O F THE U N I VERS ITY Of ILLINOIS 386 P983e 3 *<• e UWV£Hsnv 0F U.UN05S LIBRARY Reprinted from'the Q '' 0 ," ( 6 Journal of Political Economy, Vol. XVII,-Nos. 5, 6, and 7, May, June, July, 1909 /r7 7v- po- / Digitized by the Internet Archive in 2020 with funding from University of Illinois Urbana-Champaign https://archive.org/details/economichistoryoOOputn THE ILLINOIS AND MICHIGAN CANAL 2 73 act of March 30, 1822, authorizing - construction and granting a strip of land for the canal, but only ninety feet additional on each side. The state then created a commission which made estimates of the cost varying from $639,000 to $713,000. Another appeal to Congress for aid failed. Hence the state in January, 1825, incorporated the Illinois and Michigan Canal Co. with $1,000,000 capital. 4 This company was unable to dis¬ pose of its stock, so in 1827 Congress donated the alternate sec¬ tions of laud in a strip five miles wide on each side of the canal route. In 1829 a second state commission was appointed to raise funds by selling land, securing a loan, or otherwise, but its efforts proved vain, and in 1833, after a lingering existence, during which its members became convinced that a railroad would be better than a canal, it was abolished. In the political campaign of 1834 the question of a canal.was uppermost in the northern part of the state, and a staunch supporter of the water¬ way was elected governor. Finally, by act of February 10, 1835, a third canal commission was provided for and given the power to raise funds and start construction. II It was a Herculean task that the young state had set for itself, but, led on by that large optimism which has ever been character¬ istic of the continually advancing West, the people of Illinois were not dismayed by the magnitude of the undertaking. With prophetic vision they beheld the completed canal bearing on its placid waters the products of the East, the We; ^^t ^rth, and • • • V' ^ # the South; they saw the cities, villages, farms, and factories which would ultimately come into being along its course; but they did not see so clearly the intervening difficulties, which lay, like the sunken road of Ohain, between project and accomplishment. For ten years the commercial and industrial importance of the Erie Canal had been a familiar story to the people of Illinois, and they confidently expected to see that history repeated in their own state. The undertakng had been long delayed because of the lack of 4 Laws of Illinois, 4th General Assembly, 1st session, pp. 160-64. * 274 JOURNAL OF POLITICAL ECONOMY funds with which to pay the cost of construction, but New York and Ohio had financed their canals by means of loans. Pennsyl¬ vania had undertaken a great system of internal improvements financed in the same way. With the land grant as a basis, and with the expected earnings of the canal as an additional security, the method of loan financiering seemed entirely feasible. 5 It was, therefore, to this method that the state first turned, and on this method it chiefly depended to the end. The act of February 10, 1835, which provided for the appointment of the new canal commission, authorized the gov¬ ernor to negotiate a loan not exceeding $500,000 on a pledge of the canal lands and tolls and “such other means as the govern¬ ment of the United States may hereafter give toward the con¬ struction of the Illinois and Michigan Canal.” 6 As evidences of indebtedness the state issued certificates known as .Illinois and Michigan Canal Stock, drawing 5 per cent, interest and payable at the option of the state any time after i860. 7 The proceeds of this loan as well as those from the sale of lands and lots, and from the later operation of the canal itself, when completed, were to constitute a canal fund intended entirely for the construction of the canal and the payment of interest on the canal debt. Correspondence was at once entered into with New York financiers, and ex-Governor Edward Coles was appointed the special representative of the state' to visit the eastern cities and negotiate the loan. 8 But his efforts with the financiers of New York Philadelphia and with the agents of the Rothschilds proved entiv^jy-^tile. Basing their opinions on the experience of the Erie Canal, some of the New York bankers were convinced, however, that the loan would eventually be a safe one because, by giving to Illinois both an eastern and a southern seaport con- 5 Report of the Senate Committee on Internal Improvements, in Illinois Senate Journal, 1834-35, PP- 97 - 99 - "The members of the General Assembly, as well as Governor Duncan, believed that if the land grant already made should prove inadequate to pay for the construction of the canal, the federal government would supplement it by further grants. 7 Laws of Illinois, 1834-35, pp. 222, 223. 8 Illinois House Journal, 1835-36, pp. 12, 13. THE ILLINOIS AND MICHIGAN CANAL 2 7S nection, the canal would lead to such an economic development of the region as greatly to enhance the value of the canal lands; 0 but in the meantime no sufficient provision was made for the pay¬ ment of the interest if the sale of lands and lots should fail to provide the necessary funds, Furthermore, as interest rates in this country were at that time higher than 5 per cent., it would be necessary to dispose of, the canal stocks in Europe, and the European financiers were not disposed to accept loans based on wild lands in.the United States. 10 Other states had pledged the faith of the state in support of the loans which they had raised for similar purposes, and the bankers who had taken up their stocks would not accept those of Illinois on any other terms. 11 As a result of his experience and the conferences held with the financiers, Coles became convinced that the loan could be raised only on a pledge of the faith of the state for the payment of the principal and the interest. 12 Having been brought to the same conclusion, Governor Duncan urgently recommended to the General Assembly that such a step be taken. He the more readily made the recommendation because he was convinced that in no case would the burden of the debt fall on the state. Basing his opinion on the prices received by the federal government at the sale of its alternate sections of land at Chicago in the previous June, he considered the market value of the canal lands ample to reimburse the state. 13 He expected the value of the land would continually advance with the progress of the work, and ultimately bear the entire cost of the construction. Furthermore, having but recently left the halls of Congress, he thought he knew the 0 Letter of J. Delaficld, president of the Phoenix Bank of New York, to Edward Coles, April 20, 1835, Illinois House Journal, 1835-36, pp. 19-21. 10 Letter of Edward Coles to Governor Duncan, dated at Philadelphia, April 28, 1835, Illinois House Journal, 1835-36, pp. 14-18. 14 Letter of J. Delafield to Edward Coles, dated New York, April 20, 1835, Illinois House Journal, 1835-36, pp. i©r2i. 12 Letter of Edward Coles to Governor Duncan, in Illinois House Journal, ^835-36, pp. 14-18. Vide also letter" of Charles Butler to Edward Coles, ibid., 1835-36, pp. 21, 22. 13 The estimates of the market value of the land at that time varied from $1,000,000 to $3,000,000, but probably averaged about $2,000,000. ' 2j6 JOURNAL OF POLITICAL ECONOMY temper of that body well enough safely to count on an additional grant of land if it should be found that the grant already made was not sufficient to cover the expense of constructing the canal. 14 The recommendation met with a ready response on the part of the General Assembly. 36 Accordingly, on January 9, 1836, a new act was passed reorganizing the canal commission and pled¬ ging the credit and faith of the state to the payment of the principal and interest of the loan. 10 A new commission was appointed at once and used every- effort to get the canal under way at the earliest possible moment, believing that the more actively the work was pushed, the easier would be the task of financing it. 17 But the fact soon became • * apparent to the commissioners that the magnitude of the under¬ taking had been generally misunderstood. James M. Bucklin’s ■* estimate of $4,043*086.50 as the .cost of a lake-fed canal, although, at the time made, regarded by the friends of the project as excessive, was now found'to be entirely too low for the construction of a canal of the dimensions which its place in a great system of waterways and its probable future traffic would demand. 18 Therefore, although the initial expense of the canal would be greatly increased, the commissioners deter- 14 Governor Duncan’s message, December 8, 1835, Illinois Senate Journal, 1835-36, p. 7- 13 The Senate Committee on Internal Improvements estimated the value of the canal property as follows: About 250 lots 4 * 13 ' fhicago.:..$ 312,500.00 250 lots in Ottawa*.. 50,000.00 277.383 acres of land (at $5 per acre). 1,386,915.00 Fractional section 15 adjoining Chicago and containing about 160 acres . 160,000.00 Estimated total value .$1,909,415.00 The committee believed that by adding the value of the water power which would be developed, the suggested plan of financiering would be entirely prac¬ ticable .—Illinois Senate Journal, 1835-36, p. 101. 10 Laws of Illinois, 1836, pp. 145-54. 17 The commission was composed of General William F. Thornton, Colonel Gurdon S. Hubbard and Colonel William B. Archer. 18 Bucklin’s estimate had been for a canal forty-five feet wide at the water level, thirty feet wide at the bottom, and having a depth of four feet of water. THE ILLINOIS AND MICHIGAN CANAL 277 mined, on the advice of the chief engineer, William Gooding, 19 to adopt the plan of a lake-fed canal sixty feet wide at the water level, thirty-six feet wide at the bottom, and having a minimum depth of six feet of water. 20 They adopted this plan because they were convinced that the increased utility of the larger canal would more than counterbalance the increased cost of construc¬ tion, and because they agreed with Governor Duncan that to construct a canal adequate to future needs was preferable to an enlargement after it had proven inadequate, and was also cheaper in the end. 21 The work was laid out in three divisions, known as the Summit division, the Middle division, and the Western division, and these were subdivided into sections of varying length. 22 Deeming it good policy to begin operations in the vicinity of Chicago, the commissioners, on June 6, 1836, con¬ tracted for the construction of a portion of the Summit division. 23 It had been intended to contract for the entire division, but, on account of the abnormally high wages of labor and prices of provisions and supplies, the bids were almost uniformly above the estimates of the engineers, and on some of the sections the discrepancy between the estimates and the bids was so great that the commissioners refused to accept them. 24 It was hoped that 19 As a former engineer on the Erie Canal, Gooding was aware that New York had made the mistake of constructing a canal inadequate to its rapidly growing traffic, and desired to prevent the same mistake being made by Illinois. 20 Report of the Board of Commissioners of the Illinois and Michigan Canal, 1836, p. 8. 21 Governor Duncan’s inaugural address, Illinois Senate Journal, 1834-35, p. 26. 22 The seven miles of earth excavation from the Chicago River to the “Point of Oaks” were divided into half-mile sections. From that point to the termina¬ tion of the Summit division there were twenty-four sections of thirty chains each. 23 The act of January 9, 1836, required the commissioners to hold a sale of lots at Chicago on June 20, of that year, and it was naturally assumed that they would bring better prices if active preparations for the construction of the canal were being carried on in that vicinity. 24 Laborer’s wages were from twenty to thirty dollars a month and board. Pork at Chicago was from $20 to $30 a barrel; flour from $9 to $12; salt from $12 to $15; oats and potatoes, seventy-five cents a bushel; and other articles of consumption commanded similar prices.—Davidson and Stuve, History of Illinois, p. 479. 278 JOURNAL OF POLITICAL ECONOMY the experience of the contractors whose bids were accepted would demonstrate the possibility of carrying on the work at the lower figures, and that, by the time they had gotten the work under way, the prices of labor and materials would decline sufficiently so the remaining sections could be profitably taken at the esti¬ mates of the engineers, or even below them. But these hopes were doomed to disappointment. Some of those whose bids had been accepted found it necessary to abandon their undertakings, although such an act involved the forfeiture of a penal bond to the extent of 5 per cent, of the amount of the original contract. 25 The work of constructing the canal was formally begun with imposing ceremonies, and a great celebration at Canalport on the Chicago River, July 4, 1836. But not much progress was made during the summer and autumn. Much of the time was consumed in preliminary preparations such as constructing roads across the marsh on the eastern sections, building houses for the laborers, and procuring machinery and other supplies. 26 Being desirous of extending the work as rapidly as possible, on October 20 the commissioners let the contracts for twelve sections on the Western division, including the steamboat basin at La Salle. 27 Preliminary operations were accordingly begun at the western extremity of the canal as well as on the Summit level. Owing to the scarcity of laborers and to floods in the Des Plaines valley, however, but little progress was made on either portion of the work during the autumn and winter months. 28 The commissioners expected that the work would really begin on a large scale with the opening of the following season, but in this expectation they were disappointed. In the first place, the continued scarcity of laborers along the line of the canal seriously retarded the progress of the work till well on toward the close of the summer, by which time they had begun to arrive 26 Report of the Board of Canal Commissioners, 1836, pp. 10, 11. 28 Ibid., 1838, p. 5. 27 Ibid., 1836, p. xi. 28 Engineer’s report, Illinois Senate Journal, 1837, p. 28. With the hope of drawing to the Illinois and Michigan Canal laborers from the eastern states, advertisements were inserted in the eastern papers offering wages of from $20 to $26 a month.— Niles’ Register, Vol. 50, p. 388. THE ILLINOIS AND MICHIGAN CANAL 279 in considerable numbers from the eastern states and Canada. 29 In the second place, a threatened change of the plan for the con- > struction of the canal retarded the letting of further contracts, and, consequently, delayed the preparation for pushing the work so soon as a sufficient force of laborers could be secured. The plan adopted by the commissioners was attacked by the House Committee on Internal Improvements as entirely impracticable because beyond the financial ability of the state to accomplish. The committee claimed that the estimates of the engineers were untrustworthy because, first, they had omitted entirely several important items of expense; and, secondly, they had underestimated the cost of others. 30 By the estimates of the committee, the canal would cost $13,253,875.15, or nearly $4,600,000.00 more than had been anticipated. 31 It proposed, therefore, that the “shallow cut” plan be adopted on the Summit level, and that the canal should terminate at Lake Joliet, slack water navigation being provided from that point by means of locks and dams in the Des Plaines River. The result of the attack on the plan of the commissioners was the reorganization of the canal board and the appoint¬ ment of Benjamin Wright, of New York, as a special engineer to re-examine the route of the canal and give to the General Assembly an expert opinion on the relative feasibility of the two plans. 32 Wright’s report, made October 23, 1837, strongly 29 Report of Board, of Canal Commissioners, 1838, p. 6. 30 The total cost as estimated by the canal engineers was $8,654,337.51.— The Seventh Annual Report of the Board of Canal Commissioners, p. 73. 31 The engineers had estimated the excavation at 33 cents a cubic yard and stone excavation at $1.54 The committee estimated earth excavation at 40 cents a cubic yard; stone, one-third at $1.24 and two-thirds at $2,543-45-. It a l so added 754 miles of slope wall, 18 foot cuttings, at $4.00 a perch—$519,540.00; a towing path 26 miles long, 12 feet wide, and 8 feet deep, one-half stone at $1.25, and one-half earth at 25 cents per cubic yard—$366,- 083.00; and a guard lock at the junction of the deep cut with the Chicago River at a cost of $45,000.00. In addition to these items the committee esti¬ mated the cost of contingencies and superintendence at $1,329,451.48; and improvement of five miles of the Chicago River at $16,565.75. For the entire argument of the committee, vide Illinois House lournai, 1836-37, pp. 326-47. 32 The new board consisted of General W. F. Thornton, General Jacob Fry, and Colonel J. A. McClernand. Under the act of March 2, 1837, the board 28 o JOURNAL OF POLITICAL ECONOMY supported the plan adopted by the commissioners, and urgently recommended the completion of the work on that plan. 33 This report was accepted as removing all doubt of the continuance of the work on the plan adopted. In the third place, the financial situation in the early part of the summer of 1837 tended still further to embarrass the activi¬ ties of the commissioners and the progress of the work. The preceding year had been a successful one for the canal finances. Under the conditions established by the act of January 9, 1836, the canal bonds had become marketable securities. Governor Duncan easily negotiated the authorized loan in New York at a premium of 5 per cent. 34 The sales of lots had also resulted very differently from those of six years before. The real- estate market at Chicago had been extremely active for the past two years, and the prospect of the early construction of the canal gave it a still firmer tone. 35 Under the favorable market condi¬ tions, the commissioners were able to dispose of 375 lots in Chicago in June, 1836, at the total price of $1,3 5 5,75 5, 36 and became elective by the General Assembly, and subject to its control, iristead of receiving its appointment from the governor and being subject to his control, as its predecessor had been. 33 The following extract from Wright’s report indicates his opinion of the importance of the work as planned by the commissioners: “The Illinois and Michigan Canal, as now projected, and under construction, may truly be con¬ sidered as one of the greatest and most important in its consequences of any work of any age or nation. In looking over this connection between the Lakes and the Mississippi River, it is no doubt superior in its advantages to any other which can ever be formed. It is the shortest artificial work, with the least lockage. The climate, soil, and the capability of productions of the country which will be benefited by the construction of this work, will certainly equal, if they do not exceed, any other port of the United States; and when I view it in this light, I think it justly merits to be executed upon the best and most permanent plan, and will justify by its revenue any outlay which may be put upon it in reason.”— Report of the Board of Canal Commissioners, 1838, p. 80. 34 At first he refused to sell more than $100,000 of the bonds on the terms offered, thinking 5 per cent, too low a premium; but obtaining no better offer he sold the remaining $400,000 in 1837.— Illinois House Journal, 1836-37, p. 15. 35 Wright’s “ Chicago,” pp. 4, 5. 36 Four hundred and fifteen lots were sold, but forty of them were forfeited by the purchasers’ failing to make the first payment.— Report of the Board of Canal Commissioners, 1836, p. 12. THE ILLINOIS AND MICHIGAN CANAL 281 three months later, September 26, they sold at Ottawa seventy- eight lots for $21,358, an excess of more than $2,000 above the appraised value. In accordance with the provisions of the act authorizing these sales, one-fourth of the proceeds and the interest on the remaining three-fourths were paid to the treas¬ urer of the canal fund. With this sum together with the second instalments which would fall due respectively in June and September, 1837, and with the proceeds of the loans which the governor had been authorized to negotiate, 37 it was confi¬ dently expected that the work could be readily maintained during the year. 38 The work of the season of 1837 had but fairly gotten under way, however, when the panic of that year swept over the state. As a means of self-protection the State Bank of Illinois sus¬ pended specie payments on May 24. At that time it held $390,- 834.89 of canal funds. Moreover, within the next month the second instalment of the payments on the Chicago lots, amount¬ ing to something like $375,000, would fall due, and unless other provisions were made for the disposal of it, it would become a deposit in the Chicago branch of the State Bank. The situation presented a grave danger to the prosecution of the work on the canal. Under the law of Illinois, if the suspension of specie payments should continue for more than sixty days, the bank would forfeit its charter. 39 Such an event would tie up the canal funds during an indefinite period of liquidation. On the other hand, if the bank were forced to resume specie payments it would soon be drained of its specie and ultimately compelled to pay its creditors in depreciated currency. In the first case the 37 By the act of March 2, 1837, the governor had been authorized to negoti¬ ate a second loan for $500,000. 38 On May 4, 1837, the treasurer of the canal fund reported the available funds for the work of the year as follows: Cash in branch bank at Chicago.$297,081.53 Loan to be negotiated by the Governor. 500,000.00 Second instalment of payments on Chicago and Ottowa lots. 385,591.39 Total .$1,182,672.92 Report of the Treasurer of the Illinois and Michigan Canal, 1837; also pub¬ lished in the Illinois Senate Journal, 1837, p. 24. ^Law of February 12, 1835, supplemented by an act of January 18, 1836. 282 JOURNAL OF POLITICAL ECONOMY work on the canal would have to stop until such time as the state could secure other funds with which to' carry it on. In the second case, the cost to the state would be still further enhanced by the depreciation of the currency with which it would have to pay its creditors and the consequent higher prices it would be compelled to pay for the construction of the portions of the work not already under contract, to say nothing of the possibility of driving the contractors then at work into bankruptcy. After* a careful canvass of the situation, Governor Duncan called the General Assembly to meet in special session on July io,- and it legalized an indefinite suspension of specie payments. 40 By the autumn of 1837, however, work on the canal had assumed the proportions which the commissioners had antici¬ pated several months earlier. 41 And, although the sudden in¬ crease of a transient population and the consequent enlarged demand for materials and provisions in an undeveloped region added materially to the financial burdens of the contractors, the work was carried forward with such vi^or that at the close of Governor Duncan’s administration in December, 1838, the entire line of the canal was under contract except about twenty-three miles of the Middle division between Dresden and Marseilles. 42 40 At the time of suspension the State Bank was indebted to the state as follows: Capital stock held by state.$100,000.00 Agreement to pay Wiggins loan. 100,000.00 State deposits held.388,669.51 Canal funds held in Chicago branch.285,834.89 Canal fund on N. Y. loan and premium. 105,000.00 Total .$979,504.40 Vide Governor Duncan’s message, Senate Journal, Special Session, 1837, p. 9. 41 The expenditures for work on the canal were $70,902.30 from December 1, 1836, to June 1, 1837. The expenditures for the year 1837 were $350,649.90. Evidently, more than $280,000.00 of this sum was expended after June 1. 42 Enhanced prices of supplies resulting from the greatly increased demand and the difficulty of supplying machinery and tools with which to utilize to best advantage the greater labor supply proved so great a financial burden that several contractors were forced to abandon their contracts. In order to prevent others from pursuing the same course, the commissioners established a store at Lockport from which they furnished to the contractors such supplies as were not obtainable in the region of the canal, and deducted the price of these supplies from the contractors’ monthly estimates. The result was so satis- THE ILLINOIS AND MICHIGAN CANAL 283 Several sections of the Western division were completed and others far advanced. 43 Henceforth the greatest problem of the commissioners was that of supplying sufficient funds to enable the contractors to continue the work and maintain the labor that was available. The two loans authorized by the acts of January 9, 1836, and March 2, 1837, had yielded a revenue of $1,036,211.67. 44 Up to December 3, 1838, $444,292.00 had been received from the sale of canal lands and lots. Thus far the funds received from these sources had proven sufficient to maintain the work, but it became evident that provision must be made soon for further available resources if the work was to continue. There had already been paid out for work done, $1,434,838.02. 45 The funds in the treasury were diminishing and the monthly ex¬ penditures on the canal were rapidly increasing. 46 A loan of $4,000,000, bearing 6 per cent, interest, was therefore author¬ ized, 47 and ex-Governor John Reynolds and Hon. R. M. Young, at that time a United States senator from Illinois, were appointed special agents of the state to negotiate the loan. In April, 1839, Mr. Reynolds negotiated two loans. The factory that no more contracts were abandoned, and those that had been given up were re-let to the contractors who had continued at work.— Report of the Board of Commissioners of the Illinois and Michigan Canal, 1836, p. 6. 43 Governor Duncan’s message, December 4, 1838; Illinois House Journal, 1838-39, PP- 13, i4- 44 Each act authorized a loan of $500,000.00. The first loan was placed in two instalments of $100,000.00, and $400,000.00 respectively, and at a premium of 5 per cent. The second was placed at par. The proceeds of the two were as follows: $500,000 at 5 per cent, premium.$525,000.00 500,000 at par. 500,000.00 $1,025,000.00 Interest on deposits,. 11,211.67 Aggregate proceeds .$1,036,211.67 Report of Board of Canal Commissioners, 1838, p. 53. 45 Report of the Board of the Canal Commissioners, 1838, p. 61. 48 The increase of expenditures is roughly indicated by the following state¬ ment of annual payments for work done on the canal: 1836, $39,260.58; 1837, $350,649.90; 1838, $911,902.40. 47 By act of February 23, 1839. 284 JOURNAL OF POLITICAL ECONOMY first for $300,000 was placed with John Delafield, president of the Phoenix Bank of New York. By the terms of this loan, however, it would not afford much financial aid to the work on the canal till late in the year. 48 The second gave more immediate results. It was for $1,000,000, and was placed with Thomas Dunlap, president of the United States Bank of Philadelphia. 49 By agreement, the proceeds of this loan were paid in monthly instalments of $100,000 each. This sum, however, was not sufficient to meet the demands on the canal funds. By the first of May the monthly expenditures had reached the neighborhood of $150,000, and on the first of June the canal funds showed a deficit of $208,ooo. 50 To meet this deficit Governor Carlin placed $500,000 of state bonds in the hands of General W. F. Thornton, president of the Board of Canal Commissioners, for sale in the local market. Of these bonds, General Thornton sold $100,000 in Chicago at a premium of 1 per cent., but was unable to dispose of the remainder on satisfactory terms. 51 Arrangements were therefore made with the State Bank of Illinois to furnish the state sufficient funds, supplementary to the instalments from the United States Bank, to prevent the necessity of curtailment in the forces on the canal during the remainder of the year. The most pressing and immediate needs having been pro¬ vided for, Reynolds and Young endeavored to float the re¬ mainder of the authorized loan in London, but the condition of the money market made it impossible to sell the bonds at par. 52 After considerable negotiation, they placed $1,000,000 of ster¬ ling bonds drawing 6 per cent, interest, with the brokerage firm of John Wright & Co. for sale at a minimum of 91 per cent, of par value, and with the understanding that these bonds should 48 By terms of the contract, $50,000 was to be paid within fifteen days after the delivery of the bonds, another $50,000 on August 1, and $50,000 on the first of each month from October to January inclusive. 49 Governor Carlin’s message, December 10, 1839, Illinois House Journal, Special Session, 1839-40, p. 19. Also, Carlin’s letter to Ford relative to the sale of bonds, etc., Illinois Senate Reports, 1842-43, p. 172. 50 Governor Carlin’s message, December 10, 1839. C1 Ibid. 52 Ibid. THE ILLINOIS AND MICHIGAN CANAL 285 be replaced by others of like amount and rate but bearing interest payable semi-annually instead of annually as these bonds did. 53 On this deposit of bonds, Wright & Co. advanced £30,000 which, by the terms of the contract, yielded the canal funds $145,188. 54 The firm, however, failed before the delivery of the new bonds, and no further funds were available from this source. At the beginning of the year 1840 the canal treasury was once again in a depleted condition, and on the first of March the commissioners were forced to the expedient of issuing to the contractors checks bearing 6 per cent, interest and payable at such time as the necessary funds should be provided. 55 An effort was made to replenish the treasury by a further sale of bonds, and in order to increase their marketability the act of February 1, 1840, directed the commissioners to sell enough lands and lots to pay the interest on the canal loans. But sales extending over a period from June 30 to July 13 yielded only $7,387.06, and this sum was principally paid in canal scrip. 56 Finding it impossible to continue the sale without such a reduc¬ tion in the price of the land as would, in their judgment, preju¬ dice the interests of the state, the commissioners abandoned the effort to raise funds by this means. 57 At this juncture the con¬ tractors held a meeting at Lockport and proposed to take $1,000,000 of the authorized bonds at par and bear the discount at which they would have to be sold. 5S The proposal was 63 Carlin’s letter to Ford relative to the sale of bonds, etc., Illinois Senate Reports, 1842-43, p. 172. The semi-annual payment of interest was authorized by the act of February 1, 1840. 54 Message of Governor Carlin, December 7, 1842. 55 Seventh Annual Report of the Canal Commissioners, p. 112. m The sales amounted to $60,775.57, but by the provision of the act of February 1, 1840, only one-fourth of the purchase price of the timber land was payable in cash and the remainder in three annual instalments, while only one-tenth of the price of the prairie land was payable at the time of the purchase and the remainder in twenty years. The deferred payments drew interest at the rate of 6 per cent. 57 Fifth Annual Report of the Canal Commissioners, p. 9. 58 General W. F. Thornton, president of the Board of Canal Commissioners, and W. B. Ogden and George Barnett, contractors, were appointed a special committee to carry on the negotiations with Governor Carlin. 286 JOURNAL OF POLITICAL ECONOMY accepted and General Thornton, on behalf of the purchasers, sold the bonds to Magniac, Smith & Co. of London, at a dis¬ count of 15 per cent. 59 This act of the contractors made it possible to continue the work for several months longer, but with a somewhat diminished labor force. 60 Although the canal treasury had again been drained of its funds by March 1, 1841, the contractors continued their work and their active preparations for the following season with the apparent hope that the General Assembly would be able suc¬ cessfully to solve the financial problem to which it had addressed itself throughout the winter. But the legislators proved unequal to the task. The large sales of state bonds within the preceding decade had surfeited a depressed market with that particular kind of security. This fact had been painfully evident for the past two years. It was likewise true that Illinois had done her part in bringing about this condition of affairs. In addition to the canal bonds the state had already placed upon the market, in her efforts to finance an elaborate scheme of internal improve¬ ments, evidences of indebtedness of more than $5,6oo,ooo. 61 It was with the greatest difficulty that the state was able to pay the interest on its debts on January 1, 1841. Under such cir¬ cumstances a new loan could be floated only at an enormous discount. With property values depressed and the people clam¬ oring for reduced taxation, the General Assembly was unable to' do more than to provide for an additional tax of ten cents on the $100 worth of property to be set apart exclusively as an ‘'interest tax;” establish a minimum taxable valuation of three dollars an acre on all lands subject to taxation in the state; 6 ' 2 and authorize the sale of enough bonds at whatever they would bring 59 Seventh Annual Report of the Canal Commissioners, p. 113. 60 The amount paid for work in 1839 was $1,479,907.58; for 1840, $1,117,- 702.30; and for 1841, $644,875.94. Between March 1 and November 1, 1840, the payments were $832,888.20, and between November 1, 1840, and March 1, 1841, they were $280,940.46.— Seventh Annual Report of the Canal Commission¬ ers, pp. 65, 113. 61 On December 7, 1842, the internal improvement debt was $5,614,196.94. As work on these improvements had been stopped in 1840, the debt had not increased much after that date.— Illinois Senate Reports, 1842-43, p. 7. 62 By the act of February 21, 1841. THE ILLINOIS AND MICHIGAN CANAL 287 in the market to meet the interest on the public debt for the next two years. 63 The failure of the General Assembly to provide further means for the maintenance of the work was interpreted as the abandonment of the canal to its fate. As many of the contract¬ ors as were able to abandon their work without too heavy finan¬ cial losses did so. Others continued for a time, but reduced their forces as rapidly as conditions would warrant. There were only two possible sources of payment to the contractors, namely, state bonds and warrants drawn against a future canal fund. Both of these methods were resorted to. Such contractors as were able to meet their own expenses and wait for their pay accepted the bonds until the depreciation became so great as to render this means of payment impracticable. 64 The alternate method of payment was introduced by the commissioners N in May, 1841, in order to relieve the embarrassments of those con¬ tractors whose finances did not enable them to meet their accruing obligations. To the extent of the amount due them, the con¬ tractors were permitted to draw orders in favor of their creditors against the commissioners, which orders became negotiable after having been formally accepted and recorded by the secretary of the board. 65 For a time these orders served as currency along the canal. But, although receivable in payment for canal lands at the sale to be held in November, 1841, the issue soon exceeded the demand and depreciation began. Naturally, the depreciation of this medium of exchange soon put a stop to that method of payment and all work on the canal was at an end except in the case of a few contractors who were willing to bear their own burdens and await a better day for their compensation. 66 63 In order to raise the necessary funds to pay the interest on the state debt July 1, 1841, $804,000 in interest-bearing state bonds were hypothecated with Macallister and Stebbins of New York as a guarantee of a loan of $321,600. From this time on no more interest was paid on the state debt till the trustees took charge of the canal in 1845. 64 In this way $197,000 was paid in the latter part of 1841 and early part of 1842.— Illinois Senate Reports, 1842—43, pp. 16, 172. » 85 Seventh Annual Report of the Commissioners of the Illinois and Michigan Canal, p. 115. r* ■*» H* 68 Illinois Senate Reports, 1842-43, p. 16. By the act of February 21, 1843, 288 JOURNAL OF POLITICAL ECONOMY After the failure of the State Bank in February, 1842, the financial affairs of the state seemed to be in a hopeless condition. The state debt was nearing the $14,000,000 mark, and was in¬ creasing at the rate of $830,000 a year from the one item of accumulating interest. 67 The credit of the state had sunk so low that in June its obligations sold at public auction in Chicago at from eighteen and one-fourth cents to twenty-four cents on the dollar, while the bills of the defunct State Bank brought thirty-eight and one-fourth cents. 68 There were not lacking those who openly advocated a policy of repudiation. In this crisis the canal seemed the only hope of the state. 69 A completed canal would aid the state finances both directly and indirectly. It would give direct aid by yielding a revenue which would offset a portion of the interest charges which the state was then unable to meet. Indirectly it would bring larger revenues to the treasury by increasing the basis of taxation, first, through the raising of property values by the capitalization of the diminution in transportation charges; and, secondly, by making the state a more attractive place for settlement and in¬ vestment through this provision for lightening its financial burdens, which would tend to draw the population and capital that naturally shun a debt-ridden community with its exorbitant taxes. The increased land values resulting from the opening of the canal would also enable the state materially to diminish the burden of the debt by liquidating a large portion of it through the sale of canal lands. In short, the difference between a completed and an uncompleted canal meant the difference between a solvent and an insolvent state. These facts were provision was made for the payment of damages sustained by the suspension of work, and by the act of March 3, 1843, all claims against the canal were to be investigated and, when approved, they and the accrued interest should be charged against the fund of $230,000 appropriated for settlement with the contractors. 67 On December 1, 1842, the debt amounted to $13,836,379.65, and the interest for the year was $830,182.77.— Illinois Senate Reports, 1842-43, p. 7. 68 Chicago Democrat, June 8, 1842. 69 Report of the Senate Committee on Canal and Canal Lands, Illinois 1 Senate Reports, 1842-43, pp. 90, 91 ; also Report of the House Committee on Finance, Illinois House Reports, 1842-43, pp. 6, 7. THE ILLINOIS AND MICHIGAN CANAL 289 clearly enough perceived, 70 and there was no lack of desire on the part of the state officials to bring the work to its final con¬ summation ; but that would involve an additional expenditure of more than $3,000,000, and in the insolvent condition of the state the raising of such a sum was clearly impossible. 71 In this extremity the friends of the canal bethought them of the old “shallow cut” plan. It was estimated that $1,600,000 would suffice to complete the work on this plan, and it was deemed practicable to raise this sum on a pledge of the canal and the canal lands and revenues. The principal holders of canal bonds in New York also looked upon the plan as feasible. 72 Consequently, by the act of February 21, 1843, the governor was authorized to negotiate a loan for the amount and to secure its payment by a deed of trust. The canal and all its property were to be turned over to three trustees, two of whom should be chosen by the subscribers to the new loan and one appointed by the governor. These trustees were authorized to hold and manage rhe canal for the benefit of the creditors, 73 under such restric¬ tions as would safeguard the interests of the state. 74 Governor Ford appointed Charles Oakley and Michael Ryan 70 Illinois Senate Reports, 1842-43, pp. 90, 91. 71 William Gooding, the chief engineer of the canal, estimated that the sum of $3,098,169.29 would be required to complete the work on the plan on which it was being constructed.— Seventh Annual Report of the Canal Com¬ missioners, p. 66. 72 Justus Butterfield, of Chicago, is said to have first suggested the plan to Arthur Bronson, of New York, one of the large holders of canal bonds. Whether this statement be true or not, the friends of the canal eagerly took up the idea. In the summer of 1842 Michael Ryan, chairman of the Committee on Canal and Canal Lands in the Illinois Senate, visited New York and dis¬ cussed the plan with the leading bond-holders, who took kindly to the idea. 73 In the interest of the subscribers to the new loan the act directed the disbursement of the income of the canal, after the payment of the incidental expenses, as follows: first, interest on the loan; secondly, interest on other canal bonds held by subscribers to the loan; thirdly, interest on canal bonds held by non-subscribing bond-holders; and fourthly, payment of the principal of the loan. 74 Among the important provisions of the act safeguarding the interests of the state were those limiting the conditions of the sale or lease of the lands, lots, and water power of the canal. For the provisions of the act in full, see The Laws of Illinois, 1834, pp. 54-61. 290 JOURNAL OF POLITICAL ECONOMY as agents to negotiate the new loan. Having first received assurances that the American creditors would subscribe their proportion, Oakley and Ryan hastened to Europe; but the foreign creditors were less inclined to take a favorable view of the proposed loan than those in America had been. 75 How¬ ever, it was finally arranged that Abbott Lawrence, Thomas H. Ward, and William Sturgis, of Boston, should designate two competent men to examine the conditions of the work and report to the creditors the value of the property and the amount of debt, including accrued interest, charged against it. This service was performed by ex-Governor John Davis, of Massachusetts, and Captain William H. Swift, of the engineering corps of the United States Army. During the winter of 1843-44 these men made a personal investigation of the condition and the possi¬ bilities of the canal. 76 Their report to the creditors, dated March 1, 1844, was entirely confirmatory of the reports of Ryan and Oakley. They found that on January 1, 1844, the total canal debt was $ 5 , 39 °^ 97 - 57 - Offsetting against this debt the sum of $150,209.83 redeemed and in the contingent fund, and $39.3,- 034.91 of securities held against canal lands sold, the net debt was found to be $4,847,402.83. 77 On the side of assets the state could offer besides the canal 230,476 acres of land which Davis and Swift estimated would be worth ten dollars an acre at the completion of the canal, and 3,49! lots in the cities and towns of Chicago, Lockport, Ottawa, and La Salle, valued at $1,900,- 000. The canal itself was considered to be worth $5,000,000. In addition to this $9,204,670 of physical property, it was esti¬ mated that the rentals for water power would aggregate from $75,000 to $100,000 a year, and that the tolls for the second 75 The attitude of the European creditors in 1843 was fully set forth in a letter of Baring Brothers & Co. to Charles Oakley, October 18, 1844, which was later published in the Illinois and Michigan Canal Documents, pp. 24-29. Also in a letter of Charles Oakley to J. S. Zieber, dated at London, July 18, 1843, and published in the Chicago Democrat, August 23, 1843. 76 Illinois House Reports, 1845, p. 315. 77 Davis and Swift’s Report of the Illinois and Michigan Canal, 1844, pp. 13, 14. There are some slight discrepancies in the figures in the report, but they seem to be due to either clerical or typographical errors and do not affect its importance materially. THE ILLINOIS AND MICHIGAN CANAL 291 year of the operation of the canal would reach $363,865.25. 78 In view of these facts the report recommended the acceptance of the loan as an entirely safe financial proposition. The experience of European holders of American internal improvement bonds, however, had not been a pleasant one. For the most part they had been unable to get interest on their bonds, and these were consequently greatly depreciated in value. But the holders of Illinois and Michigan canal bonds were reassured by the correspondence of the report with the assertion of Ryan and Oakley and more particularly by the personal statements of ex-Governor Davis who visited London in the summer of ,844 on invitation of Baring Brothers & Co. and Magniac, Jar- dine & Co., representing the creditors. As a result of the report and of these conferences, the European creditors agreed to take the full amount of the new bond issue apportioned to them on the basis of their holdings of the earlier issues, 79 pro¬ vided the state would restore the interest tax which had been repealed in 1843. 80 The state readily complied with this very reasonable condition. 81 By the act of March 1, 1845, provision was made for an interest tax of one and one-half mills on each dollar of property values. In the meantime the creditors had subscribed the remainder of the loan and elected Captain Swift, of Washington, and David Leavitt, of New York, as trustees; and the governor had 78 Davis and Swift’s Report of the Illinois and Michigan Canal, 1844, P* 4 2 * This estimate of the earning capacity of the canal was far too high, as shown by the earnings when completed. The tolls for the second year of operation were $118,375. 78 It was expected that the holders of earlier issues would subscribe to this one to the extent of 32 per cent, of their holdings. This would enable them to register their old bonds under the act of February 21, 1843, thereby making them a sort of second mortgage on the canal and its property and revenues. 80 Illinois Senate Reports, 1844, pp. 89^96. 81 That the land owners were not all averse to such a tax is shown by the fact that on January 18, 1844, John Wentworth sent from Washington to the governor of Illinois a petition from holders of Illinois land to the amount of nearly $1,000,000 asking that the property in the state be taxed to raise funds to pay the interest on the state debt, reasoning that an improvement in the financial condition of the state would react on property values.—Wentworth’s letter in the Chicago Democrat, January 31, 1844. 2 92 JOURNAL OF POLITICAL ECONOMY appointed General Jacob Fry as the state member. In June these trustees assumed the trust and began active preparations for resuming the work on the canal. On June 21 they called for the first instalment of the new loan to be paid on September 20 fol¬ lowing. 82 While the arrival of the funds was awaited, the neces¬ sary preparations for the resumption of work were under way. In accordance with estimates submitted by Charles B. Fisk and William Gooding, the former contractors were allotted the work on their old sections, 83 July 22, and on August 18 those sections not pre-empted by the former contractors were let to the “lowest responsible bidder.” 84 These contracts evi¬ denced the change in the economic condition of the region since 1836. In that year the country generally was on the crest of the wave of prosperity. High prices prevailed. This condition was magnified in the region of the canal with its suddenly acquired population and its undeveloped resources, and the necessity of importing all needed supplies. In 1845 the country was slowly recovering from a period of industrial depression. Prices were relatively low. Food supplies were particularly cheap in the region of the canal, where they were now produced in abun¬ dance. 85 As a consequence, although the new estimates were far 83 Captain Swift’s Report to the Creditors, 1849, p. 5. Also, the Chicago Democrat, June 25, 1845. 83 Section seventeen of the act of February 21, 1843, provided that on resumption of work on the canal former contractors should have priority of right in securing the contracts on their old sections, but on an estimate to be made by the chief engineer of the Board of Trustees. 81 Report of the Canal Trustees, 1845, p. 3. 86 The following comparison of prices was made by Davig and Swift during their investigation of the canal: Cost in 1836 Cost in 1843 Labor of man per month (average) . $ 40.00 IOO.OO $16.00 60 OO Hrvrsps each. Oypti, per yoke. 80.00 45.00 7 . OO Beef, per cwt. 6.00 Flour, per barrel. II .OO 3-5° 8.00 Pork per barrel . 22.00 Other articles had been proportionately reduced in price.— Report of the Illinois and Michigan Canal, 1844, p. 103. THE ILLINOIS AND MICHIGAN CANAL 2 93 below the earlier ones, the trustees experienced no difficulty in finding contractors who would undertake the work at less than the estimated cost of completing it. 86 After the period of abandonment, with the consequent dete¬ rioration of the unfinished work, considerable time was con¬ sumed in general repairs and preparation for the resumption of the actual work of construction. 87 The act of February 21, 1843, required the completion of the canal within three years after it should be turned over to the trustees. In spite of delays caused by floods and by an unusual amount of sickness among the laborers, the work was completed in the allotted time and was opened for navigation in April, 1848. For the next twenty-three years the efforts of the trustees were devoted to building up the traffic of the canal and to the payment of the canal debt. The expenditures on the work before it passed into the hands of the trustees amounted to $5,039,- 248.04, of which $4,674,637.23 had been paid for construction and $364,610.81 for contingent expenses. 88 The trustees ex¬ pended $1,429,606.21 in completing the canal and constructing feeders to furnish the water supply, rendered necessary by the adoption of the “shallow cut plan” which raised the canal on the Summit level twelve feet above the datum line of Lake Michigan. 89 But these sums did not comprehend the entire canal debt. 90 Aside from the outstanding bonds to the amount of $5,383,000, the debt was composed of interest-bearing canal scrip, non-interest-bearing canal scrip, ninety-day circulating checks, balances due to contractors, damages awarded for in- 86 Portions of the work estimated at $171,700 were let for $148,100, and feeder contracts estimated at $141,500 were let for $133,200.— Report of the Canal Trustees, 1847, P* 2 6. 87 Report of the Canal Trustees, 1847, p. 26. 88 Eighth Annual Report of the Acting Commissioner of the Illinois and Michigan Canal, p. 3. Cf. Report of the Secretary of War, 1887, Vol. II, Part 3, pp. 2146-48, which gives the expenditures by the commissioners as $5,133,- 062.21 and by the trustees as $1,424,619.29. 83 Three feeders were constructed: (1) from the Fox River at Dayton to Ottawa; (2) from the Kankakee River to the Dresden level; (3) from the Calumet River through the “Sag” to the Summit level. 00 Final Report of the Trustees, 1871, p. 9. 294 JOURNAL OF POLITICAL ECONOMY juries sustained by the canal’s crossing private property, and accumulated interest. 91 The funds with which to meet the accruing interest on this debt and with which ultimately to liquidate the debt itself were gradually accumulated from the sales of lands, from tolls derived from the operation of the canal, from rents of lands and water power, from interest on the canal funds when deposited with the banks, from interest on the unpaid instalments on the lands sold, and from a few minor sources. 92 The burden of the liquidation of the debt was increased, first, by the length of time which elapsed between the beginning of the work and the final payment of the bonds and accounts. The trustees paid $2,155,622.38 in the discharge of the arrears of interest on the registered bonds, and $2,457,276.46 may be charged to the operating expenses of the canal while used as a fiscal agent for the payment of the debt. 93 Secondly, the burden of the debt was increased by the monetary and banking conditions prevailing in the country during the period of the trust. Between T848 and 1863, $14,563.52 was lost through “wild-cat currency,” counterfeit bills, and bank failures, and between the former year and 1871 the sum of $370,864.42 was expended for premiums on gold with which to pay the interest and principal of canal bonds held abroad. 94 By the close of April, 1871, the entire debt had been liqui¬ dated except $13,000 of the bonds which their holders had failed 91 Eighth Annual Report of the Acting Commissioner of the Illinois and Michigan Canal , pp. 7, 8. 92 Some of these minor sources of income were the sale of wood, timber, and stone, the sale of old machinery and implements which the state acquired when it settled with contractors who were forced to abandon their work in 1842-43, the lease of lots, and the advantages occasionally derived from the course of exchange. 93 Final Report of the Canal Trustees, 1871, p. 9. 91 Prior to 1863 payments on bonds held in London had been made in New York at the rate of exchange at which the best bankers’ bills on London could be purchased on the day of payment. This method sufficed so long as gold and paper had the same value in the money market. When the difference between them became material, payments were made in coin.—Swift’s Report to the Creditors, 1865, p. 7. THE ILLINOIS AND MICHIGAN CANAL 2 95 to present for payment. 95 On April 30, the trustees rendered their final report and the trust was dissolved, at which time they turned over to the state a cash balance of $95,742.41. 96 In the main, the finances had been well managed during the continu¬ ance of the trust. There had passed $11,009,507.41 through the hands of the trustees with no greater loss than the $14,563.52 which was lost through bad currency and banking conditions. On the other hand, the funds had been so managed as to yield $183,303.97 from interest and exchange. In the end it was found that the anticipation with which the work was undertaken, namely, that the canal lands and revenues would pay the cost of construction, had been well founded. However, because of the length of the period covered by the work of construction and of the acquisition of the funds neces¬ sary to defray the expenses incident to the construction and the cost of management and maintenance, the total expenditures had been increased far beyond the expected sum. J. W. Putnam The University of Missouri 95 These bonds are still outstanding and are carried in the auditors’ accounts as “called in by the governor’s proclamation and not surrendered .”—Illinois Auditor’s Report, 1906, p. vii. 90 Final Report of the Canal Trustees, 1871, p. 9. EDMUND J. THE JOURNAL OF POLITICAL ECONOMY Volume 17 JUNE—IQOQ Number 6 AN ECONOMIC HISTORY OF THE ILLINOIS AND MICHIGAN CANAL. II III ORGANIZATION AND MANAGEMENT The administrative organization for the management of the affairs of the canal has always been simple and in keeping with the organization and methods employed in the management of other state enterprises in Illinois. With a single brief exception, the direct management has been in the hands of a commission or board. 1 That exception was during the suspension of work on the canal between 1843 an d the beginning of the trust in June, 1845. The management was then in the hands of one of the commissioners, known as the acting commissioner, assisted by the secretary, an engineer, and an agent for the protection of the canal lands and other property. 2 Previous to this arrange¬ ment the board of commissioners had usually consisted of three 1 This statement ignores the period from the abolition of the board of commissioners by the act of March 1, 1833, till the creation of a new com¬ mission by the act of February 10, 1835, during which time there was no admin¬ istrative machinery for the management of canal affairs. During this period the project was temporarily abandoned. 2 The act of March 2, 1843, provided for the discharge of all officers and employees except these three. These were authorized to settle with the con¬ tractors, in so far as they could obtain the necessary funds, and to protect the canal property. Vide Laws of Illinois, 1843, p. 62. 337 33 8 JOURNAL OF POLITICAL ECONOMY men, 3 chosen biennially, a part of the time by the governor with the ratification of the Senate and a part of the time by the joint action of the two houses of the General Assembly. 4 During the continuance of the trust, the board of trustees consisted of two members elected biennially by the canal creditors and a third appointed by the governor. 5 Since the termination of the trust, in 1871, the three commissioners have been appointed by the governor with the ratification of the Senate. The result has been that the appointments have usually been determined by party service or political expediency rather than by any special qualifi¬ cations for the management of the canal. In politics and in law the commissioners are regarded 'as part of the state administra¬ tion. 6 From time to time special appointments have been made for special services, independent of the board of commissioners. 7 The most important of these special services was that of the sale of canal bonds during the period of construction. These sales were always conducted by the governor or by special agents appointed by him. The boards of appraisers, which determined the minimum selling price of each lot or tract of land, were appointed by the judge of the circuit court within whose juris¬ diction the lot or tract lay. In addition to these, it was a common occurrence for the General Assembly to appoint special com¬ missions to investigate claims against the state, growing out of 3 By the act of February 14, 1823, the number was established at five. The act of January 22, 1829, reduced it to three. The act of February 10, 1835, again provided for a board of five; but that of March 2, 1837, once more fixed the number at three, and it has thus remained. 4 The first members of the first board in 1823 were named in the act by which it was created. The act of March 2, 1837, placed the election of the com¬ missioners in the hands of the General Assembly. 6 The trustees who received the deed of trust were Captain William H. Swift of Washington and David Leavitt of New York, elected by the creditors at New York, May 27, 1845; and Jacob Fry, appointed by the governor of Illinois, June 10, 1845. 6 The legal status of the commissioners is determined by chap. 19, sec. 3, of the Revised Statutes of Illinois. 7 Laws of Illinois, 1847, p. 23. THE ILLINOIS AND MICHIGAN CANAL 339 the construction or management of the canal, and for other specific services. 8 The subordinate officials and employees of the canal have usually been appointed by the board or subject to its approval. 9 During the development of the project the offices of secretary and treasurer were filled by members of the board; and since 1873 the same policy has been pursued. But from 1837 to 1873 these officials were appointed by the board from outside its mem¬ bership. Recently, the employees of the board have been the general superintendent, the chief clerk and paymaster, the land agent, the attorney, and a force of about twenty-five clerks, collectors of tolls, lock tenders, and repair men. 10 The functions of the board have varied with the changing phases of the canal history. In the main, however, they have been rather narrowly restricted by legislative action. The General Assembly has not only assumed control of the general policy of the management, but formerly it also frequently, by legislative enactment, directed the action of the board in specific cases. But in strictly administrative matters the board has usually been permitted to exercise discretionary powers. This has been particularly true in recent years. Within the restric¬ tions imposed by the General Assembly, the board has managed the contracts for construction and repairs; the canal finances other than the bond sales; the sales and leases of canal lands and water power. It has fixed the rate of tolls and the condition under which the canal may be used, and has had general charge of the canal interests. In the contracts for construction due provision was made for the protection of the interests of the state. The contracts were let to the lowest responsible bidder only after the conditions 8 As an example of such appointments may be mentioned the two agents appointed by joint vote of the General Assembly to protect the canal lands from trespass and to grant permits for residence on canal lands. Vide Laws of Illinois, 1837, pp. 44-48, and ibid., 1852, p. 152. 9 Public Laws of Illinois, 1871-72, p. 213; Laws of Illinois, 1891, p. 71 ; ibid., 1899, p. 82, and others. 10 A list of the employees, together with the compensation of each, is given in the appendix to each annual report of the canal commissioners. 340 JOURNAL OF POLITICAL ECONOMY under which they were to be performed had been widely adver¬ tised both in Illinois and in the eastern states, in order to secure the widest possible competition among contractors. 11 In the earlier of these contracts the contractors were required to give bond for the specific performance of their agreements. Later, the bond was not required, but 15 per cent, of the amount due the contractors for work done was withheld till the completion of the work in accordance with the specifications in the contract. 12 Although several of the contractors lost heavily and some of them were compelled to relinquish their contracts, the amounts forfeited by such relinquishments usually reimbursed the state for the extra expense entailed by the necessity of making a new contract, frequently at a higher figure. The financial management of the canal has generally been honest and reasonably efficient; but it has not always been above criticism from the standpoint of policy adopted or methods used. During the period of construction, the ever-present financial problem led to the trial of unsound financial expedients, some of which have been discussed in the preceding article. The responsi¬ bility for these expedients rests partly with the board and partly with the General Assembly. The issuance of canal scrip is a case in point. As is usual in such cases, the scrip was over¬ issued and consequently suffered a heavy depreciation, casting an undue burden upon the men least able to bear it, namely, the laborers. 13 The General Assembly which authorized such a course was not blameless, but the administration of the act lay with the commissioners. The act was rather permissive than mandatory and the amount of the issue was entirely within their control. It may be urged, however, in extenuation of the policy, that no other means was available at the time for continu¬ ing the work on the canal; and that a suspension of operations 11 Laws of Illinois, 1835, P* 226; and Report of the canal trustees, 1846, p. 3. 12 Report of canal commissioners, 1836, p. 11. 13 The contractors were paid in scrip, but they were able to pass it on to the laborers in payment of wages. The laborers either used it in making pur¬ chases of necessaries of life, the price of which was raised to cover the deprecia¬ tion of the scrip, or sold it to speculators for cash at a discount. In either case, the laborer bore the chief part of the burden of depreciation. THE ILLINOIS AND MICHIGAN CANAL 341 would have been much more disastrous to the contractors, and certainly to all the laborers who could not readily find work else¬ where, than the depreciation of the scrip proved to be. Be that as it may, the inevitable result of the policy adopted was the practical reduction of the wages of the laborers and the develop¬ ment of a class of land speculators at the expense of the laboring men, who were forced by the necessities of life to cash their scrip for whatever it would bring. Men with ready money were en¬ abled to purchase scrip at a heavy discount and use it in payment for canal lots or lands at face value. If the board was led to dangerous lengths in the issue of canal scrip, it showed greater conservatism than its legislative master in meeting the problem of “wild-cat” money. During the sus¬ pension of specie payments following the panic of 1837, and again during the Civil War, the canal revenues suffered much from the receipt of “uncurrent” money. 14 The act of July 21, 1837, required the canal commissioners to accept, in payment of bills to the canal, the notes of either the State Bank of Illinois or the Bank of Illinois, or those of any other bank whose notes were accepted and credited as cash by the bank where the canal funds were kept. While the losses to the canal from this source were probably proportionately no heavier than those of the average business firm, they became of considerable importance. 15 To relieve the treasury as much as possible from this evil, the trustees ordered that “specie funds only, or the equivalent thereof” should be received in payment of tolls. 16 The natural result was a nominal increase of earnings which practically offset the losses from the necessary acceptance of depreciated money. From i860 to 1862 the tolls increased 95.34 per cent., while the traffic for the same period increased 83.32 per cent. 17 The estab- 14 Report of the canal trustees, 1862, pp. 5, 6. 15 The actual loss sustained during the year 1861, in the conversion of notes into specie values, was $2,225.53, but the board held deposits of canal funds to the amount of $32,605.40 on which it estimated there would be an average loss of 50 per cent. Report of the Trustees of the Illinois and Michigan Canal, 1862, p. 5. 10 The resolution was adopted May 27, 1861. 17 The statistics from which these percentages have been derived may be found in the appendix to any recent report of the canal commissioners. 342 JOURNAL OF POLITICAL ECONOMY lishment of the national banking system and the enforced retire¬ ment of the circulation of all other banks effectually removed the danger of losses from “uncurrent” money. When the board of trustees made its final report on April 30, 1871, and turned the canal and its property back to the state, the financial sky seemed to be entirely clear. The canal debts were fully paid and a surplus of $95,742.41 was turned into the state treasury. This sum was regarded as but an earnest of the revenues to be derived from the operation of the canal. The problem of financial management for the future was assumed to be the simple one of collecting the revenues, paying the expenses of operation and repairs, and turning over the surplus to the treasury of the state. As the revenue for the preceding ten years had exceeded the gross expenditures for the same period by $1,244,048, 18 such an assumption seemed well founded. The history of the succeeding years, however, did not give so much cause for optimism. In the next decade, the tolls exceeded the expenditures by only $320,199 and the following decade showed a deficit of $211,039. In fact, the expenditures have exceeded the tolls regularly since 1879. During all these years, up to 1903, the General Assembly made biennial appropriations from the state treasury to cover the deficits, under the guise of appropria¬ tions for the improvement of navigation. In 1903, it appropri¬ ated $152,950 to make needed repairs and to maintain the canal in navigable condition for the next biennium. 19 In the circuit court of Sangamon County, Richard E. Burke sought an in¬ junction restraining the commissioners from using the appropria¬ tion, on the ground that it had been made in violation of the following provision of the constitution of 1870: “The general assembly shall never loan the credit of the state, or make appro¬ priations from the treasury thereof, in aid of railroads or canals: Provided, that any surplus earnings of any canal may be appropri- 18 This sum does not include a small annual income from rentals, the amount of which is not obtainable. 19 The appropriation was made up of three items: $50,000 a year for the biennium for maintenance of the canal in navigable condition; $42,950 for the maintenance and operation of the pumping station at Bridgeport; and $10,000 for dredging the steamboat channel and basin at La Salle. THE ILLINOIS AND MICHIGAN CANAL 343 ated for its enlargement or extension.” 20 The case was carried to the Supreme Court of Illinois, which held the appropriation violative of the above constitutional provision and therefore il¬ legal. 21 Since then the commissioners have been compelled to maintain the canal by such expedients as have been at their dis¬ posal from year to year. To supplement the small earnings, tracts of real estate have been sold from time to time and por¬ tions of the expenses formerly charged against the canal funds are now charged against the appropriations for the improvement of the Illinois River channel. 22 By these expedients the canal has been maintained during the last five years. The lack of funds, however, has prevented the commissioners from making the necessary repairs, and the efficiency of the canal as a trans¬ portation route has suffered accordingly. In fact, much of the time, portions of the canal have been practically unnavigable for boats with anything like a standard load. 23 Nearly allied to the financial administration is the policy pursued in relation to the canal lands and water power. It has never been the policy of the state to retain permanently the owner¬ ship of any considerable portion of the 290,915 acres granted to it, aside from the ninety-foot strip on each side of the canal. The 20 The entire section is as follows: “The Illinois and Michigan Canal shall never be sold or leased until the specific proposition for the sale or lease thereof shall first have been submitted to a vote of the people of the state at a general election, and have been approved by a majority of all the votes polled at such election. The general assembly shall never loan the credit of the state, or make appropriations from the treasury thereof, in aid of railroads or canals: Pro¬ vided, that any surplus earnings of any canal may be appropriated for its enlarge¬ ment or extension.” S1 In the case of Burke v. Snively et al., the decision in the Supreme Court was handed down February 17, 1904, and is given in full, together with a dissenting opinion, in the Illinois Reports, Vol. 208, p. 363, and also, in the Northeastern Reporter, Vol. 70, pp. 327-38. 22 Since the completion of the locks at Henry and Copperas Creek on the Illinois River, the portion of the river from La Salle to Copperas Creek has been under the charge of the canal commissioners and is, to all intents and purposes, an extension of the canal to the latter point. The lock at Henry was opened in September, 1871, and that at Copperas Creek in October, 1877. 23 A canal boat bearing the standard load draws four feet and eight inches of water. 344 JOURNAL OF POLITICAL ECONOMY sales of lots and lands in 1830 and 1836, however, convinced the commissioners that the only hope of obtaining any large part of the cost of the canal from the federal land grant lay in the. reten¬ tion of the land by the state till the completion of the canal should have increased its value. Small sales of lots and of farm and timber lands were made occasionally, to meet the most urgent demands on the canal treasury. As a means of replenishing the treasury, however, the sales proved a failure: first, because the amounts sold were relatively small, and secondly, because the payments were made in instalments, most of which did not fall due for several years after the date of sale. Land sales, even under the act of January 9, 1836, which required the payment of the purchase price in four equal annual instalments, would not have met the pressing needs of the treasury, and succeeding laws rendered this method of raising needed funds entirely in¬ effective. The act of February 26, 1839, provided that one-tenth of the purchase price should be paid on receipt of the certificate of purchase, but the remaining nine-tenths became due only at the expiration of twenty years from the date of sale. 24 I11 the desperate state of the finances in 1840, the commis¬ sioners were directed to sell enough canal land each year to meet the interest on the canal debt. 25 The sales for the first year, however, amounted to only $61,975.57, and the sales for the fol¬ lowing year, to $88,598.38. 26 Since the land was sold under the provisions of the act of February 26, 1839, and since the canal debt was even then about $3,000,000 and rapidly increasing, it was clearly evident that the interest could not be met by the sale of land, unless at a price detrimental to the permanent financial welfare of the state. Moreover, the land could not be sold at 24 The commissioners were permitted to increase the proportion of the pur¬ chase price which should be paid at the time of purchase, by previously advertis¬ ing the conditions of the sale. Little advantage seems to have been gained by this privilege. Many changes were later made in the conditions of sales, but it was not till 1869 that payments had to be made in cash at the time of the purchase. 25 Laws of Illinois, 1839-40, pp. 79, 80. 28 Report of canal commissioners, 1878, p. 47. THE ILLINOIS AND MICHIGAN CANAL 345 lower prices, except on a revaluation by the appraisers. 27 This the commissioners did not desire. They preferred to continue the policy of reserving the greater part of the land till the com¬ pletion of the canal should have enhanced its value sufficiently to cover a large part of the canal debt. From July i, 1841, the state suspended interest payments on its entire debt. 28 Had the commissioners pursued the policy authorized by the act of Febru¬ ary 1, 1840, this event might have been delayed. It would not have been averted. On the other hand, the sale of a sufficient amount of the canal land to meet the interest charges on the canal debt would have so seriously weakened the resources of the canal that it is doubtful whether the creditors would have accepted the deed of trust on the canal and its property as a suffi¬ cient guarantee of the $1,600,000 loan necessary to the comple¬ tion of the work. The policy of the commissioners may have permitted the state to' be forced to a temporary suspension of interest payments, but it prepared the way for the completion of the canal and the ultimate extinguishment of the canal debt. Had the commissioners adopted the policy of forcing the land on the market, the abandonment of the canal and the ultimate financial ruin of the state would have been inevitable, and the repudiation of the state debt almost certain. 29 The land policy pursued by the commissioners saved to the state an asset not only valuable in securing the necessary loan, but, as it proved, equally important in the extinguishment of the canal debt. From the opening* of the canal for traffic till the final settlement of the canal debt, the sales of lands and lots played an important part in furnishing the funds for the liquida¬ tion of the maturing financial obligations of the canal. In the j summer of 1848 the trustees sold 45,625 acres of land and 2,244 lots. In the case of both lands and lots, the selling price ex- 27 No land or lot could be sold till after its value had been appraised by the board of appraisers, and none could be sold for less than its appraised value. The fluctuation of real estate values, especially in cities, necessitated frequent revaluations. 28 Cf. lournal of Political Economy, Vol. 17, No. 5, p. 287, note 63. 29 Repudiation had already been seriously proposed by many people as the only possible means of freeing the state from an excessive burden of debt. 346 JOURNAL OF POLITICAL ECONOMY ceeded the appraised valuations. 30 The spirited competition among the buyers forced the prices of many of the lots to double their appraisement. 31 In the first three years of the operation of the canal the sales of lots and lands amounted to $1,001,487, 32 while all the sales for the fifteen years preceding the beginning of the trust had aggregated only $i,i52,o64.79. 33 During the continuance of the trust from June 26, 1845, to April 30, 1871, the trustees disposed of lands and lots to the amount of $4,706,- 482.6s. 34 After the extinguishment of the canal debt, the sales proceeded more slowly. Between April 30, 1871, and December 1, 1878, they yielded $27,492.21 to the canal funds; but in the succeeding seven years, ending December 1, 1885, the total receipts from this source were only $6,668.28. 35 From that time the sales were of little consequence till the decline of other sources of revenue in recent years compelled the canal manage¬ ment to resort to this method of replenishing the treasury. In the meantime, the advance in the value of city lots, which com¬ pose the most valuable part of the real estate held by the canal, has been sufficient to leave the value of the present holdings about the same as those of 1885. 36 The estimated value at that time was $166,023.59. In 1907, it was $168,878.59. Since 1898, however, there has been a decrease of $18,969.41 in the value 30 The lands sold were appraised at $208,021 and sold for $210,775. The appraised value of the lots was $505,124 and the selling price, $554,864. 31 The Chicago Daily Democrat, September 26, 1848. This issue of the Democrat quotes at length from the Ottawa Free Trader concerning the sale of lots in that city. The Free Trader estimates that the sales of lots in Ottawa had exceeded $130,000. 32 Swift’s Report to the canal creditors, 1850, p. 9. 33 Report of the Secretary of War , 1887, Vol. II, Part 3, p. 2147. 3 * Final Report of the canal trustees, 1871, p. 9. 35 Report of the Secretary of War, 1887, Vol. II, Part 3, pp. 2147, 2148. 3f> Of the estimated values for each year since 1885, only $360.59 has been assigned to the tracts of land as follows : Two very small islands.$ 10.00 Two tracts of land aggregating 15.34 acres. 350.59 $360.59 I THE ILLINOIS AND MICHIGAN CANAL 347 of lands and lots held, but during the same period the sales have amounted to $79,187.73. 37 The early management of the canal lands was of such a char¬ acter that, at the. conclusion of the trust in 1871, sufficient funds had been derived from their sales to cancel $5,858,547.47 of the $6,557,681.50 which the canal originally cost, exclusive of interest charges, exchanges, and other similar items. Since the pay¬ ment of the original canal debt, more than $100,000 has been received from the sales of lots and lands, in addition to the rentals, which have varied from year to year. The management of the canal was liberal toward the pur¬ chasers of canal land. Although the law provided for the for¬ feiture of lands and lots if the purchaser failed to meet his payments of principal or interest when due, it also made the certificates of purchase negotiable and transferable either by in¬ dorsement or by a separate instrument. These provisions not being sufficient for the relief of purchasers who had bought lands or lots at the inflated prices preceding the panic of 1837, the act of February 27, 1841, made special provision for this class of debtors. 38 The debtor was permitted to select such part of his purchase as the payments made would buy, after deduct¬ ing one-third from the original purchase price. On relinquish¬ ment of the remainder, his remaining obligations to the state were canceled. 39 The state went even farther in its liberality and passed numerous special acts for the relief of individuals who, for one reason or another, did not come within the purview of the general enactments. 40 It also enabled men to secure choice tracts of land by permitting them to occupy and improve the tracts before they were offered for sale. By payment of rent to 37 The decrease in value since 1898 and the amount of sales for the same period have been computed from the annual reports of the canal commissioners. 38 Laws of Illinois, 1841, pp. 49-51. 39 In the case of farm or timber lands all divisions must be made on the basis of the government survey divisions. In case of city lots, such division was required as would leave to the state proportionately as much frontage as to the purchaser. 40 Examples of such acts are those of February 25, 1845, and numerous others. > 348 JOURNAL OF POLITICAL ECONOMY the state these men were able to hold the land till it was put upon the market, when they were usually able to secure it at the valua¬ tion of the appraisers. For the protection of the state and the bona-fide settlers against the land grabber and speculator, the amount of land which persons were privileged to hold in this way was restricted to six hundred and forty acres . 41 An effort was also made by the canal management to assist in attracting to the canal region a desirable class of settlers by promoting the community life of the villages and towns along the canal, and by aiding the social and moral uplift of the com¬ munity through provision for public education and religious in¬ struction . 42 In pursuance of this policy lots were granted for public buildings, such as courthouses, schools, and churches. Liberal concessions were made in the matter of the location of the lots and in the manner of using them . 43 In addition to the renting of unsold lands, it has been part of the policy of the management to grant twenty-year leases for the use of such portions of the ninety-foot strips as are favorably situated for the location of warehouses, elevators, or other busi¬ ness establishments . 44 The same policy is pursued relative to the water power developed at various places along the canal from Lockport to La Salle. These leases of water power have been of especial importance at Lockport, Joliet, and Ottawa. The water power lease at Lockport was of less financial importance directly than indirectly, however. The Norton Mills at that place derived 41 Laws of Illinois, 1837, p. 45. 42 Henry Brown, a historian of Chicago, is authority for the statement that the canal commissioners gave twenty-five lots to Chicago to aid in the erection of public buildings (Present and Future Prospects of Chicago, p. 5). 43 Churches were permitted to sell a part or all of the lots donated, pro¬ vided the funds received from the sale should be expended in the erection of a church building or in securing a more desirable site. 44 On taking control of the canal, the trustees adopted the policy of charging rentals for the use of canal property. The act of February 21, 1843, prohibited the sale of lands or water power till three months after the canal was opened for operation; but the act of February 25, 1847, removed the restriction and left the matter to the discretion of the trustees, with the one restriction that not more than one-tenth of the canal lots or lands in any one city or town could be sold till after the completion of the canal. THE ILLINOIS AND MICHIGAN CANAL 349 their power from the canal, but they also transported much of their wheat and flour on it. For several years before the closing of these mills in 1907, the wheat carried from Chicago to the mills and the flour and millstuffs returned constituted a large part of the traffic on the upper section of the canal. 45 In addition to Norton & Co., among the more prominent of the lessees of recent years have been the Economy Light and Power Company and the Great Western Cereal Company of Joliet, and the Ottawa Hydraulic Company and the Northern Illinois Light and Trac¬ tion Company of Ottawa. Many other corporations, firms, and individuals derive power from the same source, or pay rentals for the occupation of portions of the ninety-foot strip. The opening of the Chicago Drainage Canal materially increased the rentals from water power by largely augmenting the flow over the state dam where the Illinois and Michigan canal crosses the Des Plaines River in the city of Joliet. The increased rentals from water power have about counterbalanced the decrease of those from the ninety-foot strip, which have declined with the decline of the traffic on the canal. The total earnings from the former of these sources during the ten-year period 1898 to 1907 have aggregated $111,900.57, and from the latter, $47,327.01. To these rentals should be added the receipts from the ice leases and from water-pipe and sprinkling privileges and miscellaneous items, which amounted to $9,029.00 and $18,667.34 respectively for the decade. Thus the total earnings in the last ten years from rentals, leases, and privileges have been $186,923.92, while the tolls for the same period amounted to only $129,491. The state has never attempted to transport passengers or freight. It has furnished the route and left the work of trans¬ portation to individuals and corporations. On the opening of the canal the commissioners fixed the rate of tolls to be paid by the owners of vessels for the privilege of using the canal. These tolls were made up of two separate charges: First, a charge per mile for each boat or barge; second, a charge per mile for each 45 Of the 38,820 tons of freight carried on the canal in 1905, there were 335,334 bushels of wheat shipped from Chicago and 6,163,444 pounds of flour and 2,340,927 pounds of millstuffs received. Practically all of this business was produced by the Lockport mills. 35 ° JOURNAL OF POLITICAL ECONOMY thousand pounds of freight or for each passenger carried. The same method of estimating the charges for the use of the canal has been continued down to the present time; but the rates have been reduced from time to time in an effort to stave off the increasing competition of the railways. Notwithstanding the reductions in canal charges, the traffic has gone more and more to the railroads till for the year ending November 30, 1905, the total amount of freight transported on the canal was only 38,820 tons against 1,011,287 tons in 1882. For 1905 the tolls, includ¬ ing those collected at the locks at Henry and Copperas Creek on the Illinois River, amounted to only $4,950, and the gross ex¬ penditures were $50,890. 46 For this decline in tonnage and tolls the management is only partially responsible. The railroads have taken the business from the canal partly because of the advantages offered by the great railway systems with their methods of prorating of freights and interchange of cars, and partly because of the fact that the railroads are managed by capable men, thoroughly familiar with the transportation busi¬ ness, while the canal is managed by men appointed because of the political influence back of them. Although politics have played a more or less important part in the management of the canal from the beginning, they have been a more pronounced element in the determination of appoint¬ ments in recent years than formerly. For many years practically all the appointments have been determined by political affilia¬ tions. 47 The result has been a degree of inefficiency in the canal administration which no modern corporation would tolerate on the part of its managers or employees. Two instances' which have come to public knowledge within the last dozen years exhibit \ 48 Report of the canal commissioners, 1905, p. 25. A statement of the tolls, expenditures, and tonnage of the canal is given at the end of the article. 47 The insecurity of tenure is illustrated by the changes which occurred in the personnel of the canal force between February 15 and March 15, 1897, when every man on the pay roll with a single exception was changed. The changes were somewhat more sweeping in this case than usual because the state adminis¬ tration was passing from the control of one party to that of its opponent; but the principle holds true generally that the employees must affiliate with the political faction in power. THE ILLINOIS AND MICHIGAN CANAL 351 this phase of the later management. 48 In the investigation of the damages which would be sustained by the canal property from the construction of the Chicago Drainage Canal, it was discovered that for many years squatters had held several tracts of canal land which had been entirely lost sight of by the canal management. It was further discovered that among the for¬ gotten files of the canal office were unrecorded deeds to several lots and parcels of land in the city of Joliet. 49 Another failure to conserve the best interests of the state in the management of the canal affairs came to light in the legislative investigation of the “Dresden Heights dam lease,” in the month of November, 1907. By their own admission, the canal officials entered into a sale and lease of state property without any definite knowledge of the value of the rights conveyed. 50 The lease was made nominally to Harold F. Griswold, who transferred it to the real lessee, the Economy Light and Power Company of Joliet. 51 48 The one scandal connected with the earlier history of the canal grew out of the failure of the canal officials properly to cancel or destroy the redeemed scrip. By reason of this failure the state came near losing $200,000 through the redemption of a portion of it a second time, and the fair name of ex-Governor Mattison was brought under suspicion. The scrip in question was issued in 1840 and mostly redeemed within a few months. After remaining in the Chicago branch of the Illinois State Bank and at the canal office till 1853, it was transferred to Springfield in a trunk and a shoe box and placed in the basement of the capitol building. In 1857, Governor Mattison presented for redemption scrip which with the accumulated interest amounted to about $200,000. In 1859 a Senate committee and the grand jury of Sangamon County failed to hold Mattison culpable. He reimbursed the state, but his friends claimed that he did so to prevent financial loss arising under his administration and that the scrip presented had come into his hands through legitimate business transactions. Cancellation or destruction of the scrip as redeemed would have prevented the unfortunate affair. 49 Report of the canal commissioners, 1897, pp. 9-11. 50 The report of the testimony given before the legislative investigating com¬ mittee was published daily in the Chicago Record-Herald during the progress of the investigation, beginning November 20, 1907. 51 The entire deal consisted of three parts: First, a lease of flowage rights in the Des Plaines River, consideration $2,200 ; second, the right to place a line of poles for the purpose of stringing electric wires along the ninety-foot strip; third, the purchase of a small tract of land lying between the canal and the river bank, consideration $500. The leases were made. in September, 1904, and the sale in January, 1905. 35 2 JOURNAL OF POLITICAL ECONOMY The consideration was $2,200 and the value of the rights con¬ veyed has been variously estimated at from $8,000,000 to $15,- 000,000. Even assuming that the lowest of these estimates is an exaggeration of the real value of these rights, it is apparent that the canal officials permitted themselves to be drawn into a contract by which the state would not receive compensa¬ tion commensurate with the rights conveyed. The lease failed also properly to safeguard the interests of the state by omitting the clause, usual in other canal leases, enabling the state to terminate it at pleasure. Although in recent years the canal has been compelled to carry the incubus of the spoils politician, it has not, on the whole, suffered more from this source than the state penal and chari¬ table institutions have done. The management has been of differ¬ ent character and efficiency at different times and with different boards. As a rule, however, it was more efficient when the canal was an important commercial route than it has been since the traffic has largely gone to the railroads. Since the canal has ceased to be of much consequence as a transportation agency, the public has ceased to exercise the watchfulness, born of personal interest, which compelled a reasonable degree of efficiency in its earlier management. The history of the canal has shown once again the oft-demonstrated facts that, in the long run, an intel¬ ligent public interest is essential to the successful conduct of a public business and that there is no necessary correspondence between the ability of a political appointee to obtain an appoint¬ ment and his ability successfully to perform the duties which attach to the position obtained. There can be little doubt that a greater care exercised in the selection of the canal commission¬ ers and a well-organized civil service based on the merit system and strictly applied in the selection of all officers and employees would have added to the efficiency of the canal management. The tasks to be performed demanded men of large ability, special skill, and unswerving integrity. The system employed in the selection of men and the distribution of powers and responsi¬ bilities has not always insured the highest type of management. THE ILLINOIS AND MICHIGAN CANAL 353 TOLLS, EXPENDITURES, AND TONNAGE OF THE ILLINOIS AND MICHIGAN CANAL TO THE CLOSE OF 1907 Year Gross Expenses Tolls Tons Transported* Year Gross Expenses Tolls Tons Transported 1848 $ 48,197 $ 87,890 1879 97,701 89,065 669,559 1849 7 °> 93 2 118,375 1880 125,601 92,296 75 1 ,360 185° 68,415 125,504 1881 108,223 85,130 826,133 1851 58,475 i73,3oo 1882 104,412 85,947 1,011,287 1852 53 > 5°8 168,577 1883 116,756 77,975 925,575 1853 44,870 ! 73,372 1884 99,289 77 >!° 2 956,721 1854 53, 2 42 198,326 1885 86,393 66,800 827,355 1855 7 0 ,873 180,519 1886 72,430 62,516 808,019 1856 9 U 458 184,310 1887 71,385 58,024 742,074 1857 103,282 197,830 1888 76,845 56,028 75 i,o 55 1858 58,088 I 97 , I 7 I 1889 85,478 60,605 917,047 1859 74,432 132,147 1890 75 U 25 55 ,!I 2 742,392 i860 82,583 138,554 367,437 1891 72,592 49,557 641,156 1861 55 ,o 6 i 218,040 547,295 1892 67 U 37 54,937 783,288 1862 55,362 264,647 673,590 1893 59,522 38,702 529,816 1863 62,715 210,386 619,599 1894 54,258 44,928 617,811 1864 66,107 156,607 510,286 !895 71,142 39 ,io 6 59 i, 5 o 7 1865 124,869 300,810 616,140 1896 77,987 32,100 446,762 1866 116,363 302,958 746,815 1897 68,307 33 ,o 65 484,575 1867 162,656 252U3 1 746,815 1898 78,986 38,570 395 ,'017 1868 122,052 215,720 737,727 1899 9!,196 41,021 469,352 1869 9 U 765 238,759 817,738 1900 88,317 13,867 i 2 i ,759 1870 108,695 149,635 585,970 1901 111,002 8,120 81,456 1871 97,232 159,050 628,975 1902 127,150 2,879 35,824 1872 88,876 165,874 783,641 1903 52,400 5,857 62,894 1873 81,088 166,641 849,533 1904 42,761 6,743 47,616 1874 73,798 144,831 712,020 ! 9°5 50,890 4 , 95 o 38,820 1875 74 , 5 n 107,081 670,025 1906 48,523 5,358 35 , 48 o 1876 1877 9 I ,595 110,018 113,293 96,913 691,943 605,912 1907 50,050 2,126 80,616 1878 82,330 84,330 698,792 $ 4 , 995 , 3 l6 $6,610,067 71,002,59! * Statistics of the tonnage before i860 are not available. The University of Missouri J. W. Putnam V THE JOURNAL OF POLITICAL ECONOMY Volume 17 JULY—1909 Number 7 AN ECONOMIC HISTORY OF THE ILLINOIS AND MICHIGAN CANAL. Ill IV. ECONOMIC INFLUENCE Before the canal was opened for traffic its local influence in the development of the region through which it passes had been distinctly marked. After its opening it wielded a large influence, not only locally, but over a wider range of territory, by means of the added facilities which it furnished as a transportation route before the era of railroads, giving access to otherwise closed markets. Since the era of railroad-building began in the Middle West, it has also served as a freight-rate regulator at all competitive points. In the performance of these services, however, it has been handicapped by the conditions of the Illi¬ nois River, which with the canal completes the waterway from Lake Michigan to the Mississippi; by the character and con¬ ditions of railroad competition; and, to a less extent no doubt, by the character of the canal management. Three periods may be distinguished, logically and chrono¬ logically, in the history of the economic influence of the canal. The first included the development of the project and the con¬ struction of the canal. The second comprised the six years from the beginning of the traffic on the canal in 1848 to the opening of the Chicago and Rock Island Railroad from Chicago to the Mississippi River in 1854. The third is the period of competition between the canal and the railroads for traffic. 413 4H JOURNAL OF POLITICAL ECONOMY During the years of projection and construction of the canal the wealth and population of the canal region grew apace. In 1829, when the canal commissioners laid out the towns of Chicago and Ottawa, Peoria was a small pioneer outpost on the extreme northern frontier of the settled portion of Illinois. 1 Beyond it and far removed from any immediate connection with the remainder of the state, and separated by wide stretches of country traversed only by the red man and a few traders, lay a small settlement at the mouth of the Chicago River and another at Galena in the lead-mining district on the upper Mississippi. 2 But, between 1830 and 1835, the increasing probability of the early construction of the canal and the widely disseminated opinion that its completion would greatly increase the value of all the land within a reasonable distance of the route and develop the proposed cities and villages along its course, led to a steadily increasing demand for farms and town lots along the line of the projected waterway. This movement, slow at first, was accelerated as it became increasingly apparent that the construc¬ tion would not be long delayed. By the beginning of the actual work of construction in 1836, real estate speculation had become the chief industry of the canal region. Shrewd business men perceived that Chicago would necessarily become the transfer point for all passengers and commerce passing between the Great Lakes and the canal and that it was destined to be the emporium of western trade. 3 A realization of these facts made the canal region, and particularly Chicago, a favorite place for the exercise of the speculative mania that swept over the country 1 There were few settlers north of Fulton County in the “Military Tract,” or north of the Sangamon River east of the Illinois. 2 The entire population in the vicinity of the present city of Chicago, including white families, half-breeds, and three or four French traders, did not exceed one hundred. The poll-book used at an election held in the precinct of Chicago, Peoria County, August 2, 1830, contains thirty-two names. Not all of these voters lived at the village of Chicago. Cf. Wentworth’s lecture before the Chicago Historical Society, in the Fergus Historical Series, No. 7, p. 16. 3 As originally laid out in 1830, the town of Chicago comprised the terri¬ tory between the present streets of State and Halsted, and Kinzie and Madi¬ son, the junction of the north and south forks of the Chicago river falling within the limits of the town. THE ILLINOIS AND MICHIGAN CANAL 415 just prior to the panic of 1837. Accordingly, real-estate values advanced by leaps and bounds. 4 In 1830, 126 lots sold in Chicago at prices varying from $24 to $130 each, but averaging about $35. Eighty acres of land, now in the heart of the city, brought $1.55 an acre. 5 Four years later, lots on South Water Street, which was then the chief business street of the city, sold for $3,500 each. 6 A tract of 40 acres of land, now included in Butler, Wright, and Webster’s addition, was purchased on Jan¬ uary 2, 1835, for $4,000. On April 10, following, it was sold for $io,ooo. 7 The active preparation for the actual beginning of the work only led to still wilder speculation, till the mania was checked by the panic of 1837. The rise and decline in real-estate values in other towns along the canal were less phenomenal and spectacular but other¬ wise very similar to those at Chicago. The growth of the towns was slower and the speculative spirit less rampant. Conse¬ quently, the real-estate prices were not subject to such violent fluctuations. At Ottawa, in 1830, the canal commissioners sold nine lots at an average price of $20 each. In 1836, they sold seventy-eight at an average price of $273.85. 8 In other canal towns the increase in values followed about the same course as at Ottawa. As was to be expected from the inflated real-estate values, the reaction produced by the panic of 1837 was particularly vio¬ lent in Chicago. After the panic, periods of inflated prices were succeeded by periods of depression for several years. Some of these variations took a wide range. The high prices of 1843 were followed by the heavy decline in 1845. I n the latter year, thirteen canal lots which had been forfeited by their former pur¬ chasers were sold for $8,622. These same lots had formerly been appraised at $49,430. In the same year, a syndicate of canal creditors accepted at an appraisement of $30,210, lots and * Andreas, History of Chicago, I, 115. 5 Ibid. 6 Wright, Chicago, Past, Present, Future, pp. 4-6. 7 Ibid., p. 6. 8 Report of the Canal Commissioners, 1878, p. 44. 416 JOURNAL OF POLITICAL ECONOMY tracts which had brought $94,405 in October, 1843. 9 However, in each period of inflation the prices usually rose higher than in the preceding. Such a field for speculation could not fail to attract popula¬ tion and investments. But not all the investments were of a speculative character. Much of the demand for farms and town lots came from those who turned their faces toward the canal region to make it their future home. To be sure, the increasing demands for farms and business locations and the estimates placed upon the future enlargement of those demands formed the basis for the speculation which from time to time placed abnormal valuations on the choice tracts of land and business situations. But the general upward trend of real-estate values throughout the period depended on a steadily growing popula¬ tion and industry. The entire population included in the territory extending from Peoria to Wisconsin on the north and Indiana on the east was 1,310 in 1830. 10 By 1833, Cook and LaSalle counties had been created along the line of the proposed canal, the former having a population of 9,826 and the latter of 4,754. The river section of the route, lying between the proposed western termi¬ nus of the canal and Peoria, was comprised in Putnam and Peoria counties with a combined population of 7,241. 11 Thus there had been a net gain of 20,511 in the population of the region of the proposed waterway in five years. I11 the next five years the population of this region rose to 46,451, and, in 1850, it had reached 125,708. The population of Chicago grew from 4,470 in 1840 to 12,088 in 1845 an d 28,269 in 1850. 12 It was in the neighborhood of 20,000 at the opening of the canal. 13 The economic development of the region is further shown by the rapidity with which the land passed from public to pri- 6 Op. cit., p. 49. 10 Tzvelfth Census, Population I, Part I, p. 16. 11 Illinois House Journal, 9th General Assembly, 2d Session, p. 86, gives the state census by counties in 1835. 12 Senate Executive Document, No. 16, 34th Congress, 3d Session, pp. 40, 41. 13 The population given for 1847 was 16,860 and that for 1848 was 20,035. THE ILLINOIS AND MICHIGAN CANAL 417 vate ownership. Of the 3,626,536 acres of public land in the Chicago land district on May 29, 1835, 2,780,640 acres had been sold to individual purchasers by November 1, 1847. 3 4 The imports and exports of a community fairly indicate the condition of its economic development. Measured by this standard, the economic development of the canal region did not lag behind its growth of population. During the period under consideration, the import and export trade of the region chiefly centered at Chicago, as it has since continued to do. The trade at Chicago grew and altered in character with the development of the country tributary to it. 15 The second* period of influence of the canal began in the 14 Report of Jesse B. Thomas, member of the Executive Committee of the Chicago Harbor and River Convention, 1847, p. 18. The yearly sales were as follows: Year Acres Sold Year Acres Sold 1835. . 37°,°43 1842... . . 194,556 1836. .202,364 1843.... 1837. . 15,697 1844.... .235,258 1838. . 87,881 1845.... .220,525 1839. .160,635 1846.... .198,849 1840. . 137,382 1847 (To Nov. 1). 98,569 1841. .138,583 15 For the years when the canal was in process of construction the imports and exports at Chicago were as follows : Year Imports Exports Year Imports Exports 1836 - $325,203.90 $ 1,000.64 11,065.00 1842.... $ 664,347.88 $ 659,305.20 1837 ... 373,677.12 1843.... 971,849.75 682,210.85 1838 . ... 579,174.61 16,044.75 1844.... 1,686,416.00 785,504.23 1839 630,980.2 6 38,843.00 l 845 -••• 2 , 043 , 445-73 i, 543 , 5 I 9-85 1840 ... . 562,106.20 228,635.74 1846.... 2,027,150.00 1,813,468.00 1841 ... 564,347.88 348,862.24 1847.... 2,641,852.52 2,296,299.00 Cf. Report of Jesse B. Thomas, member of the Executive Committee of the Chicago Harbor and River Convention, 1847, p. 15. These statistics are also given with the omission of the columns for cents in Andrews, Report on Colonial and Lake Trade, p. 218. The leading articles of export for the six years preceding the opening of the canal and the quantities exported were: Bu. Bbls. Bbls. of Pork Lbs. Year of Wheat of Flour and Beef of Wool 1842 . 586,907 2,920 16,209 1,500 1843 . 628,967 10,786 21,492 22,050 1844 . 891,891 6,320 14,938 9 6 , 6 35 1845 . 956,860 13,752 13,268 216,616 1846 .1,459,594 28,045 3B224 281,222 1847 . 1 , 974 , 3°4 3 2 ,538 48,920 411,488 418 JOURNAL OF POLITICAL ECONOMY month of April, 1848. 16 The development of the region during nearly two decades preceding had been in anticipation of the canal. That of the next six years was due to a partial realiza¬ tion of the anticipations with which the project had been carried to consummation. It was a period of large industrial growth. For several months after the opening of the canal its efficiency was adversely affected by an insufficient supply of water on the Summit level, 17 and by an insufficient supply of canal boats to carry the commodities and passengers seeking transportation. 18 Before the close of the summer, however, the traffic had assumed large proportions. Lumber from the Great Lakes and merchan¬ dise from the East passed down the canal for distribution to the canal and river towns and from them to the interior settle¬ ments. The farm products from the canal region and from the Illinois River, and sugar, molasses, coffee, and other tropical products from the New Orleans and St. Louis markets were carried to Chicago on their way to northern and eastern con¬ sumers. 19 With improved facilities for transportation and with the rapid industrial development of the region influenced by the transportation facilities furnished by the canal, the traffic and earnings grew almost steadily throughout the period, in spite of 10 The first boat, the “General Fry,” passed over the Summit level from Lockport to Chicago on April io. The “General Thornton” made the first trip the entire length of the canal from LaSalle to Chicago, where it arrived on April 23. In the canal records April 19 is regarded as the date of the opening of the canal. 17 The Calumet feeder not yet being completed, the supply of water for the Summit level had to be pumped from the Chicago River at Bridgeport. The porous condition of the soil on some of the sections of the canal rendered it extremely difficult to maintain a sufficient depth of water for the navigation of loaded boats. 18 At the opening of the canal only sixteen boats were in commission for the service. 10 In their report for 1848 the canal trustees mention, with evident satis¬ faction and as an indication of large through-freight business in the future, the fact that sugar and other commodities from the New Orleans market reached Buffalo by way of the Illinois and Michigan Canal on April 30, a full two weeks before the first boat of the season reached that city on the Erie canal. I THE ILLINOIS AND MICHIGAN CANAL 419 unfavorable river conditions in 1852 and 1853. The annual tolls increased from $87,890 to $198,321. The importance of the through traffic is shown by the fact that, in 1851, 44,000,000 feet of lumber, 47,000,000 shingles, and 11,000,000 lath were sent from Chicago to points beyond the western terminus of the canal, and most of the 3,221,317 bushels of corn received at Chicago, that year, came from the Illinois River. The five leading articles of commerce carried on the canal during the period were wheat, corn, sugar, merchandise, and lumber. The quantity of each of these commodities carried is illustrated by the following tabulation: Year Wheat, Bu. Corn, Bu. Sugar, Lbs. Mdse., Lbs. Lumber, Feet 1848. 454,m 5 l6 ,230 3,219,122 4,948,000 15 , 425,357 1849 . 579,598 754,288 4,218,298 9 > i 7 6 ,943 26,882,000 1850. 417,036 3 j 7, 6 74 5,680,324 10,372,623 38,687,528 1851. 78,062 2,878,550 4 , 59 I , 47 I 14 , 175,928 56,845,027 1852. 117,441 1,810,880 4,822,297 15 , 390,346 5 2 ,5 I o,o5 I 1853. 340,277 2, 49 °,67 5 7 , 33 2 , 0 3 2 10,687,598 58,500,438 Chicago, Peoria, and St. Louis were directly affected by the canal as a transportation route. Of the three, St. Louis alone was affected adversely. Even this detriment was of limited extent. Before the opening of the canal, the Illinois River trade was tributary to St. Louis. After the opening of the canal most of it became tributary to Chicago. For southern products St. Louis still held the territory, but the merchandise came principally through the canal and the products of the region largely sought the Chicago market. 20 Henceforth St. Louis could hope to draw the major part of the grain from the Illinois River only when temporary market conditions should chance to give that market an advantage in price. The freight rates from the Illinois River to the eastern cities by way of Chicago and 20 The Annual Review of Trade and Commerce of St. Louis for 1848 accounts for the decrease of 316,625 bushels of corn and 237,588 bushels of wheat received in that market as compared with the receipts of the previous year in the following words: “The deficit may be accounted for from the opening of the Illinois and Michigan Canal, which drew off to Chicago and other points on the Lakes the accustomed heavy arrivals from the Illinois River, and greatly lessened the aggregate amount received at this port.” The next year showed a still greater decrease. 420 JOURNAL OF POLITICAL ECONOMY Buffalo were lower than those by way of St. Louis and New Orleans. 21 Consequently the grain from that region intended for the Atlantic seaboard cities or for foreign export normally sought the northern route. St. Louis was compensated for this loss, however, by an enlargement of her mercantile interests. The wholesale grocers found new markets for sugar, coffee, tobacco, and other products of the lower Mississippi trade. 22. Eastern merchandise, for which St. Louis was the distributing point for the rapidly developing regions west of the Mississippi, could be obtained more expeditiously and cheaply by way of the canal than by way of New Orleans. 23 From 1845 to 1858 the grocery busi¬ ness of St. Louis advanced from $1,134,367 to $5,018,677 and the hardware business from $251,259 to $904,316. Between 1846 and 1851 the imports of coffee rose from 65,000 bags to 102,000 bags and the sugar traffic increased from 17,000 pack¬ ages to 66,000 packages. The sales of dry goods in 1841 amounted to $1,300,000; in 1852 they reached $7,000,000. 24 This growth of trade was not wholly due to the opening of the Illinois and Michigan Canal but was greatly facilitated by it. The opening of the canal gave a strong impetus to the development of Peoria. Although checked in its growth by the cholera of 1849-50, the population increased from 3,014 in 1847 to 6,202 at the close of 1850. 25 Five hundred and seventy- nine buildings were erected in the three years, 1848, 1849, an d 1850. 26 These building operations were facilitated by the cheapening of lumber, since the opening of the canal gave access to the northern lumber regions. In 1848 the canal brought large quantities of pine and cedar lumber from the northern forests, reducing the price to about half that of the preceding year when the supply was received from the St. Louis and 31 Annual Review of Trade and Commerce of St. Louis, 1852, p. 9. 22 Ibid., 1848, pp. 2, 10. 23 Andrews, Report on Colonial and Lake Trade, p. 220. 24 Annual Review of Trade and Commerce of St. Louis, 1856, p. 9. 25 Drown, Record and Historical View of Peoria, p. 146. 26 Ibid., p. 147. THE ILLINOIS AND MICHIGAN CANAL 421 Pittsburg markets. 27 Business prospered generally. By 1850 the importations of merchandise, lumber, and other commodities had quadrupled since 1847. 28 During the season of 1850, six packets made regular weekly trips between St. Louis and LaSalle. Twenty-seven steamers served as tow-boats, each towing from two to fourteen canal boats each trip. Aside from the canal boats and flat boats an aggregate of 1,286 steamers touched at the Peoria wharf during the season, an increase of more than 300 since 1847. 29 The number of steamers at the wharf, however, does not convey a correct impression of the relative amount of business done during these two years, because many of the imports and exports of the latter year were carried on canal boats, the number of which was not recorded. A record was kept only of the steamers that had them in tow. 30 The remarkable growth of Chicago during the twelve years of construction of the canal was far surpassed during the first six years of its operation. 31 The economic development of the country tributary to the city necessarily caused an increase of its imports and exports which led in turn to an increase in the population and wealth of the city itself. The population of the four canal counties, which had increased from a few hundred in 1830 to 29,716 in 1840 and 80,926 in 1850, more than doubled 27 Drown, Record and Historical View of Peoria, p. 105. 28 Ibid., p. 107. 20 Ibid., pp. 107-9. 30 Ibid., p. 144. The exports for 1851 amounted to $1,227,134.10, the most important items of which were: Corn. .628,719 bu. at $0 .40 per bu. .. . .$251,487, .60 Wheat.. . . .151,465 bu. at .68 per bu. . . . . 102,996, . 20 Oats. •35 P er bu. - 92,874. ■°5 Flour. . 35>753 bbl s- at 4 • 5 ° Per bbl. •50 Whiskey. . . 5*685 bbls. at 10 . 00 per bbl. - 56,850. 00 Wool. ..250,760 lbs. at • 3 ° Per lb. - 75,228. ,00 Dry hides. .10,701 hides at $2.00 per hide. .00 Coal. at 2.50 per ton. . 51 . 450 ' . 00 Beef cattle . 1,719 head at 15.00 per head. . 25,785. .00 Hogs. at 7.00 per head. .185,572, .00 Cooperage- —valued at. . 47 . 785 ' .00 Sundries— potatoes, eggs, fruit, etc. . 25,000. .00 Manufactures. .00 31 Senate Executive Document, No. 16, 34th Congress, 3d Session, pp. 40, 41. 422 JOURNAL OF POLITICAL ECONOMY in the next five years, reaching 171,012 in 1855. 32 Almost an equal gain was made by the river counties from LaSalle to the mouth of the Sangamon. From 40,536 in 1840, their popula¬ tion rose to 90,961 in 1850 and 128,462 in 1855. It is thus seen that the population along the waterway from Lake Michi¬ gan to the mouth of the Sangamon River increased from 70,252 in 1840 to 171,887 in 1850 and 299,474 in 1855. But the growth of population was not confined to the counties immedi¬ ately touching the canal and the upper course of the Illinois River. As the better tracts of land in these counties were taken up, settlements continually spread farther back into the unoccu¬ pied sections. By 1855 more than half the population of the state was to be found north of the Sangamon River, 33 and the most densely populated counties lay in the region of the waterway. 34 During the first period of canal operation, from 1848 to 1854, the population of the city of Chicago advanced from 20,035 to 74,500. 35 But the enlargement of commerce more than kept pace with the growth in population. The grain exports grew from 3,001,740 bushels to 13,132,501 bushels, the shipments of corn .alone increasing from 550,460 bushels to 6,837,890 bushels. 30 By 1851 the Chicago exports had reached 33 The population is not obtainable for 1848, the beginning of canal traffic, nor for 1854, the year when railway competition began. The figures for 1840 and 1850 are taken from the federal census and those for 1855 from the Illi¬ nois state census of that year. 33 Of the 1,300,251 inhabitants of the state in that year, 737,867 were north of the Sangamon River. Si Of the five counties in the state having a population of more than 30,000 in 1855, Cook, LaSalle, and Peoria were on the waterway and Madison and Adams on the Mississippi. Cook, Kane, and Peoria were the only counties whose density of population exceeded 1,000 per square mile. Two of these were on the waterway and the other was connected with it by way of the Fox River and was also within wagoning distance of Chicago. Moreover, since 1851 Kane County had been connected directly with Chicago by the Galena and Chicago Union Railroad. Vide Gerhard, Illinois As It Is, pp. 221-24. 55 Senate Executive Document, No. 16, 34th Congress, 3d Session, pp. 40, 41. M Annual Report of the Chicago Board of Trade, 1905, p. 19. THE ILLINOIS AND MICHIGAN CANAL 423 $ 5>395 47 1 an d the imports, $24,410,400. 37 The heavy prepon¬ derance of imports over exports is accounted for chiefly by the fact that a large proportion of the imports passed through the canal to the regions whose products found their way to other markets. Large quantities of ready-made clothing, hats, caps, boots and shoes, and other manufactured products intended for the St. Louis market were imported through Chicago and were carried by canal and river to St. Louis, from which city they were distributed to the newer portions of the West. The extension of settlement to portions of the state not easily accesssible to the waterway led to a demand for railroad connection with the markets. Of the lines of railroad projected to meet this demand, one was destined to come into inevitable rivalry with the canal. For many years the question of the con¬ struction of a canal or railroad from the Illinois River near the terminus of the Illinois and Michigan Canal to the Mississippi at Rock Island had been agitated. On February 27, 1847, the Rock Island and LaSalle Railroad Company was chartered to construct a road between these two points. 3S It was expected that this road would prove an important feeder for the canal by developing the region between the two rivers and also by tapping the upper Mississippi trade and drawing it to Chicago through the canal. An amendment of the charter, February 7, 1851, however, authorized the extension of the road to Chicago and designated the corporation as the Chicago and Rock Island Railroad Company. 39 It was the evident intention of the legis- 37 Andrews, Report on Colonial and Lake Trade, pp. 220-22. Of these imports the chief items were: Merchandise. $21,081,300 Salt. $192,811 Lumber, shingles, and lath i, 698>755 Coal. 150,000 Iron. 411,440 Coffee. 135,792 Sugar. 282,582 The leading exports for the year were: Merchandise. $1,245,5°° Beef, tallow, and hides. . . . $ 523,644 Corn. i,i 59, 6 74 Pork, hams, and shoulders 400,816 Furs. 564,5°° Wool. 326,083 Wheat and flour. 477, 2 53 Lard. 238,140 38 Crosby, History of the Chicago, Rock Island, and Pacific Railway, p. 2. 39 Ibid., pp. 2, 3. 424 JOURNAL OF POLITICAL ECONOMY lators in granting* the right of extension, to make the railroad supplementary to the canal rather than a competitor for its traffic. Therefore, following the example of New York regard¬ ing railway competition with the Erie canal, the act granting the charter provided for compensation to the canal for losses of freight traffic by reason of railroad competition. 40 It re¬ quired that for all freight except live stock, carried by the road when the canal was open for traffic, and originating between a point twenty miles west of LaSalle and the eastern terminus of the road at Chicago, the company should pay to the canal trustees tolls equal to those which the canal would have earned if the freight had been carried on that route. 41 Through a blunder of the trustees the road escaped the burden of this provision. 42 A formal grant by the trustees of a right of way through the canal lands not later than the first Monday in June, 1851, was necessary in order to obligate the company to observe this provision of the act of incorporation. Advised that the right of eminent domain could not be exer¬ cised in the case of land g*ranted for public use, the trustees refused to make the grant, thinking in this way to prevent rail¬ way competition. The company instituted successful condemna¬ tion proceedings and the trustees failed in an effort to enjoin the construction of the road through canal lands. The work of construction was begun in April, 1852, and the road was operated for traffic from Chicago to Rock Island in the summer of 1854. In the same year the Bureau Valley Railroad was completed from Bureau Junction on the Chicago and Rock Island to Peoria, and leased in perpetuity to the latter corpora¬ tion. Thus, before the close of 1854, the railroad was in com- w Cf. Prentice, Federal Power over Carriers and Corporations, pp. 94, 95. 41 The act granting the charter also provided that all freights carried by other railroads extending from Chicago to points on the canal or to points on the Illinois River within twenty miles of the terminus of the canal, should be subject to the same rates of toll as those imposed on the Chicago and Rock Island Railroad. 43 It is not probable that such a provision could have remained operative for any great length of time. It was an impossible provision, as the experience of New York proved. THE ILLINOIS AND MICHIGAN CANAL 425 petition with the waterway from Chicago to Peoria and was supported by a rapidly developing country between the Illinois and Mississippi rivers and on the upper Mississippi. The opening of the railroad for traffic along the line of the canal ushered in the third period of the canal influence. The inevitable contest for the traffic of the region common to both transportation lines began at once. The railroad easily took from the canal the passenger traffic, which had assumed con¬ siderable proportions. For six years the canal and river route had been a popular one with western travelers. An excellent line of packets operated between Chicago and LaSalle and an equally good packet service was provided for the river trip from LaSalle to St. Louis. 43 But within a few months after the opening of the railroad for traffic practically all the passenger business deserted the canal for the speedier mode of travel. 44 The contest for freight, however, was long and spirited. In the end, the railroad secured most of this traffic also, but only after its service and its charges had been greatly affected by the struggle. Both by its traffic and by the effect of its actual or potential competition on railroad rates, the canal has continued, decreasingly, to influence the development of the region in which it is located. Naturally the high-class freights were the first to seek the more rapid means of transportation. Lumber, grain, coal, and stone continued to be transported on the canal in large quantities for several years after the higher-class freight had chiefly gone to the railroad. For the commercial year from April 1, 1866, to March 31, 1867, 33,929,632 bushels of corn were received at Chicago, of which 9 , 575 ffi ^9 bushels were car¬ ried on the canal and 4,279,190 bushels on the Chicago and Rock Island Railroad. 45 Of the 10,713,981 bushels of oats received 43 Gould, Fifty Years on the Mississippi, p. 522. 44 The railroad was opened from Chicago to Joliet in 1853 and at once became a favorite route for passengers between these two. cities. As a result the passenger traffic on the canal was reduced to 25,966 for the year. With the opening of the railroad the entire length of the canal the following year, practically all the passenger business between Joliet and LaSalle also deserted the canal. 45 Wright, Chicago, p. 154. 426 JOURNAL OF POLITICAL ECONOMY during the same period, 1,417,436 bushels came by the canal and 982,761 bushels by the competing railroad. 46 This, in spite of the fact that the railroad operated 407 miles of line and drew its traffic all the way from central Iowa. 47 In 1873 an d ^74 12,722,569 bushels of corn were transported to Chicago on the canal—an annual average of 51,300 bushels for each of the 124 miles of canal and river route operated by the canal com¬ missioners in competition with the railroad. 48 In the same time the Chicago and Rock Island Railroad carried to Chicago 8,547,187 bushels, or an annual average of 6,284 bushels for each of the 680 miles of road then operated by the company. 49 By the reduction of canal charges from time to time; by the personal solicitation of freight by the boat-owners; and by the permission which the boat-owners gave the shippers to use the boats for storage purposes when canal navigation was closed, the canal traffic continued to increase till 1882, in which year the tonnage carried was 1,011,287 tons. From that year till 1899 the amounts of freight carried annually show an irregu¬ lar decline. Except for the year 1898, however, the tonnage stayed well above 400,000 tons a year till 1900, when it suddenly dropped to 121,759 tons and has since continued its downward course. While the reduction of canal charges assisted in pre¬ serving traffic for the boat-owners and in keeping up the canal tonnage, it operated adversely on the canal earnings. The maxi- 48 The railroad carried 1,420,163 bushels of wheat and 179,316 barrels of flour as against 83,834 bushels of wheat and 45,317 barrels of flour carried by the canal. It should be remembered, however, that at this time the railroad was completed and open for traffic almost to Des Moines, la., and drew much of its grain traffic from non-competitive territory. There are no statistics which show what proportion of the wheat and flour produced in the canal region was carried by each of the competitors. 47 In 1866 the main line of the Chicago and Rock Island Railroad extended to Kellogg, la., and the Oskaloosa branch to Washington, in the same state. 48 Until the opening of railroad traffic between the various Illinois River towns and Chicago, large quantities of grain were sent to market through the canal from as far down the river as Beardstown. By 1873, however, the greater part of this traffic had gone to the railroads. ^Special Report of the Canal Commissioners } 1875, p. 10. THE ILLINOIS AND MICHIGAN CANAL 427 mum tolls were received in 1866, and amounted to $302,958. 50 By 1877 the annual tolls had fallen below $100,000, 51 and in 1882, the year of the maximum tonnage, they were only $85,947. Since that time the decline in earnings has about kept pace with the decline in tonnage. In recent years the decline in the traffic and earnings of the canal and in its relative importance as a transportation route has been rapid. In 1905, of the 7,944,955 barrels of flour re¬ ceived in the Chicago market 21,216 came by the canal, while none of the 26,899,012 bushels of wheat and only 35,300 bushels of the 92,489,761 bushels of oats were carried on the canal. As usual, the corn shipments exceeded those of any other single commodity, amounting to 326,802 bushels of the 110,823,444 bushels received at Chicago. Neither rye nor barley was found among the shipments on the canal, although 2,392,444 bushels of the former and 28,074,142 bushels of the latter were received in the Chicago market. Of the 1,110,371,601 pounds of dressed beef and 1,160,572,790 pounds and 144,909 barrels of pork products shipped from Chicago during the year, not a pound was carried on the canal. 52 Such products as coal, potatoes, beans, salt, and corn products were carried entirely by the rail¬ roads, and only 66,000 cubic feet of stone found its way to Chicago on the canal. The ultimate loss of the canal traffic has been due to several causes. The first in point of time was the condition of the Illinois River, which often, for months continuously, was unnavigable by canal boats and frequently by river steamers. 53 60 Recent canal reports give the tolls for 1866 as $202,958. The statement is due to a typographical error which has been copied from year to year. The correct figures will be found in all the reports up to 1882. 61 Since 1879 the gross expenditures of the canal have regularly exceeded the tolls. In 1907 the expenditures were $50,050 and the tolls were $2,176.87. In this year, however, the canal had an income from rentals, water-power, leases, etc., of $11,933.79, giving it a total income of $14,110.67, and leaving an excess of expenditures over earnings of $35,939.34. 63 Report of the Chicago Board of Trade, 1905, pp. 2, 5, 10, 16, 42, 43. 63 Almost every year from the opening of the canal, the trustees called attention to the necessity of a sufficient depth of water in the Illinois River to float canal boats throughout the season of navigation. In 1856, from the 428 JOURNAL OF POLITICAL ECONOMY The inability of the canal boats to navigate the river necessi¬ tated the transfer of freight to the river steamers at LaSalle, with the consequent delay and expense. The failure of steam¬ boat navigation restricted the canal to local traffic. The canal management recognized the importance of an unobstructed channel from LaSalle to St. Louis, but the state and federal governments acted too tardily on the constant appeals of the trustees and commissioners to afford effective relief. The fre¬ quent interruptions of river traffic led the river towns to rely less on water transportation and to turn to the railroad as a solu¬ tion of their transportation difficulties. 54 In the contest for traffic the railroad possessed not only the advantages of greater speed and freedom from the effects of freshets and droughts, which so seriously affected the river por¬ tion of the waterway, but it also gave a more convenient and satisfactory service to many of the shippers who had formerly used the canal. Before the opening of railroad transportation shippers had hauled their commodities long distances to the canal. The building of railroads drew from the canal much of the traffic of these outlying regions, by offering a more con¬ venient transportation route. The railroads built branches and established stations at points more convenient to the farms and inland villages than were the shipping points on the canal. The greater convenience of the railway service also materially aided in taking traffic from the canal in the canal towns and cities. In the early years of the contest between the rival transportation agencies, the terminal facilities for handling freight on the two routes were not very different. Whatever advantage existed was in favor of the canal. Warehouses for the receipt, storage, and shipment of grain and merchandise were established on the banks middle of June till late in November, there was not more than twenty inches of water on some of the most troublesome sand-bars in the river. Navigation was practically suspended during a period of nearly six months. The trustees estimated that the revenues of the canal were reduced $55,000 or $60,000 below what might reasonably have been expected had there been sufficient depth of water to navigate the canal boats carrying through freight. 64 Annual Review of Trade and Commerce of St. Louis, 1854, P» n> and 1859, p. 48. THE ILLINOIS AND MICHIGAN CANAL 429 of the canal. Mills and factories largely depended on it for both power and transportation facilities. But, as the years passed by, the railway facilities were improved and those of the canal -were not. Then the owners of warehouses and manufacturing establishments, grain-shippers and others largely engaged in transportation, showed a tendency to desert the canal and trans¬ fer their business to the railroad. Wherever business establish¬ ments were kept up on the canal, the railroad usually constructed side-tracks to them, and became a competitor for business on the very banks of the canal itself. The terminal facilities at Chicago have been especially advan¬ tageous to the railroads. Spurs have been run to all the large manufacturing establishments, to the grain elevators, to the lumber yards, to the stockyards, and to every other point where it is possible to place a track needed for the delivery of incoming freight or for the receipt of that intended for shipment. Many of these are inaccessible to the waterway, while through the reciprocal switching arrangements among the railroads, they are all accessible to every railroad entering the city. This advantage of the railroad over the canal is well illustrated in the handling of building stone. When the stone is intended for use at any considerable distance from the canal, it is found cheaper to transport it from the quarries along the canal by rail and switch the cars to the nearest rail-point, than to pay the lower freight rates on the canal and incur the heavier expense for the longer haul by teams in the city. Relatively few of the grain elevators are located on the waterway, while all are accessible to the rail¬ roads. The same is true of the coalyards. Formerly large quantities of coal were shipped from the Spring Valley district to Chicago by the canal. Now, none is carried on the canal. The system of pro-rating freight charges, however, has done more than any other one thing to undermine the canal traffic. The practice of pro-rating grain from the canal region began in 1879 and was based upon an arrangement between the traffic officials of the Lake Shore and Michigan Southern Railroad and those of the Chicago, Rock Island and Pacific whereby the Lake Shore cars should be hauled by the Rock Island road from 43 ° JOURNAL OF POLITICAL ECONOMY Chicago to the loading-point along the canal and be returned loaded for transportation to the seaboard cities. For this service the Rock Island received io per cent, of the Chicago-New York rate with a minimum of two cents per ioo pounds for hauling the cars. Since an elevator charge of a cent and a fourth a bushel had to be met at Chicago on all grain shipped on the canal, the pro-rating arrangement proved a serious obstacle to the canal shippers of grain intended for the eastern markets. 55 As early as 1877 William Thomas, the general superintendent of the canal, complained that grain was being driven from the canal by the discrimination of the owners of Chicago elevators in favor of the railroads and by injustice in grain inspection. 56 While there may have been some basis for these charges, the tendency of the grain to leave the canal at Joliet seems to have been more largely due to the competition of the Michigan Cen¬ tral Railroad for an increasing share of the eastern grain ship¬ ments. The Michigan Central at Joliet and the Toledo, Peoria, and Western at Peoria, with their eastern connections, have been able to make rates on eastern grain shipments which could not Jhe met by any combination of local rates. As a consequence the canal has been unable for several years to handle grain from these points. In recent years, the Peoria-New York rate has ordinarily been about a cent and a half per 100 pounds above the Chicago-New York rate. 57 It is clearly impossible for the waterway to carry the grain to Chicago and transfer it to east¬ ern carriers in competition with this rate. Joliet has had the same rate as Chicago for grain billed through to New York whether it goes by the Michigan Central or through Chicago. 55 The statement is made on the authority of Mr. Noble Jones of Mokena, Ill., who was a grain-shipper from the canal towns and at whose instance the pro-rating arrangement was made in 1879. The statement has been verified by Mr. James L. Clark, general western freight agent of the Lake Shore and Michigan Southern Railroad, and by Mr. William Borner, general freight agent of the Chicago, Pittsburg, and Ft. Wayne Railroad. 5S Report of the Canal Commissioners, 1877, p. 38. 57 The all-rail rate from Chicago to New York during the last ten years has varied from 16.46 to 21.83 cents per 100 pounds, falling below 17 cents only in 1900, 1901, and 1905. In August, 1906, the rate was 17.50 cents and that from Peoria to New York was 19 cents. THE ILLINOIS AND MICHIGAN CANAL 43 1 Under the rules of shipment, grain may be unloaded at Chicago for a period not exceeding ten days and reshipped on the same bill of lading. The result has been that all grain intended for the Chicago market from Joliet has been billed to New York and the cars used to carry other grain from Chicago to New York on the through bill of lading. 58 At other points along the waterway, however, the water transportation has been able to withstand the competition of the railroad rates on grain intended for the Chicago market. The canal has not only been able to meet the local rates of the railroads, but where they are competitors, it has forced the railroad rates much below those at non-competitive points for similar hauls. In 1874 the average length of haul for grain on the canal was 72.5 miles and the average rate, 3.47 cents per bushel. At the same time, the Illinois railroad commissioners’ rate for a haul of equal length was 7.48 cents per bushel. 59 The Chicago, Rock Island and Pacific Railroad, however, found it impossible to maintain the maximum rate allowed by the com¬ missioners because of the canal competition. In 1876 the canal rate on corn from LaSalle to- Chicago, 99 miles, was 3.25 cents per bushel. The railroad rate was 4.50 cents. From Henry to Chicago, 128 miles, the rate by river and canal was 4 cents per bushel while the railroad charged 4.50 cents as against 6.83 cents from Tiskilwa to Chicago, a distance of 123 miles. 60 The grain from both Henry and Tiskilwa was carried by the same railroad and, with the exception of the nine miles from Tiskilwa to Bureau Junction, it was carried over the same tracks and fre¬ quently on the same trains. From Peoria R> Chicago, 160 miles, the railroad rates were 4.50 cents a bushel during the winter season and 3 cents in summer, when the canal was in operation. 61 The freight rates on lumber showed a similar influence of the 58 This advantage has been lost under the rearrangement of rates in north¬ ern Illinois since the passage of the Hepburn act. 69 Special Report of the Canal Commissioners, 1875, p. 11. 60 Report of the Canal Commissioners, 1876, p. 8. 61 For many years the railroad made a practice of charging a higher rate in winter than in summer at all points where it had to compete with the waterway for traffic. 43 2 JOURNAL OF POLITICAL ECONOMY waterway. From Chicago to Peoria the canal and river rate was $2.25 per thousand feet. The railroad charged $2,985. For a haul of substantially the same length from Chicago to Geneseo, 159 miles, the railroad rate was four dollars. 62 An examination of the schedules of local grain rates from various shipping points in northern Illinois to Chicago in 1901 shows still further the influence of the canal on freight rates of com¬ peting railroads. The rates on the Chicago, Rock Island and Pacific Railroad had been determined by long competition with the canal and by the possibility that much of its traffic might again revert to the canal in case the railroad rates should be raised. The rates on roads having no water competition were distinctly higher, as shown by the following tabulation: Town Transportation Route Distance from Chicago Rate per 100 Lbs. LaSalle. C. R. I. & P. R. R. 99 5-5 Dixon. C. & N. W. R. R. 100 8.0 Ottawa. C. R. I. & P. R. R. 85 5-o Mendota. C. B. & Q. R. R. 83 6.5 Marseilles. C. R. I. & P. R. R. 77 4-75 Emington. Wabash R. R. 77 6.0 Earlville. C. B. & Q. R. R. 72 6.5 Morris. C. R. I. & P. R. R. 62 4.0 Chebanse. Ill. Central R. R. 62 (?) 6.0 JolietO. C. R. I. & P. R. R. 40 3 -o Manhattan. Wabash R. R. 40 4.0 Aurora. C. B. & Q. R. R. 37 5-6 These lower rates from the canal towns were necessary in order to prevent the Chicago shipments from going chiefly by way of the canal. 64 Until recently it was possible to load the canal boats and barges to the depth of four feet and eight inches. With a fleet load of from 16,000 to 17,000 bushels, the grain rate from Marseilles to Chicago was two cents a bushel. 65 The 63 Report of the Canal Commissioners, 1876, p. 8. 03 The Chicago and Alton and the Atchison, Topeka, and Santa Fe rail¬ roads also compete for Chicago traffic at Joliet. 04 That the Rock Island rates were determined by the competition of the waterway is shown by the fact that the non-competitive winter rate was higher than the competitive summer rates and by the further fact that for all points beyond reasonable teaming distance from the waterway, the Rock Island rates were similar to those of other railroads. 05 When the boats could be loaded to a depth of four feet and eight inches, THE ILLINOIS AND MICHIGAN CANAL 433 Ottawa rates were two and a fourth cents and those at Utica two and three-eighths cents. Since 1902, the depth of water in the canal has not permitted the loading of boats to their full capacity. The rate has therefore increased on the average about a half-cent a bushel, the Marseilles rate being now 2.5 cents. 66 Since the passage of the Hepburn Act, there has been a general readjustment of railroad rates in the vicinity of the canal. The local grain rates are based on the principle of distance tariffs arranged on a series of concentric circles with Chicago as the center. This arrangement has resulted in a decided rise in rail¬ road rates in the canal towns. The rates at Marseilles have increased from 4.75 cents per 100 pounds to 5.50 cents; at Morris they have advanced from 4 to 5 cents; at Ottawa, from 5 to 5.5 cents; and at LaSalle, from 5.5 to 6 cents. If the railroads adhere to the established rates it is probable that the canal traffic in grain will again revive, as the present schedule gives the canal an advantage of from a cent to a cent and a half on each hundred pounds. Yet it is not probable that this differ¬ ence in rates will turn the major part of the grain traffic back to the canal. Other advantages of the railroad will tend to offset this difference in rate, especially for through traffic. In the sixty years of its .operation, the canal has carried 71,002,591 tons of freight. 67 It has received $6,610,067 in tolls and expended $4,995,316 for maintenance, repairs, and opera¬ tion. In these years it has also received large sums from rentals, leases, and privileges. 68 It has not proven to be the great source of revenue for the state treasury that had been anticipated in the days of its projection and construction. But the great services of the canal have been in the economic development of the Middle West, particularly of the noithem part of Illinois, and in its influence on railroad rates. j yy Putnam The University of Missouri the usual steamer load was from 4,000 to 4,200 bushels arid each barge load, from 6,000 to 6,200 bushels. A steamer and two barges make up a fleet. 00 This charge includes the entire expense to the shipper for the delivery of the grain to the elevator in Chicago. w7 These statistics include all the period of operation up to December 1, 1907. * 8 The canal office is unable to furnish statistics for these items complete. . ' • ‘/v* . *V. . \ • • , r .■ •» o’ • • •• • V .»« . . • . - ■ • - '* ' ' "i ' . • ' - . ‘ ■■■.'. •’2S . A,;.' . ‘ • . . . - • •• . - • v .. t