By telling the distiller to burn or char the inside of his barrels because it will improve the flavor, the letter-writer is telling the distiller to make what we call today Bourbon, it seems to me. Bourbon, even today under law, can be called that if aged for a relatively short time (even less than 2 years). Whiskey aged even just a year or two can take colour and flavor from the wood. It may or may not have been called Bourbon until later but that whiskey the letter writer was talking about surely was close to young Bourbon as we know it today. From everything I have read both published and from the very knowledgable persons on this board, I believe Bourbon got its name because it was shipped from the original Bourbon County. And, I believe it was this self-same aged red whiskey, not white or pale whiskey. Or a least, early on the name bourbon became reserved for the superior version that took color and flavor from the cask. Why would any whiskey be called Bourbon and people pay more money for it than local production when young corn could be made in New Orleans or much closer to New Orleans than the ports from which Bourbon (as we know it today) was shipped?
The idea of long storage giving bourbon colour and flavor, especially if new charred barrels were used, and that this was noticed by middlemen such as merchants, shippers, grocers, watermen, is quite persuasive as is the fascinating idea that these traders were trying to appeal to a brandy market. They would regularly have appraised the whiskey in its post (white dog)-sale state. So surely did some of the distillers but not (let's say) in an organised or methodical way and not from a consumer's standpoint as it were. Likely originally, new barrels were used for storage and shipping if available, and if not available, reused charred barrels were used and finally new charred barrels for the best grades of whiskey at any rate. Distillers would have used whatever they had or was cheapest to buy. Middlemen would have seen the effects and, as the very interesting letter shows, assisted the distillers to make what became a hallmark product. They may have done this to appeal to that Cognac market downriver but as Tim says that may not have been the exclusive origin of the process, different markets, including local ones, may have noticed the effect on quality and required producers to sell them whiskey that was originally called Bourbon in the "export" market, meaning whiskey aged for a time in charred oak containers, and later became the name used in the production area, too.
I think it must have been like Dover sole. That fish famous for quality is, or was, landed in and shipped from Dover, England. In Dover itself it was a sole, no one there originally would have called it Dover sole that, but later the name stuck. Soles aren't fished incidentally at Dover, they are brought there from further afield (as it were) in the North Sea.
gary