So on July 4, 1817, construction began on the Erie Canal, the artificial waterway that connected Buffalo on Lake Erie to Albany on the Hudson River. It was the first such conveyance in the U.S. and led to the spectacular growth of New York City, as well as turning New York into the financial capital of the world.

The "Big Ditch," as it was affectionately called, stretched 363 miles, descending 555 feet from Lake Erie to the Hudson through 83 locks. It was 40' wide…4' deep…and entirely dug by hand, providing much-needed employment in that region. Plus, if you are of Irish descent, you can be proud that some 3,000 Irish immigrants worked on constructing the Erie Canal.

On October 22, 1819, the first boat to travel on the canal went from Rome to Utica. By 1821, some 220 of the 363 miles were in operation, but construction of the hardest parts had not yet begun (the area closest to the Hudson). Governor De Witt Clinton nearly lost the governorship in 1821 as opposition from 'downstate' residents nearly outweighed those who were smart enough to know a good thing when they saw it.

And in 1825, true to Clinton's word, the canal was completed - well within the ten-year goal he had set back in 1817. Plus, it came in on budget, $7 million.

On October 26, the governor set out from Buffalo in what would be a two-week party. And then on November 7, Clinton performed the "wedding of the waters" ceremony out near Sandy Hook, NJ, as he mingled Lake Erie water into the Atlantic. New York would henceforth become "the emporium of commerce, the seat of manufactures, [and] the focus of great moneyed operations."

In 1825, some 13,100 boats passed between Buffalo and Albany, paying $500,000 in tolls which was more than enough to fund the debt the state had incurred.

And, just as the Internet has helped to lower prices in some processes today, the Erie Canal was a huge boon to the region's consumers. The canal was the most important freight route from the East to the Mid West. Agricultural production from beyond the Appalachians now passed through a far shorter route than had been the norm. Historian John Steele Gordon notes that before the canal was built, "a ton of flour in Buffalo, worth $40, could be transported overland to New York City in 3 weeks at a cost of $120. Using the canal it could be shipped in 8 days at a cost of $6."

Gordon also notes that as a result of the canal, the growth of New York City exploded. In 1820, New York had approximately 125,000 residents, while Philadelphia was at 110,000. By 1860, New York registered almost 1.1 million; Philadelphia, half that number. And, in another example of the impact, back in 1800, 9% of the country's foreign commerce had passed through New York. By 1860 that figure was 62%.

[As a result of the Erie Canal, Philadelphia was shocked to discover that the cheapest route for freight traffic to Pittsburgh was by way of New York City, Albany, Buffalo, and wagon road from Lake Erie. By 1840, Pennsylvania had 1,000 miles of canals in operation. But it was too late.]

Because the canal drew eastward much of the trade that once went down to the Gulf, it had not only major economic consequences, but also political ones as well. The Erie Canal tied together East and West while isolating the South.

Canal mania gripped the northern half of the country as the Big Ditch was being completed. In New York, branches of the Erie Canal soon put most of the state within reach of it. And by 1828, branches of the Delaware and Hudson canal linked New York with the coalfields of northeastern Pennsylvania.

By 1837 some 3,000 miles of waterways were crisscrossing America. Europeans were eager to invest in canal shares, which were seen to be the perfect way to participate in the nation's fast- growing economy.

But the canal construction and investment boom was bound to end badly. More than one state had borrowed heavily to finance the projects, only to see them go bust. Bondholders had no recourse. Some of the ventures were simply frauds. One offering, the Chesapeake and Ohio Canal Company, designed to be a southerly version of the Erie Canal, was never completed after running up costs of $22 million, over three times the Erie's $7 million price tag.

And there was a new threat on the horizon…the railroad. [Back in 1825, the first commercial steam railway had begun operations in England.] Coupled with the Panic of 1837 and the ensuing depression, it spelled doom.

On the other hand, the Erie Canal can forever be credited with solidifying New York's preeminent position on the world scene. Oliver Wendell Holmes (the author, not the Chief Justice), best summed it up.

"Only with the planning and financing of the Erie Canal did Wall Street threaten the older centers. When the Big Ditch proved even more beneficial than expected, all of New York State and the old Northwest opened to the port. As the city grew, so Wall Street expanded its credit and banking operations. The brokers waxed strong, as New York became the tip of the tongue that laps up the cream of the continent."

Sources:

"America: A Narrative History," Brown and Shi
"The Great Game," John Steele Gordon
"The Pursuit of Wealth," Robert Sobel
Journal of Financial History / Article by Fred Folsom
"The Growth of the American Republic, Vol. 1,"
Morison, Commager, Leuchtenberg

Brian Trumbore