Indiana Mammoth Internal Improvement Act
Encyclopedia
The Indiana
Mammoth Internal Improvement Act was a bipartisan law passed by the Indiana General Assembly
and signed by Whig
Governor
Noah Noble
in 1836 that greatly expanded the state's program of internal improvements
. It added an additional $10 million to spending and funded several projects, including turnpikes, canal
s, and later, railroads. The following year the state economy was adversely affected by the Panic of 1837
and the overall project ended in a near total disaster for the state, which narrowly avoided total bankruptcy from the debt. By 1841, the government could no longer make even the interest payment, and all the projects, except the largest canal, were handed over to the state's London
creditors in exchange for a 50% reduction in debt. Again in 1846, the last project was handed over for another 50% reduction in the debt. Of the eight projects in the measure, none were completed by the state. Only two were finished by the creditors who took them over.
The act is considered one of the greatest debacles in the history of the state and the public blame was placed on the Whig party who had been in control of the General Assembly and the governship during the passage of the act and the subsequent bankruptcy, despite that fact that only nine members of both houses voted against the bill. After the scope of the financial disaster became apparent to the state, the Whig party gradually began to collapse in the state leading to a period of Democratic control of the General Assembly that lasted until the middle of the American Civil War
.
Despite the dire immediate effects on the state's finances, the project ultimately fed a 400% increase in state land values, and provided numerous other direct and indirect benefits to Indiana. The Wabash and Erie Canal
, which was partially funded by the act, became the longest canal in North America and remained in operation until rendered obsolete by the railroads in the 1880s.
provided a convenient means to export produce. The only significant road in the region was the Buffalo Trace
, an old, dirt bison
trail that crossed the southern part of the state. After statehood several plans had been made to improve the transportation situation, like the creation of small local roads, the larger Michigan Road
, and a failed attempted by the Indiana Canal Company
to build a canal around the Falls of the Ohio. The national economy entered a recession following the Panic of 1819
, and the state's only two banks collapsed in the immediate years that followed, ending the state's early improvement programs without having achieved much success and leaving the state with a modest debt.
The 1820s were spent repairing the state's finances and paying down the debt. A request was sent to Congress asking for the federal government to assist the young state in improving the transportation situation. Canals were at that time being constructed in several of the eastern states and New York
and Pennsylvania
hoped to link to the Mississippi River
System by building canals through Indiana. With their support, on May 26, 1824 Congress granted Indiana a stretch of land 320 feet (97.5 m) wide on any route a commission would map out, but the state had to promise to begin construction of a canal on the land within twelve years. Many in the Indiana General Assembly considered the grant insufficient, and requested the grant be expanded to a one mile (1.6 km) wide strip, but Congress did not act. Most of the population at the time lived along the Ohio River, and the canal would be little benefit to them, but they would bear the burden of paying for it, so their representatives opposed the idea altogether. They successfully barred the creation of a canal.
On March 2, 1827 Congress made a new offer to the state, granting a half mile wide strip and to assist in the funding of construction. This time the General Assembly accepted the offer, passing legislation on January 5, 1828 to create a canal commission to lay out the path of the canal, but no state funding was approved. The commission laid out a short six mile (10 km) canal that would become the starting point of the Wabash and Erie Canal. Funding immediately became and issue in the legislature where the lowest cost estimate was $991,000. Again the southern part of the state objected, instead favoring a canal in the Whitewater Valley, then the most populated part of the state. Governor James B. Ray
objected to canals as a total waste of money, and insisted on the creation of railroads instead; he threatened a veto of any canal project. Because the state refused to help fund the project, it had to rely on the federal funds and the income the commission collected from selling lands adjacent to the proposed canal route. Slowly enough funds were collected and construction began on the route in 1831.
In 1829 the National Road
entered Indiana. Funded by the federal government, the project laid a large highway across the central part of the state. By 1834 the opposition the canal had disappeared and the project was being constructed at little cost to the state and was proving to be profitable, so the General Assembly granted funds to the project to connect it to Lafayette. To fund the project, and in response to the closure of the Second Bank of the United States
, the state established the Bank of Indiana
. Bonds were issued through the bank who then sold them to creditors in London to fund the early stages of the project, but it soon became apparent that it would take far more funds than could be obtained by the bank bonds alone.
In 1836, legislation was created by the Indiana General Assembly
to dramatically expand the scope of the internal improvements. At first, members only intended to continue funding the Wabash and Erie, but many representatives opposed the spending because it would have little benefit for their own constituents as the canal bypassed most of the major settlements in the state. As a compromise, additional projects were agreed on so that all the cities in the state would be connected by either canal, railroad, or turnpike. To appease the majority of the population that lived along the Ohio River, the bill called for the Vincennes Trace to be paved, making it usable year round. A Lafayette Turnpike was also approved, and to gain support of the representatives from the population centers in the far northern part of the state, the Michigan Road was also paved. To appease the railroad faction, two lines were approved connecting Lawrenceburg to Indianapolis, and Madison to Lafayette. The Whitewater Valley was the most populous part of the state, and to win over their representatives, funding was added for a canal to be built in their valley. To also get support from the central part of the state, and to connect Indianapolis to the new canals, a Central Canal was also funded. Over $2 million had already been borrowed, and the new bill proposed borrowing another $10 million. This was added to the $3 million already procured through land sales. Seeing the success of canals in the eastern United States
, it was believed that the projects would be very profitable for the state and that their revenue would quickly pay back the loans, and provide the funds to complete the projects. The state's regulat revenue, primarily from property taxes, where at that time was less than a $65,000 annually, and the amount of the debt was greater than the tax receipts of the entire history of the state. The sum borrowed was equal to one-sixth of all the wealth in the state. Despite the scale of the project, the representatives from the counties on the Ohio River still largely opposed the project.
For canals, the project called for the creation of a canal from Indianapolis
to Ohio River
at Evansville
, called the Indiana Central Canal
. Funding was included for another canal to connect the Wabash River
in Peru
to the Ohio River in Lawrenceburg
known as the Whitewater Canal
. Additional funding was granted to the Wabash and Erie Canal for expansion to Terre Haute
. The canals received the majority of the funds from the bill, because it was believed that the canals could be constructed from local materials which would help boost the local economy. A later invesitgation showed that parts of the state were entirely unsuited for the canals, and the project were doomed from the start. However, the state had not conducted surveys of the land before passing the bill to ensure their suitability.
The bill also funded, but to a much lesser degree, a railroad connecting Madison
to Indianapolis, another railroad from Shelbyville
to Indianapolis, the paving of the Buffalo Trace
and renaming it the Vincennes Trace, and the paving of the remainder of the Michigan Road
. Most of the money from the project was gathered by mortgaging nine million acres (36,000 km²) of state owned land through agents of the Bank of Indiana to creditors in London and New York.
Governor
Noah Noble
was a major supporter of the bill and it passed by the overwhelmingly Whig
controlled General Assembly, although it was opposed by several prominent legislators including Dennis Pennington
, James Whitcomb
, Calvin Fletcher and John Durmont. Pennington believed the canals were a waste of money and would soon be made obsolete by the railroads. Whitcomb outright rejected the idea of spending such a large sum of money, saying it would be impossible to pay back. The bill's passage met with statewide celebrations. Citizens saw it as a critical modernization of the state. Governor Noble considered the act his crowning achievement. Noble was concerned however that the assembly had not passed the 50% tax increase he had told them was necessary to take care of the debt the state was expecting to take.
The bill created a Board of Improvement and a Board of Funds Commissioners to oversee the projects. Two thirds of the funds were spent on the canals, with the Central Canal getting the most money. Jesse L. Williams was named chief engineer.
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From the early onset it was noted that the different projects did not work together, but instead competed with each other for funds and land. By trying to construct all the project at once, there was also a labor shortage and the projects began competing with each other for workers, significantly raising the originally projected labor costs. This posed a problem for the government, because they did not provide enough funds to complete each of the projects at the rates being paid, instead expecting them to start making money on their own, and funding their own completion. There was a brief by Governor David Wallace
to attempt to force the commission to only build one route at a time to conserve funds and avoid what was becoming seen as an impending financial disaster, but the different factions in the General Assembly could not agree on which line should be completed first.
The Wabash and Erie Canal was the most successful of the canal projects, and was profitable early on, but never to the extent expected. The Central Canal was a major failure, with only a few miles of canal dug near Indianapolis before the project was out of money. The Whitewater Canal was proceeding along well until its earthen walls and feeder dams were the victims of muskrats who burrowed through the walls, causing hundreds of thousands of dollars in damages for which there was no money to repair. At the height of the operation, over ten thousand workers were employed on the canal projects.
The rail line from Madison to Indianapolis was built much more cheaply than the canals; $1.3 million was appropriated. It was however, considerably over budget due to the increased costs of having to build a grade out of the low lying Ohio Valley onto the Indiana table land, so the project could not be finished. Had the project instead started in Indianapolis, it would have been able to earn income on freight and passengers along the relatively flat central Indiana portion, and been able to fund itself to construct the grade into Madison. The Vincennes Trace was paved from New Albany
to Paoli
at a cost of $1,150,000, with another 75 miles (120.7 km) still requiring pavement when the project ran out of money.
The Panic of 1837
, caused primarily by western land speculation, left the state in dire straits financially. Income shrank, and in 1838 the state's taxation revenue was $45,000, but the interest on the state's growing debt was $193,350. Governor Wallace made the startling report to the General Assembly who began to wrangle over what action should be taken. Provisions were made to make debt payments with more borrowed money, in the hope that the projects could be finished before the state's credit was maxed out. The gamble proved to be a bad decision and by 1839 there was no money left for the projects and work was halted. Work only continued on the Wabash and Erie where workers were paid with stock in the canal, and not cash, and supplies were purchased using the federal funding. At that time 140 miles (225.3 km) of canal had been built for $8 million, and $1.5 million spent on 70 miles (112.7 km) of railroad and turnpike. The state was left with a $15 million debt, and only a trickle of tax revenue.
In hope to increase revenues, the state reformed property tax assessment to be based on property values, as opposed to a set amount per acre. The modest reform boosted revenues by 25% in the following year, but was still nowhere near enough to cover the gap. Governor Wallace announced to the General Assembly in his last year as governor that the state would be insolvent within a year. The 1841 budget had over $500,000 in debt payments, plus regular spending, but revenues that year were only $72,000. The state was unofficially bankrupt. The proponents of the system had promised their constituents that taxes would not need to be increased, and that once the projects were finished taxes could perhaps be abolished because tolls would pay all the state's needs. Because of this, no provisions had been made to pay interest on the massive debt.
In 1841 Governor Samuel Bigger
proposed the creation of county boards to set property values. The result of the new system led to as much as a 400% tax increase in some parts of the state. Citizens decried the draconian tax hikes, and many refused to pay. The General Assembly was forced to repeal the system the following year.
James Lanier
, president of the Bank of Indiana, was sent by Governor Bigger to negotiate with the state's London creditors in a hope to avoid total bankruptcy in 1841. He negotiated the transfer of all of the projects, except the Wabash and Erie, to the creditors in exchange for a 50% reduction in the debt they held, lowering the total state debt to $9 million.
Although the debt decrease lessened the strain on the state, the debt payment was still far more than the state could afford. On January 13, 1845, the General Assembly passed a resolution issuing an official apology to the state's creditors and the state and federal governments of the United States for the repudiation of large parts of their debt. The resolution stated "We regard the slightest breach of plighted faith, public or private, as an evidence of a want of that moral principle upon which all obligations depend: That when any state in this Union refuses to recognize her great seal as the sufficient evidence of her great seal as the evidence of her obligation she will have forfeit her station in the sisterhood of States. and will no longer be worthy of their respect and confidence." The governor was directed to forward copies of the apology to each of the states. The result of the repudiation ruined Indiana's credit for nearly twenty years.
The Whigs suffered from the failure of the project and Democrat James Whitcomb, an opponent of the projects from the beginning, was elected governor. A Democratic majority had already came to power in the statehouse the year before. With their support he began negotiations to end the crisis. Charles Butler arrived from New York to negotiate on behalf of the state's creditors in 1846. The proposed deal was for the state to trade majority ownership of the Wabash and Erie for another 50% reduction in the debt, leaving the state owing $4.5 million and ending the financial crisis. Although the debt was significantly reduced, payment on it was still over half of the state budget, but the growing population of the state was quickly raising tax revenues.
The creditors had taken the public works expecting that they could be quickly completed and become profitable, but were disappointed to discover that not to be the case for all the projects. The Vincennes Trace was renamed the Paoli Pike, and operated for several years as a private toll road until repurchased by the state thirty years later. Its tolls covered its operating costs, but it was never profitable. The Central Canal was abandoned as a total loss, the expense to finish it was considered to be too great for any possible profitability, and the area was found to be unsuited for canals. The Whitewater Canal had about one fifth of the line completed, and although it was not finished, the existing portion remained in use until 1847 when a portion of the canal collapsed and rendered the northern section unusable. The southern section continued in use until 1865 when it was closed after losing traffic to a railroad built adjacent to the canal. The Wabash and Erie was finally completed in 1848 and continued to operate for thirty-two years, but the high-rise portions of the canal in the central part of the state were found to be high maintenance and the frequent victim of muskrats. The cost of upkeep, and competition from the railroad eventually led to the collapse of the canal and its company in the 1870. The rail line from Madison to Indianapolis was also abandoned by the creditors and sold to a group entrepreneurs, including James Lanier, who were able to raise funds to complete the line. The Madison & Indianapolis Railroad
was instantly profitable and went on to expand and connect to several other cities.
In 2008, all that remains of the Wabash and Erie is a restored fifteen mile (24 km) stretch and a few ponds. Much of the canal lands were sold to railroad companies and were excellent land for constructing rail lines. The turnpikes and railroads turned out to be the most successful projects, and some parts of them have remained in use until modern times.
Although the government lost millions, there were significant benefits for the areas of the state where the projects succeeded. On average, land value in the state rose 400%, and the cost of shipping goods for farmers was drastically decreased, and increasing the profit on their goods. The investors in the Bank of Indiana also made substantial profits, and the investments served as the start of a modern economy for the state. The act is often considered the greatest legislative debacle in the history of the state.
Indiana
Indiana is a US state, admitted to the United States as the 19th on December 11, 1816. It is located in the Midwestern United States and Great Lakes Region. With 6,483,802 residents, the state is ranked 15th in population and 16th in population density. Indiana is ranked 38th in land area and is...
Mammoth Internal Improvement Act was a bipartisan law passed by the Indiana General Assembly
Indiana General Assembly
The Indiana General Assembly is the state legislature, or legislative branch, of the state of Indiana. It is a bicameral legislature that consists of a lower house, the Indiana House of Representatives, and an upper house, the Indiana Senate...
and signed by Whig
Whig Party (United States)
The Whig Party was a political party of the United States during the era of Jacksonian democracy. Considered integral to the Second Party System and operating from the early 1830s to the mid-1850s, the party was formed in opposition to the policies of President Andrew Jackson and his Democratic...
Governor
Governor of Indiana
The Governor of Indiana is the chief executive of the state of Indiana. The governor is elected to a four-year term, and responsible for overseeing the day-to-day management of the functions of many agencies of the Indiana state government. The governor also shares power with other statewide...
Noah Noble
Noah Noble
Noah Noble was the fifth Governor of the U.S. state of Indiana from 1831 to 1837. His two terms focused largely on internal improvements, culminating in the passage of the Mammoth Internal Improvement Act, which was viewed at the time as his crowning achievement...
in 1836 that greatly expanded the state's program of internal improvements
Internal improvements
Internal improvements is the term used historically in the United States for public works from the end of the American Revolution through much of the 19th century, mainly for the creation of a transportation infrastructure: roads, turnpikes, canals, harbors and navigation improvements...
. It added an additional $10 million to spending and funded several projects, including turnpikes, canal
Canal
Canals are man-made channels for water. There are two types of canal:#Waterways: navigable transportation canals used for carrying ships and boats shipping goods and conveying people, further subdivided into two kinds:...
s, and later, railroads. The following year the state economy was adversely affected by the Panic of 1837
Panic of 1837
The Panic of 1837 was a financial crisis or market correction in the United States built on a speculative fever. The end of the Second Bank of the United States had produced a period of runaway inflation, but on May 10, 1837 in New York City, every bank began to accept payment only in specie ,...
and the overall project ended in a near total disaster for the state, which narrowly avoided total bankruptcy from the debt. By 1841, the government could no longer make even the interest payment, and all the projects, except the largest canal, were handed over to the state's London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
creditors in exchange for a 50% reduction in debt. Again in 1846, the last project was handed over for another 50% reduction in the debt. Of the eight projects in the measure, none were completed by the state. Only two were finished by the creditors who took them over.
The act is considered one of the greatest debacles in the history of the state and the public blame was placed on the Whig party who had been in control of the General Assembly and the governship during the passage of the act and the subsequent bankruptcy, despite that fact that only nine members of both houses voted against the bill. After the scope of the financial disaster became apparent to the state, the Whig party gradually began to collapse in the state leading to a period of Democratic control of the General Assembly that lasted until the middle of the American Civil War
American Civil War
The American Civil War was a civil war fought in the United States of America. In response to the election of Abraham Lincoln as President of the United States, 11 southern slave states declared their secession from the United States and formed the Confederate States of America ; the other 25...
.
Despite the dire immediate effects on the state's finances, the project ultimately fed a 400% increase in state land values, and provided numerous other direct and indirect benefits to Indiana. The Wabash and Erie Canal
Wabash and Erie Canal
The Wabash and Erie Canal was a shipping canal that linked the Great Lakes to the Ohio River via an artificial waterway. The canal provided traders with access from the Great Lakes all the way to the Gulf of Mexico...
, which was partially funded by the act, became the longest canal in North America and remained in operation until rendered obsolete by the railroads in the 1880s.
Background
When the state of Indiana was formed in 1816, it was still a virtual wilderness, and settlement was limited to the southern periphery where easy access to the Ohio RiverOhio River
The Ohio River is the largest tributary, by volume, of the Mississippi River. At the confluence, the Ohio is even bigger than the Mississippi and, thus, is hydrologically the main stream of the whole river system, including the Allegheny River further upstream...
provided a convenient means to export produce. The only significant road in the region was the Buffalo Trace
Buffalo Trace (road)
The Buffalo Trace was a trackway running through what are now the American states of Kentucky, Indiana, and Illinois. Originally formed by migrating bison, the trace crossed the Ohio River near the Falls of the Ohio and the Wabash River near Vincennes...
, an old, dirt bison
Bison
Members of the genus Bison are large, even-toed ungulates within the subfamily Bovinae. Two extant and four extinct species are recognized...
trail that crossed the southern part of the state. After statehood several plans had been made to improve the transportation situation, like the creation of small local roads, the larger Michigan Road
Michigan Road
The Michigan Road was one of the earliest roads in Indiana. Roads in early Indiana were often roads in name only. In actuality they were sometimes little more than crude paths following old animal and Native American trails and filled with sinkholes, stumps, and deep, entrapping ruts...
, and a failed attempted by the Indiana Canal Company
Indiana Canal Company
The Indiana Canal Company was a corporation first established in 1805 for the purpose of building a canal around the Falls of the Ohio on the Indiana side of the Ohio River...
to build a canal around the Falls of the Ohio. The national economy entered a recession following the Panic of 1819
Panic of 1819
The Panic of 1819 was the first major financial crisis in the United States, and had occurred during the political calm of the Era of Good Feelings. The new nation previously had faced a depression following the war of independence in the late 1780s and led directly to the establishment of the...
, and the state's only two banks collapsed in the immediate years that followed, ending the state's early improvement programs without having achieved much success and leaving the state with a modest debt.
The 1820s were spent repairing the state's finances and paying down the debt. A request was sent to Congress asking for the federal government to assist the young state in improving the transportation situation. Canals were at that time being constructed in several of the eastern states and New York
New York
New York is a state in the Northeastern region of the United States. It is the nation's third most populous state. New York is bordered by New Jersey and Pennsylvania to the south, and by Connecticut, Massachusetts and Vermont to the east...
and Pennsylvania
Pennsylvania
The Commonwealth of Pennsylvania is a U.S. state that is located in the Northeastern and Mid-Atlantic regions of the United States. The state borders Delaware and Maryland to the south, West Virginia to the southwest, Ohio to the west, New York and Ontario, Canada, to the north, and New Jersey to...
hoped to link to the Mississippi River
Mississippi River
The Mississippi River is the largest river system in North America. Flowing entirely in the United States, this river rises in western Minnesota and meanders slowly southwards for to the Mississippi River Delta at the Gulf of Mexico. With its many tributaries, the Mississippi's watershed drains...
System by building canals through Indiana. With their support, on May 26, 1824 Congress granted Indiana a stretch of land 320 feet (97.5 m) wide on any route a commission would map out, but the state had to promise to begin construction of a canal on the land within twelve years. Many in the Indiana General Assembly considered the grant insufficient, and requested the grant be expanded to a one mile (1.6 km) wide strip, but Congress did not act. Most of the population at the time lived along the Ohio River, and the canal would be little benefit to them, but they would bear the burden of paying for it, so their representatives opposed the idea altogether. They successfully barred the creation of a canal.
On March 2, 1827 Congress made a new offer to the state, granting a half mile wide strip and to assist in the funding of construction. This time the General Assembly accepted the offer, passing legislation on January 5, 1828 to create a canal commission to lay out the path of the canal, but no state funding was approved. The commission laid out a short six mile (10 km) canal that would become the starting point of the Wabash and Erie Canal. Funding immediately became and issue in the legislature where the lowest cost estimate was $991,000. Again the southern part of the state objected, instead favoring a canal in the Whitewater Valley, then the most populated part of the state. Governor James B. Ray
James B. Ray
James Brown Ray was an Indiana politician and the only Senate President-Pro-Tempore to succeed to become Governor of the State of Indiana. He served during the period when the state transitioned from personal politics to political parties, but never joined a party himself. Elevated at age 31, he...
objected to canals as a total waste of money, and insisted on the creation of railroads instead; he threatened a veto of any canal project. Because the state refused to help fund the project, it had to rely on the federal funds and the income the commission collected from selling lands adjacent to the proposed canal route. Slowly enough funds were collected and construction began on the route in 1831.
In 1829 the National Road
National Road
The National Road or Cumberland Road was the first major improved highway in the United States to be built by the federal government. Construction began heading west in 1811 at Cumberland, Maryland, on the Potomac River. It crossed the Allegheny Mountains and southwestern Pennsylvania, reaching...
entered Indiana. Funded by the federal government, the project laid a large highway across the central part of the state. By 1834 the opposition the canal had disappeared and the project was being constructed at little cost to the state and was proving to be profitable, so the General Assembly granted funds to the project to connect it to Lafayette. To fund the project, and in response to the closure of the Second Bank of the United States
Second Bank of the United States
The Second Bank of the United States was chartered in 1816, five years after the First Bank of the United States lost its own charter. The Second Bank of the United States was initially headquartered in Carpenters' Hall, Philadelphia, the same as the First Bank, and had branches throughout the...
, the state established the Bank of Indiana
Bank of Indiana
The state Bank of Indiana was a government chartered banking institution established in 1833 in response to the state's shortage of capital caused by the closure of the Second Bank of the United States by the administration of President Andrew Jackson...
. Bonds were issued through the bank who then sold them to creditors in London to fund the early stages of the project, but it soon became apparent that it would take far more funds than could be obtained by the bank bonds alone.
Passage of the law
Indiana General Assembly
The Indiana General Assembly is the state legislature, or legislative branch, of the state of Indiana. It is a bicameral legislature that consists of a lower house, the Indiana House of Representatives, and an upper house, the Indiana Senate...
to dramatically expand the scope of the internal improvements. At first, members only intended to continue funding the Wabash and Erie, but many representatives opposed the spending because it would have little benefit for their own constituents as the canal bypassed most of the major settlements in the state. As a compromise, additional projects were agreed on so that all the cities in the state would be connected by either canal, railroad, or turnpike. To appease the majority of the population that lived along the Ohio River, the bill called for the Vincennes Trace to be paved, making it usable year round. A Lafayette Turnpike was also approved, and to gain support of the representatives from the population centers in the far northern part of the state, the Michigan Road was also paved. To appease the railroad faction, two lines were approved connecting Lawrenceburg to Indianapolis, and Madison to Lafayette. The Whitewater Valley was the most populous part of the state, and to win over their representatives, funding was added for a canal to be built in their valley. To also get support from the central part of the state, and to connect Indianapolis to the new canals, a Central Canal was also funded. Over $2 million had already been borrowed, and the new bill proposed borrowing another $10 million. This was added to the $3 million already procured through land sales. Seeing the success of canals in the eastern United States
Eastern United States
The Eastern United States, the American East, or simply the East is traditionally defined as the states east of the Mississippi River. The first two tiers of states west of the Mississippi have traditionally been considered part of the West, but can be included in the East today; usually in...
, it was believed that the projects would be very profitable for the state and that their revenue would quickly pay back the loans, and provide the funds to complete the projects. The state's regulat revenue, primarily from property taxes, where at that time was less than a $65,000 annually, and the amount of the debt was greater than the tax receipts of the entire history of the state. The sum borrowed was equal to one-sixth of all the wealth in the state. Despite the scale of the project, the representatives from the counties on the Ohio River still largely opposed the project.
For canals, the project called for the creation of a canal from Indianapolis
Indianapolis
Indianapolis is the capital of the U.S. state of Indiana, and the county seat of Marion County, Indiana. As of the 2010 United States Census, the city's population is 839,489. It is by far Indiana's largest city and, as of the 2010 U.S...
to Ohio River
Ohio River
The Ohio River is the largest tributary, by volume, of the Mississippi River. At the confluence, the Ohio is even bigger than the Mississippi and, thus, is hydrologically the main stream of the whole river system, including the Allegheny River further upstream...
at Evansville
Evansville, Indiana
Evansville is the third-largest city in the U.S. state of Indiana and the largest city in Southern Indiana. As of the 2010 census, the city had a total population of 117,429. It is the county seat of Vanderburgh County and the regional hub for both Southwestern Indiana and the...
, called the Indiana Central Canal
Indiana Central Canal
The Indiana Central Canal was a canal intended to connect the Wabash and Erie Canal to the Ohio River. It was funded by the Mammoth Internal Improvement Act, Indiana's attempt to take part in the canal-building craze, started by the Erie Canal. $3.5 million was allocated for the project, the...
. Funding was included for another canal to connect the Wabash River
Wabash River
The Wabash River is a river in the Midwestern United States that flows southwest from northwest Ohio near Fort Recovery across northern Indiana to southern Illinois, where it forms the Illinois-Indiana border before draining into the Ohio River, of which it is the largest northern tributary...
in Peru
Peru, Indiana
-Demographics:As of the census of 2000, there were 12,994 people, 5,410 households, and 3,397 families residing in the city. The population density was 2,815.5 people per square mile . There were 5,943 housing units at an average density of 1,287.7 per square mile...
to the Ohio River in Lawrenceburg
Lawrenceburg, Indiana
Lawrenceburg is a city in Dearborn County, Indiana, United States. The population was 5,042 at the 2010 census. The city is the county seat of Dearborn County...
known as the Whitewater Canal
Whitewater Canal
The Whitewater Canal, which was built between 1836 and 1847, spanned a distance of seventy-six miles and stretched from Lawrenceburg, Indiana on the Ohio River to Hagerstown, Indiana.-Birth of a canal:...
. Additional funding was granted to the Wabash and Erie Canal for expansion to Terre Haute
Terre Haute, Indiana
Terre Haute is a city and the county seat of Vigo County, Indiana, United States, near the state's western border with Illinois. As of the 2010 census, the city had a total population of 60,785 and its metropolitan area had a population of 170,943. The city is the county seat of Vigo County and...
. The canals received the majority of the funds from the bill, because it was believed that the canals could be constructed from local materials which would help boost the local economy. A later invesitgation showed that parts of the state were entirely unsuited for the canals, and the project were doomed from the start. However, the state had not conducted surveys of the land before passing the bill to ensure their suitability.
The bill also funded, but to a much lesser degree, a railroad connecting Madison
Madison, Indiana
As of the census of 2000, there were 12,004 people, 5,092 households, and 3,085 families residing in the city. The population density was 1,402.9 people per square mile . There were 5,597 housing units at an average density of 654.1 per square mile...
to Indianapolis, another railroad from Shelbyville
Shelbyville, Indiana
Shelbyville is a city in Addison Township, Shelby County, Indiana, United States. The population was 17,951 at the 2000 census. The city is the county seat of Shelby County...
to Indianapolis, the paving of the Buffalo Trace
Buffalo Trace (road)
The Buffalo Trace was a trackway running through what are now the American states of Kentucky, Indiana, and Illinois. Originally formed by migrating bison, the trace crossed the Ohio River near the Falls of the Ohio and the Wabash River near Vincennes...
and renaming it the Vincennes Trace, and the paving of the remainder of the Michigan Road
Michigan Road
The Michigan Road was one of the earliest roads in Indiana. Roads in early Indiana were often roads in name only. In actuality they were sometimes little more than crude paths following old animal and Native American trails and filled with sinkholes, stumps, and deep, entrapping ruts...
. Most of the money from the project was gathered by mortgaging nine million acres (36,000 km²) of state owned land through agents of the Bank of Indiana to creditors in London and New York.
Governor
Governor of Indiana
The Governor of Indiana is the chief executive of the state of Indiana. The governor is elected to a four-year term, and responsible for overseeing the day-to-day management of the functions of many agencies of the Indiana state government. The governor also shares power with other statewide...
Noah Noble
Noah Noble
Noah Noble was the fifth Governor of the U.S. state of Indiana from 1831 to 1837. His two terms focused largely on internal improvements, culminating in the passage of the Mammoth Internal Improvement Act, which was viewed at the time as his crowning achievement...
was a major supporter of the bill and it passed by the overwhelmingly Whig
Whig Party (United States)
The Whig Party was a political party of the United States during the era of Jacksonian democracy. Considered integral to the Second Party System and operating from the early 1830s to the mid-1850s, the party was formed in opposition to the policies of President Andrew Jackson and his Democratic...
controlled General Assembly, although it was opposed by several prominent legislators including Dennis Pennington
Dennis Pennington
Dennis Pennington was an early legislator in Indiana and the Indiana Territory, speaker of the first Indiana State Senate, speaker of the territorial legislature, a member of the Whig Party serving over 37 years in public office, and one of the founders of Indiana. He was also a stonemason and...
, James Whitcomb
James Whitcomb
James Whitcomb was a Democratic United States Senator and the eighth Governor of Indiana. As governor during the Mexican-American War, he oversaw the formation and deployment of the state's levies...
, Calvin Fletcher and John Durmont. Pennington believed the canals were a waste of money and would soon be made obsolete by the railroads. Whitcomb outright rejected the idea of spending such a large sum of money, saying it would be impossible to pay back. The bill's passage met with statewide celebrations. Citizens saw it as a critical modernization of the state. Governor Noble considered the act his crowning achievement. Noble was concerned however that the assembly had not passed the 50% tax increase he had told them was necessary to take care of the debt the state was expecting to take.
The bill created a Board of Improvement and a Board of Funds Commissioners to oversee the projects. Two thirds of the funds were spent on the canals, with the Central Canal getting the most money. Jesse L. Williams was named chief engineer.
Enactment
David Wallace
David Wallace or Dave Wallace may refer to:*David A. Wallace , urban planner and architect*David Euan Wallace , British Conservative member of parliament*David Foster Wallace , American novelist...
to attempt to force the commission to only build one route at a time to conserve funds and avoid what was becoming seen as an impending financial disaster, but the different factions in the General Assembly could not agree on which line should be completed first.
The Wabash and Erie Canal was the most successful of the canal projects, and was profitable early on, but never to the extent expected. The Central Canal was a major failure, with only a few miles of canal dug near Indianapolis before the project was out of money. The Whitewater Canal was proceeding along well until its earthen walls and feeder dams were the victims of muskrats who burrowed through the walls, causing hundreds of thousands of dollars in damages for which there was no money to repair. At the height of the operation, over ten thousand workers were employed on the canal projects.
The rail line from Madison to Indianapolis was built much more cheaply than the canals; $1.3 million was appropriated. It was however, considerably over budget due to the increased costs of having to build a grade out of the low lying Ohio Valley onto the Indiana table land, so the project could not be finished. Had the project instead started in Indianapolis, it would have been able to earn income on freight and passengers along the relatively flat central Indiana portion, and been able to fund itself to construct the grade into Madison. The Vincennes Trace was paved from New Albany
New Albany, Indiana
New Albany is a city in Floyd County, Indiana, United States, situated along the Ohio River opposite Louisville, Kentucky. In 1900, 20,628 people lived in New Albany; in 1910, 20,629; in 1920, 22,992; and in 1940, 25,414. The population was 36,372 at the 2010 census. The city is the county seat of...
to Paoli
Paoli, Indiana
Paoli is a town in Paoli Township, Orange County, Indiana, United States. The population was 3,844 at the 2000 census. The town is the county seat of Orange County.-History:...
at a cost of $1,150,000, with another 75 miles (120.7 km) still requiring pavement when the project ran out of money.
The Panic of 1837
Panic of 1837
The Panic of 1837 was a financial crisis or market correction in the United States built on a speculative fever. The end of the Second Bank of the United States had produced a period of runaway inflation, but on May 10, 1837 in New York City, every bank began to accept payment only in specie ,...
, caused primarily by western land speculation, left the state in dire straits financially. Income shrank, and in 1838 the state's taxation revenue was $45,000, but the interest on the state's growing debt was $193,350. Governor Wallace made the startling report to the General Assembly who began to wrangle over what action should be taken. Provisions were made to make debt payments with more borrowed money, in the hope that the projects could be finished before the state's credit was maxed out. The gamble proved to be a bad decision and by 1839 there was no money left for the projects and work was halted. Work only continued on the Wabash and Erie where workers were paid with stock in the canal, and not cash, and supplies were purchased using the federal funding. At that time 140 miles (225.3 km) of canal had been built for $8 million, and $1.5 million spent on 70 miles (112.7 km) of railroad and turnpike. The state was left with a $15 million debt, and only a trickle of tax revenue.
In hope to increase revenues, the state reformed property tax assessment to be based on property values, as opposed to a set amount per acre. The modest reform boosted revenues by 25% in the following year, but was still nowhere near enough to cover the gap. Governor Wallace announced to the General Assembly in his last year as governor that the state would be insolvent within a year. The 1841 budget had over $500,000 in debt payments, plus regular spending, but revenues that year were only $72,000. The state was unofficially bankrupt. The proponents of the system had promised their constituents that taxes would not need to be increased, and that once the projects were finished taxes could perhaps be abolished because tolls would pay all the state's needs. Because of this, no provisions had been made to pay interest on the massive debt.
In 1841 Governor Samuel Bigger
Samuel Bigger
Samuel Bigger was the seventh Governor of the U.S. state of Indiana from December 9, 1840 to December 6, 1843. Bigger was nominated to run for governor because he had no connection to the failed public works program...
proposed the creation of county boards to set property values. The result of the new system led to as much as a 400% tax increase in some parts of the state. Citizens decried the draconian tax hikes, and many refused to pay. The General Assembly was forced to repeal the system the following year.
James Lanier
James Lanier
James Franklin Doughty Lanier was a entrepreneur who lived in Madison, Indiana prior to the outbreak of the American Civil War . Lanier became a wealthy banker with interests in pork packing, the railroads, and real-estate.-Biography:James Lanier was born in 1800 in Beaufort County, North Carolina...
, president of the Bank of Indiana, was sent by Governor Bigger to negotiate with the state's London creditors in a hope to avoid total bankruptcy in 1841. He negotiated the transfer of all of the projects, except the Wabash and Erie, to the creditors in exchange for a 50% reduction in the debt they held, lowering the total state debt to $9 million.
Although the debt decrease lessened the strain on the state, the debt payment was still far more than the state could afford. On January 13, 1845, the General Assembly passed a resolution issuing an official apology to the state's creditors and the state and federal governments of the United States for the repudiation of large parts of their debt. The resolution stated "We regard the slightest breach of plighted faith, public or private, as an evidence of a want of that moral principle upon which all obligations depend: That when any state in this Union refuses to recognize her great seal as the sufficient evidence of her great seal as the evidence of her obligation she will have forfeit her station in the sisterhood of States. and will no longer be worthy of their respect and confidence." The governor was directed to forward copies of the apology to each of the states. The result of the repudiation ruined Indiana's credit for nearly twenty years.
The Whigs suffered from the failure of the project and Democrat James Whitcomb, an opponent of the projects from the beginning, was elected governor. A Democratic majority had already came to power in the statehouse the year before. With their support he began negotiations to end the crisis. Charles Butler arrived from New York to negotiate on behalf of the state's creditors in 1846. The proposed deal was for the state to trade majority ownership of the Wabash and Erie for another 50% reduction in the debt, leaving the state owing $4.5 million and ending the financial crisis. Although the debt was significantly reduced, payment on it was still over half of the state budget, but the growing population of the state was quickly raising tax revenues.
Aftermath
Jeffersonville, Madison and Indianapolis Railroad
The Jeffersonville, Madison and Indianapolis Railroad was formed in 1866 as a merger between the Indianapolis and Madison Railroad and the Jeffersonville Railroad.- Genealogy :*Jeffersonville, Madison and Indianapolis Railroad...
was instantly profitable and went on to expand and connect to several other cities.
In 2008, all that remains of the Wabash and Erie is a restored fifteen mile (24 km) stretch and a few ponds. Much of the canal lands were sold to railroad companies and were excellent land for constructing rail lines. The turnpikes and railroads turned out to be the most successful projects, and some parts of them have remained in use until modern times.
Although the government lost millions, there were significant benefits for the areas of the state where the projects succeeded. On average, land value in the state rose 400%, and the cost of shipping goods for farmers was drastically decreased, and increasing the profit on their goods. The investors in the Bank of Indiana also made substantial profits, and the investments served as the start of a modern economy for the state. The act is often considered the greatest legislative debacle in the history of the state.
See also
- History of IndianaHistory of IndianaThe history of human activity in Indiana, a US state in the Midwest, began with migratory tribes of Native Americans who inhabited Indiana as early as 8000 BC. Tribes succeeded one another in dominance for several thousand years and reached their peak of development during the period of...
- Wabash and Erie CanalWabash and Erie CanalThe Wabash and Erie Canal was a shipping canal that linked the Great Lakes to the Ohio River via an artificial waterway. The canal provided traders with access from the Great Lakes all the way to the Gulf of Mexico...
- Whitewater CanalWhitewater CanalThe Whitewater Canal, which was built between 1836 and 1847, spanned a distance of seventy-six miles and stretched from Lawrenceburg, Indiana on the Ohio River to Hagerstown, Indiana.-Birth of a canal:...
- Indiana Central CanalIndiana Central CanalThe Indiana Central Canal was a canal intended to connect the Wabash and Erie Canal to the Ohio River. It was funded by the Mammoth Internal Improvement Act, Indiana's attempt to take part in the canal-building craze, started by the Erie Canal. $3.5 million was allocated for the project, the...