Economic History Of The Erie Canal

Emma Imber

Professor Gurwitz

Economic History of New York

Final Term Paper

5-7-2014

An Economic History of the Financing of the Erie Canal

Introduction:

“If the canal is to be a shower of gold, it will fall upon New York; if a river of gold, it will flow into her lap” –A New York politician (qtd. in Shaw 71).

In 1825, the Erie Canal, which connected the Atlantic Ocean with the Great Lakes for the first time in history, opened for business. New York was already “America’s preeminent seaport, emporium and financial center,” ushering in a new era of building projects with a view towards the future (Burrows and Wallace 450). The opening of the canal was a culmination of eight years of labor-intensive construction and roughly thirteen years of debates over policy and logistics (Burrows and Wallace 451). It spanned an impressive 363 miles, achieved through hard labor and steam-power lock technology (Gurwitz Lecture Feb 26). It far exceeded any building project seen before in the United States, and at the time was viewed as a great engineering feat. Now, with a waterway in place to connect itself to the Great Lakes, New York was in a prime position to experience economic growth through expanded trade and investment. Moreover, the Erie Canal fund would go on to act as a lender of last resort in times of need, and spurred a nationwide building craze in times of growth.

However, before any such growth could take place, the Canal project had to be financed and implemented on the ground. As it was the largest public works project the country had seen, financing the Erie Canal was to be no small task. No private entity was equipped to organize and finance the ambitious project. Thus, New York State took sole responsibility for the constru...

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...ew projects or ventures. This would imply careful strategic planning on the part of the Commissioners.

According to historical trendlines (see above), bond yields in the 1820s in the United States for 10-year maturities hovered at about 4.6%. The interest rate on the canal bonds of 5.41% would have been noticeably above that mark. However, this figure alone is insufficient to capture the true, and perhaps unprecedented, financial impact of the project.

As Tibbits recalls in a later report, the Comissioners of the canal fund, in 1826, were “directed to invest the surplus revenue of the canal fund in the stock of the United States, or in any public stock, created by the cities of New York or Albany, and from time to time to reinvest the interest upon such payments as part of the surplus revenue”(Tibbits 12). This would, to some extent, become reality.