- Historic Sites
10 Moments That Made American Business
How a debt-ridden banana republic became the greatest economic engine the world has ever known
February/March 2007 | Volume 58, Issue 1
Needless to say, entrepreneurs in nearby states who saw opportunity in steamboats didn’t like the monopoly. Nor did the passengers who had to pay higher fares because of it. In 1819 one of these entrepreneurs, Thomas Gibbons of New Jersey, decided to do something about it.
Gibbons put a steamboat on the New York–New Brunswick run, the first leg of the fastest route to Philadelphia. As captain he hired a young man in his twenties named Cornelius Vanderbilt.
Vanderbilt would tie up at whatever pier seemed to be free of New York authorities and then disappear into the city until just before departure time in order to avoid being arrested. The authorities did not dare seize the boat itself, knowing that New Jersey would quickly retaliate by seizing the first monopoly steamboat it could lay its hands on.
While Vanderbilt played cat and mouse with the New York authorities, Gibbons went to court, and eventually, in February 1824, the case was heard in the U.S. Supreme Court.
Gibbons’s lawyer, Daniel Webster, argued that because the Constitution’s interstate commerce clause, which gives Congress the power to “Regulate Commerce … among the several States,” was both sweeping and exclusive, the monopoly was unconstitutional as a state encroachment on federal power.
A unanimous Supreme Court agreed. Today this is taken for granted, but at the time it was a breathtaking expansion of federal power. The decision was greeted with public jubilation, and for good reason. Thanks to competition, fares quickly fell on average by 40 percent, and in just two years the number of steamboats working New York waters increased from 6 to 43.
The long-term effects were even more profound: States stopped granting monopolies to influential local citizens, as they all were now presumptively unconstitutional, while other barriers to interstate commerce fell as well.
In his classic work The Supreme Court in United States History , Charles Warren calls Gibbons v. Ogden the “Emancipation Proclamation of American Commerce.” That is not an exaggeration. With the decision, the United States became the world’s largest truly common market, its goods free to move throughout vast territories unhindered by parochial concerns and regulations.
And the timing could not have been better. The power of steam to move goods cheaply over long distances, merely hinted at by the steamboat, was soon to grow by orders of magnitude. The railroad, beginning less than a decade thence, would make an integrated national economy a reality. Thanks to Gibbons v. Ogden, American businessmen would be able to take full advantage of it, and did they ever.
The cost of overland transportation had been a limiting factor in the world economy since time immemorial. Any material with a low value-to-weight ratio, such as foodstuffs, that couldn’t be transported to distant markets by water couldn’t be sold in those markets at a price anyone would pay. This meant that national economies were fragmented into an infinity of local ones.
Until the Industrial Revolution, there was only one way to reduce these transportation costs: build artificial rivers. By the end of the eighteenth century England was well laced with canals, greatly facilitating industrialization as factories could sell their goods profitably throughout the entire country.
But the new United States was 10 times the size of England and far less developed. And a considerable mountain range divided the more developed eastern seaboard from the fertile, resource-rich, and rapidly growing West. Settlers west of the Appalachians had no choice but to send their crops down the Mississippi to market.
Along the whole great chain of mountains that stretched from Maine to Alabama, there was only a single gap—where the Mohawk River tumbles into the Hudson near Albany—at which a canal was even theoretically possible.
The idea of building a canal to connect the Hudson with the Great Lakes there had been around for many years but always dismissed as hopelessly impracticable. Even Thomas Jefferson thought the idea “little short of madness.” DeWitt Clinton, however, did not. Born into a prominent New York family (his uncle had been governor of New York and then Vice President under James Madison), Clinton would be the mayor of New York City and governor of the state for most of the first quarter of the nineteenth century. A shrewd politician, he built public support for the canal and pushed it through a reluctant state legislature.
One can understand the reluctance, for the project was huge by the standards of the day. At 363 miles the Erie would be by far the longest canal in the world. It would require moving, largely by hand, 11.4 million cubic yards of earth and rock—well over three times the volume of the Great Pyramid of Egypt—and building 83 locks in what was still a semiwilderness. The budget, seven million dollars, was about equal to one percent of the gross domestic product of the entire country. Nonetheless, when the federal government refused to help, New York decided to go it alone. It was a gigantic roll of the economic dice, but one that paid off beyond even Clinton’s dreams. The Erie Canal put the Empire in the Empire State.