Part two of a four part series

Continuing the blog series with the examination of the story of the First Welland Canal it seems right to examine the story from the perspective of the money. After all, infrastructure projects go together with money like hands and gloves.

In the usual story of the founding of the Welland Canal Company, William Hamilton Merritt emerges from his stint as a prisoner of war in Massachusetts in 1815, following his capture at the Battle of Lundy’s Lane the previous July. Merritt arrived back home in St. Catharines (called ‘The Twelve’ at that time) with his new wife, Catharine Prendergast. During the War he served as a Captain in the Provincial Light Dragoons where, during the American invasion in 1813, spent his time harassing American scouts in the bush around the escarpment. In his biography of his father, Jedidiah Prendergast Merritt mentioned that it was likely around this time that Merritt began putting together the idea for a canal. When he arrived home in 1815, off he went on his canal-building journey, destined for greatness.

The problem with the story the way it’s told is that it skips important character development for our leading man: Merritt was bad with money.

Merritt the Great Promoter

I want to note that Merritt’s was not the first idea for a canal route through Niagara. In fact, it’s likely more accurate to say that Merritt was exposed to various canal ideas while he was studying surveying in school, not to mention that Niagara Falls had posed problem of transporting goods further into the region and Great Lakes for a long time. Surveyors had been mapping and routing for almost 20 years, and a canal was a commonly considered solution to the transportation problems around the escarpment, but never built because of the great expense.

Merritt’s historical reputation as a wealthy businessman has been conflated by a couple of historical elements: the family was generally comfortable so they more easily gave off the impression of great wealth. Merritt’s second home, built in 1860 was quite grand and in a prominent location, both then and today, which as a society we infer as amounting to great wealth. Merritt originally owned a lot of land, which also contributes to this reputation. His status a community leader and politician also elevates him. The great-man historiography also supports this historical reputation as it was very necessary for the Victorian narrative of community to centre around a great founder.

The Merritt’s were comfortable, indeed. But, they were also frequently in and out of debt, and had to sell land, both owned by the Merritt family and the Prendergast family, to save themselves from debt collectors and bankruptcy more than once. In fact, he died in debt due to the huge expense of building the terraced gardens on the hillside at Oak Hill. I don’t want to be too hard on Merritt about his poor money skills because I can’t decide if he was actually bad with money, or if money just wasn’t his priority and it was something to worry about later. I kind of get it. Why let something so bothersome like money get in the way of achieving your vision?

Whether he was bad with money or didn’t care about it as much as he should have, it is more accurate to think of Merritt as an energetic, enthusiastic, and relentless businessman than a wealthy or successful one. His ability to achieve success came from his tirelessness not his business prowess, not to mention his privilege! In his early days of business, he and his business partner Charles Ingersoll over-extended themselves by taking on a huge amount of debt to finance the start-up of their general store. When crisis eventually arrived, he and Ingersoll were unable to stay afloat. The entire Upper Canada economy was slowly dwindling into chaos in the early 1820s and Merritt fared no better than most. Between 1817 and 1821, Merritt fell into severe debt and his Montreal creditors were looking to collect. His help came in the form of what can only be described as a bailout from his wealthy merchant uncle Nehemiah Merritt. Nehemiah paid off the creditors, leaving room for William to start again.

I share this part of the story not to belittle or lessen the significance of Merritt in the story but because it provides such excellent character development, of which we rarely get a taste in the traditional narrative. If we think of him as a successful businessman, then the entire canal project seems easy, almost inevitable. Unfortunately, it was a constant struggle.

Finding the Money

Without the political and financial capital to get it done on his own, Merritt needed to get folks on his side, so he lobbied and promoted.

Because Merritt had such a strong vision (and also the pesky necessity to get water power to his properties in St. Catharines) he lobbied for a charter for a private corporation so that the company itself could decide the final route, rather than have the government select the route, as many others were lobbying for a canal in Niagara as well. The other projects were never undertaken by the government because there just wasn’t enough money in the very young and very cash-poor province of Upper Canada.

Requesting a private company charter was the smartest move Merritt made in his entire career and pushed his competition out of the way, but it didn’t make him popular and it didn’t make the project easy.

Early subscribers to the canal company stock had jumped on the bandwagon in hopes the canal would take a route that favoured their own land and businesses. One major route for consideration was a terminus at Niagara (now Niagara-on-the-Lake) which was the county seat. The canal would begin at the mouth of the Niagara River and make it’s way south-west to Port Robinson. When Merritt quashed the hopes and dreams of folks in Niagara, the 171 shares sold there were effectively returned with as much angst as you might expect.

Trouble continued to brew for Merritt, even after the route was chosen. It centered around the cost estimates for the canal. They were surprisingly low. In fact, the cost estimates are likely what sparked interest from the government, and caught the eye of out-of-town investors. For example, the estimates listed stone locks at a cost of 1000 pounds per lock and wooden locks at 250 pounds per lock. How could you not invest?

I truly believe that Merritt, who we might call a “measure once, cut once” kind of businessman, was more interested in getting the project started and sorting out any mess that came along later. He didn’t realize the mess these estimates would make; though if they were any higher, the canal might never have attracted enough capital to break ground anyway. His son and biographer, Jedidiah Predergast Merritt, also recorded that his father was fully aware of the rising expenses and that they’d be easier dealt with once construction was pronounced finished.

After the Welland Canal Company was established and Board of Directors organized, the Board charged Merritt with finding the money to pay for the project. The government at first had restricted the sale of stock to Canadian and British investors fearing any interference from the United States. Built into the company’s charter were ownership and governance provisions that kept potential foreign investment from dominating the Board. Despite some enthusiasm in Upper Canada, it was struggle to get money from wealthy Montreal banks and firms. Merritt wrote “everybody wishes the undertaking well but when it comes to the needful they keep their hands from paper.” He was likely knocking on the doors of the same lenders and merchants to which he owed a great deal of money not 3 years earlier.

Merritt had more luck when he was finally able gain exception to the charter restrictions on American investment and went first to Albany and New York City. That luck came in the form of American businessman John Barentse Yates. Yates held quite a different view from the hesitant merchants and banks in Montreal. He jumped in with both feet, and bought almost 600 shares himself though he was still barred from sitting on the Board. The explanation for Yates’ enthusiasm is likely to be found in Merritt’s sales pitch. Merritt painted a picture of an easy construction project with huge returns from such tiny expenditures, comparative to the Erie Canal. Yates was in the New York lottery business and preferred quick in-and-out loans, since the majority of his liquid capital was tied to the lottery. The Welland route via Lake Ontario would likely move stock to the interior faster than the Erie Canal and so Yates saw a small-scale project with little risk and huge reward. Additionally, confidence in government ability to finish projects on schedule and on budget was low, so the fact that a private corporation was taking on the project made it attractive to investors and quickened fundraising in the United States.

By early 1825, thanks to Yates, Merritt had secured enough funds to start the project in earnest.

Getting started was one thing. Keeping it going was an entirely different affair.

Unsurprisingly, the low cost estimates were overrun quite quickly by mission creep, bad luck, accidents, poor engineering and surveying, and terrible weather. These cost overruns meant that the company spent most of its existence in huge amounts of debt. Between 1825 and 1830 the company had petitioned the government of Upper Canada for at least 4 loans of 25,000 pounds each. They also received a 50,000 pound loan from the Imperial government. They petitioned to amend their charter to increase the stock capital capacity so they could sell more stock. Eventually, the government began to purchase stock itself, eventually buying enough to put three government selected directors on the Board. In all, it likely cost approximately 500,000 pounds to build the canal, about 350,000 pounds over budget.

Open for Business

The canal, of course, did finally open from Port Dalhousie to Chippawa Creek at the Niagara River, in 1829, but the work was far from complete. It was really only half-way done as the canal channel was supposed to stretch south to Port Colborne, something they didn’t achieve until 1833.

The only thing that kept the canal funded during construction and the early days of operation was Merritt’s promise of piles of money coming from toll fees. In 1830, the tolls were set at $2.50 / vessel smaller than 50 tons with a towing fee set at $10.00 from Lake Erie to Lake Ontario. It was $12.50 towing uphill from Ontario to Erie. Fair enough for those hard working tow horses. The tolls were much cheaper than competing canals on the Great Lakes which helped encourage captains to take the new route. Advertisements of this nature appeared in newspapers widely.

1830 was a disappointing first year. Since only actually being open for 2, maybe 3 months of the navigation year, their toll revenue was only 1,349 pounds. The Erie made over 5000 pounds in its first year, but it didn’t seem to face as many problems. The Welland didn’t catch up until the works were completely finished and the government took over the company. In 1837 their revenue was still only 5,000 pounds. In 1839, with government essentially in control of the company, the revenue luckily doubled to nearly 12,000 pounds. The Erie Canal made that leap in its first five years, where it took the Welland 10 years to do the same.

Merritt was far from repaying any of those big government loans or the money Yates had sunk into the company. Eventually, sick of loaning out money to pay for the canal, the government purchased the majority shares (paying off Yates) and took control of the most important and most expensive infrastructure project any Canadian government had ever undertaken.

Watch for part three of this series on the First Welland Canal November 20, 2021. In part three Adrian will discuss the mission creep and plain bad luck the company faced throughout construction. Catch all four parts of this series from November 2021 using the tag or category ‘How the Story Goes’.

Adrian Petry is the Visitor Services Coordinator and public historian at the St. Catharines Museum & Welland Canals Centre.

Sources / Further Reading

Aitken, Hugh. “A New Way to Pay Old Debts.” Men In Business; Essays on the Historical Role of the Entrepreneur, with Additional Essays on American Business Leaders. Edited by William Miller. New York: Harper and Row, 1962.

Aitken, Hugh. “Financing the Welland Canal: An Episode in the History of the St. Lawrence Waterway.” Bulletin of the Business Historical Society. Vol. 26, No. 3. (September, 1952): 135-164.

Aitken, Hugh. “The Family Compact and the Welland Canal Company.” The Canadian Journal of Economics and Political Science. Vol. 18, No 1. (February, 1952): 63-76.

Aitken, Hugh. The Welland Canal Company: A Study in Canadian Enterprise. St. Catharines, 1997.

Mackenzie, William Lyon. The Welland Canal: A Weekly Journal. December 30, 1835.

Merritt, Jedidiah Prendergast. Biography of the Hon. W.H. Merritt. St. Catharines, 1875.

Phair, Arden and Kathleen Powell. Triumph & Tragedy: The Welland Ship Canal. St. Catharines: St. Catharines Museum, 2020.

Styran, Roberta and Robert Taylor. The “Great Swivellink” Canada’s Welland Canal. Toronto: The Champlain Society, 2001.

Styran, Roberta and Robert Taylor. This Great National Object. Montreal & Kingston: McGill-Queens University Press, 2012.