page_title: Economic history of the United States
section_title: Economics of the War of 1812
hierarchical_section_title: Economic history of the United States / Early 19th century / Finance, money and banking / Economics of the War of 1812
caption_attribution_description: U.S. per capita GDP 1810-1815 (2009 dollars)
context_page_description: The economic history of the United States is about characteristics of and important developments in the U.S. economy from colonial times to the present. The emphasis is on economic performance and how it was affected by new technologies, especially those that improved productivity, the main cause of economic growth. Also covered are the change of size in economic sectors and the effects of legislation and government policy. Specialized business history is covered in American business history.
context_section_description: The War of 1812 was financed by borrowing, by new issues of private bank notes and by an inflation in prices of 15%. The government was a very poor manager during the war, with delays in payments and confusion, as the Treasury took in money months after it was scheduled to pay it out.  Inexperience, indecision, incompetence, partisanship and confusion are the main hallmarks. The federal government's management system was designed to minimize the federal role before 1812. The Republicans in power deliberately wanted to downsize the power and roles of the federal government; when the war began, the Federalist opposition worked hard to sabotage operations. Problems multiplied rapidly in 1812, and all the weaknesses were magnified, especially regarding the Army and the Treasury.  There were no serious reforms before the war ended. In financial matters, the decentralizing ideology of the Republicans meant they wanted the First Bank of the United States to expire in 1811, when its 20-year charter ran out. Its absence made it much more difficult to handle the financing of the war, and cause special problems in terms of moving money from state to state, since state banks were not allowed to operate across state lines.  The bureaucracy was terrible, often missing deadlines.  On the positive side, over 120 new state banks were created all over the country, and they issued notes that financed much of the war effort, along with loans raised by Washington.  Some key Republicans, especially Secretary of the Treasury Albert Gallatin realized the need for new taxes, but the Republican Congress was very reluctant and only raised small amounts.  The whole time, the Federalists in Congress and especially the Federalist-controlled state governments in the Northeast, and the Federalist-aligned financial system in the Northeast, was strongly opposed to the war and refused to help in the financing.  Indeed, they facilitated smuggling across the Canadian border, and sent large amounts of gold and silver to Canada, which created serious shortages of specie in the US.
  Across the two and half years of the war, 1812–1815, the federal government took in more money than it spent. Cash out was $119.5 million, cash in was $154.0 million.  Two-thirds of the income was borrowed and had to be paid back in later years; the national debt went from $56.0 million in 1812 to $127.3 million in 1815.  Out of the GDP (gross domestic product) of about $925 million (in 1815), this was not a large burden for a national population of 8 million people; it was paid off in 1835.  A new Second Bank of the United States was set up in 1816, and after that the financial system performed very well, even though there was still a shortage of gold and silver.
  The economy grew every year 1812–1815, despite a large loss of business by East Coast shipping interests. Wartime inflation averaged 4.8% a year.  The national economy grew 1812–1815 at the rate of 3.7% a year, after accounting for inflation. Per capita GDP grew at 2.2% a year, after accounting for inflation.  Money that would have been spent on imports—mostly cloth—was diverted to opening new factories, which were profitable since British cloth was not available. This gave a major boost to the industrial revolution, as typified by the Boston Associates. The Boston Manufacturing Company built the first integrated spinning and weaving factory in the world at Waltham, Massachusetts, in 1813.
caption: U.S. per capita GDP 1810–1815 in constant 2009 dollars[133]
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