Theme 2: Module 9

Off to Urban Competitive Rivalries and Transportation Races Pre-1840 State-Chartered Corporations and Canals

Henry Clay–He looks like I thought he would

Henry Clay embraced the strategy as a key element of his American System platform. So in 1825 Congress approved several canal-related bills (Rivers and Harbors Act, General Survey Act). Included in the former legislation was a funding authorization to the Corp of Engineers which was entrusted with a significant role in “internal improvements”. From that point forward, federal involvement in canals and other infrastructure was possible. Federal involvement, however, was always quite controversial.

Andrew Jackson in 1824

Previous to Jackson (who hated federal involvement and regarded infrastructure as a purely state affair) there had been several presidential vetoes of federal involvement in various internal improvements. The Supreme Court’s Gibbons v. Ogden (1824) decision, however, paved the way for federal involvement in interstate commerce—and legitimized a possible national role in state and local internal improvements. That activist federal government, paying the way to state and local infrastructure, was not to be. Not if Andrew Jackson had any say in the matter–and he did, certainly after 1828.

So as explained in the previous module, states and local government had to take the lead in installing developmental transportation infrastructure to connect the city-building urban dots scattered across the American continent. They utilized the state-chartered corporation as their principal Janus-External EDO, and by and large the developmental infrastructure got built. This module is an outline of that.

Things did not end well–at least for the states. After the Panic of 1837 (which lasted well into the 1840’s), a reaction against the state-chartered developmental transportation corporation resulted. The reaction came in the form of a series of referendum which amended state constitutions to insert clauses which restricted and regulated our earlier described public-private partnership. That story will be presented in the second half of this module.

First ….

 

Off to the Competitive Urban Hierarchy Races: Canals and Railroads 

Roads and Steamboats 

Reynolds (Reynolds, 2008, pp. 12-18) asserted the first half of the nineteenth century witnessed three waves of transportation innovation: (1) road and turnpike construction 1790-1810; (2) the steamboat and canal-building 1811-1830; and (3) post-1830 steam (1826, John Steven’s, New Jersey) locomotive innovative and railroad construction.

National Road

Excepting the National Road, roads and turnpikes previous to 1825 were privately financed and state-chartered. The first turnpike (1795), Pennsylvania Philadelphia to Lancaster Turnpike, initiated a “craze” among states to construct toll roads. By 1816 “turnpikes linked the major cities in the Northeast and formed a roughly continuous line from Maine to Georgia”. New York, Pennsylvania and New England were the most energetic builders.

Although turnpikes were sometimes macadamized, they were usually crude roads, dotted with tree stumps, (and) forded swamps with … sawed logs. Every six to ten miles was a tollbooth that charged between ten and twenty-five cents. Investor optimism fed the turnpike boom. Before 1830, turnpike companies evidently won more state corporate charters than any other kind of private business…. With the rise of canals and railroads, turnpikes became increasingly unattractive for carriers of freight. (Reynolds, 2008, p. 13)

Water transportation proved more durable for commercial trade. Steamboats (and canals) developed simultaneously with toll roads, linking Atlantic coastal trade with hinterland internal trade. Robert Fulton did not invent the steamboat. Fulton made his fortune commercializing an existing innovation. Fulton started a steamboat route between New York City and Albany in 1807. Mark Twain asserted the greatest impact of steamboats was felt on the Mississippi where the steamboat became a national institution and a powerful commercial/consumer transportation mode for mid-central, western, and southern states. Steamboats made city connections to rivers economically necessary, fostering both canals and waterfronts.

Canals

Operating Canals in 1825

For all practical purposes, canals were the workhorses of the Early Republic transportation system. George Washington (1784) was an investor-owner of the Patowmack Company which attempted to connect the Potomac with western territories. The company went bankrupt.  Early canals were short, and mostly constructed in the South. The Great Dismal Swamp Canal (Virginia/North Carolina) opened in 1805. Washington was involved with it as well. Alleged by the Supreme Court as the first confirmable instance of a tax abatement (1790), the Great Dismal is allegedly America’s oldest presently-operating canal—it later become the starting point for the Inter-Coastal Waterway–which BTW is a glorified canal (Reynolds, Waking Giant, op. cit. p. 15).

The infrastructure projects were themselves a combination of sections built by state/municipality directly, and by the corporation indirectly. For example, Carter Goodyear calculated that  nearly 75% percent of total investment (about $188 million) in canal construction in New York, Pennsylvania, Ohio, Indiana, Illinois and Virginia (between 1815-1860) was financed by state/municipal governments thru these corporate charters. (Goodrich, 1961). The usual financing involved the state/municipality issuing bonds, purchased by foreign investors.

The Erie Canal was the page-turner–the breakout infrastructure that opened up the western economy. No one except Clinton and fellow enthusiasts had  believed in it. America in 1816 (when Erie Canal construction started) had constructed only 100 miles [i] of canals–by 1840, the nation had 3000. Warner states that canals were built in two spurts, from 1815 to 1834, and from 1836 to 1854. The first burst connected Atlantic coast port cities with cities in the interior. The second burst, built off the earlier canals connected the interior area to other interior geographies (Sam Bass Warner, (the Urban Wilderness, 1972, pp. 67-8).

This obscures a reality fundamental to our history–the Midwest and North Central States had entered into our picture. A new region had developed, and it pursued its own, autonomous and self-directed set of MED strategies and programs in response to its perceived needs. Subtly, we must now remember that as we talk about the “northern hegemonic industrial Big Cities”, there is within that hegemony a time lag which separated older from newer settled cities and states. By the 1830’s, certainly the 1840’s, the Midwest witnessed its spasm of city-building, migration and settlement.

That they largely imitated their eastern forebearers is true enough, but midwestern settlement was more complex/multi-ethnic with criss-crossing political cultures–state constitution–and more concentrated in time. An early version of what later would be called “instant cities” had appeared on the hegemonic horizon. Two cases studies, Illinois and Minnesota, will demonstrate. When one delves into each state’s economic development history, one quickly detects temporal lags, programmatic and strategy shifts, new players and actors–and sometimes different EDO-types.

Canals connecting Lowell textile mills

Older states enjoyed the luxury of having been first on the block. For example, Boston and Massachusetts were in a unique position. Like NYC they were more “developed”, possessing established population centers and economic bases, with existing finance and business capacity. In these instances private enterprise/equity stepped to the plate. Technology from elsewhere could be imported, creating a different character to innovation. The railroad from Boston to the Lowell textile mills, for example, was built by private funds, without government assistance. So was much of the state’s infrastructure–state-chartered corporations were secondary.

The Erie Canal

The 360 mile Erie Canal, DeWitt Clinton’s “eighth wonder of the world” (or “Folly” or “Big Ditch”–Jefferson thought it “a little short of madness”) (Reynolds, 2008, p. 15) was the inspiration for the subsequent canal craze. Connecting New York City to the Great Lakes (transshipment nexus being Buffalo) the canal opened up in 1825 rich agricultural lands of the upper Midwest to Atlantic coast ocean and coastal commerce–reducing transportation costs by 90%.

The Erie Canal Corporation, a state-financed project, designed, lobbied, then dug by a state-chartered commission, cost seven to nine million dollars. The Canal Corporation was initially approved in 1805 to chase the promise of federal, Jefferson administration internal improvement dollars. Hopes prove eternal, it encapsulated the dreams of many to build a canal Lake Erie; it rose from the ashes of a previous major canal-building effort (Western Inland Lock Navigation Company). It went through a decade-long gestation period–which is best not described, as it was even more ridiculous than today’s convoluted quest for the lithium battery. A state-chartered developmental infrastructure corporation, which from the get-go it was mostly public, and not much of a hybrid.

Lacking any hope of private financing in 1806, it was built with State of NY bonds sold to financial markets and the general public. Construction started in 1816-7 and the Canal opened for business in 1825-6. Nine years after opening (1837), Canal Corporation revenues paid off the outstanding construction bonds[iii]. Just in time as we shall later see.

The Erie Canal was an immediate success; it captured grain from the newly-settled Midwest which was sent by lake to Buffalo, to the Canal’s terminus in Albany, and ultimately to NYC for transshipment. NYC’s economic growth explosion in this time period was due to several factors, but the Erie Canal was a major one. That massive piece of infrastructure thrust NYC into “world city status”. Left largely unappreciated the Canal anchored a series of hugely-successful city-building initiatives that settled Upper New York and made Upper New York the most populous region in the 1830 nation. Upstate New York, in effect became a nearly 400 mile long transhipment zone.

The immensity of the Erie Canal, the fool-hardy risk it assumed, the nearly generation-long authorization, massive financing needs, and incredibly-complex construction difficulties, the project produced several sticker shocks and seeming near collapses, and many soon-to-be-proven wrong media outbursts. Its success was unexpected, and threatened immediate woe to neighboring naysayers. Whatever people thought of it, the Erie Canal forced neighboring states and their localities to devise their own response, or forever be locked underneath NY and NYC’s growing shadow.

Philadelphia and Baltimore

Pennsylvania’s Main Line

The Erie Canal engendered considerable apprehension in Philadelphia and Pittsburgh. The Erie Canal stole the Ohio hinterland from them and further was destined to capture agricultural production of the northern Great Lakes areas. Philadelphia, the nation’s second largest city in 1830, felt further threatened by rival Baltimore (3rd largest city with only 200 fewer residents).

Fearing Baltimore would establish a trade route into southern Ohio, Philadelphia, believing it held the advantage of better Ohio access through Pittsburgh, decided that a mixed canal and railroad system–the Pennsylvania Mainline) to Pittsburgh. The State of Pennsylvania issued bonds, not municipalities. Believing rail too risky, the state which was funding the infrastructure thought canals would be cost effective and easier to build. The multi-modal system compelled numerous break-bulk transshipment points. Canals also froze in the winter when the grain shipped. Erie Canal handled more traffic and hauled heavier cargoes. Pennsylvania spent nearly $100 million dollars on its Main Line canal/railroad system—a project directed by a private-chartered corporation. (Bruchey, 1968, p. 132). It was completed much earlier than B&O but was non-competitive with the canal and then the railroad.

Baltimore on the other hand dependent on local investor institutions since the State declined to participate, instead authorizing Baltimore City “to purchase up to 5,000 shares in the company …. The City used property tax revenues to finance the railroad. (Dilworth, 2011, p. 153). Railroad construction, impeded by constant legal harassment by hostile neighboring states that placed legal barriers on Maryland-owned infrastructure that crossed state lines, pinned its hopes on the steam powered railroad. They put their money into the startup “Baltimore and Ohio Railroad of Baltimore City” (1827), believing/hoping it could conquer the intervening mountains. (Angel Jr., 1977, pp. 111-16). When the Erie Canal opened, the race was on.

Founders of B&O at 1827 Incorporation Meeting–Seated left of front center is Samuel Morse of telegraph fame

B&O laid track across Maryland while experimenting with new locomotives. In 1830, the famous little engine that could, the “Tom Thumb”, ran a test run. In 1837 the B&O crossed the Potomac at Harper’s Ferry Virginia. By that time the city of Baltimore had established a commission to work with the railroad, and in 1836 the city purchased $3 million dollars of B&O stock and another $1 million in the related Baltimore & Susquehanna Railroad. Because neither Pennsylvania nor Virginia wanted Baltimore to succeed, roadblocks were placed in B&O’s path. B&O did not reach Wheeling until 1853—twenty five years after construction had started. Post-Civil War acquisitions in which B&O acquired key Ohio rail lines ultimately provided backdoor access into Pittsburgh itself, putting a stake thru Pennsylvania’s hybrid Mainline—in the 1880’s! The race lasted for over a half-century.

The Erie Canal dramatically demonstrated to other cities that they “could conquer the barriers that limited their development through a strategy which promised tremendous potential for commercial growth … [that] large sums of money could be easily raised for public works by utilizing state credit …. When states shared interests in economic development similar to those of cities, the state could promote programs to aid urban development through sale of state bonds”. (Kantor, 1988, p. 49).

Other New York canals followed in short order: Oswego, Chenango, Cayuga-Seneca, the Champlain, and Delaware and Hudson. Ohio constructed two major canals: between Cleveland and Portsmouth (the Ohio River) and Cincinnati and Toledo. Virginia, Indiana, New Jersey, Maryland, Illinois also completed important canals. Canals, it seems, were another example of the infamous herd-like, copycat imitation that repeatedly characterizes diffusion of economic development tools and strategies throughout our history (Goodrich, Canals and American Economic Development, 1961).

After 1840 Cities, not States Drove the Competition and Ran the Races

Goodrich estimates the pre-Civil War face value of state government state-chartered internal improvement corporations was in excess of $300,000,000 and that of local governments about $125,000.000[i]. These should be regarded as huge sums relative to current valuations. They reflect, however, that pre-Civil War state-chartered corporations financed canals. Railroads ran earlier, of course, only in the 1840’s did they “gather steam”. City ED strategies drove railroad developmental infrastructure–particularly after states, adopting state constitutional gift and loan clauses took themselves out of the railroad infrastructure financing game–leaving it to their urban “creatures”, the cities. That complex story will be told, o mirabile dictu, later in the module.

State approval, however, masked who really led the drive for state charters: municipalities. Louis Hartz (Hartz, 1948) observed that “state investment at its height was of minor significance compared with investments by cities and counties”. Henry Pierce (Pierce, 1953) stated that 315 municipalities “pledged approximately $37,000,000 toward the construction of (New York’s) roads between 1827 and 1875”. Primm’s study of Missouri in the 1850’s (Primm, 1954) asserted cities and counties along the railroad routes bought most of the stocks of the state-assisted railroads—i.e. the state issued the bonds and the cities and counties bought them.

Dining Car on Cincinnati Southern Railroad, still owned by the City, leased to Norfolk Southern

Railroad competition was hyperbolic compared to that engendered by canals. Cities needed railroads and would do almost anything to acquire or improve railroad access. An example of rather extreme municipal involvement is Cincinnati’s 1869-73 ownership and operation of a railroad to Chattanooga, Tennessee. Authorized by the state legislature, the municipal-owned railroad was an “effort to shore up the city’s economic decline relative to faster-growing cities such as St. Louis, and Chicago. (Dilworth, 2011, p. 258) Suffice it to say, every major, and not so major, city of the period buried in its scandal closet an outlandish railroad dependency story. If a city did not connect to other cities, its future was obvious.

Milton Heath (Heath, 1948) reported cities and counties financed $45 million railroad bonds in the pre-bellum south. Bruchey concluded Baltimore, Cincinnati and Milwaukee subscribed to stock, purchased railroad bonds, or guaranteed the indentures of railroad companies. In some instances, he asserts outright grants were made (Bruchey, 1968, p. 135). Why?

City development and prosperity were tied to important transportation improvements that permitted easier, faster, and cheaper commercial penetration of the sprawling new nation …. Transportation innovations and …commercializing the city hinterland could spell the difference between stagnation and prosperity …. With the introduction of each transportation breakthrough, cities and the political leaders faced the prospect of fierce competition with other cities, old and new, to win economic domination over their regions … political decisions could not help but be influenced by the rise of regional rivalries for economic growth. (Kantor, 1988, p. 40)

State-chartered corporations were used for both, and by the 1840’s canals were decidedly secondary. Railroads (the private railroad corporation, as in transcontinental railroads) for the next half-century became the dominant, external-MED EDO. We will send considerable time in our future article on “Western ED before 1900) on the railroad’s role in the West (and in the South as well), but it was railroads that opened up the western Midwest, with 1850’s Illinois and 1870-90 Minnesota being the pioneers—and to whom a great deal of contemporary MED attraction and promotion programs, tools and even sub-strategies were first developed and used. (For example, in 1873 a railroad corporation renamed Edwinton, North Dakota to take advantage of attracting German immigrants to settle there—the railroad branded as it “German” by renaming it Bismarck North Dakota).

External MED developmental transportation strategies receded to a less dominant position after the completion of the transcontinental railroads and the “drive to the Pacific”. Their last, incredibly amazing success was in the late 1880’s when railroads opened up an obscure city, with no ostensible reason to grow. Today known as Los Angeles. It was jump started—and nearly ruined—by railroad corporations. But in between, external, “connect-the-dots” MED revolved around city-building and developmental transportation strategies, tools and project initiatives.

Footnotes

[i] Gunn’s argument, while drawn from New York State, was meant to apply to other states.

[ii] Michigan defaulted because the majority of its defaulted debt was caused by Morris Bank’s transportation loans were refinanced to British investors who later forced Morris into bankruptcy.

[i] “Lottery” compares to general public investing in public debt such as a bond. Using lotteries a significant portion of public infrastructure were financed, not through taxes, but citizen “investment”. The general public willingly purchased these infrastructure bonds.

[ii] Bruchey’s overview of 1790-1860 Pennsylvania’s charter issuance reveals total of 2,333 business charters/special acts were approved: 64% were transportation, 11% insurance, 8% manufacturing, 7% banking, 3% gas, 3% water, and 4% miscellaneous.

[iii] George Washington (1784) was an investor-owner of the Patowmack Company which attempted to connect the Potomac with western territories. The company went bankrupt. The early canals were short, and constructed in the South. The Great Dismal Swamp Canal (Virginia/North Carolina) opened in 1805 (Washington was involved with it as well) is allegedly America’s oldest presently-operating canal—it later become the starting point for the Inter-coastal Waterways Canal (Reynolds, Waking Giant, op. cit. p. 15).

[iv] “Lottery” compares to general public investing in public debt such as a bond. Using lotteries a significant portion of public infrastructure were financed, not through taxes, but citizen “investment”. The general public willingly purchased these infrastructure bonds.

[v] Bruchey’s overview of 1790-1860 Pennsylvania’s charter issuance reveals total of 2,333 business charters/special acts were approved: 64% were transportation, 11% insurance, 8% manufacturing, 7% banking, 3% gas, 3% water, and 4% miscellaneous.

[vi] George Washington (1784) was an investor-owner of the Patowmack Company which attempted to connect the Potomac with western territories. The company went bankrupt. The early canals were short, and constructed in the South. The Great Dismal Swamp Canal (Virginia/North Carolina) opened in 1805 (Washington was involved with it as well) is allegedly America’s oldest presently-operating canal—it later become the starting point for the Inter-coastal Waterways Canal (Reynolds, Waking Giant, op. cit. p. 15).