USA > Indiana > The history of Indiana > Part 32
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Meanwhile the financial outlook of the State grew darker. 54 Rothschilds were demanding interest on their bonds, and contractors with claims, for work done, of over $1,000,000 were petitioning for relief. There was a strong party demanding that State scrip be issued to complete the system.55 The General Assembly finally passed an act, January 13, 1840, for their relief, which provided for an issue of $1,200,000 in treasury notes to pay contractors. Ex-Governor Noble had been placed on the reorganized board of im- provements and was vainly trying to disentangle its
53 Western Sun, January 28 and April 1, 1843. A letter from Dr. Coe, in Indianapolis State Journal, January 28, 1842. Letters from foreign creditors in the Indianapolis State Sentinel, June 17, 1842.
54 Western Sun, November 23, 1839.
55 Indianapolis State Journal, December 11, 1839.
425
THE INQUEST
business. The State debt was reported by the State treasurer, Mr. Nathan Palmer, as over $13,000,000.56
During the summer of 1839 a plausible plan was hit upon by the Whigs for relieving the State.57 This consisted in having the national government assume the State debts, at least to the extent of the sales of land made in the State. This plan was proposed in Congress and supported by Senator O. H. Smith, but it was killed by an adverse report of Felix Grundy.58 The same plan was advocated by Governor Bigger in his inaugural address in 1840, in which he still clung to the hope that the State might, some day, complete its system.
The legislative session of 1840-'41 was spent con- sidering plans of classification. From the outset there had been a strong party insisting on building one line at a time. Necessity had now brought the majority to that opinion. The majority of the people moreover were still in hopes that the State could finish the works ; and in this faith the classification bill of February 12, 1841, was framed. It divided all the lines into two classes, of which the Whitewater canal and the Madi- son and Indianapolis railroad formed the first, and were to be completed at once. Nothing was done under this act, and a year later, the State, in a long, disjointed act of its legislature, finally brought to an end this nightmare of State canals.59 The act provided a super- intendent for each line, who might make a contract, if possible, with private companies to complete the work. To any such company, the governor, treasurer, and auditor of State, were empowered to transfer the prop- erty of the State.
56 Documentary Journač, 1839, pt. I, Nos. 1 and 8.
57 Indianapolis Journal, August 11, 1840.
58 See speech of Grundy, Congressional Globe, 1839-40, Ap- pendix, 110 and 223.
59 Laws of Indiana, 1841, ch. 1.
426
HISTORY OF INDIANA
The Whitewater canal was turned over in 1842 to a company organized to complete it.60 It was finished to Brookville in 1843, to Connersville in 1845, and to Cambridge City in 1846. The valley was too steep, and it was found impossible to hold the canal. A flood in 1847 did $100,000 damage, and the repairs for a single flood in the next year cost $80,000. The Whitewater Valley railroad paralleled it in 1865 and forever put it out of business.
The Madison railroad was leased till June 1, 1840, to Branham & Company, the State to get sixty per cent of the gross earnings.61 Sering and Burt operated it the following year for seventy per cent. The State then operated it till February 3, 1843, when it was turned over to the Madison and Indianapolis Railroad Company. There followed an era of great prosperity for it. Its total receipts in 1850 were $687,619, but poor management and manipulation for control, to- gether with the construction of the Indianapolis and Jeffersonville railroad, ruined it.62 Although the State had expended near $2,000,000, it agreed to accept $200,000, to be paid in four years. As no part of this had been paid in 1855, a committee of the General As- sembly was appointed to investigate. It reported in favor of compromising for not less than $75,000, to be paid in State five per cent stocks, then worth about thirty cents on the dollar.
The State sold the Central canal in 1859 to Shoup, Raridan & Newman for $2,425.63 This company claimed valuable lands lying near the canal in Indian- apolis, and there followed long and expensive litiga-
60 History of Dearborn and Ohio Counties.
61 Ohio Falls Cities, vol. II, p. 460.
62 Documentary Journal, 1856, pt. I, No. 5.
63 Laws of Indiana, 1859, ch. 110.
427
WRECKAGE AND SALVAGE
tion.64 The company later sold out to the Indianapolis Water Company.
In addition to this the act of 1841 provided for a State agent to take charge of the State property in liti- gation in the east. The first of these agents was Michael G. Bright, of Madison. The claims due the State on "hypothecated" bonds (sold on credit or given as security) aggregated $3,000,000.65 Although the State agent worked on these claims many years he real- ized little more than enough to pay his expenses. His report shows that bonds had been issued to the amount of $15,000,000.66 From these the State had realized $8,593,000 in cash, while $4,000,000 was represented by worthless securities. There remained a balance of over $2,000,000 embezzled by various State officers and agents. 67
64 Fifty-third Indiana Reports, 575.
65 Governor's Message, Documentary Journal, 1841, No. 7.
66 Documentary Journal, 1842, pt. I, No. 2.
67 Committee report by J. C. Eggleston, Senate Journal, 1841,
or Documentary Journal, 1841, pt. I, No. 6. See also House Journal, 1841, 33, and Documentary Journal, 1841, 15, for report of House Committee, composed of Edward A. Hannegan, John D. Defrees, William J. Brown, Joseph Ritchey, John S. Davis, Ethan A. Brown, Joseph G. Marshall, and John S. Simonson. They recommended that suit be filed against Stapp and Coe at once for malversation.
See also Documentary Journal, 1842, 1; Stapp's Report, Docu- mentary Journal, 1841; Noble's Report in the same; also Report of Internal Improvement Board, Documentary Journal, 1837, No. 12, for an instance of the board's method of doing business. The State Agent's first report to the Governor, December, 1842, is sufficient commentary on the dealings of the fund commissioners : The Cohen Brothers failing, owed the State $312,000. In pay- ment of this, they gave the Fund Commissioners their personal notes for $65,000; cash, $14,715; bonds for Winchester and Pontiac railroad for $46,644; 751 shares of stock in the Baltimore and Ohio railroad for $26,000; 1,000 shares in American Life and Trust Company ; 500 shares in the General Insurance Company, and 230 shares in the Canton Company, all for $50,000; a sec- ond mortgage on 52 lots in the city of Brooklyn, with a sperm and candle factory, at $65,000; second mortgage on 565 lots in the second ward of New York City and 14 acres of land in Pough-
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428
HISTORY OF INDIANA
§ 70 THE SETTLEMENT WITH THE CREDITORS
THE Wabash and Erie canal was a more difficult problem to dispose of than any of the other works of
keepsie for $60,000; an interest in some mining stock for $1,000. It is unnecessary to say this was all worthless property,
INDIANA'S BONDED DEBT IN 1841
Date of
Loan Amount
To Whom Sold
Inter- Sale est Price
Cash
1832
$100,000
J. D. Beers Company
.06
113
$113,260
1834
500,000
Prime, Ward & King
.05
101
505,250
1835
300,000
Prime, Ward & King
.05
102
306,150
1835
65,257
Secretary of War
.05
107
69,825
1835
200,000
J. J. Cohen & Bro.
.05
105
210,000
1835
400,000
J. J. Cohen & Bro.
.05.
104
418,000
1835
90,000
Prime, Ward & King
.05
104
94,250
1836
100,000
J. J. Cohen & Bro.
.05
100
100,000
1836
2,742
Secretary of War
.05
10
2,934
1836
440,000
Biddle and Morris C. Co.
.05
101
444,400
1836
400,000
J. J. Cohen & Bro.
.05
100
400,000
1836
589,000
Biddle and Morris Can.
.05
101
594,890
1836
100,000
Law. & Indpls. R. R. Co.
.05
100
100,000
1837
30,000
Christmas, Livingstone
.05
100
30,000
1837
2,000,000
Morris Canal & Bank Co.
.05
102
2,034,000
1837
121,000
Law. & Indpls. R. R. Co.
.05
100
121,000
1838
40,000
Staten Isl. Whaling Co.
.05
100
40,000
1838
300,000* Western Bank of N. Y.
.05
100
60,000
1838
100,000
Erie County Bank
.05
100
100,000
1838
100,000* Detroit & Pontiac R. R.
.05
100
10,000
1838
60,000 Staten Isl. Whaling _ . 05 100 $
$ 60,000
1838-9 4,702,000 Morris Canal Co.
.05
90 $2,136,376
2,385,383
1839
294,000 Indiana State Bank
.06 100
294,000
1839
200,000 Merch. Ex. Bank
_ . 05
96
192,000
1839
35,000 Bank of Commerce _
.05
96
33,600
1839
47,000 Bank of N. America_ . 05
88
1,360
40,000
1839
221,000 Madison Company
.05
SS
194,480
1839
95,000 Madison Company
.05
88
83,600
1841
30,000 Various persons
.07 100
30,000
1841
404,000 Various persons
.05 100
131,175
1841
665,000 Various persons
144,697
$12,751,000
$8,732,205 $3.040,972
*$240,000 still due; 1$90,000 still due.
There was nearly $2,000.000 in bonds out and unaccounted for. The fund commissioners had taken collateral securities for money
1839
20,000 Binghampton Bank_ . 05 88
17,600
429
THE WABASH AND ERIE
the State. In the first place, the State had accepted a large donation of land from the United States on con- dition that it build a canal uniting at navigable points the waters of the Wabash and Lake Erie. Although the State did not fear any punitive measures on the part of the federal government, still the violation of the obligation would remain a disgrace to the State. In the second place, the State had covenanted with Ohio to complete a part thereof as a joint undertaking. Ohio had completed her part of the canal, carrying it to Maumee Bay, Lake Erie, in 1843. At the instance and insistence of Indiana, Ohio had built seventy-one miles of canal whose value depended very largely on Indiana's fulfilling her obligations.
The Wabash and Erie was opened, as stated above, from Lafayette to Lake Erie, in 1843, and everything indicated that it would be a useful and money-making property. The people, as well as their creditors, had looked forward hopefully to the opening of the canal to the lake. They expected an income from it that would go far toward relieving the State of its financial troubles. The bondholders, who had received no inter- est on their bonds for three years, expected to receive their interest again regularly. Both parties were dis- appointed. Although the tolls did increase five hundred per cent, they still fell short of paying the running expenses of the canal. The year 1844 brought no brighter prospects. A flood closed the canal for two
still due on bonds "hypothecated." This list of the State's prop- erty furnished much amusement for facetious members. It in- cluded among others: Winchester & Potomac railroad bonds for $44.000; Baltimore & Ohio, and Baltimore & Susquehanna rail- road bonds for $78,880; second mortgage on 184 New York City lots, $25,000; second mortgage on forty-eight Brooklyn lots, $150,- 000; second mortgage on land in Poughkeepsie, $30,000; debts on wildcat banks of western New York, $240.000; Detroit & Poto- mac railroad bonds, $90,000; Erie Company bank, $587.000; Bing- hampton bank, $58,200; Hiram Pratt, $35,600. (See table opp. p. 75, Documentary Journal, 1841-'02.)
430
HISTORY OF INDIANA
months. The receipts for the year fell far short of re- pair expenditures, and the bondholders saw this hope depart, as all others, without bringing any money.
The General Assembly of Indiana and many of the citizens were loud in their protestations of honesty, and there is no doubt public sentiment favored the ulti- mate payment of every dollar of the State debt. Gov- ernor Whitcomb said in his messages of 1844 and 1845, that the great mass of his fellow citizens were willing and anxious to meet all their obligations. That with them it was not a matter of inclination, but one of ability.68 That some arrangement would be made with their creditors and the tarnished reputation of their State restored, he would not permit himself to doubt.
By a joint resolution January 13, 1845, the General Assembly solemnly expressed its opinion on repudia- tion: "We regard the slightest breach of plighted faith, public or private, as an evidence of a want of that moral principle upon which all obligations de- pend : that when any State in this Union shall refuse to recognize her great seal as the sufficient evidence of her obligation she will have forfeited her station in the sisterhood of States and will no longer be worthy of their respect and confidence." The governor was directed to transmit copies of this resolution to all the States. 69
In speaking of all these fulsome protestations, State
68 House Journal, 1845, 19.
69 Laws of Indiana, 1844, 92. On the other hand, in this same message, page 18, the Governor says: "The opinion has hitherto been nearly, if not quite, universally held among our citizens, as well as others acquainted with our conditions and re- sources, that it is beyond the power of our state, at present, to fully meet our obligations. Even the plan submitted at our last session of the Senate, virtually made that concession by propos- ing to convert our bonds, bearing five per cent. interest into stock bearing only three. No plan that has been mooted for a resump- tion of payment, even the most stringent, has contemplated a full and immediate payment."
431
BANKRUPTCY
Auditor Horatio J. Harris said : "It would be fortu- nate for the reputation of the State as well as gratify- ing to her creditors should this evidence consist here- after of some definite action, rather than general ex- pressions of legislative opinions." Not one of these demagogues who harangued about State honor ever showed enough courage to vote a measure to retrieve the State's honor. They feared the sullen resentment of the outraged citizen voters who felt that somehow the State had been swindled and that it did not justly owe the debt.
Relying on this sentiment, widely and loudly ex- pressed, and still hopeful of getting their money, the bondholders banded together and hired Charles Butler, an attorney of New York, to look after their claims. After visiting Michigan on a like mission, he reached Indiana in the summer of 1845.70 His plan was to rally the anti-repudiation sentiment by means of a series of public addresses. He recognized it as useless to demand an immediate and unconditional payment of the bonds. The resources of the State and the condi- tion of the currency, demoralized by floods of treas- ury notes, bank scrip, "white dog," "blue dog," and "blue pup," all depreciated from forty to sixty per cent, were such that it is doubtful if this could have been done. He began then by flattering the people on the Wabash with the hopes of finishing that canal to the Ohio river. Whether he believed the canal, so im- proved, would be a paying property, or whether he wished merely to revive the courage of the people, is not known. In the face of the facts as he knew them, the latter seems to have been his intention, hoping in the future to get the State to pay the bonds in full and take charge of the finished canal.
He began his campaign at Terre Haute, where in an address in May, 1845, he proposed to divide the
70 Indiana Democrat, Dec., 1845.
432
HISTORY OF INDIANA
interest on the State debt into two parts, one of which should be paid by the State, the other from the reven- ues of the canal. These views were transmitted to the General Assembly in a memorial. The question of the settlement of the debt had some influence on the fall elections, but not so much as was hoped. There was a general restlessness among the people, under the charges of repudiation then being made against the State, but no sweeping sentiment for full payment could be aroused.
It was arranged to have Mr. Butler meet a joint committee of the General Assembly, as it was under- stood he had a specific proposition to make. On De- cember 19, Mr. Butler met the committee and sub- mitted his plan as follows: First, For arrears of in- terest, the State should give certificates payable by 1851; or if not paid then, to be funded into five per cent stocks. Second, The State should pay, by taxation, three per cent interest on the debt up to 1851. Third, All arrears of interest up to 1851 to be funded at five per cent. After 1851, three per cent interest to be paid promptly by tax and two per cent from tolls of the canal. It was understood that the State was to finish the canal to the Ohio river.71
In a message, December 27, 1845, the governor urged the General Assembly to accept Butler's proposi- tion. It would place the credit of the State on a certain basis ; it would aid returning prosperity ; and it would turn the tide of settlement to our State again, thought the governor.72
It did not take the joint committee long to come to an agreement. On Christmas day it notified Mr. Butler that it could not accede to his demands and inquired if he had anything better to propose. The attitude of the
71 Indiana Democrat, Dec. 23, 1845. Also Documentary Jour- nal, 1845, pt. II, No. 21.
72 Documentary Journal, 1845, No. 8, 18.
433
REPUDIATION
committee was not at all creditable. They seemed to be negotiating for a bargain with their own creditors rather than trying to uphold the honor of the State.
The next day Butler was again before the commit- tee and made what is known as his second proposition. It differed very little from the first. Elaborate tables were submitted showing how the State could meet all its obligations. One could not fail to agree with Butler, that the State was able to meet all its obligations hon- orably, except for two reasons. These were, first, the demoralized condition of the currency, and second, the leadership of a clique of oily politicians. Neither of these reasons is creditable to the State. A State levy of 70 cents would have paid principal and interest. Ohio was meeting her debt in that way. Indiana would have done no less had her General Assembly risen to the occasion.
A bill was finally drawn along the lines of Butler's propositions and introduced in the Senate by Joseph Lane73-the same man who had declared he would cut cordwood to pay his part of the debt. The measure engrossed the attention of the Assembly completely. The House was Democratic, the Senate, Whig. There was little straightforward policy manifested in either branch. Both parties finally agreed to postpone action on the bill till after the party conventions on January 9. Even after both parties in convention had endorsed the Butler bill, the Democrats in caucus decided to refer the whole matter to the people in the August elections. The governor and leaders of the party succeeded in breaking the Democratic caucus, and, January 19, 1846, Governor James Whitcomb attached his signature to the bill.
General satisfaction was manifested throughout the State at what was felt to be a final adjustment of the State debt. Butler left for New York, February
73 Indiana Democrat, Jan. 6, 1846.
434
HISTORY OF INDIANA
20, and the New York papers generally expressed ap- proval of the settlement.74 The long law of thirty-five sections was very carelessly drawn, and was soon found to be impossible of execution.75 The bondholders had lost enough money without investing the $2,225,000 called for under the law. No bonds were surrendered under it.
When the General Assembly convened again in De- cember, 1846, Mr. Butler was on the ground demand- ing some amendments. A bill purporting to be an amendment was drawn, and after a long struggle re- ceived the governor's approval January 27, 1847.76 The new bill was founded on the option contained in the thirty-second section of the previous law. Its general effect was to divide the outstanding bonds of the State, except those known as the Bank bonds, into two equal parts. One of these parts, with its accumulated inter-
74 Indiana Democrat, April 14, 1846.
75 It provided that the bonded debt should be refunded en- tirely. The old five per cent bonds were to be surrendered and in their stead new State registered stocks created. First, there should be issued State two and one-half per cent twenty-year registered bonds equal in amount to the face of the old bonds. Second, the arrears of interest should be funded, at the rate of two and one-half per cent from 1841 to 1847, inclusive, in like bonds as the principal. The State agreed to pay interest on the above bonds at the rate of two per cent if a State tax levy of 25 cents on the $100 and a poll tax of 75 cents should furnish sufficient funds after the ordinary State expenses were paid. The remaining one-half per cent and any arrears by reason of the failure of the above tax levy to bring in sufficient revenue were to be funded or paid as the State should choose January 1, 1853. For the payment of the remaining two and one-half per cent of annual interest the bondholders were to look entirely to the Wabash and Erie canal. In order that the canal might be more productive, the bondholders were given permission to raise a sum of not less than $2.225,000 to complete the canal to the Ohio river. The canal was to be placed in trust by the State, and its earnings and land grants set aside and pledged to the payment of the bondholders. These last loans were not to become a debt chargeable against the State, though in this law the State re- mained pledged to pay the principal of the entire State debt.
76 Laws of Indiana, 1846, ch. 1. Elbert J. Benton (Wabash
435
SETTLEMENT WITH CREDITORS
est, was assumed by the State, and the other was made a debt on the canal for which the State assumed no further responsibility. The canal was deeded to the bondholders and they were forced to accept the com- promise.77
The outstanding bonded debt of the State, July 1, 1847, was $11,048,000.78 These bonds were held in New York and London and the debt was always re- ferred to as the foreign debt, in distinction from the State scrip and treasury notes, which were called the domestic or floating debt. The interest on the bonds had not been paid for six years, and the arrears added to the principal brought the total foreign debt up to $13,120,692.
If Indiana can be charged with repudiation, it must be done on account of this law of 1847. No one will for a moment contend that the bondholders would have preferred the arrangement of 1847 to the payment of the bonds according to their tenor. The bonds at this time were never quoted higher than thirty cents on the dollar. Yet they were not depreciated more than the debt which the United States paid in 1789. Even at thirty cents, men like John Jacob Astor and the elder
Trade Route, 73) calls this bill a "few minor modifications," and leaves the impression that there was no opposition worth con- sidering. In fact, the fight on this was longer and more acrid than on the other.
77 The conditions of the compromise close with the following notice to the bondholders: "The State will make no provision here- after to pay either principal or interest on any internal improve- ment bonds until the holder shall first have surrendered such bonds to the agent of the State and shall have received in lieu thereof certificates of stock as provided in the first section of this act. Anything in this act to the contrary notwithstanding." This proviso makes the law of 1847 very different from the harmless one of 1846. It must also be kept in mind that the provisions of this law are not the same as those laid down in Butler's first or second proposals.
78 Documentary Journal, 1847, 102. Report of Agent of State.
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436
HISTORY OF INDIANA
Belmont bought Indiana bonds and exchanged them for the new five per cent stocks, and made a good profit. Two facts stand out prominently. The State made a bargain with its creditors, and its creditors lost half their investment money. Two parties were deeply wronged : the persons who had invested their earnings in State bonds expecting to enjoy in their old age the comforts of a certain income;79 and the citizens of In- diana who had entrusted their credit and honor to their government, and had been robbed of both. For it can- not be denied that the reputation of Indiana suffered greatly in this transaction. Nearly all the Indiana bonds then outstanding had been taken out of the State's hands wrongfully by being sold on credit in the face of a law to the contrary. More than one-third of the bonds had been secured from the State in the first instance by criminal collusion, the agent of the State being at the same time a member of the firm of brokers who took the bonds, sold them, and failed to pay the State the proceeds. The State of Michigan was simil- arly swindled, and promptly repudiated the bonds so obtained. This step was seriously considered in the Indiana legislature during the session of 1845-'46, and might have been done but for the opinion of the State agent, Michael G. Bright, who advised the General As- sembly against it. The correspondence of the governor for years afterward contains evidences of the bitter- ness of the bondholders on this subject.
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