The American Revolutionary War inflicted many financial costs on all of the combatants, including The United States of America, France, Spain and Great Britain.
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The American Revolutionary War took a heavy toll on Great Britain. The average cost for the war was £12 million per annum. The British ended the war with a national debt of £250 million, which generated a yearly interest of over £9.5 million. This debt piled on to the already outstanding debt from the Seven Years' War. Taxes on the British population increased over the years and duties on some items were also added, the average tax for the British public being four shillings on every pound.[1] Furthermore, the Royal Navy was not able to 'rule the waves' as it had done in the Seven Years' War.
Great Britain's trade with the thirteen American colonies fell apart once the American Revolution started, causing British businessmen, especially from the tobacco industry, to suffer. Income from the sale of woolen and metal products dropped sharply and export markets dried up. British merchant sailors also felt the pinch: it is estimated that 3,386 British merchant ships were seized by enemy forces during the war.[2] Royal Navy warships did make up these losses somewhat, however, due to their own privateering efforts on enemy shipping, particularly Spanish and French merchant ships. The situation wasn't helped by American political agitators, such as Samuel Adams, seizing British goods in events such as the Boston Tea Party.
France had similar financial burdens to Great Britain during the war, as the debt from the American Revolutionary War was piled upon already existing debts from the Seven Years' War. The French spent 1.3 billion livres on war costs. When the war ended, France had accumulated a debt of 3,315.1 million livres,[3] a huge fortune in those days. The debt caused major economic and political problems for France, and eventually led to the Financial Crisis of 1786[4] and the French Revolution as the country struggled to pay its debts.[5] in 1789.
Spain's economic losses were not as great as the other belligerents in the American Revolutionary War. This was because Spain paid off her debts quickly and efficiently. However, Spain had nearly doubled her military spending during the war, from 454 million reales in 1778 to over 700 million reales in 1779.[6] Spain's revenue loss was similar to Britain's, since she lost a lot of income from her American colonies due the war. To make up for the shortfall, Spanish governors introduced higher tax rates in the South American colonies, with little success. Spain's next move was to issue royal bonds to her colonies, also with limited success. Finally, in 1782 the first national bank of Spain – the Banco San Carlo – was created to improve and centralize the economic situation.
The thirteen American states flourished economically at the beginning of the war. The colonies could trade freely with the West Indies other European nations, instead of just Britain. Due to the abolition of the British Navigation Acts, American merchants could now transport their goods in European and American ships rather than only British ships. British taxes on expensive wares such as tea, glass, lead and paper were forfeit, and other taxes became cheaper. Plus, American privateering raids on British merchant ships provided more wealth for the Continental Army.
As the war went on however, America's economic prosperity began to fall. British warships began to prey on American shipping, and the increasing upkeep costs of the Continental Army meant that wealth from merchant ships decreased. As cashflow receded, the United States of America had to rely on European loans to maintain the war effort; France, Spain and the Netherlands lent the United States over $10 million during the war, causing major debt problems for the fledgling nation. Coin circulation had also begun to wane. Because of this, the United States began to print paper money and bills of credit to raise income. This proved unsuccessful, inflation skyrocketed, and the new paper money's value diminished: A popular saying circulated the colonies because of this: anything of little value became "not worth a continental."
By 1780, the United States Congress had issued over $400 million in paper money to troops. Eventually, Congress tried to stop the inflation by imposing economic reforms. These failed, and only further devalued the American currency. Late in the war, Congress asked individual colonies to equip their own troops, and pay upkeep for their own soldiers in the Continental Army. When the war ended, the United States had spent $37 million at the national level and $114 million at the state level. The United States finally solved its debt problems in the 1790s when Alexander Hamilton founded the establishment of the First Bank of the United States.[7]