The Economics of the Erie Canal Would Lead to War

The Erie Canal
I. N. Phelps Stokes Collection, Miriam and Ira D. Wallach Division of Art, Prints and Photographs. The New York Public Library. Astor, Lenox and Tilden Foundations.

     The Erie Canal was the central economic event of the first half of the nineteenth century; however, this revolution in transportation would cost the American people more than it bargained for. The economic policies derived from the building of this canal would set a precedent for “internal improvements,” a system that would lead to America’s bloodiest war.

     As Americans moved west deeper into the frontier, projects were springing up to connect the eastern port towns of New England with the new settlements emerging out west. Roadways and turnpikes were being constructed to assist in this process; but “even on well-built gravel roads, travel over land was slow and expensive.”¹ To solve this problem, American engineers turned to waterways and looked to the building of canals.

     The legislature of New York decided to invest into the construction of a canal unlike any America had seen before. This complex project would create a canal that spanned 364 miles from the Hudson River to Lake Erie. Prior to the construction of the Erie Canal, “the longest artificial waterway in the United States was just 28 miles long.”² De Witt Clinton, the Governor of New York, was the “architect” who convinced the State legislature to “finance the waterway from tax revenues, tolls, and bond sales to foreign investors.”³

     The Erie Canal would be a “success” in that it did boost the economy and increased the trade between the east and west. Transportation costs dropped and profits for farmers and merchants increased. Even the construction costs for the canal were paid off quickly. “By 1825, when the Erie was completed, toll revenues already exceeded a half million dollars a year. Soon the canal’s entire $7 million cost had been recovered.”⁴

     Governor Clinton would become a model for Hamiltonians in political office across the states to the north, which would create similar internal improvement projects in order to increase the influence and power of the central government. This push for internal improvements (corporate welfare)—with all its financial failures—would lead to government waste, fraud, and abuse, which ultimately would create a war between the states.

     Internal improvement projects such as the building of canals, railroads, highways etc., through government subsidies were riddled with failure throughout the states. These projects would become the key point of contention between the two political parties raised up around the philosophies of Alexander Hamilton and Thomas Jefferson. Hamilton’s disciples, Henry Clay and Abraham Lincoln, would continually push for British-style mercantilism and a strong central government. “Lincoln confessed to a friend early in his political career that his ambition was to become ‘the DeWitt Clinton of Illinois.’”⁵

     Despite the success of the Erie Canal, other internal improvement projects that followed, especially those in the 1830s, were complete and utter failures. So horrific were the problems created by these government sponsored projects that all but two states, Missouri and Massachusetts, amended their state constitutions to prohibit further such internal improvements. John Bach McMaster, a historian, wrote, “In every state which had gone recklessly into internal improvements the financial situation was alarming. No works were finished; little or no income was derived from them; interest on the bonds increased day by day and no means of paying it save by taxation remained.”⁶

     The taxation—tariffs—to pay for these economically catastrophic failed internal improvements lead the Southern States to secede from the Federal government. The South, who relied heavily on manufactured goods, paid for the majority of the Federal revenue accrued through the high tariffs during the early 19th century, which ultimately would be spent on internal improvements. Not only did they believe these internal improvements were unconstitutional, they could not stand seeing their income being wasted in the states to the north. The South hated these internal improvements so much that they would prohibit them when they wrote their new Confederate Constitution. In Article I, Section 8, Clause 3, it reads that

the Congress shall have power to regulate commerce with foreign nations, and among the several States, and with the Indian tribes; but neither this, nor any other clause contained in the constitution, shall ever be construed to delegate the power to Congress to appropriate money for any internal improvement intended to facilitate commerce….⁷

     When Abraham Lincoln was elected as the sixteenth president, the South knew that they would be further enslaved to the “American System” or British-style mercantilism. The South was fully aware of Lincoln’s true motivations and political position. They remembered what he had said in 1832:

I presume you all know who I am. I am humble Abraham Lincoln. I have been solicited by many friends to become a candidate for the legislature. My politics are short and sweet, like the old woman’s dance. I am in favor of a national bank…in favor of the internal improvements system and a high protective tariff.”⁸

     Rather than submit to the same tyrannical economic system that was inflicted upon the colonies in the 17th and 18th centuries, the South set out to fight their Second War for Independence. Government sponsored internal improvements—like the massive economic event in the building of the Erie Canal—culminated into America’s bloodiest war that took the lives of over 800,000 souls.

Notes

1. Henretta, James A. and David Brody. America: A Concise History, Volume I: To 1877, 4th ed. Boston: Bedford/St. Martin's, 2010, 271.
2. Ibid, 271
3. Ibid, 271
4. David Burner, Virginia Bernhard, and Stanley I. Kutler. Firsthand America: A History of the United States, Volume I, 4th ed. St. James: Brandywine Press, 1996, 251
5. DiLorenzo, Thomas J. Ludwig von Mises Institute, n.d. http://mises.org/journals/scholar/internal.pdf (accessed October 28, 2013).
6. Ibid
7. Constitution of the Confederate States of America, University of Georgia Special Collections Libraries. October 25, 2012. http://www.libs.uga.edu/hargrett/selections/confed/trans.html (accessed October 30, 2013).
8. DiLorenzo, Thomas J. The Real Lincoln: A New Look at Abraham Lincoln, His Agenda, and an Unnecessary War. New York: Three Rivers Press, 2002, 54.