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90 6 } The Financial Panic of 1837 The storm that broke over Stevens T. Mason’s head in 1837 was national in character, but the great undertow of financial disturbances that swept Michigan out to sea was also one of its own doing. The surge of optimism over hardpurchased statehood was understandable, but the program of public works the state mapped out for itself, although breathtaking in scope, was far beyond the state’s ability to pay. Mason was a visionary, to be sure, but in his support for internal improvements, free banking, and state ownership of railroads, sound instincts deserted him. In the spring of 1837, Mason was a nationally known figure who still had a bright political future. He was idolized in the eastern press. We can only speculate how, with America on the brink of presidential campaigns based on selling tactics and slogans (“Tippecanoe and Tyler Too” and “Log Cabins and Hard Cider”), Mason might have used his youth and good looks to impress a wider electorate. Today, he would be a handler’s dream—photogenic, quotable , pedigreed, and a capable, if occasionally inspiring, public speaker. He accepted the blame for later disastrous events as he should, but the record also shows that Mason’s was a voice of caution when there were few who were willing to temper their enthusiasm with sober reason. For example, the free banking act passed by the legislature in the spring of 1837 came with a warning from Mason of the danger of too many banks flooding the state with worthless paper notes. Mason strongly favored improving transportation, but he added that the state should not oversubscribe to its public works program. The legislature saw an interior of busy little towns linked by roads and canals and railroads that would spur development and bring about a sustainable prosperity. Mason once The Financial Panic of 1837 91 denounced legislation that would permit a private railroad as “extortion from the public.” But the state’s own sad experience in the way it ran its canals and railroads soon came to be considered a great mistake, and by the 1840s, the railroads were turned over to private interests and began making money. If Mason sometimes was the brakes on a runaway locomotive and the offstage voice of Cassandra, conventional wisdom held that the state should play a dominant role in development. When Mason recommended borrowing money to subscribe to the stock of private companies that would build the railroads and canals, he was overruled by a legislature that preferred state action. The bill providing for internal improvements to be built and operated by the state was approved with only one dissenting vote in the entire legislature. Of course, the bill was signed by Governor Mason, and “the newspapers praised the legislators for their wise enactment. Indeed, Michigan was only following the lead of its sister commonwealths of the Old Northwest, which were already engaged in constructing internal improvements at public expense.”1 As I already noted in chapter 2, other states hoped to replicate New York’s success with the Erie Canal. The Empire State’s experience had shown how a bold venture in internal improvements could pay huge dividends; that experience was not lost on Michigan’s legislators or on Mason, who had seen for himself the success of the Erie Canal. If such a canal would work in New York, wouldn’t one work even better in Michigan, with its network of inland streams feeding into the great lakes that defined Michigan’s geography? So the thinking went. But “unfortunately for New York’s rivals, the Erie Canal’s imitators never matched the revenues of the original. Overextended states were almost bankrupted by the indebtedness incurred in canal building, and others were severely frightened by close brushes with financial calamity.”2 After the Panic of 1837, canal building virtually ground to a halt, and railroads eclipsed the ditches. As the newest technology, railroads attracted much fascination and the attention of speculators, some of whom hoped to make fortunes from the Iron Horse. The state’s involvement in railroad development was similarly vexed: “To Mason more than any other man is to be given the credit of the admirable location of our scheme of railroad transportation. But he and the wisest men of his day everywhere started with the idea of state ownership of these most necessary of the public utilities.”3 Michigan learned from its mistakes, but too late to avoid years...

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