History Lessons from Canals

By Lana Christian

One of George Washington’s dreams was to connect the United States via its waterways and a series of canals. As he mentally connected the dots between the St. Lawrence, Potomac River, and Lake Erie, he could see the Ohio River linked with the seaboard.

Canal projects large and small were undertaken. When New York City was connected to the Hudson River in 1825, it ignited a great western migration. Canals became the superhighways of the nineteenth century.

A particular challenge was getting from Ontario, Canada, to the eastern portion of the Northwest Territory (present-day Ohio and Indiana). Traders could get to Lake Erie, then travel southwest down the Maumee River. But then they’d have to travel over land to the Wabash River. The lure of a complete water route to the Ohio River was great.

In March 1827, Congress granted more than 500,000 acres of land to Indiana, specifically for building such a waterway. Work had to be completed within 20 years.

Indiana tackled the project with gusto, enacting the Mammoth Internal Improvements Act in 1836. (Yes, that really was the name of the Act!) A huge canal system was designed to slice across Indiana from its northeast corner to its southwest corner. A crisscross of intersecting canals (the biggest being Whitewater canal) would be built as well, to provide greater access to the landlocked central area of the state.

Unfortunately, the project was never fully financed. Fund commissioners were told to borrow $10 million dollars to fund the project. At that time, that represented one sixth of the state’s entire wealth.

By 1841, Indiana couldn’t even pay the interest on its internal improvement debt. The state was bankrupt. London and New York creditors appointed a lawyer to negotiate repayment. Six years later, an agreement was struck where the state would repay approximately half of the debt, plus additional compensation to bondholders.

As a result of this, Indiana drafted a new state constitution in 1851 that prohibited the state from going into debt. That still guides the State of Indiana to this day.

Yes, Indiana continues to have a balanced budget. It doesn’t come easily. Partisan disagreements on how, when, and where to spend money are a part of every legislative session. But the state still balances its budget every year.

Indiana’s hardship taught it a valuable lesson. Hopefully the U.S. government can learn the same — without going bankrupt first.