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The Potomac Company: A Misadventure in Financing an Early American Internal Improvement Project

Published online by Cambridge University Press:  11 June 2012

Douglas R. Littlefield
Douglas R. Littlefield
Affiliation:
University of California, Los Angeles.
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Abstract

The failure of the Potomac Company—the first interregional internal improvement project attempted in the United States—has been largely neglected by historians. From the mid 1780s to the 1820s, this company struggled unsuccessfully to link the East Coast with the Old Northwest by enhancing the navigability of the Potomac River. In this article, Mr. Littlefield examines this little-known episode, describing how the project was overwhelmed by a combination of factors that included an unstable American economy, unreliable government aid, and interstate rivalries. He concludes that the Potomac Company's failure demonstrated how the absence of federal support could cripple a large-scale internal improvement project, and suggests that its example spurred the U.S. government to become directly involved in the economic development of the young republic.

Type
Articles
Information
Business History Review , Volume 58 , Issue 4 , Winter 1984 , pp. 562 - 585
Copyright
Copyright © The President and Fellows of Harvard College 1984

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References

1 George Washington to Thomas Jefferson, 29 March 1784, in The Writings of George Washington from the Original Manuscript Sources, 1745–1799, ed. Fitzpatrick, John C., 39 vols. (Washington, D.C., 1931–1944), 27:373–77.Google Scholar

2 Blackburn did not go to Annapolis with Washington and Gates. Kilty, William, ed., The Laws of Maryland to Which are Prefixed the Original Charter with an English Translation, the Bill of Rights and Constitution of the State, as Originally Adopted by the Convention with the Several Alterations of Acts of the Assembly, theDeclaration of Independence, the Articles of Confederation, the Constitution of the General Government and the Amendments Made Thereto, with an Index to the Laws, the Bill of Rights, and the Constitution, 2 vols. (Annapolis, 1799), vol. 1Google Scholar, 1784 sess., chap. 33, unpaged; Hening, William Waller, ed., The Statutes at Large: Being a Collection of All the Laws of Virginia, from the First Session of the Legislature, in the Year 1619, 13 vols. (Richmond, 1809–1923), 11:510–25Google Scholar; Thomas Jefferson to James Madison, 20 Feb. 1784, in Papers of Thomas Jefferson, ed. Boyd, Julian, 20 vols. (Princeton, 1950–1982), 6:544–51Google Scholar; Thomas Jefferson to George Washington, 15 March 1784, in Papers of Jefferson 7:25–27; Pickell, John A., A New Chapter in the Life of Washington, in Connection with the Narrative History of the Potomac Company (New York, 1856), 44–46.Google Scholar

3 Among the prominent pre-Revolutionary backers of the Potomac route to the West were entrepreneurs John Ballendine and John Semple; British general Edward Braddock; frontiersman Thomas Cresap; Virginia colonial governor John M. Lord Dunmore; Maryland's last colonial governor, Robert Eden; Virginia Northern Neck proprietor Thomas Lord Fairfax; Maryland's first governor after the Revolution, Thomas Johnson; president of Congress under the Articles of Confederation Richard Henry Lee; statesman and author of the Virginia Declaration of Rights George Mason; Ohio Company agent George Mercer; and, of course, George Washington. Details on some of these early projects can be found in the George Washington Papers, Minnesota Historical Society, St. Paul, Minn. Some, but not all, of these papers have been published in Nute, Grace L., ed., “Washington and the Potomac: Manuscripts of the Minnesota Historical Society (1754) 1764–1796,” American Historical Review 28 (1923): 497–519, 702–22Google Scholar. Washington frequently mentioned Potomac plans in his diaries and correspondence, published respectively in The Diaries of George Washington, 1748–1799, ed. Fitzpatrick, John C., 4 vols. (Boston, 1925)Google Scholar and Writings of Washington. In secondary sources, see the appropriate chapters in Sanderlin, Walter S., The Great National Project: A History of the Chesapeake and Ohio Canal (Baltimore, 1946)Google Scholar; Ward, George Washington, The Early Development of the Chesapeake and Ohio Canal Project (Baltimore, 1899)Google Scholar; Bacon-Foster, Corra, Early Chapters in the Development of the Potomac Route to the West (Washington, D.C., 1912)Google Scholar; and Pickell, New Chapter in the Early Life of Washington. Of all the colonial schemes, Ballendine's progressed the furthest, only to be interrupted by the Revolution. See the above sources and Church, Randolph W., “John Ballendine: Unsuccessful Entrepreneur of the Eighteenth Century,” Virginia Cavalcade 8 (1959): 39–46Google Scholar; Stephenson, Richard W., “John Ballendine's Eighteenth Century Map of Virginia,” Quarterly Journal of the Library of Congress 21 (1964): 172–78.Google Scholar

4 Taylor and Goodrich also discuss other pre-1800 schemes, such as the Middlesex Canal in Massachusetts, the Western Inland Lock Navigation Company in New York, the Lehigh Canal in Pennsylvania, and the Santee Canal in South Carolina. See George Taylor, Rogers, The Transportation Revolution, 1815–1860 (New York, 1951)Google Scholar; Goodrich, Carter, Government Promotion of American Canals and Railroads, 1800–1890 (New York, 1960)Google Scholar. On the Potomac, see Sanderlin, Great National Project; Bacon-Foster, Early Chapters in the Development of the Potomac; Pickell, New Chapter in the Life of Washington. Gallatili's report can be found in “Reporton Roads and Canals” presented to the Senate by the secretary of the treasury, 4 April 1808, in American State Papers— Documents, Legislative and Executive, ofthe Congress of the United States, 10 classes, 38 vols. (Washington, D.C., 1832–61), class 10, 1:724–921, hereafter cited as Gallatin, “Report on Roads and Canals.”

5 The necessity for Maryland and Virginia to agree on all legislation to clear the Potomac resulted in a series of meetings, which ultimately culminatedin the convention to amend the Articles of Confederation and the decision to draft the Constitution. Sanderlin, Great National Project, 31n; Bacon-Foster, Early Chapters in the Development of the Potomac 142.

6 For information on river improvements in England, see William T. Jackman, The Development of Transportation in Modern England (London, 1962); Pratt, Edwin A., A History of Inland Transport and Communication in England (London, 1912)CrossRefGoogle Scholar; Ward, J. R., The Finance of Canal Building in Eighteenth Century England (London, 1974)Google Scholar; and Willan, T. S., River Navigation in England, 1600–1750 (New York, 1964).Google Scholar

7 The Spanish dollar was the most common form of specie in circulation in America. Its long-standing reliability made it the currency of choice to Potomac Company directors. On currency and exchange rates, see McCusker, John J., Money and Exchange in Europe and America, 1600–1775: A Handbook (Chapel Hill, N.C., 1978), 3–26CrossRefGoogle Scholar, esp. 7–8. McCusker's conclusions, although focusing on the colonial era, can be applied reasonably to the early national period, particularly before the Constitution gave Congress the power to coin money. On the terms of the Potomac Company's charter, see Hening, Statutes at Large 11:510–25; Kilty, Laws of Maryland, vol. 1, 1784 sess., chap. 33; George Washington to president of Congress Richard Henry Lee, 8 Feb. 1785, in Writings of Washington 28:67–71; Thomas, James and Williams, T. J. C., History of Allegheny County, Maryland (reprint ed., Baltimore, 1969), 22Google Scholar; Williams, T. J. C. and McKinsey, Folger, History of Frederick County, Maryland, with a Biographical Record of Representative Families (reprint ed., Baltimore, 1967), 146.Google Scholar

8 George Washington to Thomas Jefferson, 25 Feb. 1785, in Writings of Washington 28:77–81.

9 Alexandria Gazette, 10 Feb. 1785. See also ibid., 25 Nov. 1784; and Maryland Gazette, 21 April 1785, for similar views.

10 George Washington to Nathanael Greene, 20 May 1785, in Writings of Washington 28:144–46.

11 Washington was greatly embarrassed by Virginia's gift to him of fifty Potomac Company shares (as well as one hundred shares in the James River Company–incorporated in that state as the political price for the Potomac Company legislation) because he did not want to be perceived as promoting legislation to benefit himself. For the better part of the next year, he wrote to many people asking for advice about how he might politely turn down the gift without insulting the state legislators. Ultimately, at Washington's request, the Virginia Assembly held the shares intrust for whatever project Washington thought might benefit the public. In the spirit of political compromise in which they were given, Washington eventually decided to donate the James River Company shares to Liberty Hall Academy, which later became Washington and Lee College (near Lexington, Virginia, appropriately on the upper James River). ThePotomac Company shares were to have gone to a school in Washington, D.C., but it is unclear whether this transfer ever took place. Both the Potomac Company and the James River Company offered Washington their corporate presidencies. Washington accepted the former and, pleading distance from the James River project, declined the latter. For details, see Hening, Statutes at Large 11:525; George Washington to Benjamin Harrison, g22 Jan. 1785, in Writings of Washington 28:34–38; George Washington to Marquis de Lafayette, 25 Feb. 1785, in ibid., 71–76; George Washington to Governor Patrick Henry, 27 Feb. 1785, in ibid., 89–94; George Washington to Nathanael Greene, 20 May 1785, inibid., 144–46; George Washington to the Secretary of War, 18 June 1785, in ibid., 166–69; George Washington to Edmund Randolph, 30 July 1785, in ibid., 214–16; George Washington to Edmund Randolph, 13 Aug. 1785, in ibid., 218-;21; George Washington to Thomas Jefferson, 26 Sept. 1785, in ibid., 278–81; Diaries of Washington 4:158n; Freeman, Douglas S., George Washington: A Biography, 7 vols. (New York, 1948), 7:231, 275, 586.Google Scholar

12 Norman K. Risjord examined the occupations, party preferences, and political experience of those ninety-one stockholders who either attended the first company meeting or sent proxies. He found that this group was heavily dominated by planters and merchants. Of those who could be identified by party, all were Federalists, and a substantial number had served in state assemblies, Constitutional ratifying conventions, or city governments. See Risjord, , Chesapeake Politics, 1781–1800 (New York, 1978), 242–43Google Scholar. See also George Washington to Nathanael Greene, 20 May 1785, in Writings of Washington 28:144–46; Lear, Tobias, Observations on the River Potomack, the Country Adjacent, and the City of Washington (New York, 1793; reprinted., Baltimore, 1940), 15Google Scholar; Pickell, New Chapter in the Early Life of Washington, 66.

13 The Potomac Company faced substantial problems in obtaining both laborers and the technical knowledge necessary to pursue the project. These problems aggravated the company's already severe handicaps. Since this paper focuses on financing, problems in engineering and labor are beyond its scope, but for general background, see Turner, Ella May, James Rumsey: Pioneer in Steam Navigation (Scotts-dale, Pa., 1930)Google Scholar; Hahn, Thomas F., George Washington's Canal at Great Falls, Virginia (Shepardstown, W. Va., 1976)Google Scholar; Bacon-Foster, Early Chapters in the Development of the Potomac; Pickell, New Chapter in the Early Life of Washington, Sanderlin, Great National Project; and Ward, Early Development of the Chesapeake and Ohio Canal Project.

14 George Washington to Thomas Jefferson, 31 Aug. 1788, in Writings of Washington 30:80; James Madison to Thomas Jefferson, 20 Aug. 1785, in Papers of Jefferson 8:413–17; James Madison to Thomas Jefferson, 12 Aug. 1786, in ibid., 10:229–36; George Washington to Thomas Jefferson 13 Feb. 1789, in ibid., 14:546–49; Pickell, New Chapter in the Early Life of Washington, 87. Flooding was a constant problem even after the company was able to clear part of the river. High water either forced work to halt, destroyed what had been accomplished, or compelled the company to use temporary measures, such as wood planks to hold back water, to keep stretches of the river open. See 7 Aug. 1786, 4 Aug. 1788, and 4 Aug. 1794, in Proceedings of the General Meetings of the Potowmack [sic] Company, 1785–96, item 159, Records of the National Park Service, Record Group 79, National Archives, Washington, D.C., hereafter cited as Proceedings of the General Meetings, followed by the appropriate date. The records of the general meetings of the shareholders were kept in a separate journal between 1785 and 1796; thereafter the minutes were recorded in with those of the Proceedings of the Board of President and Directors of the Potowmack [sic] Company, 1785–1807, item 160, Records of the National Park Service, Record Group 79, National Archives. Minutes of the generai meetings after 1796 will be cited as Proceedings of the Board, 1785–1807—General Meeting, followed by the date of the meeting. Other items of regular company business were also recorded in this same journal and shall be similarly identified. President and directors meetings shall be cited as Proceedings of the Board—Meeting of the President and Directors, again followed by the date of the meeting. Two additional journals carry company business from 1808 to 1822 and from 1822 to 1828 respectively, and those dates shall be used with the above citations when appropriate.

15 See Proceedings of the Board, 1785–1807—Meeting of the President and Directors, 1 and 2 March 1786, 3 April, 25 May 1787; Proceedings of the General Meetings, 7 Aug. 1786. See also Palmer, William P. and McRae, Sherwin, eds., Calendar of Virginia State Papers and Other Manuscripts, 11 vols. (Richmond, 1875–1893), 5:84Google Scholar; Acts of the States of Virginia, Maryland and Pennsylvania, and the Congress of the United States in Relation to the Chesapeake and Ohio Canal Company with the Proceedings of the Convention which led to the Formation of Said Company. Also the Acts and Resolutions of the States of Virginia and Maryland Concerning the Potomac Company to which are Appended the By-Laws, Lists of Officers, etc., of the Chesapeake and Ohio Canal Company with a Copious Index (Washington, D.C., 1828), 103, 130–31, hereafter cited as Acts of the States.

16 Lee also had obtained rights to cut timber on adjacent land, and he had purchased other valuable property in the area from John Semple, a colonial proponent of the river project. See George Washington to Thomas Jefferson, 13 Feb. 1789, in Papers of Jefferson 14:546–49; Henry Lee to Thomas Jefferson 6 March 1789, inibid., 619–21; George Washington to James Madison, 17 Nov. 1788, in Writings of Washington 30:128–31; George Washington to Thomas Jefferson, 13 Feb. 1789, in ibid., 198–202; James Madison to Henry Lee, Jan. 1789, in The Writings of James Madison Comprising his Private Correspondence, including Numerous Letters, and Documents Now for the First Time Printed, ed. Hunt, Gaillard, 9 vols. (New York, 1900–1910), 5:321–24Google Scholar; Hening, Statutes at Large 13:170–73.

17 Proceedings of the Board, 1785–1807, undated but preceding 28 Nov. 1793; John Marshall, “Opinion,” 31 Jan. 1792, in The Papers of John Marshall, ed. Johnson, Herbert A. and Cullen, Charles T., 3 vols. (Chapel Hill, N.C., 1974–1979), 2:107–8Google Scholar; Bacon-Foster, Early Chapters in the Development of the Potomac, 87.

18 Proceedings of the General Meetings, 3 Aug. 1795, 1 Aug. 1796.

19 Proceedings of the General Meetings, 3 Aug. 1795.

20 This stock was issued at 130 pounds sterling per share. Ibid.; Proceedings of the General Meetings, 1 Aug. 1796; Tobias Lear to Thomas Jefferson, 13 March 1796, George Washington Papers, Minnesota Historical Society. Such state aid to the Potomac Company frequently had a political price. In both Maryland and Virginia sectionalism prevented financial aid to the Potomac Company unless other river and canal projects were also supported. See Littlefield, Douglas R., “Maryland Sectionalism and the Development of the Potomac Route to the West, 1768–1826,” Maryland Historian 14 (1983): 31–52Google Scholar; Leonard J. Sneddon, “Maryland and Sectional Politics: Canal Building in the Federalist Era,” ibid. 6 (1975): 79–84; Risjord, Chesapeake Politics, 478–82; and, more generally, Ambler, Charles H., Sectionalism in Virginia, 1776–1861 (Glendale, Calif., 1910).Google Scholar

21 The extent to which rising costs played a role in the company's distress can be seen by the fact that in 1799 the Potomac Company directors claimed that all the shares from the first two stock issues had been paid in full “except some inconsiderable balances owing by insolvent characters.” See Potomac Company Broadside, 2 July 1799, “Entrusted as We Are with the Interests of the Potomack [sic] Company” (microprint reproduction, Worcester, Mass., 1963). See also Proceedings of the General Meetings, 4 Aug. 1794; Proceedings of the Board, 1785–1807-General Meeting, 7 Aug. 1797, 4 Feb. 1798, 6 Aug. 1798, and 5 Aug. 1799; Dowd, Mary Jane, “The State in the Maryland Economy, 1776–1807,” Maryland Historical Magazine 57 (1962): 123Google Scholar; Bacon-Foster, Early Chapters in the Development of the Potomac, 95–97. United States stock was the equivalent of present-day government bonds. The stock had been created in 1790 in accordance with Alexander Hamilton's plan to fund the public debt. See Swanson, Donald F., The Origins of Hamilton's Fiscal Policies (Gainesville, Fla., 1963), esp. 34–55.Google Scholar

22 This third Potomac Company stock issue, like the second, was valued at 130 pounds sterling per share. The Susquehanna Canal Company received a $30,000 loan from the state in exchange for the Potomac Company's aid. See Votes and Proceedings of the Maryland House of Delegates, in Records of the States of the united States (microfilm, Washington, D.C., 1949), 4 Dec. 1799; Proceedings of the Board, 1785–1807—General Meeting, 4 Feb. 1798, 5 Aug. 1799, 2 Aug. 1802; Sanderlin, Great National Project, 35–37.

23 Even before the river was open some stockholders thought that enough had been accomplished to warrant collecting some tolls. In 1796 the stockholders voted to collect tolls since most of the work on the river had been completed except for the locks at Great Falls. The president and directors suspended this decision until they could ascertain if the work met charter requirements. They apparently decided that it did not, since it took a special legislative act in 1799 to allow tolls to be collected despite the fact that Great Falls still had not been opened. See Proceedings of the General Meetings, 1 Aug. 1796; Acts of the States, appendix.

24 Alexandria Gazette, 6 Feb. 1802.

25 The company received $3,647.96 in tolls and $4,073.77 in income from the U.S. stock in 1802. Proceedings of the Board, 1785–1807—General Meeting, 2 Aug. 1802; Galpin, Freeman W., “Grain Trade of Alexandria, Virginia, 1801–1815,” North Carolina Historical Society Review 4 (1927): 404–27, esp. 410–12.Google Scholar

26 Proceedings of the Board, 1785–1807-General Meeting, 2 Aug. 1802, 1 Aug. 1803; Proceedings of the Board, 1808–22—General Meeting, 29 Nov. 1816;Proceedings of the Board, 1808–1822—Report to the Secretary of the Treasury, 20 Jan. 1808.

27 In 1807 the company collected $15,080 in tolls. Proceedings ofthe Board, 1785–1807—General Meeting, 3 Aug. 1807; Commissioners of Maryland and Virginia Appointed to Survey the Potomac River, Letter from the Governor and Councilof Maryland Transmitting a Report of the Commissioners Appointed to Survey the River Potomac (Washington, D.C., 1823)Google Scholar, appendix B, hereafter cited as Commission Report of 1822. This report is also printed in Senate, Letter from the Governor and Council of Maryland Transmitting a Report of the Commissioners Appointed to Survey the River Potomac, 17th Cong., 2d sess., 1823, S. Rept. 23. See also Galpin, “Grain Trade of Alexandria,” 412–18.

28 Proceedings of the Board, 1785–1807—General Meeting, 3 Aug. 1807.

29 Proceedings of the Board, 1808–22—Report to the Secretary of the Treasury, 20 Jan. 1808. See also Gallatin, “Report on Roads and Canals.”

30 Proceedings of the Board, 1785–1807—General Meeting, 3 Aug. 1807; Commission Report of 1822, appendix B; Galpin, “Grain Trade of Alexandria,” 414–18.

31 Proceedings of the Board, 1808–22—General Meeting, 4 May 1809, 7 Aug. 1809.

32 Proceedings of the Board, 1808–22—General Meeting, 10 April 1810, 5 Aug. 1810; Proceedings of the Board, 1808–22—Meeting of the President and Directors, 10 April 1810.

33 Proceedings of the Board, 1808–22— Meeting of the President and Directors, 10 April 1810; Proceedings of the Board, 1808–22—Ceneral Meeting, 5 Aug. 1811, 3 Aug. 1812.

34 Proceedings of the Board, 1808–22—General Meeting, 3 Aug. 1812.

35 Proceedings of the Board, 1808–22—General Meeting, 2 Aug. 1813; 7 Aug. 1816.

36 Gray never signed the Potomac Company copy of this agreement, but his acceptance of the settlement is noted in the company records. See Proceedings of the Board, 1808–22—Agreement with Robert Gray, undated.

37 Proceedings of the Board, 1808–22—Meeting of the President and Directors, 3 Dec. 1816.

38 Proceedings of the Board, 1808–22—General Meeting, 23 Feb. 1813; 1, 2 Aug. 1814; Dowd, “The State in the Maryland Economy,” 123. There was one unusual attempt to gain federal aid in this period. In 1811 Gouverneur Morris and De Witt Clinton were sent by New York State's Canal Commission to appeal for federal support for the proposed Erie Canal to the Great Lakes, In an attempt to get the widest possible support in Congress, they drafted an omnibus bill to set aside all land in Michigan Territory north of the fortieth parallel and give it, for the purposes of various internal improvements, to twelve states and the Potomac Company. Albert Gallatin, in early 1812, recommended against this proposal because of the nation's financial situation, and the House committee appointed to consider the bill found it “inexpedient for the Congress of the United States to make a donation in land or money” because of the poor state of foreign affairs. This determination was subsequently reinforced by the outbreak of war with England. See Goodrich, Government Promotion of American Canals and Railroads, 36–37.

39 Acts of the States, 108–12, 151–54; Proceedings of the Board, 1808–1822—General Meeting, 13 Nov. 1813, 7 Aug. 1815.

40 Parentheses in the original. Proceedings of the Board, 1808–22—Meeting of the President and Directors, 3 Oct. 1815.

41 Alexandria Gazette, 8 Nov. 1816; Proceedings of the Board, 1808–22—General Meeting, 29 Nov. 1816; U. S. Cong., House, Report of the Committee of the District of Columbia, to whom were Referred Sundry Memorialsfrom the Inhabitants of Pennsylvania, Maryland, and Virginia, Praying the Aid of the Federal Government towards the Improvement of the Navigation of the River Potomac, 17th Cong., 1st sess., 1822, H. Rept. Ill, 22; Sanderlin, Great National Project, 42–44.

42 Proceedings of the Board, 1808–22—General Meeting, 2 Aug. 1819; Proceedings of the Board, 1808–22—Letter to the Maryland Senate and Assembly from President John Mason, 26 Jan. 1820.

43 House, Report of the Committee of the District of Columbia, 19–27; Acts of the States, 116, 142; Commission Report of 1822, 5; Proceedings of the Board, 1808–22-General Meeting, 5 Aug. 1822; Ward, Early Development of the Chesapeake and Ohio Canal Project, 16–17, 39–41.

44 Commission Report of 1822; Ward, Early Development of the Chesapeake and Ohio Canal, 45–46.

45 Maryland's assent to the new project was further slowed by northern Chesapeake Assembly delegates, who were concerned about possible economic competition from Georgetown. See Littlefield, “Maryland Sectionalism,” 43–47; Fisher, Charles Elbert III, “Internal Improvement Issues in Maryland, 1816–4826” (Master's thesis, University of Maryland, 1972), 20–23Google Scholar; Sanderlin, Great National Project,50–51; Ward, Early Development of the Chesapeake and Ohio Canal, 45–46.

46 Potomac Company Legal Papers, item 164, Records of the National Park Service, Record Group 79, National Archives, Washington, D.C.; House, Chesapeake and Ohio Canal, 19th Cong., 1st sess., 1826, H. Rept. 228, 25–60; Bacon-Foster, Early Chapters in the Development of the Potomac Route, 149–51; Ward, Early Development of the Chesapeake and Ohio Canal, 59–65; Sanderlin, Great National Project 51–60.

47 Commission Report of 1822, 7.

48 Congress not only funded the survey of the route for the Chesapeake and Ohio Canal, but it pledged $1 million to the new enterprise and allowed the three District of Columbia cities—Alexandria, Georgetown, and Washington—to pledge $1.5 million more. See Sanderlin, Great National Project, 56–57.