Godsend or Government Boondoggle?

"I've got an old mule and her name is Sal. Fifteen years on the Erie Canal....

"Low bridge, e'vrybody down. Low bridge. We must be gettin' near a town.

You can always tell your neighbor. You can always tell your pal

If he's ever navigated on the Erie Canal."

The lyrics of this song used to be familiar to practically every school student years ago. I recall singing them in the music class at the old Halls Elementary School. Few students, maybe even few adults, know them now. It's an interesting and amusing song about a mule and her owner pulling a canal boat on the famed Erie Canal. (You can hear it sung at https://www.youtube.com/watch?v=ep1hi6VBaWg.)

The Erie Canal

The canal opened on October 26, 1825, and enabled water travel between Lake Erie and the Hudson River and from there to New York City. It was certainly a marvel of engineering, and it opened the market for western goods on the east coast. The big issue at its inception was not how to build it but how to fund it. Who would pay for its construction, the federal government, the New York state government, or private investors?

President James Madison vetoed the bill that would have funded the canal, saying it was unconstitutional to spend federal funds on any project that benefited one section of the country over any other section.

As early as 1811, Peter Porter, a member of the U.S. House of Representatives from New York, began lobbying for federal funding. His argument was that it would somehow benefit all regions of the country. The sticking point was that it was unconstitutional for the federal government to spend money taxed from everyone for something that would benefit primarily only one section of the country, and New York clearly stood to benefit most from such a canal. The bill was dropped, only to be reintroduced in 1812 and again in 1817, when it narrowly passed. But then President James Madison vetoed it as unconstitutional.

Because Madison had been one of the authors of the Constitution, he surely knew the original intent of that sacred document. Although Madison supported internal improvements, he believed that they were the states' or private entrepreneurs' responsibility, not that of the federal government.

DeWitt Clinton began pressuring the New York legislature to approve state funds for the construction of the canal. He was joined by his political rival and future president Martin Van Buren. Despite fears that it might fail, the legislature approved the measure, and construction began in 1817.

Travelers on the 363-mile canal were charged tolls, and the income from the tolls was so good that the $8.4 million project was paid for and turned a profit even before it was completed.

Michigan governor Stevens T. Mason

Profitability creates competition, and soon Pennsylvania, Maryland, and Massachusetts began their own canal projects. Then Ohio and Indiana got in on the frenzy. These state governments seemed to be disproving the theory of limited government since the states, not the federal government, were footing the bills for such projects. Michigan governor Stevens T. Mason even declared it to be the state's duty to encourage and to fund such internal improvements. He rejected private construction and operation of canals out of hand. Government, he believed, had to control even privately funded projects.

Supporters of Mason's view pointed to New York and its Erie Canal as the example for all internal improvement projects despite the fact that the New York case was a special case. New York had certain unique advantages for construction of a canal. It was generally flat. The difference between its high point and its low point was only about 500 feet. The canal route connected it with numerous lakes that reduced the amount and distance that digging had to be done All of these facts reduced the costs of construction.

Making a bad situation worse, the Board of Internal Improvements hired bad contractors, one for each mile of the canal, who disagreed how things should be done. In seven years of work, they completed only 16 miles. Moreover, expenses of $350,000 far outpaced toll revenues of only $90.02. With the long delays, even the parts of the canal that had been completed were falling into disrepair.

This and other examples of government construction projects, past and present, show that it's easy to spend other people's money, and governments don't spend money as wisely as private citizens and businesses spend their own. Even New York, which had entered into a frenzy, pledging to build numerous branch canals to feed into the Erie Canal. But soon their surplus was transformed into $15 million in debts.

The only thing that government can do more efficiently than private enterprise is national defense, or making war. And that tends to be more a destructive than a constructive effort.

Dr. Burton Folsom, Jr.

You can read more about such government boondoggles and inefficiency in contrast to successes of private enterprise in Burton W. Folsom Jr.'s book Uncle Sam Can't Count. Folsom is an economic historian who has written numerous articles and books on government and economics, including New Deal or Raw Deal?, The Myth of the Robber Barons, FDR Goes to War, and others. He has written for the Wall Street Journal, Policy Review, Human Events, and other publications.