Fall, 1999 Railroads Topic 4 Part 1 Page

Railroads as Big Business

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 boom. 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 public funds.

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 entire length!
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 taxpayers $57.5M!

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.