“Canal Mania”—A Waste of Money?

I recently stumbled on the fact that  eight states, mostly in the Midwest,  defaulted on their state bonds in the 1840s. Okay, that may not seem too exciting, but when I learned about it, I also discovered a realm of American history I had not come across before: “canal mania.”

Many of those states had spent a lot of money on canals, much of it borrowed money (bonds rather than taxes), which ultimately they could not pay back. Other problems also plagued these states such as investments in railroads and banks, but canals were big.

Most of these canal ventures were kicked off by one success—the  amazing Erie Canal, which opened in 1825.  A few canals had been built in the East before that, such as the 27-mile canal between the Merrimack River and Boston. But the Erie Canal ran from Albany, New York, across the state to Buffalo: 363 miles. The canal required 83 locks.

The Misleading Success of the Erie Canal

The undertaking was Herculean, and few people expected it to succeed. For years after New York governor Dewitt Clinton endorsed the project and supplied state funds, it was called “Clinton’s Ditch.” President Thomas Jefferson had refused to provide federal aid, saying to do so would be “little short of madness.” (He also thought such support would violate the U. S. Constitution.) [1]

But the canal, 40 feet wide and 4 feet deep, whose boats were pulled by horses on a towpath, did open to much fanfare in 1825, and within eight years its capital cost had been paid off.

That was the first and last spectacular canal success story.

In fact, we often get a picture of the canals as utter failures. Historian Alvin Harlow (in 1927)  called Indiana’s Wabash and Erie Canal the “most colossal, the most tragic failure in all canal history.”[2] Pennsylvania’s chief canal was a “technological monstrosity, a canal across mountains,” said Julius Rubin.”[3] The Illinois and Michigan canal was a “financial disaster”according to a history textbook. [4] Roger L. Ransom concluded that only five out of 19 government-supported canals were “probably successful.”[5]

Midwestern canal builders, hoping to copy the Erie Canal, ran into technical problems, financial problems, and political problems—and probably served locations that couldn’t justify the cost.

After the railroad appeared in the mid-1840s, most of the canals started losing revenue and eventually stopped operating. Today, canals are the object of, at best, antiquarian or touristic interest. (See photo above of the C&O Canal in Georgetown, Washington, D. C.)

But Wait!

Yes, there’s  more to the story. The combination of canals, rivers, and lakes—especially after Robert Fulton constructed a viable steamboat in 1817—helped expand much of Midwest agriculture by providing access to distant markets. The railroad modified but did not reverse those changes.

In fact, economist Robert W. Fogel became a champion of canals. Fogel won the Nobel Prize in Economics in 1993, but in 1964 he published what was essentially his PhD thesis, a book called Railroads and American Economic Growth: Essays in Econometric Theory. [6]

Fogel observed that historians (like earlier railroad boosters) have assumed that the   railroad was “indispensable” to American growth.  Respected historian August C. Bolino, for example, said the railroad “provided a transportation service which was essential to the development of capitalism in America.” [7]

Not so fast, said Fogel. He argued that if there had been no railroad, the country’s economic development would  have suffered very little. Why?

Steamboats and wagons were in operation, aided by the canal packet boats. The canals could have been expanded. Over time canal engineers would have developed  better technology—just as railroad engineers did. The internal combustion engine might have come much earlier, making motor trucking possible, especially if money was spent on improving roads rather than building railroads.

Fogel’s econometric studies led him to conclude that “the combination of wagon and water transportation could have provided  a relatively good substitute for the fabled iron horse.” [8]

Fogel’s work is still controversial, but historian William Cronon also supports the importance of canals. In his book Nature’s Metropolis, historian Cronon explained that waterways set the stage for Chicago’s Midwest dominance well before the railroads did. [9]

Largely because of the Erie Canal, New York City was connected to the Midwest by water routes early in the century. That connection (which more-southern cities like St. Louis and Louisville did not have) favored Chicago, giving the city on Lake Michigan a market for farm crops and a source of manufactured goods. The other cities, while on rivers, did not have such easy access to the biggest market in the country. Later, the Illinois and Michigan Canal dramatically increased Chicago’s  access to farms in the Midwest.

So when Chicago adopted the railroad, it was already well ahead on  the route to economic prosperity, thanks to waterways.

Notes

[1] Norfolk Towne Assembly, “Canals—A Tool for Economic Growth in the Early Republic,” February 18, 2022, https://www.norfolktowneassembly.org/post/canals-a-tool-for-economic-growth-in-the-early-republic.

[2] Quoted by Ronald E. Shaw, “Canals in the Early Republic: A Review of Recent Literature,” Journal of the Early Republic 4, no. 2 (Summer 1984): 117–142, at 131.

[3] Quoted by Shaw,  131.

[4] Lance Davis et al., quoted in Shaw, 131.

[5] Quoted in Shaw, 130.

[6] Robert W. Fogel, Railroads and American Economic Growth: Essays in Econometric Theory (Baltimore: Johns Hopkins Press, 1964).

[7] Quoted in Fogel, 9.

[8] Fogel, 219.

[9] William Cronon, Nature’s Metropolis: Chicago and the Great West (New York: W. W. Norton, 1991).

Image above is of the C & O Canal in Washington D.C.’s Georgetown, taken by Ken Lund and licensed by Creative Commons.