Depression of 1808-1809 - Business in United States of America

The Event: Economic downturn caused by the collapse of the United States’ foreign trade
Date: 1808-1809
Place: United States
Significance: The depression of 1808-1809, brought on by an embargo that cut off international markets for U.S. business, led to the development of a number of domestic industries.
The 1780’s were a period of great difficulty for the American colonies. Although they had secured a military victory, formally recognized in 1783 in the Treaty of Paris, the economy of the new republic remained in difficulty. The new country experienced high inflation because of multiple state currencies and the heavy debt carried by the states from funding the Revolutionary War.
By the early 1790’s, things had changed. The ratification of the Constitution and the inauguration of George Washington as the first president in 1789 led directly to the adoption of Alexander Hamilton’s financial reforms in 1790, consolidating debt and issuing a federal paper currency. Exports, which had fueled the colonial economy, revived and rapidly exceeded earlier levels, especially to the Caribbean.
From 1793 to 1807, Great Britain and France maintained a state of war with each other, except for a brief respite in 1803 and 1804. American ships profited enormously from the conflict. American exports (many of them re-exports) doubled between 1792 and 1795 and doubled again by 1801. By 1807, U.S. exports were five times what they had been in 1792. This burgeoning trade and the resulting prosperity was based largely on trade in finished commodities, although there was some export of raw materials to Europe as well.
The British Royal Navy, which dominated international waters, made life difficult for American ships. British naval vessels stopped American ships whenever they encountered them, removed some of their sailors, and forced them to serve on British vessels—a process known as impressment. Some vessels were taken over completely and forced to sail into British ports, where their cargoes were confiscated. The young American government protested these actions, but the protests proved largely futile. In late 1806, President Jefferson decided to embargo all shipping from American to British and French ports.

President Thomas Jefferson is depicted defending his embargo policy to a group of disgruntled men. (Library of Congress)

America’s overseas trade collapsed, causing the U.S. economy to fall into a deep depression by 1808. Foreign trade fell from $108 million in 1807 to $22 million in 1808. Some smuggling occurred, but it was not sufficient to replace the legitimate trade of the preceding years. Although the federal government tried to negotiate on behalf of neutral shipping, a category claimed for American ships, Britain and Napoleonic France were committed to mutual blockades, leading the United States eventually to declare war on Britain in 1812. It was not until after the end of that war, in 1815 and especially in 1816, that American international trade began to revive.
The depression of 1808-1809 had an unexpected consequence: With the American market closed to British manufactured goods, Americans began to make their own. The beginning of America’s textile industry dates to this period. As a result, American prosperity no longer rested as heavily on international trade as it had before 1808.

Further Reading
Hickey, Donald R. The War of 1812: A Forgotten Conflict. Urbana: University of Illinois Press, 1989.
Matson, Cathy. “The Revolution, the Constitution, and the New Nation.” In The Cambridge Economic History of the United States, edited by Stanley Engerman and Robert E. Gallman. Vol. 1. New York: Cambridge University Press, 1996.
See also: Depression of 1784; Embargo Acts; Great Depression; International economics and trade; Panic of 1819.

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