San José State University|
Department of Economics
& Tornado Alley
The most likely reason for the depression of 1807-1814 was the trade embargo imposed by President Thomas Jefferson to try to keep the U.S. from getting involved in the wars raging in Europe. Britain and France were engaged in yet another struggle for primacy in Europe. Shipping to both parties could be interdicted and require a military response. Jefferson felt that by keeping American shipping out of the war zone that the U.S. could avoid being put into a dangerous political situation. The British were making the situation even worse by treating American sailors as being British citizens who could be taken into military service.
The disappearance of export demand closed down many important industries in the U.S. The trade embargo also cut imports into the U.S. In principle the loss of foreign markets for U.S. business could be compensated for by a shift to production for the domestic markets. However such a shift would take time and the creation of a recession reduced the domestic demand. The trade embargo was obviously a temporary policy and so investment in markets that would be difficult to retain once the embargo was lifted was not attractive. So the reaction to the trade embargo was recession.
Ultimately Jefferson's strategy failed and the U.S. was drawn into the conflict. That was the War of 1812 in which the U.S. capital of Washington was burned. With the war's end and the end of the trade embargo the U.S. economy recovered.
(To be continued.)
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