IN 1791 THE FEDERAL GOVERNMENT enacted an excise tax on distilled spirits. This was, of course, unpopular with the numerous producers of rum and whiskey, although they could, and did, pass the tax on to their customers. But it was a very serious matter for farmers in western Pennsylvania, beyond the crest of the Appalachian Mountains. Because of the lack of good roads, the only way the farmers could profitably ship their grain to the markets in the East was to first distill it into whiskey, giving it a much lower weight-to-value ratio.
In July 1794 opposition to the tax flared into insurrection, and five hundred armed men burned the house of General John Neville, who was the regional inspector of the excise. On August 4 President Washington issued a proclamation ordering the rebels to disperse and militia to muster. When negotiations failed, Washington ordered thirteen thousand troops into western Pennsylvania under the command of General Henry Lee and accompanied the troops himself as far as Bedford, Pennsylvania, before returning to Philadelphia. Before such overwhelming force, the rebellion melted away. Two leaders were captured and convicted of treason, but Washington pardoned them.
Today the so-called Whiskey Rebellion is remembered mostly for being the only time in American history that the commander in chief has taken the field with his troops. But to contemporaries, it made it plain that the country faced no greater economic problem, now that Hamilton’s program was in place and working, than that of transportation.
A vast country—four times the size of France, ten times the size of England—the United States had few roads worthy of the name. And it was already a restless country, indeed the most restless on earth, with a population that had been pushing westward since settlement began. One of the causes of the Revolution had been the Quebec Act of 1764, which had extended Canada’s boundaries to the Ohio River and forbidden white settlement west of the Appalachian Mountains.
Reaching the area west of the mountains before the Revolution had been accomplished largely by Indian trails that had existed for centuries, such as the Wilderness Road that Daniel Boone had taken into the Kentucky country and the road through the Cumberland Gap that led to Tennessee. Usage slowly enlarged these trails into roads as travelers cut down trees and brush along the way to accommodate wagons. In swampy areas, travelers would cut trees and lay them across the pathway to make what were called corduroy roads.
But the early roads, even in settled areas, were rutted and dusty in the summer and often morasses of mud in the spring and fall. Wagons and stagecoaches, when they were able to negotiate the roads at all, could take hours to go only a few miles. Travel was often easiest in winter, when the ground was frozen hard. Traveling in western New York State in 1822, the Englishman Henry Addington reported seeing “the wreck of a coach or wagon, sticking in picturesque attitudes in some hole in the low road…. How any vehicle can get through such fearful breakers as those routes present sometimes for four or five miles continuously it is difficult for those who have experienced their ferocity to comprehend.”
But it was commerce, not migration, let alone the comfort of adventurous tourists like Henry Addington, that spurred road development in the years after the Revolution. Philadelphia wanted to funnel the output of the rich farmland in Lancaster County to its markets and port, rather than see it travel down the Susquehanna River and the Chesapeake Bay, to the benefit of Baltimore. So in 1790 it authorized the formation of a private company to build a toll road.
Unlike earlier American roads, which had been largely created by the feet that trod them, the Philadelphia-Lancaster Turnpike was built to precise specifications, with a uniform width, and layers of crushed stone and gravel to provide an even surface. A rounded, or “cambered,” surface allowed water to drain off quickly.
A Scottish engineer named John McAdam, in the early part of the nineteenth century, would perfect the technology of road building using layers of stone and gravel and give his name (slightly misspelled as macadam) to the process, which was widely used in both the United States and Britain. Toward the end of the nineteenth century, when engineers began mixing the top layer of gravel with tar to provide a relatively waterproof surface, the roads were said to be tarmacadamized, or tarmacked.
The Philadelphia-Lancaster Turnpike was an immediate financial success for the company that built it, and this resulted in many turnpike projects getting under way in the New England and mid-Atlantic states in the next few decades. Governments also noticed that where turnpikes ran, economic development soon followed, as inns, taverns, livery stables, and such sprang up to meet the needs of travelers.
In 1802 the act of Congress that created the state of Ohio set aside funds from the sale of public lands for road construction. In 1811 a road from Cumberland, Maryland, on the Potomac, to Wheeling, in what is now West Virginia, on the Ohio River was authorized. The Cumberland Road would eventually extend all the way to Vandalia, Illinois, a distance of nearly five hundred miles.
By the 1840s southern New England, the lower Hudson Valley in New York, New Jersey, and southeastern Pennsylvania were well served by a network of improved roads, and these greatly speeded travel. In the 1780s a stagecoach had taken from four to six days to travel from Boston to New York, depending on the weather. By 1830 the trip took a day and a half. In the South, however, better served by navigable rivers, the road system remained primitive.
And the vehicles had greatly improved as well. The early stagecoaches had been little more than farm wagons, fitted with benches and lacking springs. The passengers bounced around in them like dice in a cup. By a few decades later, however, they had evolved into the far more comfortable stagecoach familiar to anyone who has watched a Hollywood Western.
Traveling for pleasure rather than business had been nearly unknown in the colonies, but by the 1830s it was common for affluent couples to go on “nuptial journeys” (and Niagara Falls was already a popular destination for them). Doctors at that time began to prescribe travel for the health of their wealthier patients.
But while individual travel increased, it was still commerce that crowded the expanding road net. In 1836 Ralph Waldo Emerson noticed an “endless procession” of wagons, passing his house in Concord, Massachusetts, headed “to all the towns of New Hampshire and Vermont.” By 1840 nearly fifteen thousand men made their living as full-time teamsters in the United States, hauling produce and freight into and out of the growing cities. Many more did so on a part-time basis, especially in the winter when farming was at a standstill and the roads were at their best.
But there was a strict limit to what a horse-drawn wagon could haul, regardless of how good the roads became. Commodities with a high weight-to-value ratio had to move by water if they were to be moved any great distance and still be sold at a profit. Where no natural waterways existed, the preindustrial world had only one solution to this problem: the artificial rivers called canals.
THE IDEA OF THE CANAL dated to antiquity. Both China and Mesopotamia built them, and the Persian king Darius the Great ordered the construction (or perhaps reconstruction) of a canal linking the Nile and the Red Sea in 510 BC.
The invention of the lock in the mid–fifteenth century transformed the possibilities for canals, allowing them to cross far more uneven terrain. In the middle of the seventeenth century a canal connected the Loire and Seine rivers, and by the end of that century the Languedoc Canal in the south of France ran an astonishing 142 miles, connecting the Mediterranean with the Gironde River, which flowed past Bordeaux into the Atlantic. By the end of the eighteenth century Britain was laced with a network of canals, many of them built by the Duke of Bridgwater, that greatly facilitated the Industrial Revolution.
The need for canals to help develop the country and reduce the cost of many commodities in the new United States was obvious. By 1790, the Constitution only a year in effect, no fewer than thirty canal companies had been chartered in eight of the thirteen states. Many of these, of course, never got beyond the planning stage, and most were quite modest in their ambitions, seeking only to extend the navigable length of rivers by providing a way around rapids and falls. George Washington was a tireless promoter of a canal to extend the navigability of the Potomac River, but could not extract the funding from Congress.
The first major canal project to reach the construction stage was in Massachusetts, when the Middlesex Canal Company was chartered by the state to build a twenty-seven-mile canal between Boston and the town of Chelmsford on the Merrimac River. It was hoped that it would funnel the products of New Hampshire—lumber, granite, naval stores, and firewood—to Boston.
Deciding to build a canal is one thing, of course; actually constructing it quite another, especially as the United States was almost totally lacking in trained engineers at this time. The Middlesex Canal Company hired Loammi Baldwin to do the job. But while he had read books on canal building, he had never actually seen a canal lock, and he soon convinced the company to hire an Englishman, William Weston, who had practical experience in building canals.
The company issued shares of stock in 1794, and they were eagerly taken up by investors who were enamored with the economic promise of the new technology and ignorant of the practical difficulties involved in building a canal and operating it profitably. In the first instance—but by no means the last—of a technological investment bubble in the United States, the shares in the Middlesex Canal Company, issued at $225, rose as high as $475, thanks to speculators, before the canal actually opened for business ten years later.
Once in operation, while the canal greatly helped the economy of Boston and the area served by it, it never made money. By the time the company was dissolved in 1860, it had returned to its investors only about 75 percent of the money they had put into the enterprise.
The high capital cost of canals and the lack of engineering expertise in the country impeded construction in the early years. Speculators, once burned, were reluctant to invest in new canal ventures. Then New York State decided to undertake a canal project that was not only the largest yet undertaken in the United States, but was more than twice as large as any canal yet built in the world, at a projected cost that rivaled the annual budget of the federal government. The Erie Canal would prove to be the first of the long, and continuing, list of megaprojects—the Atlantic cable, the transcontinental railroad, the Brooklyn Bridge, the Panama Canal, the Hoover Dam, the interstate highway system, the Apollo project—that would become so much a part of the American experience.
And it was a titanic roll of the economic dice. Failure might have crippled the New York economy for decades. But success would ensure that New York, already the most populous state by 1810, would outstrip all its rivals as the American economy developed.
Thanks to a now largely forgotten giant of American politics, DeWitt Clinton, the project succeeded beyond anyone’s wildest dreams, even his own. The Erie Canal would prove the most consequential public works project in American history and make New York, both state and city, the linchpins of the American economy for more than a century.
THE PATHWAY THAT LED from the Hudson River just north of Albany, westward through a gap in the Appalachian Mountains, between the Adirondacks and the Catskills, to the Great Lakes had been known from early colonial times. The Indians and fur traders had used it constantly. The headwaters of the Mohawk River, which tumbled into the Hudson through a sharp series of rapids, reached almost to the headwaters of Wolf Creek, which ran westward to join Lake Oneida. From the other end of the twenty-mile-long lake, the Oswego River flowed to Lake Ontario.
As early as 1724 the Irish-born Cadwallader Colden, a New York merchant and gifted amateur scientist (and, later, politician: as acting colonial governor he would be nearly lynched during the Stamp Act crisis) proposed improving this route to increase its commercial possibilities. Later it was proposed that the canal, instead of going to Lake Ontario, should run to Lake Erie. There were two reasons for this. For one, it would obviate the need to portage around Niagara Falls to reach the Great Lakes beyond Lake Ontario. And, once in Lake Ontario, it was thought, traffic would likely prefer traveling down the St. Lawrence River to Montreal and the Atlantic Ocean, at least during the warm months, rather than using the canal, threatening its economic viability.
The argument against the Lake Erie route, of course, was that it would greatly lengthen the canal and greatly increase the engineering difficulties that had to be overcome. Lake Erie is only 563 feet above the Hudson River, which is at sea level at Albany (the Hudson is actually an estuary, not a river at all). But west of Lake Oneida, the canal would have to cross the Irondequoit and Genesee rivers, which flow into Lake Ontario; pass a considerable swamp; and break through a ridge of rock that ran north and south just east of Lake Erie.
After the Revolution, Philip Schuyler, Alexander Hamilton’s father-in-law, and others founded the Western Inland Lock Navigation Company to improve navigation on the Mohawk and began to back the idea of a canal. The wealthy and influential Gouverneur Morris also backed the idea of a canal, but he was afraid that “our minds are not yet enlarged to the size of so great an object.”
DeWitt Clinton’s mind quickly became so enlarged. Born in 1769 to wealth and position (his uncle, George Clinton, would be governor of New York and vice president under James Madison), Clinton graduated from Columbia at the age of just seventeen (delivering an address in Latin at the commencement). Soon elected to the state senate, he was appointed U.S. senator in 1802. But he resigned the next year to become mayor of New York City, a post he would hold for most of the next twelve years. In 1810 the state legislature appointed him to the newly formed Canal Commission. He almost immediately became the driving force behind the idea.
The final design was an awesome project. It would run 363 miles through what was still a semiwilderness, and would require no fewer than eighty-three locks. At forty feet wide and four feet deep, the canal would require digging and removing no less than 11.4 million cubic yards of earth and rock—well over three times the volume of the Great Pyramid of Egypt—entirely by hand. The canal project was budgeted at $6 million, a sum equal to three-quarters of the federal budget in 1810.
It was hoped that the federal government would pay a considerable portion of the cost of what would be the biggest public works project in the Western world since the Great Pyramid. But Clinton got little encouragement. Thomas Jefferson, no mean engineer himself and friendly to what were then called “internal improvements” and westward expansion, thought the whole idea ridiculous. He pointed out to Clinton that George Washington had been unable to get Congress to appropriate $200,000 to build a thirty-mile canal through the well-settled Virginia countryside, “and you talk of making a canal three hundred and fifty miles through the wilderness! It is a splendid project, and may be executed a century hence. It is little short of madness to think of it at this day.”
The War of 1812 brought any hope of getting the project under way to a halt, but after the war the drive to build the canal revived. By 1817, although Clinton’s opponents were still calling it “Clinton’s Ditch,” public opinion in the state was moving strongly in favor of it, and one hundred thousand people signed a petition to the legislature to have it built. As to the technical problems that were bound to be encountered, the collective attitude of the state can best be summed up in the airy, Latin words of Gouverneur Morris, “Labor improbus omnia vincit” (“Enormous labor conquers all”).
On April 15, 1817, the legislature acted. It passed the Canal Act, declaring that the canal would “promote agriculture, manufactures, and commerce, mitigate the calamities of war, enhance the blessings of peace, consolidate the Union, advance the prosperity and elevate the character of the United States.”
It was still hoped that the federal government and the other states that stood to benefit directly, such as Ohio, would contribute, but New York was now willing to go it alone. The federal government and the other states, not surprisingly, decided to let it, and President James Madison vetoed a bill that would have provided funding.
Just how big an undertaking the Erie Canal was for the state of New York can be seen by the fact that the final projected cost, $7 million, was equal to more than one-third of all the banking and insurance capital in the state. New York put a tax on steamboat travel, salt, and land within twenty-five miles of the canal to service the bonds it issued, and two London insurance firms made major investments in them. But most of the money came from New Yorkers, by no means all of them people of great wealth. Out of the sixty-nine subscribers to the bond issue of 1818, fifty-one invested $2,000 or less. Twenty-seven invested less than $1,000.
On July 4, 1817, newly inaugurated as governor, DeWitt Clinton turned the first shovelful of dirt outside Rome, New York, and promised that the work would be completed within ten years.
It was done in eight.
To get revenue flowing as soon as possible, the first work began on the “long level,” the sixty-nine and a half miles between Syracuse and Herkimer that required no locks at all. Clinton wanted it done in a year and it was.
Thousands of workers were employed in building the canal, as many as fifty thousand at the peak, many of them local but many of them Irish and Welsh immigrants hired right off the docks of New York City. And while it was dug entirely by hand, much Yankee ingenuity made the task easier and cheaper than it might have been. A new way of felling trees was developed, using a screw and cable to pull the trees down. With another machine invented on the fly, seven men and a team of oxen could pull thirty to forty stumps a day.
One of the many self-taught engineers (who would come to be known as the Erie School of Engineers) was Canvass White. Rather than import very expensive hydraulic cement from Europe, he prospected for, and found, a local supply of trass, the type of pumice that is the key ingredient in hydraulic cement.
By 1821 some 220 miles of the canal was complete, and traffic was building steadily and attracting attention abroad. The London money market began making serious investments; Baring Brothers alone would buy more than $300,000 worth of canal bonds.
It took four years to blast through seven miles of the rocky ridge near Lockport, just east of Buffalo, and build a series of five double locks there. Those locks, the great aqueduct over the Genesee River at what is now the city of Rochester, and the twenty-seven locks needed in the first fifteen miles of the canal at the Hudson River, were each larger engineering projects than any previously undertaken in the United States.
But by the fall of 1825 it was done. On October 26 Governor Clinton and numerous dignitaries came aboard the canal barge Seneca Chief, which left Buffalo and proceeded along the canal and then was towed down the Hudson to New York City, while the state of New York had what amounted to a five-hundred-mile-long party.
At the end of it, off Sandy Hook, New Jersey, the entrance to the Lower Bay of New York harbor, Governor Clinton poured a cask of Lake Erie water into the Atlantic. It was a wedding of the waters, “to commemorate,” Clinton said, “the navigable communication which has been established between our Mediterranean Sea and the Atlantic Ocean.” One of the orators of the day described the project as the “the longest canal, in the least time, with the least experience, for the least money and to the greatest public benefit.”
The Erie Canal was an immediate and astonishing economic success. “Having taken your position at one of the numerous bridges,” an early observer wrote, “it is an impressive sight to gaze up and down the canal. In either direction, as far as the eye can see, long lines of boats can be observed. By night, their flickering head lamps give the impression of swarms of fireflies.”
In 1825 a total of 13,100 boats used the canal and paid tolls amounting to half a million dollars, more than enough to fund the debt incurred in the canal’s construction. In less than a decade the debt was paid off and the surplus funds were used to extend feeder canals. The first year an average of forty-two barges a day were passing through Utica, and that year carried 221,000 barrels of flour, 435,000 gallons of whiskey, and 562,000 bushels of wheat. A total of 334,605 tons of freight was carried on the canal that year. The population of the counties through which the canal passed tripled in only a few years as what had been villages became towns and towns became cities.
Even more important, thousands of people used the canal to leave New England’s stony fields for the lush farmland of the Middle West, and then sent back the products of their labor via the canal as the cost of transporting goods eastward collapsed. It had taken three weeks and cost $120 to send a ton of flour from Buffalo to New York City before the canal, triple the cost of the flour itself. Soon it cost only $6 and took eight days.
Transportation is what economists call a “transaction cost,” one that adds to the cost of an item without adding to its intrinsic value. Advertising, sales, and packaging are all examples of transaction costs. The lower these transaction costs, obviously, the lower the final price, and thus the higher the demand. When a transaction cost is lowered as dramatically as the Erie Canal lowered the cost of the produce of the Middle West, delivered to New York City, the consequences will always be far-reaching.
In this case they transformed the city from merely the largest of American cities to the metropolis of the Western Hemisphere. As early as 1822, before the Erie Canal was even finished, the Times of London saw it coming, writing that year that the canal would make New York City the “London of the New World.” The Times was right. It was the Erie Canal that gave the Empire State its commercial empire and made New York the nation’s imperial city.
In 1820 the population of New York City was 123,700, five times what its population had been at the beginning of the Revolution. But Philadelphia, which had been ahead of New York in 1776, was then only slightly behind at 112,000. The Erie Canal, however, turned New York into the greatest boom town the world has ever known. Manhattan’s population grew to 202,000 in 1830, 313,000 in 1840, 516,000 in 1850, and 814,000 in 1860. The population of what are now the five boroughs of New York was more than twice the population of Philadelphia by the time of the outbreak of the Civil War. In 1800 about 9 percent of the country’s exports passed through the port of New York. By 1860 it was 62 percent, as the city became what the Boston poet and physician Oliver Wendell Holmes (the father of the Supreme Court justice) rather grumpily described as “that tongue that is licking up the cream of commerce and finance of a continent.”
The city rushed pell-mell up Manhattan Island, adding on average about ten miles of newly developed street front per year in the quarter century after the opening of the canal. No wonder John Jacob Astor (a major investor in the canal) is supposed to have said on his deathbed in 1848 that his only regret in life was not having bought all of Manhattan. But he had bought enough of it early enough to make himself by far the richest man in the country and his family legendarily rich for generations thereafter.
THE YEAR 1817 had been an annum mirabilis for New York City. Not only had construction begun on the Erie Canal, but two other far-reaching developments also occurred that year. One was the establishment of the Black Ball Line of sailing packets. Before 1817, someone wanting to travel to Europe booked passage on a ship that was essentially designed for cargo and then waited for the ship to be ready to sail, which happened when the captain felt he had enough cargo to make the trip profitable, and the wind and weather favored. It was not uncommon for there to be a wait of one or even two weeks after the announced sailing date before the ship finally departed.
New York textile importers and cotton brokers had to travel often to Britain on business, and many of them were British by birth. They regretted the time wasted waiting for ships to sail, and one of them, Jeremiah Thompson, had a revolutionary idea for how to waste less of it. He proposed the establishment of a “line” of ships under common management that would keep to a regular schedule, always sailing on the advertised day.
He formed a syndicate with four other textile businessman and put an ad in a New York paper in the fall of 1817 announcing that “the subscribers have undertaken to establish a line of vessels between NEW-YORK and LIVERPOOL, to sail from each place on a certain day in every month throughout the year.”
The first vessel left New York on January 6, 1818, a large black ball painted on its fore-topsail for identification. The concept soon proved a commercial success, so much so, indeed, that it quickly spread not only to other ports but to other forms of transportation as they developed, such as railroads. Today regularly scheduled passenger transportation seems so obvious that it is hard to imagine a world without it. But it was regarded as a wonder at the time. “Such steadiness and despatch is truly astonishing,” wrote Niles’ Weekly Register in 1820, “and, in a former age, would have been incredible.” The Black Ball Line did much to cement New York’s reputation as the country’s leading port, for passengers as well as freight.
The other significant event in New York history in 1817 was the formal establishment of a stock exchange. Wall Street had been growing quickly ever since the city recovered from the Revolution, but it still lacked a real stock exchange such as Philadelphia had had since 1792. With the near tripling of the national debt due to the War of 1812, business on the nation’s exchanges had increased markedly, but much of this business went to Philadelphia, thanks to its large banks.
The New York brokers who still operated under the old Buttonwood Agreement sent a broker named William Lamb to Philadelphia to study that stock exchange. On February 25, 1817, in the offices of Samuel Beebe, several leading New York brokers met and drew up a constitution that was, in fact, nearly identical with the constitution of the Philadelphia exchange. There were just twenty-eight original members, belonging to only seven firms, in what they named the Board of Brokers, a name soon changed to the New York Stock and Exchange Board. They rented the second floor of the Bank of New York headquarters at 40 Wall Street for $200 a year, a price that included heat. It was a modest beginning to an organization that would in 1863 change its name again, this time to the New York Stock Exchange.
After a sharp but short-lived contraction in 1819, the Wall Street securities market prospered along with the country. Brokers who had once dealt in insurance, cotton, and even lottery tickets, as well as stocks and bonds, now began to specialize in securities exclusively.
But the New York Stock and Exchange Board remained only one of several exchanges in major cities around the country, such as Boston, Philadelphia, and Cincinnati, and no more important than they. Indeed, the New York Stock and Exchange Board was not even the only action on Wall Street. Much stock trading took place on the street itself, the various lampposts serving as places where particular securities were traded, quite unregulated.
And business was often less than brisk, with volume sometimes under a hundred shares a day. On March 16, 1830, the New York Stock and Exchange Board traded a mere thirty-one shares in both the morning and afternoon auctions, still the all-time, low-volume record.
That would soon change. Roads and canals, for all the improvement for life and commerce that they provided, were still the technology of the past, known to the Romans. The new technology of steam, once applied to transportation, would far surpass them in importance and create the modern world. Financing steam transportation would make Wall Street, a mere convenience in 1830, indispensable to the American economy.