The War of 1812: 1812-1815

Within the larger context of the Napoleonic Wars, Britain was engaged in war with France and did not want America to trade with France, irrespective of any theoretical neutral right to do so. As a result, the British established a blockade of American ports resulting in American exports falling from $130 million in 1807 to $7 million in 1814. The blockade of American ports later tightened to the extent that most American merchant ships and naval vessels were confined to port.

In 1812, the Britain’s Royal Navy was the world’s largest and had 85 vessels in American waters. In contrast, the United States Navy was only twenty years old and had only 22 commissioned vessels. That same year, the United States declared war on Great Britain in reaction to trade restrictions as well as America’s opposition to the forced recruitment of U.S. citizens into the Royal Navy and British military support for American Indians who were resisting U.S. expansion. The war began poorly when an attempt to invade Canada was repelled by British troops, local militias and Indian tribes, which led to the British capture of Detroit. Hostilities flared in what is now Ontario, Québec, New Brunswick, Newfoundland, Nova Scotia, Prince Edward Island, Cape Breton Island and Bermuda. Britain’s strategy was to protect their merchant shipping to and from Canada and the West Indies and to enforce a blockade of major American ports to restrict trade with France. Due to naval inferiority, Americans were reduced to hit-and-run tactics and only engaged the Royal Navy under favorable circumstances.

The cost of the war is difficult to measure, however, the national debt rose from $45 million in 1812 to $127 million by 1815. Also costly was the depressive effect on exports. For example, flour exports fell from almost one million barrels in 1812 and 1813 to 5,000 barrels in 1814.

Maritime insurance rates skyrocketed, at times reaching 75%, leading to a virtual standstill in shipping. Overall, exports and imports fell and foreign trade declined from 948,000 tons in 1811 to just 60,000 tons by 1814. On August 24, 1814, British troops entered Washington D.C. Under orders not to occupy the city, General Robert Ross ordered the burning of government buildings. The Senate and House of Representatives were set ablaze along with the Library of Congress. The troops then marched toward the Presidential Mansion (the White House) moments after First Lady Dolly Madison fled with documents, art and other valuables. Upon arriving at the mansion, the British soldiers feasted in the dining hall, collected souvenirs and then set the building afire. The British also burned the Treasury Building and other government buildings while Americans burned much of the Washington Navy Yard including the frigate USS Columbia to prevent it from being captured. With the American Government in disarray, execution of the war became difficult over the following weeks.

Despite the success of the British blockade and the burning of the Capitol, there was little chance of any decisive military victory in North America. In short order, the war became a stalemate and by 1814 both sides began looking for a peaceful settlement. Prime Minister Lord Liverpool encountered increased opposition to continued war taxation and merchants increasingly wanted to restore trade with America. On December 24, 1814, diplomats from the two countries met in Ghent, United Kingdom of the Netherlands (now Belgium) and signed the Treaty of Ghent, which was ratified by on February 16, 1815.

The CEPPI Index clearly measures a fall in economic conditions during the war. Inflation surged in 1813 and 1814, with prices rising almost 30%, followed by a fall in prices of just over 12% in 1815. While small by today’s standards, budget deficits surged to 2.1% of GDP and the national debt tripled. Despite these problems, growth in GDP averaged a respectable 3% over the four-year period.

The CEPPI Index, which had registered a rank of Superior only two years earlier, fell to Good during the first year of the war and then to Poor level in 1813. Overall, the average score was 83.4 or Fair.