Financing of the Illinois Michigan Canal


     A common problem in the history of canal construction in the United State States in the 1700’s and 1800’s was the lack of adequate financing.  Private financing was typically a failure due to the size of the canal projects.  Attempts to involve the federal and state governments were met with mixed success.
Many projects once started either were never finished or completed in a modified fashion.
     Similar problems faced the Illinois Michigan Canal.  The first bill authorizing the I M Canal in Congress  in 1822  provided the land needed plus 90 feet on both sides of the canal.  Several attempts to raise the necessary capital to begin construction were failures.  A second bill in Congress in 1827 increased the size of federal land grants on both sides of the canal.  The intention was that this land could be sold to provide funds for canal construction.  However, in 1830–1832, land sales totalled $18,799; expenses were $14,700.  At least some individuals were having second thoughts and leaned to construction of a railroad.  A bill passed in Congress in 1833 allowed for the use of federal land to build a canal or a railroad.  State legislature reaffirmed the decision to build the I M Canal.  In 1836, the state of Illinois floated a $500,000 bond issue to provide funds for canal construction.
    Finally, construction began in 1836.  Construction continued until 1841 despite financial panic of 1837.  The state was forced to use creative financing–selling junk bonds and paying contractors with scrip promising to pay owed money plus interest when the state obtained the money.  Finally, all construction ceased in 1841 when the state defaulted on interest payments on bonds.  Construction did not resume until 1845.

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