The Million Dollar Club – Part 2

In some cases the amassing of a million dollars in capital to build a canal may seem deceptively simple. The Delaware and Hudson (D&H) Canal was built to haul coal from the eastern end of the northern anthracite coal field of Pennsylvania to New York City. It gathered over a million dollars in stock subscriptions for the construction of its canal on January 7, 1825. However, no money actually changed hands that cold winter day. Over two months later on March 17 only $74,208 in shares had actually been sold. (At this point in time the C&D Canal had already sold a million dollars in stock.) By 1827 the D&H Canal Company had spent $869,000 and realized that considerable additional funds would be needed. Nobel E. Whitford in his 1907 History of the Canal System of the State of New York describes the D&H funds as being exhausted. On January 23, 1827 the company applied to the New York State legislature for a loan of $500,000 and on March 10 the loan was approved and bonds were issued by the State of New York. From October of 1827 through May of the next year five installments of $100,000 apiece were released by the State to the canal company. In April, 1830, the New York Legislature approved a secondary market in D&H Canal bonds. Bond transfers and re-issuance of bonds was handled through the Bank of the Delaware and Hudson Canal Company, the canal company’s bank.

he total money spent before 1827 plus the money loaned by the State of New York amounted to $1,369,000 by mid-1828. This amount closely matches the estimated canal cost of $1,200,000. If the canal company had indeed sold one million dollars of stock by 1827 to build the canal it would not have had to ask for a loan of $500,000. A $200,000 loan would have been quite sufficient. The conclusion is inescapable. It wasn’t until the $500,000 line of credit was finalized in March of 1827 that the D&H became a million dollar canal corporation. As it turned out, there still wasn’t sufficient capital and the company subsequently had to borrow another $300,000 in 1829 from the State of New York.

As an aside, though the common belief is that the D&H Canal Company raised $1,000,000 in January 1825, the company actually obtained $1,500,000 in stock subscriptions from investors. $500,000 of this sum could be used to establish and operate a bank since the company’s charter from the State of New York granted permission to use this amount for banking purposes. Though separate D&H Canal Bank stock wasn’t issued and the charter from the state did not specifically require that $500,000 be used to run a bank, the company decided to dedicate the full amount to its banking department since the company’s Board of Managers believed that is was possibly illegal to use the money for anything else. Given that the Board had decided not to use the money to build or run the canal, the company never included the sum in calculating the canal’s capitalization and didn’t incorporate it in any of its calculations to support its 1827 loan request to the state.

Capital wasn’t plentiful in 1825 and support for the idea of a canal across Orange and Sullivan Counties wasn’t very strong. Investors were skeptical of the venture’s chance for success. The D&H Canal Company’s Board understood its challenges and was certainly aware that there were important benefits to be gained from being associated with a bank. A bank would improve the company’s financial posture by generating revenue during canal construction and would thus help build much needed investor confidence. At the time there was a “banking mania” sweeping investor circles and there might very well have been a strong backlash from their subscribers and shareholders had the company decided to forego entry into the banking business.

Consequently, at the end of January, 1826, when $500,000 was available from paid-in stock subscriptions to fund the bank, the company’s treasurer formally placed the banking department on the company’s books even though the company’s bank had been operating in Manhattan since late June, 1825.

What all this means is that the C&D Canal was a million dollar canal enterprise in March of 1825 and it wasn’t until two years later in 1827 with the $500,000 New York State loan that the D&H Canal reached that level of capitalization. Perhaps because the D&H subscriptions all happened on one day and totaled over a million dollars, the notion has stuck in people’s minds that the D&H was America’s first million dollar private corporation. The story of the C&D was much more protracted and convoluted as were the stories of the Schuylkill Navigation and the Lehigh Canal, as we shall now see.

The 108 mile Schuylkill Navigation was built to carry coal from the central section of the southern anthracite coal field of Pennsylvania to Philadelphia. This canal also had an interesting story. On May 1, 1815 it opened the books for its initial subscription of $500,000. By September it had subscriptions for $100,000. Collecting money for the stock subscriptions proceeded slowly and in early 1817 the company was able to obtain a subscription of $50,000 from Pennsylvania. Around the middle of 1818 $300,000 in a new subscription was sold. In 1821 $200,000 was subscribed by Philadelphia banks and insurance companies. The same was repeated in 1822. By its opening on October 1, 1825 the canal company had sold $1,037,796 in stock subscriptions and had borrowed $843,273. Obtaining sufficient capital had been a constant parade of stock subscription offerings for over a decade. No wonder that the million dollar total value of the stock sold is not readily apparent.

The Lehigh Coal and Navigation Company completed the 46 mile long Lehigh Canal in 1829 to haul coal from the eastern end of the southern anthracite coal field of Pennsylvania to Easton on the Delaware River. From there the coal could be transported to Philadelphia and New York via the Delaware Division of the Pennsylvania Canal which was completed three years later. The original company, the Lehigh Navigation Company, was formed in 1818. After a number of reorganizations it became the Lehigh Coal and Navigation Company in 1820 and was incorporated two years later in 1822.

During the five year period 1818 to 1823 new stock was issued by the Lehigh canal company almost every year so that by 1823 $500,000 in stock had been sold. Five years later, in February, 1827, an additional $500,000 in new stock was issued increasing the company’s capitalization to one million dollars. Again, because stock was issued numerous times over a number of years and because there were multiple company reorganizations, it was not readily apparent that the Lehigh was capitalized at a million dollars and had become one of America’s largest companies.

The 81 mile long Union Canal connected the Susquehanna and Schuylkill / Delaware watersheds. It joined the Eastern Division of the state-owned Pennsylvania Canal with the Schuylkill Canal and carried coal from the former to the latter and thence on to Philadelphia. It was crossed by its first boat in 1828 and was extended to the southern section of the southern anthracite coal field in 1832 with the 22 mile long Pine Grove Branch. In 1828 the estimated cost of the canal was $1,600,000. The Union Canal like many of the other anthracite canals had a protracted early life of little accomplishment. In 1791 and 1792 respectively, the Schuylkill and Susquehanna Navigation Company and the Delaware and Schuylkill Canal Company were formed. Each was capitalized at $400,000. The subscription for the the Delaware and Schuylkill was over-subscribed almost one hundred times over. Part of the cause of this intense enthusiasm may have been due to the involvement of Robert Morris, the famous Revolutionary War financier. He was associated with the enterprise and was elected President of the company as soon as it was organized. It has been written that his presence engendered a high degree of confidence in the project and made it the “leading canal enterprise of the country” .

By 1794 15 miles of canal had been built at a cost of $440,000 before the companies ran out of money . Little was accomplished for the next 30 years. In 1811 the two canal companies were united as the Union Canal Company and in 1819 the Pennsylvania Legislature authorized a new capitalization for the merged company of $500,000. There were also 738 shares of stock outstanding from the original two companies at a value of $147,600. In 1825 and 1826 $837,200 in loans was secured from creditors resulting in a total capitalization of $1,484,800. An additional $460,000 in loans was obtained in 1828 and 1829. The total debt in 1832 was $1,430,000 out of a total capitalization of $2,077,600.

Rather than being built primarily to carry coal to New York City, the Morris Canal was built to carry coal to the iron furnaces along its path in New Jersey. The Morris Canal and Banking Company was founded in 1824 to build a canal connecting the Delaware River to Newark, New Jersey. Access to New York harbor was provided by Newark Bay. The canal was completed in 1831 and was later extended to Jersey City on New York Bay in 1836. The anthracite coal carried on the canal was brought to the Delaware River by such canals as the Lehigh and the Schuylkill.

On December 31, 1824 when the Morris canal company was chartered, it issued one million dollars in stock to fund the construction of its canal. When subscription books were opened in Jersey City in 1825 the stock was seriously oversubscribed. The inclusion of the banking business in the company’s charter is the cause of this enthusiasm. Banking was highly speculative and offered remarkable opportunities to become rich. This “bank mania” was the basis of the excitement over the Morris subscription since the company’s charter gave it banking privileges for a period of thirty-one years. This situation didn’t last long and within a year the bubble had burst and the value of Morris stock crashed. The result is that only $250,438 in stock had been sold for cash and an additional $72,291 had been bought with personal notes. Whilst the company could call in additional funds for its banking operations, since these funds could only be used for banking purposes, they could provide no help in building the canal.

Whilst the full million dollar stock capitalization didn’t come to pass, the full cost to build the canal to Newark, originally estimated at one million dollars, was actually double that at $2,104,413. This meant that the company had a significant shortfall. It obtained a loan of $750,000 through a Dutch banking house in 1830 and a further $100,000 from investors in London. In addition, the company received a large line of credit of over five million dollars from its Dutch financiers.

Since 1804, New Jersey had tried to charter a company to build a canal joining the Delaware and Raritan Rivers. After three failed attempts the Delaware and Raritan (D&R) Canal Company was chartered in February 1830 and was authorized to issue one million dollars in stock. Immediately, it was decided that subscription books would be opened at Trenton, Princeton, and New Brunswick, New Jersey. The next year, in 1831, the company was consolidated with the Camden and Amboy Railroad Company. Like its sister canal to the north, the Morris Canal, the D&R joined the Delaware River to New York harbor.

When the stock subscription books were opened in 1830, after three days only $113,400 worth of stock had been sold. At that time, Robert Field Stockton, a prominent New Jersey businessman took an interest in the canal and persuaded his father-in-law, John Potter, a man of some considerable wealth, to buy $480,000 in D&R Company shares. The Second Bank of the United States loaned $250,000 to the canal company. The rest of the $1,175,000 cost of building the canal was borrowed in Europe. With its finances in order the 65 mile long canal was built and opened in 1834.

The common thread that runs through all these “million dollar canals” is that they were the big industrial enterprises of their day and that funding them was generally an arduous and lengthy affair. Bringing these canals to fruition was a major struggle and when they did finally open for business it was a major event. Imagine for a moment what a resident of Cuddebackville would have thought at the time that the route of the D&H was announced. A major corporation had chosen to locate in his area and things would never be the same again. Gangs of outsiders would invade his valley to build the canal and scores of new businesses would open to take advantage of the opportunity the canal presented. The thought must have been both exciting and a bit disconcerting.

Summary of million dollar canal capitalization:

  • Chesapeake & Delaware Canal 1825
  • Schuylkill Navigation 1825
  • Union Canal 1826
  • Lehigh Canal 1827 (February)
  • Delaware & Hudson Canal 1827 (March)
  • Morris Canal 1830
  • Delaware & Raritan Canal 1830

Copyright 2010 by Stephen Skye

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