Immigration to the West set in with renewed vigor after the close of the war. The fertile soil of the Ohio Valley contributed an enormous product of grain, tobacco, fruit and hemp which continued to find an outlet down the Mississippi, and the farmers increased their purchases of imports which flowed into Pittsburgh from the East. In 1811 Fulton's invention was introduced in western waters, and in 1817 the first steamboat voyage was made from New Orleans to Louisville. The effect of this new engine of commerce on the Mississippi trade was almost magical. In 1818-19, the first year after the steamboat became an assured success, the receipts at New Orleans rose to 136,300 tons, valued at $16,778,000, and the volume of exports of domestic products from the southern port was greater than that from any other port of the country.
But even more important to the commercial prosperity of the West than the introduction of the steamboat was the spread of cotton culture into the Southern States west of the Appalachian highland. Cotton culture had been found exceedingly profitable in Georgia and South Carolina, and when it was discovered that the rich bottom lands of Alabama, Mississippi and Louisiana produced even better cotton than the upland districts of South Carolina, there was a rush of settlers to the river valleys of the new region. In 1811, fifteen-sixteenths of the cotton raised in the United States was grown in Virginia, North Carolina, South Carolina, and Georgia; in 1820, one-third of the total crop of 600,000 bales was raised in Alabama, Louisiana, Mississippi and Tennessee. In the western part of the cotton belt, as in the eastern, the planters directed practically all their capital and labor to the production of cotton, relying on the region north of them for provisions and live stock. The market for the grain, pork and flour of the Ohio Valley was greatly enlarged. Flat-boat men disposed of their cargoes of food products at the wharves of the plantations along the Mississippi River; flat-boat stores peddled clothing, boots and shoes, household furniture and agricultural implements from village to village and from plantation to plantation; great droves of horses and mules were driven into the Southern States in response to the demand for draught animals for use in the cultivation of cotton.
As the western farmers enlarged the volume of their sales to the southern planters they increased their purchases from eastern merchants. A large part of the foreign imports of the United States, which in 1816 reached the unprecedented amount of $155,000,000, was sold in the West. Attracted by the cheapness of the goods offered and full of confidence in their ability to meet all debts with the proceeds of the lucrative southern trade, the people indulged in extravagant overtrading. Purchases far exceeded sales and the specie coming from the South was drained away as fast as it was received, but dozens of banks furnished a supply of currency by means of copious issues of paper money, and the career of extravagance proceeded. The internal trade of the country had never been so prosperous.
The era of good times came to a sudden end in 1819 when the nation was visited by a disastrous money panic. Nearly all the specie had been shipped abroad, and large sums of paper money had been issued, much of it on credit of a questionable nature. The general commercial expansion following the war had led to extensive speculation all over the country. When the new United States Bank suddenly began a vicious and relentless campaign against all other banks of issue in an ill-advised effort to force them immediately to a specie basis, loans were called in everywhere, the circulation was greatly contracted, prices fell, manufacturers and merchants were unable to meet their obligations, factories shut down, mercantile firms went into bankruptcy, banks closed their doors, and business everywhere was completely prostrated. To make matters worse, the export price of the great "money crop," cotton, fell from 32 cents in 1818 to 17½ cents in 1820. The provision market of the western farmers was greatly injured and thus planter, farmer, merchant, manufacturer and banker all succumbed before the general catastrophe.
The panic gave a sharp check to extravagance and speculation, importations declined, prices were readjusted and business soon began to recover. By 1823, the country seemed to have been restored to its former prosperous state and manufacturing in particular was more active than it had been at any time since the war.
Notwithstanding the revival of manufacturing and domestic trade, the farmers of the grain states found themselves in distressing circumstances. The Ohio Valley was yielding a product far in excess of the demands that existed and each year found a large amount of unmarketable grain left in the fields and granaries. Many foreign nations refused admittance to American food products and though the grain-growing capacity of the United States had increased sixfold since 1790, the annual exports of grain, meat and flour were but little more than the average for the five years from 1790 to 1795. The plantations of the South were drawing much of their subsistence from the northern farms, but they were unable to absorb more than a small fraction of the tremendous surplus that was seeking a market.
Agricultural interests sought urgently for relief. Since there was no foreign market for their surplus, they resolved to create a home market. If England would not buy food products from the United States, the United States must refuse to buy manufactures from England, and must, by the establishment of manufacturing industries at home, give rise to a non-agricultural population that would consume the redundant supplies of meat and grain. The problem of attracting capital to manufacturing enterprises, the farmers proposed to solve by the creation of a system of protective tariffs that would check importations and encourage investment in mills and factories at home. Manufacturing industries already in existence were in no apparent need of protection and the shipping interests of Boston and New York and the cotton planters of the South strenuously opposed the protective policy. But the agricultural interests were not to be denied. Under the leadership of Henry Clay, the tariff of 1824 was enacted and the "American System" was inaugurated. In 1828, in response to an appeal, emanating from the woolen manufacturers and seconded by the agricultural interests, still further encouragement was given to home manufactures.
While the country was being agitated by the tariff controversy and exceptionally bitter political contests, the New York canals were opened for traffic throughout their entire length (October, 1825). No other single work in the United States has ever had a more beneficial effect on the prosperity of internal trade. The opening of the canals brought to an end what had been the bane of internal commerce for half a century—the excessive cost of freight transportation. Freight rates between Albany and Buffalo were at once reduced 90 per cent and the day of the freighter on the Genesee road was ended. The new canal wrought a complete change in all the rural districts of western New York. Lumber, staves, ashes, grain and vegetables, hitherto unmarketable, were now shipped to the markets of the East; farm values doubted and quadrupled; a stream of people poured into the fertile farming regions around Lake Erie. Not less valuable was the new waterway to the district at its eastern terminus. The laboring population of the growing manufacturing towns reaped immense benefits from the cheaper and better means of subsistence they could now secure, while the shipments of merchandise westward on the canal exceeded in value the receipts of raw produce at tide-water. New York had achieved economic unity at a single stroke.
The success of the Erie Canal and the rapid growth of internal trade which followed the adoption of the "American System" caused a demand everywhere for more roads and canals and a widespread agitation in favor of government aid to internal improvements. The federal government gave extensive aid to private and state enterprises in the way of land grants and stock subscriptions, though it did not engage directly in the construction of commercial highways. The individual states embarked in schemes of canal and turnpike building which involved them in debts of millions of dollars. Ohio and Indiana began to construct canals joining the Ohio River to Lake Erie in order to secure the advantage of the new outlet to the East. Pennsylvania, awakened to the danger of the total loss of western trade through the state by the fact that shipments of merchandise to the West were abandoning the wagon roads from Philadelphia, Baltimore, and New York in favor of the cheaper route by way of the Erie Canal, began, in 1826, an extensive system of canals to connect the Delaware River with the Ohio River and the Great Lakes. Not to be outdone by their rival states, Maryland and Virginia agreed upon the construction of a canal from Chesapeake Bay to the Ohio River, and on July 4, 1828, President Adams dug the first spadeful of earth to signalize the beginning of the undertaking. Some financiers of Baltimore, dubious of the success of an effort to build a waterway over the difficult route adopted by the promoters of the Chesapeake and Ohio Canal, withdrew their support from that enterprise, and putting their confidence in a new and almost untried transportation device, which they believed would prove superior to canals, just as canals had proved superior to turnpikes, they boldly inaugurated the plan of a railroad from their city across the mountains to the Ohio, and Charles Carroll, of Carrollton, placed the stone that commemorated the beginning of its construction on the same day that President Adams officiated at the rival celebration that marked the beginning of the canal.
Thus by 1830, the future of the internal commerce of the United States was assured. The adoption of the "American System" could have but one result—a tremendous expansion of domestic trade. That this expansion had already commenced was evident from the fact that notwithstanding the vast growth in wealth and population from 1820 to 1830, the imports of the United States had exhibited but little increase. "The nation was building an empire of its own with sections which took the place of kingdoms."[3 ] New England, New York and Pennsylvania were manufacturing the clothing and iron utensils for the West and South. The people of the South were absorbed in cotton raising. They relied upon the West for much of their food and live stock; they bought their clothing and machinery from the North Atlantic States; and their exports brought in the specie which facilitated the commerce of all sections. The West was becoming a vast granary. Its new factories were drawing artisans from the East and taking laborers from the country to swell the demand for flour and grain that had recently been seeking in vain for a market. The volume of shipments of food and merchandise down the Mississippi was larger than ever and the manufacturing population of the East, already too large to be fed by the agricultural produce of New England, New York and Pennsylvania, was beginning to draw subsistence from the western farms.