The area constituting the modern city of Baltimore was first settled by David Jones in 1661, his land covering 380 acres (1.5 km2) on the east bank of the Jones Falls River. St. Paul's Episcopal Church was the first church built in the metro area, erected along the nearby Colgate Creek in 1692.
The Maryland colonial General Assembly created the Port of Baltimore at Locust Point in 1706 for the tobacco trade. The town was founded in 1729 and named after Lord Baltimore (Cecilius Calvert), the governor. Baltimore was incorporated by 1745, and over the next two decades it acquired nine parcels of land to become an important and substantial community on the Patapsco River. Through the rest of the century Baltimore drained and filled in marshes, built canals around the falls and through the center of town, and expanded southeastward. It became by far the largest city between Philadelphia and Charleston, South Carolina.
During the American Revolution, the Continental Congress temporarily fled from Philadelphia and held sessions in Baltimore for a few weeks in 1776-77. When the Continental Congress authorized the privateering of British vessels, eager Baltimore merchants accepted the challenge, and as the war progressed, the shipbuilding industry expanded. There was no major military action near the city.
The American Revolution stimulated the domestic market for wheat and iron ore, and in Baltimore flour milling increased along the Jones and Gwynn Falls. Iron ore transport greatly boosted the local economy. The British naval blockade hurt Baltimore's shipping, but also freed merchants and traders from British debts, which along with the capture of British merchant vessels furthered Baltimore's economic growth. By 1800 Baltimore had become one of the major cities of the new republic.
The economic foundations laid down between 1763 and 1776 were vital to the even greater expansion seen during the Revolutionary War. Though still lagging behind Philadelphia, Baltimore merchants and entrepreneurs produced an expanding commercial community with family businesses and partnerships proliferating in shipping, the flour-milling and grain business, and the indentured servant traffic. International trade focused on four areas: Britain, Southern Europe, the West Indies, and the North American coastal towns. Credit was the essence of the system and a virtual chain of indebtedness meant that bills remained long unpaid and little cash was used among overseas correspondents, merchant wholesalers, and retail customers. Bills of exchange were used extensively, often circulating as currency. Frequent crises of credit, and the wars with France kept prices and markets in constant flux, but men such as William Lux and the Christie brothers produced a maturing economy and a thriving metropolis by the 1770s.
The population reached 14,000 in 1790, but the decade was a rough one for the city. The Bank of England's suspension of specie payments caused the network of Atlantic credit to unravel, leading to a mild recession. The Quasi-War with France in 1798-1800 caused major disruptions to Baltimore's trade in the Caribbean. Finally, a yellow fever epidemic diverted ships from the port, while much of the urban population fled into the countryside. The downturn widened to include every social class and area of economic activity. In response the business community diversified away from an economy based heavily on foreign trade.