Throwback Thursday: Sending Tanks (and Thanks) to a Canal

Moving from China to the Panama Canal, twelve 2,000 barrel beer tanks traveled toward the Genesee Brewery in western New York State. Once they reached New York, the tanks could have boarded trucks or trains. But the cheapest route was the Erie Canal.

The Erie Canal is a barely used, outdated waterway. But when construction began 200 years ago on May 25, 1817, it was a technological wonder. Connecting eastern markets with western farmers, it was the first big link in a transportation infrastructure that created a U.S. national market.

Cheaper Transportation

The Erie Canal was built because of a politician named Clinton who wanted to be president. But he was defeated by James Madison (1812) and returned to New York. As governor, he became the “father of the Erie Canal.”

Dug from Albany to Buffalo, N.Y., the Erie Canal was the last link of an all-water route between the port of New York and the Great Lakes. Because of the Erie Canal, eastern manufacturers could easily trade with western suppliers of raw materials. The Canal made travel cheap and fast.

To ship freight 100 miles by land during the early 1820s would have cost $32 a ton. By canal, the expense dropped to $1 per ton. Several decades later, in 1852, moving over rivers and canals between Cincinnati and New York City, freight arrived in 18 days. By rail, it took just 6 to 8 days.

Our Bottom Line: Comparative Advantage

The completion of the Erie Canal soon enabled a national market to form. From Michigan to Connecticut and New York to Virginia, others sought to copy the Erie’s success. As a result, each part of the nation could specialize in what it did best. The Northeast could concentrate on manufacturing, the West could grow farm goods and raise livestock, the South could focus on cotton. What you did not provide locally, you could get from a distant place. Rocky New England farms no longer needed to grow tobacco. People in the South could stop making their own shoes.

Hearing about a national market, 19th century economist David Ricardo would ask us to remember comparative advantage. He would say that each part of the U.S. should produce and trade whatever requires the lower opportunity cost. By sacrificing less than other areas that need more resources to produce the same items, each region becomes more productive.

Now 200 years later, even a beer factory can enjoy the comparative advantage created by a transportation infrastructure on our Throwback Thursday.

My sources and more: While the NY Times described the beer tanks’ journey, more interesting detail was in the local NYS newspapers. As for the story of DeWitt Clinton and the Erie Canal, I hope you will read my book, Econ 101 1/2. An updated version will be available just after the summer.