The Indiana Mammoth Internal Improvement Act was a 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 $10 million to spending and funded several projects, including turnpikes, canals, 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 the interest payments, 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 and only two were finished by the creditors who took them over.
The act is considered one of the greatest debacles in the history of Indiana. Public blame was placed on the Whig party who had been in control of the General Assembly and the governorship during the passage of the act and the subsequent bankruptcy, though 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 Indiana, 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.
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 River 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.Dunn, p. 382–383, 386Kleber, p. 203 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.ISL, pp. 144–158
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 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.Eseray p. 353
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.Eseray, 354Dunn, p. 388
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 canal that would become the starting point of the Wabash and Erie Canal. Funding immediately became an issue in the legislature where the lowest cost estimate was $991,000.Eseray, p. 357
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.Eseray, p. 358Shaw, p. 135
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 to 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.Dunn, pp. 390–392
Passage of the law
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.Eseray, p. 361–364
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.Eseray, p. 361–364
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 regular revenue, primarily from property taxes, were at that time less than $65,000 annually, and the amount of the debt was greater than the tax receipts of the entire history of the state.Dunn, pp. 398–404 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.Shaw, p. 137 A later investigation 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.Dunn, p. 408 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.Woollen, p. 82
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.Shaw, p. 138 Jesse L. Williams was named chief engineer.Shaw, p. 139
Enactment
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.Eseray, p. 367
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.Dunn, p. 399 At the height of the operation, over ten thousand workers were employed on the canal projects.