Who paid for all these canals? With a new government still testing its financial clout, and often unclear definition between the responsibilities of state and federal spending, many of the early canals were financed by private canal companies. Often these were headed by prominent statesmen of the day, assuring that some government funding would be given to the projects. The early canals did attract limited state aid, and while federal aid was slower in coming there was little opposition to the idea of internal improvements. Indeed, such improvements were widely acknowledged as crucial to maintaining and expanding the republican ideal.

Tench Coxe, Alexander Hamilton's Treasury Department Assistant Secretary, was a vocal advocate of internal improvements in the 1790's and pushed for federal funding of roads and canals; they were, he believed, crucial to the commercial development of the "Western Country." While the lawmakers debated back and forth over proposals like Coxe's, statesmen such as Washington, Hamilton, Madison and Jefferson all invested in lands that might be developed. Jefferson's Treasury Secretary Albert Gallatin released the Report of the Secretary of the Treasury on the Subject of Roads and Canals in 1808. This report, a "blueprint for a national system of internal improvements," suggested four great canals heading west from Cape Cod, New Jersey, Chesapeake Bay, and Virginia; these canals would connect by roads over the mountains with the great interior rivers. Gallatin suggested that this project, funded by the federal government, would cost twenty million dollars and take ten years. In fact, it took nearly fifty years and many of the proposed canals became railroads, financed privately or with state funds.

By 1816, a nationalistic fervor was upon much of the country. In Congress, John C. Calhoun proposed his famous Bonus Bill which would use the bonus and dividends paid to the national government by the Second Band of the United States as a fund for internal improvements to be allocated to the states. "We are greatly and rapidly--[I] was about to say fearfully--growing. This...is our pride and danger, our weakness and strength...Let us then bind the Republic together with a perfect system of roads and canals. Let us conquer space," Calhoun pleaded. While the bill passed the House and Senate vote, James Madison vetoed the proposal, arguing that the power of national legislature to provide for roads and canals was "not expressly given by the Constitution." Incensed supporters of internal improvements pointed to the vast land tracts and the certainty that only with adequate transportation lines could the nation "be cemented and preserved in a lasting bond of union." Henry Clay, an outspoken supporter of the Bonus Bill, wondered tellingly whether settlers of the Mississippi Valley would lose their "moral" attachment to the Union unless the "General Government" took action by connecting them.

Madison held, setting a precedent for national spending. While it was acknowledged that a majority of the country's lawmakers favored nationally funded improvements, direct assistance remained hard to come by. The Erie Canal, begun in 1817, went forward with state and private support; canals that followed relied on their states for support. Responsibility, as one Delaware editor observed, had been thrown "back upon the people, and the respective states. If Uncle Sam cannot help us, we must help ourselves."