James Glass: Government pumping money into the economy is nothing new

The CARES Act just enacted is the largest stimulus to the national, state and local economies in U.S. history. Over $2 trillion will be spent in direct payments to individuals; loans and grants to businesses of all sizes; unemployment payments; and aid to health care systems, agriculture, and state and local governments. It is without precedent in scale, but bold governmental stimulus programs go back to the early years of the country.

Here in Indiana, both the federal and state governments acted from the beginning to stimulate commerce. In 1829, Congress appropriated funds to construct the National Road in Indiana. The road, which was open here by 1834, was the first major highway in the country and connected Cumberland, Maryland, and the state capitals of Indiana and Ohio with Vandalia, Illinois. Along the road’s 154 miles in Indiana, thousands of Easterners moved west to seek new opportunities. The road also established a trade route for Indiana’s agricultural produce to be shipped to Eastern markets, while Eastern manufactured goods came west.

Simultaneously, the state constructed its own major highway. In 1828, the Legislature authorized building the north-south Michigan Road, aimed at providing a route for wagons and horseback riders between Madison and Michigan City. The state paid for it by selling sections of land along the road to settlers. The road opened in 1837.

In 1834, the Indiana General Assembly chartered a unique public-private enterprise to stimulate lending to businesses and individuals. At that time, the state had no private banks; most commerce was conducted through barter.

The charter created the State Bank of Indiana. The state owned half the stock and lent private investors about two-thirds the cost of each share purchased. The subsidies served to build public confidence in the bank and to furnish it capital for operating, issuing currency and making loans. The state obtained funds for the bank by selling a large bond issue to investors in London. The institution proved to be well-managed and profitable and was one of the few banks in the country not to default on its obligations during the national Panic of 1837.

The biggest stimulus program the state ever undertook was colossal in size. In 1836, the General Assembly passed the Internal Improvements Act, providing that the state appropriate $13 million to extend the Wabash and Erie Canal from Lafayette to Evansville and build three other major canals in central Indiana, the Whitewater Valley and northern Indiana. The bill also called for construction of several major toll roads and a railroad between Madison and Indianapolis. The amount appropriated equaled one-sixth of the state’s wealth at the time. Annual state tax revenue in 1836 was only $45,000.

Soon afterward, the Panic of 1837 hit the nation and the economy shrank. The state was spending large sums of borrowed money with no income, as construction on three canals proceeded simultaneously. The bubble burst in 1839, when the state suspended construction on all canal projects and effectively declared itself to be insolvent. The financial debacle led the framers of the 1851 state constitution to prohibit the state from going into debt.•

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Glass is principal at Historic Preservation & Heritage Consulting LLC.