Academic journal article Economic Inquiry

The U.S. Embargo Act of 1807: Its Impact on New England Money, Banking, and Economic Activity

Academic journal article Economic Inquiry

The U.S. Embargo Act of 1807: Its Impact on New England Money, Banking, and Economic Activity

Article excerpt

THE U.S. EMBARGO ACT OF 1807: ITS IMPACT OF NEW ENGLAND MONEY, BANKING, AND ECONOMIC ACTIVITY

I. INTRODUCTION

The period 1793 through 1807 was one of unusual prosperity in the United States, paced by the growth of American carrying and re-export trade. (1) The Embargo Act of 1807, however, supposedly halted this period of growth and prosperity. The Act was an attempt by a new nation to persuade Great Britain and France to refrain from seizing neutral American ships by prohibiting the trading of certain goods between the United States and other countries. The provisions of the Act forbade U.S. ships to sail with cargoes to foreign ports. The Act was in effect from December 1807, through March 1809.

Historians generally assert that the embargo had at least three important consequences of the U.S. economy. The embargo allegedly initiated a severe economic depression, led to a signficant increase in the level of smuggling between the United States and other countries, and was instrumental in bringing about an expansion of domestic manufacturing that started the United States on a path to self-sufficiency.

With respect to the depression effects of the embargo, McMaster [1903, 415] described the economic losses of the period as follows:

The newspapers were full of insolvent-debtor notices. All over the country, the court-house doors, the tavern doors, the post-offices, the cross-road posts, were covered with advertisements of sheriffs sales. In the cities, the jails were not large enough to hold the debtors. At New York during 1809, thirteen hundred men were imprisoned for no other crime than being ruined by the embargo. A traveler who saw the city in this day of distress assures us that it looked like a town ravaged by pestilence. The counting-houses were shut or advertised to let. The coffee-houses were almost empty. The streets along the water-side were almost deserted. The ships were dismantled; their decks were cleared, their hatches were battened down.

Illegal trade arose as people searched for other sources of income. Malone and Rauch [1960, 118] described the situation in the following manner:

The ancient art of smuggling was revived, particularly along the land frontier with Canada where drovers of wagon trains shot down federal agents.

And concerning the stimulative effect of the embargo upon the rise in domestic manufacturing, North [1961, 56] stated:

The closing off of the import trade was effective in promoting the rise of domestic manufactures, and capital which had been devoted to shipping and foreign commerce was partially absorbed in a rapid growth of industry. Before 1808 only fifteen cotton mills had been built in the United States: one in 1791, one in 1795, two more in 1803 and 1808. By the end of 1809 eighty-seven additional mills had been constructed, and capacity had been increased from eight thousand spindles in 1808 to thirty-one thousand at the end of 1809 and an estimated eighty thousand by 1811. Other branches of manufacturing also made substantial gains through 1814.

Similar comments concerning the embargo are abundant in most economic history texts and in numerous articles devoted to the subject. While dramatic, such discussion is based on casual empiricism at best, and little in the way of rigorous economic analysis has ever been applied to discern the actual effects of the embargo upon the U.S. economy.

As usual with such historically remote events, a paucity of data on such variables as real income, output, and employment constitutes the major obstacle to empirical analysis. Until recently, economic historians have attempted to make inferences about the effects of the embargo upon the economy by relying primarily upon data reflecting the volume of import, export, and re-export trade, domestic and imported price indices, and governmental duties. (2) In a recent article, for example, Frankel [1982] argues that an examination of British shipping statistics rather than those of the U. …

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