Key figures: Benjamin Franklin, Silas Deane, Robert Morris (Superintendent of Finance), British Admiralty, American merchant and privateer captains, Dutch merchants of St. Eustatius
Summary
The year 1778 marked a pivotal transformation in Atlantic commerce as the Franco-American Alliance signed on February 6 formally widened the Revolutionary War into a global conflict. The British naval blockade of American ports, already severe since 1776, intensified further after France entered the war and Britain formally declared war on France in March 1778. Colonial trade networks that had long depended on transatlantic commerce with Britain were shattered; American merchants pivoted to French ports, Caribbean intermediaries, and privateering. By year’s end, the privateering industry had expanded to an estimated 115 vessels operating under Continental commissions, while the contraband trade through the Dutch entrepôt of St. Eustatius provided critical supplies of gunpowder, arms, and European manufactures.
Pre-War Trade Structure and Its Disruption
Before the war, the thirteen colonies were deeply embedded in Britain’s mercantilist system. In 1774 — the last full year of peace — the colonies exported goods worth approximately £2.8 million to Britain and imported roughly £2.6 million in British manufactures. Tobacco from Virginia and Maryland, rice and indigo from the Carolinas, and timber and naval stores from New England formed the backbone of American exports. This trade collapsed almost entirely between 1775 and 1778: British naval patrols and port closures reduced American-British commerce to near zero.
The void left by the collapse of the British trade created both a crisis and an opportunity. The crisis was immediate: shortages of manufactures (cloth, iron goods, gunpowder), currency inflation driven by Continental Congress paper money, and the disruption of coastal commerce between American ports. The opportunity was slower to materialize: trade with France, the Caribbean, and neutral Dutch ports offered an alternative, if dangerous, lifeline.
Economic Dimensions of the Franco-American Alliance
The Treaty of Amity and Commerce — signed alongside the Treaty of Alliance on February 6, 1778 — was as economically significant as the military compact. France granted the United States most-favored-nation trading status, opening French Atlantic and Caribbean ports to American ships. French merchants and the French crown extended loans and subsidies: between 1778 and 1783, France provided the United States with approximately 48 million livres in loans and gifts, much of it used to purchase war supplies.
The economic relationship was not purely altruistic. French merchants saw an opportunity to break into markets long dominated by Britain. Silas Deane, one of the three American commissioners in Paris, coordinated commercial arrangements even before the alliance was formally concluded, negotiating the purchase of arms, gunpowder, and uniforms through the front company Rodrigue Hortalez et Cie, established by the playwright Pierre-Augustin Caron de Beaumarchais on behalf of the French crown.
The British response was swift: the Royal Navy intensified its blockade and issued orders to seize French vessels trading with American ports. This strategy contributed directly to the British declaration of war against France in March 1778 and the global expansion of naval conflict.
American Privateering: Scale and Economics
With the formal onset of Franco-British hostilities in spring 1778, American privateering expanded dramatically. Congress had authorized letters of marque from the earliest months of the war, but the formal alliance and the widening of conflict created far more opportunities for prize-taking.
By 1778, an estimated 115 Continental-commissioned privateers operated alongside dozens more operating under state commissions. The total number of American privateers across the war years reached approximately 2,000 vessels, which captured an estimated 600 British merchant ships worth millions of pounds sterling. The prizes were valuable not only for their cash value but for their cargoes: food, naval stores, manufactured goods, and occasionally arms and ammunition.
The privateering economy created a complex social dynamic. Successful privateer captains — like the celebrated John Paul Jones, who raided British home waters in 1778 — became wealthy and celebrated. Privateer owners included many of the leading merchants of Boston, Salem, Providence, and Philadelphia, who found privateering more profitable than conventional trade. Critics, however, noted that privateering drew sailors and resources away from the Continental Navy and encouraged speculation over productive commerce.
Notable actions in 1778 included Jones’s raids on Whitehaven and St. Mary’s Isle in April and his later capture of HMS Drake — the first British naval vessel taken in British waters.
The Dutch Entrepôt: St. Eustatius
The small Dutch island of St. Eustatius in the eastern Caribbean — “Statia” to traders — became one of the most important commercial nodes of the Revolutionary War period. The Netherlands remained technically neutral until 1780, and Statia’s free port status made it a critical transshipment hub for American merchants who needed to access European goods without sailing directly to France or crossing British-controlled sea lanes.
Through Statia, American traders obtained gunpowder from the Dutch East India Company’s warehouses, iron goods, cloth, and manufactured goods from Amsterdam and Rotterdam, and sugar and tropical products from French Caribbean islands. By 1778, the volume of contraband commerce through Statia was sufficient to alarm the British Admiralty, which pressured the Dutch to restrict the trade. When the Dutch declined, British relations with the Netherlands deteriorated — a trajectory that would eventually lead to the Fourth Anglo-Dutch War (1780–1784).
Domestic Economic Consequences: Currency Inflation
Alongside the disruptions to external trade, the American economy in 1778 suffered acute internal pressures. The Continental Congress, unable to raise sufficient tax revenue, financed the war largely by printing paper money — Continental dollars. By 1778, the cumulative issuance of Continental currency had produced severe inflation. Congress had printed approximately $63 million in Continental dollars by the end of 1778, while the exchange rate against hard currency (Spanish silver dollars) had fallen from parity in 1775 to roughly 6:1 by year’s end. The phrase “not worth a Continental” entered American vernacular as a byword for worthlessness.
This inflation created cascading effects: farmers refused to sell produce to the Continental Army for paper money, preferring barter or holding goods for specie. Washington’s struggles to feed and supply the Continental Army at Valley Forge during the winter of 1777–1778 were partly a military logistics problem and partly a financial crisis driven by currency collapse.
Caribbean Trade Networks
The Caribbean islands — particularly French-held Martinique and Guadeloupe — became vital intermediate trade hubs after February 1778. American merchants carried provisions (flour, salt fish, lumber) to Caribbean islands in exchange for sugar, molasses, rum, and tropical goods, which were then re-exported to Europe. The French islands, previously closed to American ships under mercantilist regulations, opened their ports following the alliance.
Spanish Caribbean ports — particularly Havana — also played a role as Spain provided covert financial support to the American cause (formalized when Spain entered the war in 1779). American merchants could use Spanish contacts to launder goods and currency in ways that obscured the trade from British inspection.
Significance
1778 was the year American commerce completed its rupture with the British mercantile system and began the difficult construction of an independent international trade network. The Franco-American Alliance provided the legal framework and some of the material means for this transformation. The privateering economy, though crude and chaotic, helped sustain the war effort financially and redistributed wealth to merchant classes whose support for independence was thereby reinforced.
Yet the economic costs were equally real: inflation gutted the currency, the blockade strangled legitimate trade, and the diversion of commercial capital into privateering speculation retarded the development of stable manufacturing and merchant shipping. The long-term foundation for post-war American commercial expansion — the merchant marine, the trading relationships with France and the Caribbean, the legal framework for prize law and maritime commerce — was laid in 1778, but its benefits would not be fully realized until after 1783.
See Also
- Franco-American Alliance — the February 6, 1778 treaty that opened French ports to American trade
- Britain Declares War on France — the British response that widened the naval conflict and intensified blockade pressure
- Valley Forge Encampment — the Continental Army’s winter crisis, driven in part by currency inflation and supply failures
- Industrialization & Innovation in 1778 — Britain’s contemporaneous industrial expansion, the productive counterpart to the American commercial disruption
- American Revolutionary War Financing in 1778 — the war-finance system in which privateering and the Treaty of Amity and Commerce reshaped Atlantic trade
Sources
- Carp, E. Wayne. To Starve the Army at Pleasure: Continental Army Administration and American Political Culture, 1775–1783. Chapel Hill: University of North Carolina Press, 1984.
- Morris, Richard B. The Forging of the Union, 1781–1789. New York: Harper & Row, 1987.
- Hancock, David. Citizens of the World: London Merchants and the Integration of the British Atlantic Community, 1735–1785. Cambridge: Cambridge University Press, 1995.
- Fowler, William M., Jr. Rebels Under Sail: The American Navy During the Revolution. New York: Scribner, 1976.
- Rappleye, Charles. Robert Morris: Financier of the American Revolution. New York: Simon & Schuster, 2010.