San José State University
Department of Economics

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The Economic History of the Erie Canal

The Erie Canal, or the Great Western Canal as it was initially known, was one of the most important state projects of the early years of the United States. It proved to be overwhelmingly successful and its success prompted other state economic development projects.

Before the Erie Canal was built New York City was not the premier port of the United States that it became. Philadelphia was the largest, most prosperous city of the new United States. The Erie Canal provided the base for New York City's rise.

The United States had two great water transportation systems: the Mississippi-Missouri-Ohio River System and the Great Lakes Water System. These two were linked through the agency of the city of Chicago. The outlet to the sea of the Great Lakes System was through Canada by way of the St. Lawrence River. The initial thinking was to link the Great Lakes System to the Hudson River by way of a canal connecting with Lake Ontario. There was traffic on the natural rivers south of Lake Ontario which empty into the Hudson River.

The beginning of the Erie Canal project can be traced back to the creation of two Inland Lock Navigation Companies, a Western and a Northern version, as corporations in 1792. A corporation was a relatively rare form of business at that time and had to be created by special legislative act. The purpose of the Inland Lock Navigation Companies was to establish a water route connection between the Hudson River on the east and Lake Seneca and Lake Ontario on the west. The Inland Lock Navigation Company built dams and locks but was not able to build more than two miles of canal during the rest of the 1790's.

A man named Jesse Hawley while in debtors' prison during 1807-8 wrote up a plan to connect the Hudson River to Lake Erie. Hawley's plans were influential enough to bring the project to the attention of the mayor of New York City, DeWitt Clinton, who became a strong supporter of the idea. New York State Legislature in 1808 appropriated funds for a survey of possible routes for such a canal.

The Legislature in 1810 created a Canal Commission and appointed its members. The Commissioners immediately requested financial aid from the Federal Government. The politicians Jeffersonian Republican Party, later known as the Democratic Party, had doubts that there was any legal basis in the Constitution for any Federal Government involvement in such development projects. Thomas Jefferson himself disparaged the project as sheer madness. The Constitution was explicit in that only those powers delineated were exercised by the Federal Government, all other powers were the province of the state government. Only by absurdly broad interpretation of the empowerment clauses in the Constitution has the Federal Government been able to assume the powers it has today. The Hamiltonian Federalist and later Whig Party had no qualms about the Federal Government assuming an activists role in economic development. With Jeffersonian politicians in power the request of the Canal Commission of New York for the funding of a canal system was turned down. Also the requests for financial aid from states adjacent to New York were dismissed. These had even less chance of a positive response than the request to the Federal Government.

The War of 1812 started soon after the Canal Commission came into being. During the duration of that war, 1812 to 1814, the economy prospered but the limitations of the transportation system was sorely felt.

In 1817 Congress did pass an act providing for the funding of a canal for New York but President James Madison, a Jeffersonian Democrat, vetoed the bill. That same year DeWitt Clinton, a Jeffersonian Democrat, was elected to the governorship of New York. Clinton was a strong supporter of the canal. With Governor Clinton's support a bill was passed which provided for the construction of two canals. The Western Canal, later called the Erie Canal, was to connect Lake Erie with the Hudson River. The Northern Canal was to connect Lake Champlain with the Hudson River.

The Western Canal project was divided into three parts. The middle section was deemed to be of the greatest priority because it would significantly extend the navigation from the existing natural waterways based upon the rivers. It also was the relatively easiest to build. The hope was that the completion of the middle section would increase public support for the project.

The initial design was for a canal forty feet wide and four feet deep. It was to cost $7 million.

By 1819 the middle section of the Erie Canal extending 98 miles had been completed.

By 1820 transportation on the middle had begun, most of the western section was completed and construction of the eastern section had begun. The Champlain Canal was nearing completion.

In 1823 the first boats from both the Erie Canal and from the Champlain Canal entered the Hudson River. By 1825 the entire Erie Canal was completed and it was declared officially open in October 1826. DeWitt Clinton traveled with three boats which started from Buffalo, New York and completed their 363 mile journey nine days later in New York City. In an act of public project exuberance the New York Legislature passed The Great Canal Act which called for the surveying of routes for seventeen other canals.

Shortly after the opening of the Erie and Champlain Canals the Legislature created a Canal Board to govern the canal operations and adjudicate complaints concerning the canals.


The Eire Canal 1831

Although there was great enthusiasm for the Erie Canal in those early years the technology which would ultimately make it obsolete was being put into place. A railroad connecting Albany and Schenectady was completed in 1831.

In 1836 a program for the enlargement of the Erie Canal to a seventy foot width and a seven foot depth was initiated. However in 1842 the Legislature passed an act, called the Stop and Tax, which required the raising of funds for public projects from tax funds rather than public borrowing. This brought most canal construction, including that of the Erie Canal Enlargement Program, to a halt. It was not until 1847 that work on the Erie Canal Enlargement resumed.

At the same time the State of New York government was encouraging the development of canals it was also encouraging the development of railroads, the competing transportation system. For a short period the state government tried to protect the financial interests of the canals by prohibiting the railroads from carrying cargo, but this absurd restriction was soon lifted. In 1853 the New York Central Railroad was created by the consolidation of several smaller railroads.

The Erie Canal Enlargement program was completed in 1862. The toll charges not only paid for the construction of the canal but brought in a surplus which covered a substantial portion of the New York State budget. In 1882 the toll charges for the Erie Canal were eliminated.

In 1895 a second enlargement program for the Erie Canal was initiated. It called for a deepening of the canal to nine feet and was known as The Nine Million Dollar Improvement. But work on this second enlargement program was stopped in 1898 due to a lack of funds. The canals were losing the transport business to railroads because of the superior service which the railroads provided. The railroads were faster and operated year around while the canals were out of service for five months of the year due to their being frozen.

In 1898 Theodore Roosevelt, as Governor of New York, appointed a Committee on Canals. The Committee's recommendations led to the creation of the Barge Canal System for New York. This called for, among other measures, the enlargement of the Canal to a 125 foot width and a minimum depth of twelve feet. There were also major changes in the route of the Erie Canal which amounted to virtual abandonment of the original course of the canal in the middle and eastern sections. The new route made greater use of rivers channels. Six rivers along the route were canalized. By 1918 the entire Barge Canal System was completed and opened. This System, besides the Erie Canal, included the Champlain Canal, the Oswego Canal and the Cayuga-Seneca Canal.

Over the decades the Barge Canal System became less and less significant as a transportation system. In 1991 the long term leasing of Barge Canal System land was approved through an amendment to the New York State Constitution. The next year the control of the New York State Canal System was transferred by legislative act from the New York State Department of Transportation to the New York State Thruway Authority. In 1995 a Canal Recreation Commission was created to advise the Thruway Authority on plans and activities concerning the Canal System. A Canal Recreation Plan was adopted and in 1996 a five-year program for the revitalization of the Canal System was initiated. This program was to cost $32 million.

The Financial Impacts of the Erie Canal

The financial information about the canal is not complete, but there is enough to discern that it was a financial bonanza. Here are some of the facts available:

The Social Impact of the Canal System

The economic and financial impact of the canal system was extraordinary. The social impacts were also extraordinary. Some of them were not obvious. The availability of a wider variety of goods was one of the obvious impacts. The newspapers settled upon the availability of fresh oysters from the Atlantic Coast as the best illustration of this. Fresh oysters were not available in upstate New York before the canal system because land transportation was too slow as well as too expensive to get oysters there before they spoiled. There were many, many commodities that were unavailable inland when the only mode of transport was horse and wagon.

The unobvious social impact that got most public attention was the impact of the behavior of the canal boat crews. The canal boats were pulled along by horses and mules guided by young men. These young men were often orphans who in that day and age had to find a means of supporting themselves. They not only did not have the benefit of formal education they lacked the civilizing influence of mothers and fathers. Teenagers, particularly boys, even under the best of circumstances are often an exasperation to adults. One can imagine the consternation of the staid residents of Upstate New York at the behavior of the canal boat crews when they were not at work. They drank, they gambled and they fought.

Some pious locals along the canal routes were concerned that the canal boat operation on Sundays violated the Sabbath and petitioned to prohibit boat transport on Sundays. Other pious but more practical residents said that the boats should be allowed to operate on Sundays because if the crews were idle on Sundays they would more seriously violate the Sabbath with their drinking, swearing, gambling and fighting. The more practical view won out and the boats continued to move on Sundays.

(To be continued.)


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