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Historical Context: The Erie Canal and New York City

Ann L. Buttenweiser, Urban Planner

Hogs, horses, and cattle; flour, oats, and barley; staves for making barrels in 1 which to store and ship goods; beer and spring water – all were shipped from Albany to New York City with the opening of the Erie Canal. The canal boats returning upstate carried a different variety of products: furniture, fabrics, dishes, glasses, and tools needed to build the new homes of the settlers who would use these products. Early price lists showing freight costs from New York City to Albany were often quoted in shillings and pence, the standard currency of the period. 

The movement of goods on the Erie Canal and to and from Albany boosted an already prominent New York City to the status of chief business and financial center of the nation. When the canal opened in 1825, the additional grain and farm produce traveling through the city increased gross business by $6 million. Five hundred new commercial ventures sprang up in just the first few months after the opening. The April 1825 Gazette, a local city newspaper, carried 1,115 new advertisements. Also in that year, entrepreneurs established 12 banks and 13 marine insurance companies, with aggregate investments of $23 million. 

Flour was just one of many products shipped from Albany to New York City. The volume of this staple traveling on the Erie Canal, however, helped turn New York City into the most important flour market in the United States. Inspections in the chief ports of the U.S. show that in 1820, before the canal opened, Baltimore led with 577,000 barrels, Philadelphia was second with 400,000, and New York was third with 267,000. Three years later, with the Erie Canal only partially open, New York passed Philadelphia, although Baltimore was still first. In 1827, New York took the lead in the flour competition, with 625,000 barrels to Baltimore's 572,000 and Philadelphia's 351,000. By 1860, New York had increased its lead. Its flour exports now totaled $5 million more than Philadelphia's and $4 million more than Baltimore's. 

After the Erie Canal opened, new stores sprang up in New York. They sold sugar, spices, coffee, hardware, and locally made or imported textiles that were to be sent westward via the canal. Among the stores clustered in lower Manhattan on the streets behind the waterfront was the New York Arcade, opened in 1827. Here, in the forerunner of today's mall, shoppers could stroll through a protected, skylit corridor and make purchases at 40 shops. 

The proliferation of such stores created a demand for new “white collar" workers, further adding to the city's growing economy. These employees were mostly male and relatives of the shop owners. They included clerks to record the sales and bookkeepers to count the money at the end of each day, as well as salesmen to convince out-of-town shopkeepers to buy their wares at the new arcades. 

The products coming through the Erie Canal also created banking jobs. Upstate farmers harvested their grain in the fall, but by the time it was milled into flour, the canal had frozen over; they could not sell the flour until spring. The farmers needed money in their pockets in the fall, however, to pay for milling and storing the flour through the winter and to buy seed for spring planting. New York City's produce merchants decided to help the flour market by becoming bankers. These new merchant bankers had one goal: to be assured of a ready supply of flour for their export businesses. To accomplish this, they loaned the farmers a part of the purchase price of the flour several months in advance. Although the farmers paid interest on these loans, they could now pay their millers and packers to hold the flour until spring. This also guaranteed the merchant bankers first call on the flour for which they had partially paid. The system ensured that the merchant bankers would have produce to export. It also allowed them to use the interest from the loans to buy even more of the farmers' products. 

Thus, a financial services industry, built around Erie Canal flour, began in New York City. Upstate, except in times of crop failure, farmers no longer suffered through cashless periods. Often, farmers spent the new cash on furniture, fabrics, and tools, which were shipped from New York City to Albany and beyond. More and more cash began to circulate within the economic system, further stimulating trade and manufacturing.