Indiana Mammoth Internal Improvement Act - Background

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. 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 (98 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 an 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.