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April 01, 2005

The Erie Canal

Daniel Gross has a very nice review of the excellent:

Peter Bernstein (2005), Wedding of the Waters: The Erie Canal and the Making of a Great Nation (New York: Norton: 0393052338).

Gross writes:

The Erie Canal was an engineering triumph, to be sure. But Bernstein notes that it was also an economic triumph. This was one of the first great American examples of network effects—later seen with the telegraph, telephone, and ultimately the Internet. Connecting more and more people through a system makes the individuals more productive and capable and makes the network itself a powerful economic force.

The canal made possible the settlement of the upper Midwest and transformed the nation's "primary axis from north-south to east-west." Clinton's ditch turned canal towns into seaports, the Hudson Valley into an industrial zone, and the Midwest into a breadbasket. Happiest of all was New York City, which became the central span in the "bridge between the inexhaustible supplies of grain from the Midwestern United States and the inexhaustible demand for food from Europe." In the quarter century after the wedding of the waters, the nation's growth rate rose to a whopping 4.6 percent a year, compared with 2.8 percent annually for the period from 1800 to 1825.

Of course, it took the railroads, the telegraph, and a strong national currency to create a truly integrated national market in the late 19th century. But Bernstein's case is pretty convincing. Oddly, he shies away from the greatest—and seemingly most obvious—historical lesson of the Erie Canal: the necessity for direct government involvement in building the expensive commercial arteries that have been so vital for economic growth. Left entirely to its own devices, the private sector likely never would have produced the Erie Canal, the railroads, the interstate highway system, or even the Internet.

Posted by DeLong at April 1, 2005 07:01 AM