Economy of Indiana - History

History

Indiana's earliest economy revolved around trade with the Native American tribes in the northern and central parts of the state, which were connected by rivers to the Great Lakes, and ultimately the Atlantic. The state government established a trading monopoly with the tribes who became the primary purchasers of Indiana settler's goods. Although the basis was established in the Northwest Ordinance and well known, economic growth was slow to begin in the state, primarily due to the inability to ship goods to market affordably. After the Mississippi River was opened to American traffic following the Louisiana Purchase, agricultural grew rapidly in the state, but was still hampered by the lack of internal transportation in the state.

The Indiana General Assembly attempted to remedy the transportation system in the late 1810s, but was thwarted by the Panic of 1819 which caused the state's only two banks to collapse. A second attempt was launched in the early 1830s leading to the passage of the Mammoth Internal Improvement Act. This state-funded development of canals, railroads and roads statewide resulted in a large rise in land and produce values, but it too was thwarted by the Panic of 1837; although this spending bankrupted the state, the foundation it provided allowed Indiana to grow into one of the leading farming states by the 1850s.

The 1860s and the American Civil War led to the rapid completion of the state's railroad system and the growth of small industry. Building railroad cars and glass manufacturing became the state early leading industries, established primarily in the central parts of the state. Southern Indiana, however was adversely affected by the war and never regained it economic dominance in the state. Prior to the war, the largest cites were along the Ohio River and had a thriving trade with the south and large ship building centers that languished in the war. In most of the state, the war led to a rise in the value of farm produce and significantly raised the state's standards of living.

The post-Civil War period was a difficult time for industrial workers in Indiana. Like workers elsewhere in the country, Indiana miners and factory workers were often underpaid. They worked under dangerous conditions, and they went jobless during economic recessions, such as those of 1873 and 1893. Many workers joined the farmers in supporting the Greenback Party and similar movements. Some workers joined labor organizations such as the Knights of Labor, the American Federation of Labor, the United Mine Workers of America, and the American Railway Union, which was led by Eugene V. Debs of Terre Haute.

Beginning about 1890, Indiana was swept by a second wave of industrial growth that transformed it into a predominantly urban, industrial state by 1920. Growth began with the Indiana Gas Boom in mid 1880s leading to rapid development in the east-central parts of the state. The trend continued during the period of expansion fed by the cheap access to fuel and the focus of growth moved primarily to heavy industry, especially in the Calumet region of northwestern Indiana. Before 1889, when a large oil refinery was built at Whiting, the Calumet was a sparsely populated strip of swamps and sand dunes. In 1905 the Calumet received its major push to development when the United States Steel Corporation decided to locate its Midwestern mills there. The next year U.S. Steel laid out the city of Gary, naming it after its chairman of the board, Elbert H. Gary. By 1920 the Calumet was one of the leading industrial centers in North America.

Indiana farmers prospered in the early years of the 20th century and during World War I (1914–1918). After the war, however, inflated costs and declining prices contributed to a farm recession that continued through the 1920s. Industrial workers fared better, although there were bitter strikes in Indiana’s coal and steel industries and on the railroads in the years just after the war. The 1930s, a time of worldwide economic depression, were difficult for most Hoosiers. There was widespread unemployment, particularly in the southern part of the state more than half the residents were without jobs during the worst years. Federal and state aid programs were undertaken. In January 1937, natural disaster added to Indiana’s difficulties when the Ohio River flooded much of southern Indiana. Hundreds of Indianans died in the flood, and property damage was estimated at hundreds of millions of dollars. Indiana’s Gross Domestic Product, like that of the nation, underwent a resurgence during World War II (1939–1945). A great range of goods was produced in the state’s factories, including tanks, airplanes, guns, and communications equipment.

Continued prosperity marked the postwar era. Manufacturing remained the leading economic activity, and farming continued to become increasingly mechanized. Although farm production increased, the number of farm workers declined. The total number of farms also decreased, often because small farms were merged to form larger, more efficient units. Indiana’s economic growth slowed during the national economic recessions of the 1980s, mostly because of a deep slump in production by heavy industry. By 1983, the state’s unemployment rate was about 12 percent, one of the highest in the nation. In the early 1980s, many farmers went deeply into debt and hundreds of farms went out of business. The state’s economy recovered in the late 1980s as some manufacturing industries made comebacks and as community, social, and personal service industries grew rapidly, and economic diversification occurred.

During the early years of the 1990s, Indiana’s economy continued to improve as service activities grew in the larger metropolitan areas and the state’s pharmaceutical and agricultural chemical industries underwent major expansions. Already Indiana had replaced Pennsylvania as the nation’s leading steel producer, and the port commission’s deepwater port on Lake Michigan, as well as its two river ports in southern Indiana, developed substantial international and national traffic. Indiana’s generally strong economy generated record low unemployment figures and a large budget surplus, considerably in excess of $1 billion. The state’s income was augmented by revenue from newly instituted venues for gambling (at racetracks and riverboat casinos) and a state lottery begun in the late 1980s.