Louisville and Portland Canal

The modern canal after many enlargements

The Louisville and Portland Canal Company was an American corporation which built and for many years controlled the Louisville and Portland Canal, a 2-mile canal bypassing the Falls of the Ohio in the Ohio River near Louisville, Kentucky.

Although initially a private company, construction of the canal required heavy investment from the Federal Government, and the canal represented the first major improvement to be successfully completed on a major river of the United States.

Background

The Falls of the Ohio are the only natural obstruction in the Ohio River, and both Louisville and other early towns later absorbed by Louisville, Portland and Shippingport were founded before a canal was available, and based much of their early growth on portage from ships traveling down the river, which were unable to navigate the falls fully loaded except for a few weeks in Spring when water was very high. Although this source of income was popular with locals, shippers and boatmen disliked the expense and hassle. The situation caused wide fluctuations in price for farmers upstream and merchants in the river's eventual destination, New Orleans, as there was a glut of shipments during the few weeks of high water each year.

File:Picture 1661.jpg

1863 mansion with a direct view of the Portland Canal, of which the first owner was superintendent. It was later used at the corporate offices of the Ky. & Ind. Terminal Railroad Co.

Precursors

As early as 1805, with rival sides supporting a canal either on the Kentucky (south) or Indiana (north) side of the river. Proponents of an Indiana-side canal included Cincinnati businessmen, who feared economic competition from Louisville. Both Kentucky and Indiana chartered canal companies in 1805, although nothing came of either effort. Indiana chartered a second company in 1818, which made preliminary excavations, but all efforts were halted by the Panic of 1819.

In 1808 Secretary of the Treasury Albert Gallatin suggested federal backing of a Kentucky-side canal. The United States Senate passed bills to this effect in 1810 and 1811, but both died in the House. Although little materialized politically, the subject of the canal and federal funding for it was widely debated in Kentucky, Indiana, Ohio and Washington D.C. in the 1820s.

Formation

The Louisville and Portland Canal Company was chartered as a private company in 1825 by the Kentucky Legislature, after it had proven impossible for the body to approve a state-funded project. The bill was introduced by Charles Mynn Thruston of Louisville. The charter established an initual toll of 20 cents per ton. There no limits on the amount of time the company would be allowed to operate the canal. $350,000 was raised from the initial sale of stock in March 1826, and $150,000 soon after. Much of this capital came from Philadelphia investors. This private, out of state ownership was praised at the time by Louisville's leading newspaper, the Public Advertiser, which said "no one is now apprehensive of any imprudent or injust action on the part of the Legislature".

In 1824, it was estimated that the canal could be completed in a year for $300,000. As it became evident the canal would have to be dug through solid rock, the cost rose past $375,000 with two years of construction required, and some local investors, who were first to learn of the difficulties, defaulted on their investments. In May 1826 the United States Congress voted to invest about $100,000 to shore up the company and make it a mixed corporation, but financial difficulties continued as the course of the canal had to be changed, and Congress invested an additional $133,500 in 1829.

The company was still due to run out of funds by the end of 1829, and a third influx of funds from Congress was vetoed by Andrew Johnson, who denounced the practice of giving federal funds to private corporations which would be able to profit from the infrastructure the government partially financed. This ended federal stock purchases related to the canal. Thus, the company was forced to borrow $154,000 in 1830, and the partially completed canal was opened in December of that year. By this time, the stock was valued at over $1,000,000 of which the federal government held $290,000.

The canal's dimensions, 50 feet wide, other than overall length, were huge in comparison with projects like the Eerie Canal, in order to accommodate the growing boats that carried goods on the western rivers of the United States. Nevertheless, the canal became practically obsolete soon after opening as steamboat technology evolved. This, combined with rapid increase of tolls, decreased the economic impact of the canal. Although the canal decreased the freight rate along the river, it did not appear to significantly lower the prices of commodities, which fell at a faster rate in the 25 years before the canal opened than they did in the 25 years afterwards.

Government buyout

Business was slow for the company until the canal was completed in 1833. The initial toll of 20 cents per ton proved insufficient, and the company had to increase it to 40 cents in 1834 and 60 cents in 1837. By 1834 the canal carried 1,585 boats and 170,000 tons. An economic boom in the late 1830s brought profits to the shareholders, as the canal moved over 300,000 tons of traffic at its peak in 1839. The tolls, and the obsoleteness of the canal, proved unpopular, and Congress began urging the government to buy out private shareholders and reduce the tolls. The government buyout, although at times passed passed by the Senate, met with heavy opposition, especially from Indiana representatives, which was still attempting to build its own canal as late as 1842. Other opponents believed the move would be a violation of states rights.

To solve the problem, the company's stockholders chose to buy themselves out - with the Congress's money. In lieu of receiving dividends, investors elected to use company profits to redeem their private shares at a substantial premium, until the government owned all remaining shares. The private shareholders would make a tidy profit, and the government would wind up owning the canal. Stockholders approved this policy in 1842 and the government took no part in the decision. The canal remained heavily profitable as the buyout continued, despite an economic depression, allowing the toll to be decreased to 50 cents per ton from 1842 to 1855, when the buyout plan was completed. The deal proved to be a windfall to investors.