would later bear that name).26 Just when the state began to accrue enormous debts, the Panic of 1837 struck, stalling the economy and driving the cost of borrowing higher.27 By 1840, the cash-strapped state of Illinois halted work on the canal and railroads. By 1842, the state was in financial ruin with $10.6 million in public debt, annual interest payments of eight hundred thousand dollars, and a yearly income of just ninety-eight thousand dollars.28
Illinois was not alone. Inspired by New York’s Erie Canal, Ohio and Indiana had also launched ambitious internal improvement projects. In 1832, Ohio completed a canal between Lake Erie and the Ohio River, and its tremendous success galvanized political support for new public works projects. In 1837, the state legislature passed a Loan Law that virtually required the state to match private investment in internal improvements. Hoosiers, meanwhile, started building a “Mammoth System” of railroads, canals, and turnpikes. The Panic of 1837 was a devastating blow to all these Midwestern projects, and to state economies across the nation.
For years, western banks had been making unsound loans to land speculators in Chicago and throughout the nation. In 1836, President Jackson put an end to easy credit with his “specie circular,” an executive order that required western banks to redeem paper money in gold or silver. Deflation ensued. The cost of borrowing soared as many states became mired in expensive internal improvement projects. By 1841, Indiana had spent over eight million dollars on just 281 miles of its proposed 1,289 mile transportation system; it would need twelve million dollars more to complete the work. Already burdened with a total public debt of fifteen million dollars and annual interest payments of at least $615,000, the state of Indiana defaulted. Ohio fared a little better. In the decade after 1836, it spent thirteen million dollars on canals and aid to transportation companies. Meanwhile, the Loan Law alone forced the state to take on three million dollars of debt by 1842. The law, moreover, created numerous opportunities for corruption and misuse of public money. In 1842, the legislature repealed what had come to be called the “Plunder Law.” A combination of New York investors and the economy’s rebound in 1843 saved Ohio from bankruptcy.29
As public debt wrought havoc on the finances of states throughout the Midwest, businessmen supplied private capital to resurrect the Illinois and Michigan Canal project. In June 1842, a New York City land speculator named Arthur Bronson journeyed to Chicago to assess the status of the Illinois and Michigan Canal. In 1833, Bronson had begun buying up Chicago real estate, betting on the successful completion of the canal. As he toured Chicago, Bronson met with business leaders, including William B. Ogden, a real-estate speculator and Democratic politician who served as the city’s first mayor (1837–1838). The men discussed how to secure money to finish the canal. Bronson and Ogden determined that they would appeal to investors in Boston, New York, and London for an additional $1.6 million in loans. In exchange for the capital, the investors required, among other things, that the state abandon the deep-cut plan for a cheaper, shallow-cut channel eight feet above the level of Lake Michigan. In other words, the investors demanded that water run uphill. A canal engineer named Ira Miltimore figured out how to comply. Using giant steam pumps, the engineer would force water from the south branch of the Chicago River into the canal.30
That engineers would make water run uphill at the behest of financiers symbolized the growing role of private businessmen in building public infrastructure. Lawmakers in Ohio, Indiana, and Illinois were deeply shaken by the financial crises of the 1830s and 1840s, and they moved to severely limit their states’ capacity to build new infrastructure. In 1851, Ohio lawmakers established a new state constitution that prohibited the state from borrowing money. Hoosiers likewise rewrote their constitution in 1850–1851 to forbid the state of Indiana from taking on public debt.
Increasingly, new infrastructure would be built by private corporations.31 For instance, when Democratic Senator Stephen Douglas renewed the push for an Illinois railroad in the late 1840s, he assumed that a private corporation, not taxpayers, should raise the capital. In 1851, the state granted a corporate charter to the Illinois Central Railroad, a private version of its defunct publicly funded predecessor.32 The new Illinois Central would, like the Illinois and Michigan Canal, link New Orleans to the mouth of the Chicago River Harbor. Before that could happen, however, Chicago required a navigable harbor.
Public Property, Private Capital, and Wharves
As laborers dug the Illinois and Michigan Canal out of hard rock and clay, the city of Chicago worked on a related project: transforming the sluggish, sand-clogged Chicago River that would link the canal to Lake Michigan into a viable harbor. The river needed to be widened and dredged to allow for the passage of boats. The banks of the Chicago River required wharves for handling cargo and bridges to facilitate overland travel. These feats of construction required effective regulation of public space. They also posed a financing dilemma: how to split the costs of infrastructure between all of Chicago’s taxpayers and the specific individuals who would make money from the harbor.
At first, legal ambiguity over waterfront access delayed its development.33 In the 1830s, the trustees of the town of Chicago promised to commit public funds to river dredging in order to encourage business owners to construct docks and wharves. The trustees thus tried to channel both public and private money into harbor construction. In 1835, the town trustees, with the consent of the state legislature, leased public riverfront lots to the highest bidder for a period of 999 years. Under the terms of the lease, the lessees had four years to pay for access to the lot and two years to build five-foot-wide docks three feet above the water line. The trustees, on the other hand, agreed to dredge the river channel ten feet in front of the docks within four years of the leasing agreement.
The economic panic that struck in 1837 made it nearly impossible for the city, incorporated in March of that very year, to incur the enormous expenditures required to dredge the river. Nor could the lessees pay for their lots. Since both sides reneged on the terms, the contracts were ignored until 1844, when the Chicago Common Council launched an inquiry into the status of the wharfing leases. It discovered that the city’s wharves were mired in legal chaos. Some lessees had built on and occupied their lots, while others had sold them to third parties. Still others had abandoned them to squatters.34
The Common Council consisted largely of merchants, bankers, lumber dealers, and real estate brokers who had come to Chicago from the northeast in hopes of making fortunes, and many of the aldermen had a stake in port development. Their success depended on the city’s growth, which required a working harbor.35 Seeking an end to the confusion over wharfing rights, in 1845 the Common Council ordered that all wharfing privileges be surrendered to the city, since most of the original lessees had failed to pay.36 It was forced to back off this plan to seize the wharves, since it too had violated the 1835 leases. In 1846, the council issued a new order levying a fifty dollar quarterly penalty against “any person … in possession of any portion of the public landings or wharfing privileges” until “some further settlement be made.”37 With this act, the Common Council acknowledged that the claims to wharf privileges required careful, individualized adjudication. In February of 1847, the state legislature passed “An Act to adjust and settle the title to all wharfing privileges in Chicago,” which returned riverfront lots to the city and established a procedure whereby claimants could negotiate a settlement.38 By 1850, the city had settled the claims and issued a series of new wharf leases with the expectation that business owners would construct the docks necessary for the port.39
After establishing property rights on the riverfront, the city was able to condemn certain lots in order to deepen and widen the channel of the Chicago River. This was essential for the city’s growing harbor. The confusion over wharf leases notwithstanding, the commerce in Chicago’s harbor had increased in value from three hundred thousand dollars in 1836 to five million dollars in 1847.40 With the imminent completion of the Illinois and Michigan Canal, the city of Chicago and the canal trustees anticipated even greater increases in Chicago River commerce. In October of 1847, the Common Council began to redraw the map of the riverfront to accommodate
