Building the Empire State. Brian Phillips Murphy

development in northern and western New York was large enough that contemporaries found potential profits difficult to calculate. By one measure, New York’s state government in 1790 possessed $75 million in unsold public lands. Meanwhile, in the western part of the state two Massachusetts merchants headed a syndicate that either owned or owned the right to buy from Iroquois tribes six million acres of land that stretched to Lake Erie, for which they had paid $1 million in 1788.¹ For all the vastness of these expanses, however, the most valuable land in the state was concentrated along a narrow ribbon: the banks of the Hudson River. This was not because soil elsewhere was infertile or unusable but because it could not be reached. All but the most durable agricultural products shipped to New York City or Albany from faraway farms spoiled before arriving or became so expensive because of shipping costs that it was impractical to attempt such trade. The only way to render such distances irrelevant was to increase the speed, quantity, and transparency of exchanges by altering both the physical and the institutional landscape of the state.

      Although people living far from cities were most directly injured by this status quo, political entrepreneurs who speculated in upstate and distant land purchases were better positioned to persuade state lawmakers to adopt remedies. In the early 1790s, a coalition of politically connected land speculators and bank promoters lobbied New York’s legislature to incorporate two companies that would be charged with building canals northward and westward from Albany. At the time, the city itself had a population of just several thousand people. It was situated, however, in Albany County, one of New York’s most populous, with more than 75,000 inhabitants.²

      These canal projects promised almost immediate benefits: just the prospect of slashing shipping costs could reward land speculators with speedy profits as soon as they could unload their holdings onto ambitious upstart farmers. For some promoters and lawmakers, longer-term interests were also at stake: a desire to consolidate the vast territory of New York State by populating it with settlers, some of whom would dispossess Iroquois Indians and connect New Yorkers across the state’s spanning stretches. There were also nationalist reasons to support the projects: forming commercial connections to easterly markets would speed the integration of western states and territories into the federal union.³

      However, for all the gains, financial and political, promised by the two canal companies, both faltered. The Northern and Western Inland Lock Navigation Companies had been created alongside a new Bank of Albany, the state’s second bank. The canal companies were chartered on 30 March 1792 and the bank’s petition for incorporation was approved by the legislature on 2 April 1792. The bank and canal companies shared many of the same investors and sponsors, most notably Philip Schuyler, the onetime general and former U.S. senator who lobbied for all three incorporations from his seat in the state senate. When they were incorporated, the canal companies counted Federalists, anti-Federalists, and future Republicans among their directors and shareholders, including Stephen Van Rensselaer—likely the wealthiest man in the state—as well as Chancellor Robert R. Livingston. Despite having this political and financial capital at their disposal, however, the companies soon ran short on funds and repeatedly found that their charters, crafted by the legislature to restrain the powers and privileges that were inherent in state-issued grants of incorporation, hobbled them from fully executing their missions. Just months after the companies were incorporated, Schuyler and the companies’ directors returned to the legislature seeking to amend their charters so that they could acquire wider rights of way—the amount of land bordering either side of the canal. They needed this land not only to cobble together a commercially viable route for their projects but also to have enough room to do the practical work of clearing that land of trees and obstacles while doing construction. Legislators overwhelmingly supported this request over the property-rights objections of some state jurists and residents of affected counties.⁴ The companies’ dependence on lawmakers turned out to be chronic. Neither corporation was able to sell enough stock shares to give it the money to complete its 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