work, so the companies’ directors repeatedly sought and were often granted relief by the legislature, both in the form of loans and as outright grants of cash.5
Figure 2. Stock certificate (probably 1797) issued by the Western Inland Lock Navigation Company. Note that the Northern and Western Companies shared stock certificates, leaving a blank space before “Inland Lock Navigation Company” to be filled in as needed. Source: Private collection.
Although the canal companies’ charters, in retrospect, left the companies inadequately capitalized to perform the scale of their required work, legislators were not ultimately responsible for their failure; the companies’ directors and managers did more than their part to reach that end. As president of both firms, Philip Schuyler personally mismanaged the companies’ operations and finances while attributing stumbles and opposition to his rivals’ “corrupt motives”—a serious accusation to lodge in the early republic. In 1793 Schuyler appointed himself as the Western company’s engineer even though he had no experience or expertise in the field. Two years later, Schuyler began hiring Irish convicts who were unpopular with locals; he paid them so little that they went on strike. In 1796 the Western company’s already decaying wooden locks opened and began charging toll rates so high that petitions flooded the legislature in opposition. By 1797 the Northern company folded with more than $100,000 in debt, while the Western company’s most important asset was the right of way it would later sell to the state of New York before construction began on the Erie Canal in 1817. By then the company was almost entirely owned by speculators from New York City.
In a book about early American political economy, it is easier to choose to write chapters about state-chartered enterprises that either were successful or collapsed after many decades of longevity. Short-lived or poorly run firms do not loom large in historiographies of business or economics mainly because of survivorship bias in the selection of case studies and also because companies that failed in the 1790s did not leave behind large paper trails of letters, account ledgers, or legal and legislative records. Failed firms never had the chance to have memoirs published commemorating their founding or subsequent anniversaries; the principals in those firms were understandably reluctant to revisit their mistakes in print or commit them to posterity, and often the papers related to those businesses were never kept, let alone archived.6 The available source bases for examining companies like the Northern and Western Inland Lock Navigation Companies are therefore thin.
Although the companies themselves may be difficult to reconstruct in this instance, the lessons that contemporaries took away from the failures of New York’s early canal policies are readily accessible. In fact, the Erie Canal that was eventually constructed in 1817 was designed, financed, managed, and organized in response to the perceived shortcomings of these two canal companies that had been chartered twenty-five years earlier. Most notably, the legislature’s decision to finance the Erie Canal with debt—in the form of bonds—rather than through the sale of ownership-conferring stocks, did not arise because legislators had turned hostile to corporations or monopolies in 1817. To the contrary, most lawmakers were themselves shareholders or directors in state-chartered enterprises and were therefore familiar with the habit of structuring the state’s marketplace with the use of public-private mixed-economy institutions. But this firsthand experience was also furnished with knowledge about what had happened to the Northern and Western Inland Lock Navigation Companies, enabling those later canal promoters to anticipate the problems that arose when private and public interests diverged within a transportation-infrastructure corporation.
What, then, had they learned?
One of the most high-profile writers on the political economy of canal policy during the 1790s was Elkanah Watson, the onetime director of the Western Inland Lock Navigation Company who was later ousted by company president Philip Schuyler over their clashes concerning the management of the firm. When he first joined the company, Watson was a peripatetic 35-year-old merchant who had moved to Albany from North Carolina after a series of business failures in the West India trade. Watson’s memoirist proudly recalled him moving to the town when it was home to no more than five families; by the 1780s, he was known as “that paving Yankee” for initiating repairs and improvements to the city’s main thoroughfare, making him one of Albany’s first authentic political entrepreneurs.
Although it drew forth his enthusiasm, the idea of building a canal to stretch from Albany, which lies on the northern end of the navigable portion of the Hudson River, westward to Lake Ontario or Lake Erie was hardly an original idea when Watson began writing on the subject.
In 1724 the colonial Province of New York’s surveyor, Cadwallader Colden—father of the future Erie Canal memoirist—proposed linking the Great Lakes to the Hudson River. As Colden observed, the vast, unsettled, and undeveloped Southern and Northern tiers of New York were served by waterways that were neither navigable nor oriented to boost commercial interests. Looking at a modern-day map of New York’s rivers tells the same story: the Susquehanna River basin leads to the center of Pennsylvania, the Delaware and Neversink Rivers hastily leave the state to bisect Pennsylvania from New Jersey, the St. Lawrence basin carries travelers northward to Quebec, and the Finger Lakes feed the Oswego’s drainage into Lake Ontario. Colden’s written tour of the province envisioned joining the Atlantic Ocean to Lake Erie via the Hudson and Mohawk Rivers, followed by traveling on the Oneida, Oswego, and Seneca Rivers, which eventually leads to the fierce maw of Niagara Falls. There, a fifth of the fresh water in the world makes a 90-degree turn before falling 170 feet from Lake Erie into a churning spiral of Lake Ontario. In the eighteenth century, only the Hudson River could carry goods from the interior of New York to another in-state port or marketplace. Connecting the state’s interior to the Hudson promised to direct trade inward, developing a western market within New York that could be integrated with the state’s eastern portions. Without such improvements—large, sustained, and coordinated investments in the construction of artificial roads and routes—the potential for economic development and agricultural improvement in New York would remain strangled by nature. With the exception of the Hudson River, the state’s rivers all seem to flow the wrong way.7
Drawing inspiration from Colden’s vision, an Irish-born engineer named Christopher Colles in 1784 presented the New York legislature with a proposal to begin “removing the obstructions” on the Mohawk River as part of a larger plan to “promote” both the “settlement of the interior country” and “inland navigation.” Submitted alongside petitions for the incorporation of banks and a Chamber of Commerce in New York City, Colles described a plan to “let a number of Gentlemen subscribe the sum of 13,000£ and let application be made to the Legislature to embody them into a Company, vested with powers to carry on the said work.” In short, Colles was asking for a corporate charter. If the legislature would grant him this wish, along with 250,000 acres of “waste and unappropriated lands” from the state, Colles’s new company would find “sober, honest, industrious farmers or workmen” to labor on the new water route, after which they would each take charge of 150-acre parcels of that land, turning unimproved and unused territory into “a settled neighbourhood.” “Internal trade will be increased,” Colles predicted, “foreign trade will be promoted … the country will be settled … the frontiers will be secured.” Moreover, he continued, “in time of peace, all the necessaries conveniences, and if we please the luxuries of life may be distributed to the remotest parts of the Great Lakes which so beautifully diversify the face of this extensive continent.” Urging legislators to look to British policy as a model, Colles called his proposal one “of considerable public as well as private advantage … to direct the stimulus of private interest to public purposes.”8
New York lawmakers lauded Colles’s proposal, but they had another idea about how to implement his planned work. A state assembly committee recommended that “if Mr. Colles, with a number of adventurers”—their term for investors—decided to undertake the planned improvements, “they ought to be encouraged by a law giving and securing to them, their heirs
