Erosion of Faith in the Active State

In the last two decades of the antebellum period, increasing restrictions were applied to the lawmaking role of state legislatures, especially in such public enterprise states as

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Ohio, New York, and Pennsylvania. The wish to curb legislative authority was strong everywhere. It took expression in state constitutional conventions that rewrote existing organic laws or, in states like California, that framed new documents that blunted legislative power while giving greater responsibilities to the judicial and executive branches. There was an "erosion of faith in the active state." ³³

The experience of Ohio illustrates the withdrawal of public support for legislative intervention in the economy. The General Assembly in 1825, spurred by the example of New York's success with the Erie Canal, plunged headlong into promotion of transportation. The legislators pledged the state's full faith and credit to build the Miami Canal and, four years later, the Ohio Canal. Even this prodigious effort failed to satiate demand; sections of the state not served by these projects demanded further legislative action.

The General Assembly responded to these demands in 1837 by passing the "Loan Law." It typified the way in which most other states approached the problem of financing costly internal improvements. The law required the state to give financial aid to franchise corporations building canals, turnpikes, and railroads. In effect, the state committed itself to an open-ended investment in private transportation development. The state's debt by 1840 tripled to more than twelve million dollars, and Democratic critics fastened the pejorative title "Plunder Law" onto the 1837 act.

Ohio was a rich and growing state that might well have sunk even further into debt had not the Panic of 1837 struck. The state met its commitments under the 1837 act, but the General Assembly repealed it outright in 1842 amid a wave of popular indignation toward mixed economic enterprise. The legislature then adopted a new plan, responding to improving economic conditions in the mid-1840s and renewed demands from those parts of the states that had not participated fully in the previous improvement binges. The General Assembly, like many other state legislatures, devolved responsibility for the proposed new improvements on local governments. They did so through "loan of credit" legislation, a device widely used in the nineteenth century that restricted state involvement in transportation improvements without slamming the door completely shut on the idea of mixed economic enterprise. ³⁴ Unlike a direct loan, a loan of credit involved the local government as an underwriter that issued bonds, the proceeds of which went to canal or railroad companies. Ohio's local governments snatched the opportunity given to them by the General Assembly and plunged heavily into debt.

The results were disappointing and politically explosive. In a pattern repeated throughout the nation, some rail lines were never built; others proved uncompetitive because they duplicated existing service; still others were only partially constructed. Mixed economic enterprise had gone sour.

Date: 2015-01-29; view: 740