State Promotion of Economic Enterprise

The release of creative economic energy that characterized state economic policy in the prewar years grew stronger after Appomattox. State mercantilism, in which each state sought through the law to bolster its economic fortunes, remained vital, but so too did prewar memories of fiscal debacles brought on by overly generous state aid. Mid- nineteenth-century state constitutional restrictions on public aid to private enterprise persisted well into the twentieth century, but in spite of these every state legislature devised legal means to compete with the equally ambitious efforts of other states anxious to attract new enterprise.

State legislatures crafted new ways to subsidize railroad development. One of the favorite methods was the local aid bill. These laws empowered municipalities and counties to underwrite through tax-secured bonds the stock subscriptions of railroad companies. In other instances local governments simply subsidized developers, on the promise that a rail line would reach them. Entrepreneurs went where capital was available. The New York & Oswego Railroad, for example, "meandered over the upstate New York countryside in search of local aid, finally touching (in both senses of the word) some fifty communities with 250 labyrinthine miles of track." ⁶

Local aid came in other forms. For example, Illinois in 1869 gave tax advantages to local governments that issued railroad bonds. Between 1866 and 1873, twenty-nine state legislatures approved over eight hundred proposals to grant local aid to railroad companies. The three leaders ( New York, Illinois, and Missouri) authorized over $70 million worth of aid. ⁷ In some instances, state governments undertook internal improvements that directly benefited the railroads. Massachusetts in 1865 financed the five-mile-long Hoosac Tunnel through the Berkshire Mountains that gave Boston a direct line running to the West.

During the 1870s, however, most direct and local aid came to an end. Laissez- faire ideology had little if anything to do with this change in policy. Rather, state legislators responded to public sentiments that linked hard economic times with overly ambitious state programs. Large-scale bankruptcies, swindles, and defalcation on bonds following the Depression of 1873 punctuated state promotion of railroads. When times were bad, legislators withdrew from promotional activity; when times improved, they returned, although direct aid became less and less significant. The railroads continued to grow, of course; they expanded from 93,000 miles in 1880 to 260,000 miles in 1920. All of this growth was brought about from company earnings and private investment, although earlier direct state support was crucial to the economic takeoff of railroads.

State promotional activity came in other forms. Bureaus to gather data on various aspects of the marketplace flowered in the late nineteenth and early twentieth centuries.

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Massachusetts in 1869 created the nation's first bureau of labor to gather statistics in order to monitor social conditions among workers, but corporate managers, enamored with the concept of scientific management, snapped up these same data to evaluate the labor market. Promotional and regulatory goals in the states were far more complementary in practice than laissez-faire theory suggested.

Date: 2015-01-29; view: 767