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Construction on the Erie Canal in New York state started in 1817. Many predicted failure and the program was often referred to as "Clinton's Folly." It was completed in 1825 at a cost of seven million dollars. The canal was profitable in its first year and continued to be so for many more years. It also greatly reduced the cost of shipping goods & aided the settlement of western New York. After the Erie Canal opening, many people thought they could make money by building canals, especially in the Midwestern states, which were then on America's frontier.
The Mammoth Internal Improvement Act of 1836
One state where canal fever ran rampant was Indiana. "Internal improvements" were the political buzzwords of the day. The belief was that if canals, roads and railroads were built, settlers would come in droves and commerce would rapidly expand. One thing that many overlooked was the fact that the Erie Canal connected Lake Erie to New York City, one of the finest and busiest ports in the New World. In 1836 Indiana had only been a state for 20 years. Its population according to the 1830 U.S. census was only 343,000 people, or less than half the population of Indianapolis today.
In 1836 the Whig party controlled the state legislature and Whig Noah Noble was governor. Construction of the Wabash & Erie Canal had begun earlier, and the originally proposed legislation was intended to fund its extension, but to get the necessary votes, the act ended up proving something for almost everyone in the state, regardless of where they lived. The final legislation called for a mix of canals, roads and railroads. The canals included:
- Wabash & Erie Canal: This canal hooked up with a canal in Ohio that connected to Lake Erie. It would run mostly along the Wabash River from Fort Wayne to Terre Haute. Construction had begun in 1832, but the act called for its extension to Terre Haute.
- Central Canal: The Central Canal would link up with the Wabash & Erie Canal at Peru, Indiana. It would pass through the state capital of Indianapolis on the way to Evansville on the Ohio River.
- Cross-Cut Canal: The Cross-Cut Canal would run from the Wabash & Erie Canal at Terre Haute to the Central Canal at Worthington.
- Whitewater Canal: This canal would hook up with the Central Canal somewhere and then run through Hagerstown and Metamora to Lawrenceburg on the Ohio River.
- Erie & Michigan Canal: The Erie & Michigan Canal would run from Fort Wayne to Michigan City on Lake Michigan.
The Mammoth Internal Improvement Act called for borrowing ten million dollars, at a time when the annual state revenue was less than $100,000. Obviously, the thinking was that these canals would quickly bring in enough revenue to pay the interest on the loans. For this to work, everything had to go right - It didn't.
The Panic of 1837 started seven years of recession. In 1838, just two years after the legislation was passed, interest on the rapidly increasing debt was nearly $200,000 while state tax revenue was less than $50,000. The decision was made to pay the interest with more borrowing. By 1839 the state could borrow no more money and construction stopped on all canals except for the Wabash & Erie Canal. Since it did turn a small profit, construction continued, but the workers were paid with stock in the canal.
The actual digging of the canals was done by hand, and was very hard work. Many of the laborers were Irish immigrants, especially after the Irish Potato Famine began in 1845. A "Jigger Boss" ladled out whiskey to the diggers. When someone said to to a Jigger Boss that the workers must have been drunk, he replied "You wouldn't expect them to work on the canal if they were sober, would you?"
In 1841 the governor sent James Lanier to negotiatie with Indiana's creditors. In exchange for reducing Indiana's debt by half, down to nine million dollars, the creditors took control of all the canals, roads and railroads called for in the 1836 act except for the Wabash & Erie Canal.
The Whitewater Canal eventually extended as far north as Hagerstown from Lawrenceburg by 1847. It was plagued with problems, including severe flooding in November of 1847. Eventually, it ceased operation and was sold to railroad interests, who used the towpath for rail lines.
Very little of the Central Canal was ever completed, just a short stretch from Broad Ripple to Indianapolis. Even less of the Wabash & Michigan Canal was constructed. The Northport Reservoir, now Sylvan Lake, intended to store water for the canal, and a few nearby miles of canal were the only things built.
Despite the 50% reduction in debt to $9 million, Indiana still couldn't pay the interest. The Wabash & Erie Canal was turned over to creditors in 1846 for another 50% reduction in debt to $4.5 million. The creditors extended the canal south of Terre Haute. It absorbed the Cross-Cut Canal route, (Terre Haute to Worthington), and the southern portion of the Central Canal route (Worthington to Evansville). Shortly after the canal reached Evansville, it became necessary to shut down sections of the canal due to lack of funds for upkeep. By 1874 it declared bankruptcy.
It is ironic that there are very few traces left of Indiana's most successful canal, the Wabash & Erie. The Central Canal, which only had eight completed miles, still runs from Broad Ripple to downtown Indianapolis. Shortly after World War II, Indiana restored a 14 mile stretch of the Whitewater Canal. You can still find traces of Indiana's canal era in the street names of Indiana towns. Although the canals have been gone for over a century, you can still find numerous Canal Streets.
Perhaps the most significant legacy of Indiana's canal fever is the new state constitution adopted in 1851. Prompted by the canal fiasco, it forbids the state from borrowing.