could be repaid by trading in chickens, eggs, or butter.  In October 1861, James Watson, a shop owner in Lindsay advertised through the local newspaper that he would accept “all kinds of country produce” as payment. (Fleming, 26) A Manilla shop owner, Adam Gordon, also advertised that he would purchase “Wheat, Pork, and other farm produce, at the Highest Market Prices”. (Fleming, 26) Payment through trade was extremely common, but must not be confused with pure bartering.  Each object (usually by weight) had a dollar amount attached to it, and customers did not, for example, simply trade eggs for tea.  Every transaction was entered into the ledgers, and one dollar’s worth of tea must be offset by at least one dollar’s worth of eggs.

There were also many instances where arrangements were made between businesses which allowed for labourers to be paid in credit to the local general store or to a trade, eliminating the need for workers to handle cash:  “Every builder or contractor made an arrangement with the various trades and stores for a line of credit, by which they could pay their workman as much of their wages as possible with the smallest amount of cash.” (Guillet, 240) Worker’s wives would then go and pick up items from the store as needed without the requirement for currency to exchange hands.  The items purchased would simply be deducted from the credit provided by the employer. Likewise, the Three-Way System involved little to no exchange of money.  For example “In Glencarin, Ontario (west of Barrie), millworkers paid for their laundry indirectly. Storekeeper and mill owner M.N. Stephens would deduct a dollar or two from wages and enter that amount as a credit on the laundry woman’s account”. (Fleming, 138)

General Store Interior, Black Creek Pioneer Village
Toronto, Ontario

As communities grew, and the connections between shop owner and neighbour became more distant, the need for payment upfront and in cash increased.  Additionally, the amount of individuals travelling through the province and purchasing goods was also rising.  Itinerant purchasers could little be expected to be tracked down if they did not live in the area, and so they too were expected to pay in cash.  As the cost of some goods also increased, so too did the debts of the shop owners. (Fraser, 90) Eventually, the general store moved away from the credit, trade, and Three-Way systems and adopted the more streamlined cash system.

Sources

W. Hamish Fraser's 1981 The Coming of the Mass Market,1850-1914. 

Michael Gonder Scherck's 1905 Early Pioneer Life in Upper Canada. 

R.B. Fleming's 2002 General Stores of Canada:Merchants and Memories. 

Edwin C. Guillet's 1934 Toronto, from Trading Post to Great City. 

McCalla, Douglas. “Retailing in the Countryside: Upper Canadian General Stores in the Mid-Nineteenth Century”. In Business and Economic History, Winter 1997; 26, 2. Pages 393-403.