- 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
The canal was a success even before it fully opened, as traffic burgeoned on the completed parts, helping fund continuing construction. When it was finished in 1825, ahead of schedule and under budget, traffic was tremendous from the start. It is not hard to understand why. Before, it had taken three weeks and cost $120 to ship a ton of flour from Buffalo to New York City. With the canal, it took eight days and cost $6.
Produce that had gone down the Mississippi to New Orleans now began to flow eastward. In a few years the Boston poet and physician Oliver Wendell Holmes (father of the Supreme Court justice) described New York as “that tongue that is licking up the cream of commerce and finance of a continent.” In 1800 about 9 percent of American exports passed through the port of New York. By 1860 it was 62 percent.
With the opening of the Erie Canal, New York became the greatest boomtown the world has ever known. The population of New York had been increasing by about 30,000 every decade since 1790, with 123,000 inhabitants in 1820. By 1830, however, New York’s population had reached 202,000; by 1840, 313,000. It was 516,000 in 1850 and 814,000 in 1860. Development roared up Manhattan Island, at the astonishing rate of about two blocks a year.
Thanks to the Erie Canal, by the 1840s New York’s financial market was the largest in the country. In that decade the telegraph began to spread quickly, allowing more and more people to trade in the New York market, which has dominated American financial activity ever since.
Even so, perhaps the greatest consequence of the Erie Canal was that its success made the country far more receptive to other projects of unprecedented scale and scope and encouraged its entrepreneurs and politicians to think big. The result was a still-continuing string of megaprojects—the Atlantic cable, the Brooklyn Bridge, the Panama Canal, Hoover Dam, the interstate highway system, the Apollo missions—that have marked the economic history of the United States and shaped the national character.
Nothing has characterized the industrial revolution as much as the ever-increasing consumption of energy. As steam-powered presses brought down the costs of books, magazines, and newspapers, the demand for cheap interior lighting increased dramatically. In the cities, gaslight became available beginning early in the nineteenth century. But the gas-works that transformed coal into gas were expensive to build, and the network of pipes that distributed the gas could operate profitably only in densely populated central cities.
For those beyond the reach of gas, whale oil was the illuminant of choice. But as the demand for whale oil steadily increased in the early nineteenth century, the supply of whales declined rapidly. This, of course, caused the price to soar. In the 1850s when a dollar a day was a good wage, a gallon of whale oil cost $2.50.
Other illuminants were utilized. One was camphene, made from turpentine. It produced a bright light but had a nasty habit of exploding. Another was kerosene, which could be made from coal, but the process was expensive.
The solution to the need for a cheap, abundant illuminant came from an unexpected source, rock oil. Petroleum, which means “rock oil” in Latin, had been known since ancient times from areas where it seeps to the surface naturally. But its chief use had been medicinal.
In 1853 a Dartmouth graduate named George Bissell happened to be visiting his old school and noticed in a laboratory a bottle of rock oil. He knew that it was flammable and suddenly he wondered if it could be turned into a marketable illuminant. He asked Benjamin Silliman, Jr., one of the country’s leading chemists, to investigate the possibilities while he organized a few investors to form a company. Silliman soon reported that rock oil was easily fractionated into various substances, including kerosene. Silliman was sufficiently impressed with the possibilities that he bought 200 shares in Bissell’s company.
But while it was now clear that there was a market for products made from rock oil, there was as yet no good supply. Most rock oil in this country came from northwestern Pennsylvania, where it was skimmed off ponds. Then, in 1856, Bissell had a second bright idea. On a hot summer day he was shading himself under a druggist’s awning when he saw a bottle of medicine made from rock oil that featured on its label a derrick of the sort used to drill for salt. Bissell wondered if one could drill for oil.
Bissell’s company hired a man named Edwin Drake to go to northwestern Pennsylvania and find out. Drake, who seems to have awarded himself the title of colonel by which he is often known, had a great deal of trouble persuading a salt-drilling crew to try to drill for oil, but on August 27, 1859, he struck it at 69 feet. Once a pump was attached to the well, Drake found himself with more oil than he had barrels to store it in.
In 1859 the total American production of petroleum was 2,000 barrels. Ten years later it was 4.2 million barrels. By the turn of the twentieth century American production was 60 million barrels and the United States was the world’s leading exporter of petroleum and its byproducts.