45-855 Railroads, The First Big Business: Topic 4 Part 1
Railroads as Big Business
Rival Transportation Systems: 1800-1840
The Turnpike Era: 1800-1820 –
By 1800 there were about 20,000
miles of post roads in the United States. These were federally
subsidized (the subsidy was not very great) roads used to deliver the mail
(in the same sense that the superhighway system – "Defense"
highways -- built by General Eisenhower were used to move armies around
the U.S.!). Article I, Section 8, Paragraph 7 gives Congress the power
to establish a Post Office and Post Roads.
These were not high quality roads. Independent local
construction companies built and maintained them and they were largely
financed by labor services.
The British blockade of the U.S. coastline south of New London,
Connecticut during the War of 1812 had the effect of highlighting the need
for a better internal road network.
This helped stimulate the construction of privately financed
turnpikes. By 1830 almost 12,000 miles had been constructed. Some were
very well constructed and were "macadamized".
Most of the turnpikes went bankrupt and even the well-built
and well managed ones only had a return of 3 to 4 percent on invested
capital. The charges to shippers were high running about 12 to 17
cents per ton-mile. Long distance traffic was the chief source of revenue
because rates were too high for short distance traffic.
Transportation costs from Buffalo to New York City in 1817 when
construction began on the Erie Canal were three times the market value of
a bushel of wheat and six times that of a bushel of corn. Small wonder
that upstate New York commodities were not being shipped in large
quantities to New York City!
Canals: 1825 – 1840
The Erie Canal –
The completion of the Erie Canal in 1825
dramatically lowered transportation costs and set off a canal building
The annual net gain on the Erie Canal over its
first decade of
operation, 1826 – 1835, was about 8 percent of its total construction cost
per year! The Erie Canal helped make New York City such a
large trading center that it accounted for 50 percent of all U.S. foreign
trade and duties collected. Small wonder then that it touched off a canal
building boom in the U.S.
The Canal Building Boom –
From 1815 – 1834 $58.6M was spent on canal construction of which $41.2M
were public funds. From 1834 – 1844 $72.2M was spent of which $57.3M were
public funds. And from 1844 – 1860 $57.4M was spent of which $38.0M were
The problem was that the Erie Canal was the only one that
made money! Geography had been kind to New York State. The Mohawk
river valley ran from the flat lands near the Great Lakes to the Hudson
River so that the Erie Canal only required 655 feet of lockage over its
In contrast, the Philadelphia Business and Political leaders
were faced with the horrendous task of building a canal across Pennsylvania
which would require 3,358 feet of lockage and a four mile tunnel to
get canal boats to Pittsburgh. The tunnel was totally impractical so a
portage railroad had to be constructed to get the barges between
Hollidaysburg and Johnstown. By this time, 1825, steam locomotive power
was successfully used on a railroad line in England (27 September 1825,
the Stockton and Darlington Railroad). There was a debate about whether
or not to build a railway but the canal supporters won. Construction
began 4 July 1826.
The Pennsylvania Canal was a huge financial disaster. The
"Main-Line" cost about $33M to build with interest costs of
$43.5M for a total of $76.5M. Revenue was only $8M and the whole system
was eventually sold for $11M making the total loss to Pennsylvania
The Western Canals –
Other than the Erie Canal, the eastern canals had little long run impact
upon the economy. What did have a big impact on the economy were the
canals built in the West from 1845 – 1860. These canals which were built
in Ohio, Indiana, and Illinois diverted freight traffic out of the
north-south river system and into the Great Lakes. The Great Lakes had
been made navigable by a series of canals the connected them. The most
important of these were the Welland Canal from Lake Ontario to Lake Erie
bypassing Niagara falls, built in 1833, and the Sault-Saint Marie or
"Soo" Canal built in 1855 that linked Lake Superior and Lake
Huron. This latter canal allowed Duluth, Minnesota and Thunder Bay,
Ontario to be ports and provided an outlet for the grain of the Dakotas
and abundant minerals in Minnesota and the upper Peninsula of Michigan.
The effect upon New Orleans was dramatic. In 1835 70 percent of Western
exports of flour, 98 percent of corn, and 95 percent of whiskey went
through the port of New Orleans. By 1860 the percentages were 22, 19,
and 40, respectively.