The first American Neutrality Act was passed in 1794. It made it illegal for Americans to wage war on a country at peace with the United States. The thing to consider about this act of Congress is that prior to its passage, it was perfectly legal for an American citizen to wage war on his own against a country that the United States was not at war with. The constitution provided that the Federal government under its commander-in-chief, the President, would not be allowed to wage war unless Congress issued a declaration of war. But all the rights not granted to the Federal government were reserved to the states and to the people. So while the president of the United States was bound to remain neutral in all matters, unless Congress voted otherwise, each individual American was allowed to conduct his own foreign policy.
Take a deep breath and think about what this means. American citizens prior to 1794 were considered autonomous. They could make war on other countries in order to pursue their own interests. And, indeed, many Americans were privateers with letters of marque from foreign countries, such as France, and earning a good living by helping others in their wars against the great international empires such as Britain and Spain.
What happened in 1794 to change all that? In 1794, under the administration of George Washington, the United States signed the Jay Treaty with Britain. The Jay treaty was the brainchild of Alexander Hamilton, and it was hotly contested by the Jeffersonian-led Democratic-Republicans, who feared that this was a return to old world aristocratic tendencies and the rule of tyranny.
The other thing that happened in 1794, which I might as well also mention, was the reign of terror of Maximilien de Robespierre and his Committee of Public Safety in France. After the French revolution, Jacobins had taken over France. It was off with everybody's head and a complete deterioration of all civilized things, including private property.
Britain did not want this general lawlessness to spread to England, and George Washington and Alexander Hamilton agreed. So they decided to tie the hands of American privateers who were still working for France. They also thought this would be a good time to repudiate the American war debt to France, since, after all, that promise was made to the French monarchy that helped to free American Colonies from Britain and not to those lawless Jacobins currently in power.
The Jay Treaty cleared the way for the Quasi-War with France under John Adams, an undeclared war that served British interests and helped the United States renege on the American promise to repay its war debts to France. During the Quasi-War with France, the president of the United States ignored the constitutional provision that required him to get clearance from Congress before starting a war. Meanwhile, the Neutrality Act, far from creating neutrality was used to make sure that no individual American fought for a side in any war that the president did not want him fighting on.
Just like the Committee for Public Safety in France, that did anything but insure public safety, the Neutrality Law was named the very opposite of what it did.
But our subject here is not the Neutrality Act of 1794. Our subject was the Neutrality Act in 1817. The original Neutrality Act was superseded by this new act that also mentioned the unrecognized governments of newly liberated Latin American countries as additional powers that American citizens were not to help anymore. Henry Clay called this an "Act for the benefit of Spain against the Republics of South America." The act prescribed penalties of three years imprisonment and three thousand dollars in fines.
Far from breeding neutrality, all these laws collectively were used to tie the hands of American privateers and to help the great empires of Britain and Spain to hold on to their dominions. But much more importantly than this, the Neutrality Act was used to subdue the independent spirit of American businessmen, who henceforth would need the permission of their government to conduct business abroad and to defend their foreign holdings.
When Jean Laffite was routed out of all his holdings in both Barataria and Galveston, this disempowerment did not happen to him alone. It happened to all Americans, who became more like subjects and less like citizens under a government that took on itself more and more power. In order to pursue its own dreams of empire, the United States government under James Monroe wanted no competition from private citizens in the international arena.