Daily Archives: 5 March 2011

Railroads and State Debt, 1839

From A Most Magnificent Machine: America Adopts the Railroad, 1825-1862, by Craig Miner (U. Press of Kansas, 2010), pp. 79-81:

The progress of the years preceding the 1837 Panic surely would resume, many wrote. Apparently insurmountable obstacles had been overcome. The “howling wilderness” was disappearing. “McAdamized highways, railroads and canals, have pervaded the country in every direction, giving free circulation to the products of mechanical skill, of art, and of labor, and animating the whole, immense, diversified country, with every sort of active business and intelligent enterprise.” That was no mean feat. No wonder, however, that types arose who tended to abuse the opportunity—people all too “shrewdly alive to their own interest.” There came a “universal mania” for wealth. “The old beaten track of plodding for our gains, was forsaken and contemned by the restless anxiety for change, and all seemed to engage in the alluring game of running hazards.” A long period of peace and prosperity emboldened them, as though the boom would never end. Yet there was wide consensus that the achievement was impressive. “We take the ground,” wrote a Baltimore man, “that the laborer who turns up a spadeful of earth in excavating a canal, or strikes a blow in constructing a railroad, becomes, by so doing, one of the builders up of a system, the benefits of which will endure so long as the continent on which we live shall endure.”

In the wake of the panic came a long and related crisis over state debts, a large proportion of which had been contracted in order to build railroads. The national debt was nonexistent; in fact there was often a surplus, but it was different with the states, which had borne the brunt of subsidizing rail finance. An Ohio editor estimated in 1839 that eighteen states had authorized public stock for canals and railroads amounting to $170 million, “which is as much a mortgage on our farms as was the national debt.” Interest ran about $12 million per year. It was ridiculous, the regional press thought, that Ohio had an agent in Europe to try to arrange more debt. The Ohio state legislature at its last session had, according to one critic, done more to “degrade the State abroad, and beggar its people at home, than the accumulated energy and labor of years can undo.”

Maybe it was not all bad, a New Yorker commented. Speculation had created 3,000 miles of railroad. “The parent may die, but the offspring will live to enlighten and bless.” A Massachusetts man argued that the Western Railroad there would be completed eventually and would be a good thing. Delays required credit, and credit required the payment of interest and the raising of taxes, but this was not “inconsistent with the business-like character of a business people.” The states received many indirect benefits from the railroads that did not show on their balance sheets proper.

To some that seemed cold comfort. People had been too extravagant in generally prosperous times, importing, for example, $41 million per year in foreign wines—half as much as was spent for railroad iron. Depressions came from overtrading. People seemed to have commenced business on too large a scale. There was a penchant for outright gambling. “Confidence has been destroyed; public and private faith and credit have been grossly abused, and foul deeds of iniquity have been committed.” Public business seemed to be influenced primarily by private business lobbies, and no producers appeared in proportion to the growth in borrowing. The credit of the states had been all too good. New York owed $23 million in 1839, Louisiana $23 million, Pennsylvania $27 million, Maryland $11 million, Massachusetts $4 million, Alabama $10 million, and Tennessee $7 million. And states were adding debt all the time. “Our credit is so good that it will ruin us, if we do not stop and think of the consequences of so severely testing it…. Are we not getting in jeopardy the dearest interests, the honor and independence of our country, and selling our glorious national birthright for a mess of pottage?”

Leave a comment

Filed under economics, industry, travel, U.S.

New Hampshire Skeptical of Railroads, 1840s

From A Most Magnificent Machine: America Adopts the Railroad, 1825-1862, by Craig Miner (U. Press of Kansas, 2010), pp. 119-120:

Why were railroads so great? Who had benefited? When the Eastern [Railroad from Massachusetts to Maine] was proposed, stated one letter to the editor, people along the projected route in Massachusetts and New Hampshire were “lunatic” on the subject. “One would suppose that there was no other road in existence, that indeed to them belonged the discovery of the power of steam, engines, Railroads, &c, and that their fame exceeded the fame of any and all ancient and modern cities. It was said that the old men of the city assembled at the depot in the morning, and really forgot to go to their meals.” Yet by 1841 most of the towns that had been courted had become minor way stations, hearing only the buzz of the engine on the way to Boston. It seemed a bad bargain altogether.

New Hampshire debated the right-of-way issue into the mid-1840s. Enterprise should have full scope, wrote the paper in Concord, but the point in dispute was the right of the legislature to empower a private corporation for private gain to take from a man his land against his will. In that regard the New Hampshire debate was much like the modern controversy over the proper uses of the eminent domain power, and here the state did not regard railroads as a true public use. The chief purpose of a railroad, the legislators thought, was to make money, not to serve the public. “If the constitution must be violated and the rights of individuals molested, it seems no good citizen can favor any project, which shall encroach upon the rights of freemen.” This led one commentator to write in dismay that he was certain that in the state’s “lamentable” stance toward railroads, it had “shut itself out from one of the most beneficial improvements of modern times.”

Inevitably, the state eventually had more or less its share of railroads, and it learned to do what was necessary to accommodate them politically and socially. But New Hampshire remained proud that it had not swallowed the whole package. An editor in Portsmouth noted that credit could not be separated from character: “Integrity, industry, virtue, and character it is that commands the capital which changes the sailor boy in his tarpaulin to the captain of the beautiful packet ship.” So at least it should be. New Hampshire retained its strict laws about individual liability and its narrow interpretation of eminent domain for some years.

The Albany Argus wrote in 1841, in the wake of the Panic of 1837, that “New Hampshire may well congratulate herself, that she has never embarked in any of the wild and visionary schemes of internal improvements, which have plunged other states into such an embarrassing and wretched state of want and indebtedness. She has escaped the bitterness of learning by experience the folly of a large community attempting to carry on public works with prudence, economy or even honesty.” Would that Pennsylvania and Indiana, burdened with state works not paying even their current expenses and repairs on state railroad systems, not to mention the debt service, had done the same. The manic policy of the rest of the country was, according to some in New Hampshire, the “high road to beggary.”

Boston thought such a policy was a “dreaded obstruction” to its enterprise. It was suspicious of presidential candidate Franklin Pierce just because he was from New Hampshire.

Leave a comment

Filed under economics, industry, travel, U.S.