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State of the State: Today's Leaders Could Learn from a Forward Thinker From Yesteryear

James Krohe Jr.
WUIS/Illinois Issues

You would think that a governor who restored the state of Illinois’ low reputation for creditworthiness while creating stable conditions for economic growth might be looked to by our perplexed state leaders as a model, if not worshipped as a saint. But today, Gov. Thomas Ford is remembered, if at all, for his role in suppressing the Mormon War of the 1840s, not for suppressing the rebellion of the state’s creditors set off by the Panic of 1837. 

The members of the General Assembly of 1836-37 demonstrated — not for the last time — that as economists, they are good politicians. Each part of the state had an infrastructure project that it expected would make it rich, and its elected representatives happily agreed to approve similar projects that every other section wanted so they could get their own. The result was a recklessly extravagant program of internal improvements that called for constructing the Illinois & Michigan Canal, laying 1,300 miles of railroad track (in a state that scarcely had a mile of decent wagon road) and making suitable for navigation “rivers” that until then floated only dead trees.

Work began in 1836, but a national financial panic in 1837 gutted the value of donated federal land whose sale was supposed to pay for most of it. The state government defaulted on its interest payments on the rest in 1841, and while stopgap financing kept the work going until 1842, not another shovelful of dirt was moved thereafter. 

Public officials who call today’s fiscal problems a “crisis” have not read their history. When Ford took the oath of office in 1842, state-chartered banks had failed, and their notes, which constituted the common currency, were worthless. With no money in circulation, the state was in effect closed for business. The state of Illinois was $14 million in debt, the budget deficit was more than $300,000 and there was, Ford famously reported, not enough cash in the till in Springfield to buy a postage stamp. The state was in the same fix as the overextended house-buyer stuck with a home worth less than what he owes on it. 

“Every one [sic] had a plan of his own to restore the State to prosperity,” Ford would write in his posthumous history of Illinois. The problem was most of those plans were impractical or imprudent. One faction wanted to raise cash by selling new grants of federal land, but Congress was in no mood to throw good acres after bad. Resorting to what Ford would call “oppressive and exterminating taxation” to pay off what the state owed was out of the question. The young state’s economy was as shaky on its feet as a toddler, and asking it to carry a heavy tax load would have caused it to collapse. 

Others counseled that the state should simply walk away from the failed banks and the canal debt. Ford appreciated that the stink of default would carry to the East Coast and beyond, where the sensitive nostrils of money men would pick it up. He called default an “irretrievable infamy” that would expose Illinois to the rest of the world as “a confederated band of unprincipled swindlers.” 

Ford saw that the first step out of this swamp was to reassure the people to whom the state owed money that they would get paid eventually. Ford also was canny enough to realize that it would be folly to surrender the canal because the I&M — that era’s O’Hare and interstate system combined — was the surest means to expand the economy. He also divined that for the same reason it was in the interests of the canal bond holders to extend the state more money to finish the canal. 

It was this ability to judge the problems in a larger frame that distinguished Ford’s handling of the crisis, along with his adroit handling of the General Assembly in the face of obstructionism, sectionalism, partyism and general do-nothingism. He scaled back the proposed building and borrowed $1.6 million from money men in New York and London. In return, the state conveyed to them the canal property in trust as security. The job of finishing the I&M Canal was wisely left in the hands of trustees, most of whom were selected by the bondholders. (“We have had enough in our history,” he wrote later, “of the management of money matters by public officers.”) 

Putting the canal effectively into hock took care of the principal on the debt. To cover the interest, Ford proposed a new tax on property of one mill — or 0.1 cent — per dollar of assessed valuation in 1845, increasing permanently in 1846 to a mill and a half, the proceeds to be sacredly devoted to the payment of the interest on the debts of the state. The governor’s role here was crucial, Ford would write, because “the politicians on neither side, without a bold lead to the contrary by some one [sic] high in office, would never have dared to risk their popularity by being the first to advocate an increase of taxes to be paid by a tax-hating people.“ 

The effect of these measures on Illinois finances was like that of the princess’ kiss on the frog prince. Construction of the canal was resumed, and when it opened in 1848, goods and people invigorated an economy grown anemic from lack of trade. The debt load was lightened by $5 million down to $6 million, and sound money started circulating again. “This was the best that could be done,” Ford would write with pardonable pride, “and it is wonderful, under the circumstances, that so much could be accomplished.” 

The last of the debts the legislators incurred in 1837 were paid off by their grandchildren in 1880. 

As a result of the internal improvements fiasco, wrote historian Theodore Calvin Pease in 1918, “Illinois learned and learned much and had acquired … political experience and judgment which were to fit it for active and efficient participation in the great affairs of the union.” Sadly, the lessons learned were quickly forgotten. Now, as then, lawmakers mistook a speculative boom as permanent and bet the house on it continuing. Now, as then, lawmakers blamed the near-bankruptcy on the current national recession rather than their own profligacy. Now, as then, lawmakers did not quite grasp that rebuilding state government’s balance sheet required rebuilding the state’s economy. In the 1840s, the state’s industrial economy was immature; today it is atrophied, but in neither era was it able to generate the funds needed to run the state at politically acceptable levels of taxation.

Now, as then, the state government’s fiscal problems have financial solutions. And now, as then, the political consensus needed to apply those solutions seems impossible to achieve. What is lacking now is what Illinois got in 1842 — a bold lead to the contrary by someone high in office. We are obliged to speculate why Illinois so often had the leaders it needed in past fiscal crises but not today. Coping with extraordinary situations sometimes turns ordinary men and women into leaders — certainly no one would have pegged Ford to be the prophet who brought Illinois out of the wilderness during the state’s transition from frontier to industrial state — but not always. 

Henry Horner — another judge-turned-pol — would keep a sick economy during the Depression from fatally infecting the social system. Why? Perhaps because he felt a personal responsibility for the plight of the poor that overwhelmed his political ambition. In 1933, when Horner was sworn in, relief for the state’s unemployed was supplied mainly by federal money — 99 percent of it in the fiscal year ending in 1933 — and the feds were demanding that the state do more to help its own. 

Unfortunately, the state’s horse-and-buggy tax system was inadequate to the demands of crisis. Horner, like his predecessor, Louis Emmerson, borrowed against a return to prosperity, but the proceeds were spent within a year. Horner pushed for and got a new state tax, on retail sales, in the face of opposition from both the courts and representatives of what were still a tax-hating people. Just as Ford shepherded state government from its frontier to the industrial age, so Horner helped it cope with the consequences of industrialism.

Is it possible that today’s crisis is not quite extraordinary enough? Is the problem that our politicians are inadequate to solve the crisis or that the crisis is inadequate to motivate the politicians? No one is quite starving in Illinois, unless you count voters hungry for grownup leaders. Bad bond ratings or bankrupt social service agencies that serve politically marginal populations are like the ominous rattle in the car engine — worrisome, but most drivers won’t tend to it until the car stops running. And the future does not have a representative in the General Assembly.

It would be nice if today’s leaders would learn from Ford’s forward thinking or Horner’s sense of responsibility and tried to act like fiscal architects rather than by-the-hour builders. Nice, but unlikely, as Ford himself knew. “It is lamentably true that communities in the aggregate scarcely ever profit by the lessons of experience,” he wrote. “The same evils and calamities, and from the same causes, occur again and again and find the people as little expecting them, every time they are repeated, as they were before; and they are every time just as blind about the remedy.”

Note to readers:

The best edition of Thomas Ford’s History of Illinois from Its Commencement as a State in 1818 to 1847 was published in 1995 by the University of Illinois Press and includes annotations and an introduction by Rodney O. Davis.

 

It was this ability to judge the problems in a larger frame that distinguished Ford’s handling of the crisis, along with his adroit handling of the General Assembly in the face of obstructionism, sectionalism, partyism and general do-nothingism.

Now, as then, the state’s fiscal problems have financial solutions. And now, as then, the political consensus needed to apply those solutions seems impossible to achieve.

Guest columnist James Krohe Jr., a Highland Park free-lance writer, is a longtime contributor to Illinois Issues.

Illinois Issues, February 2010

 

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