Was Indiana Bankrupt?

A friend of mine here in Champaign, Roger Prillaman, told me he was strolling the Indianapolis Canal Walk and saw a historical marker about how the state of Indiana became bankrupt in 1839. The canal walk is a remnant of the Whitewater Canal, an internal improvement of the mid-19th century. As one of the leading bankruptcy attorneys in the area, Roger knew this could not be right, but with all the recent talk about state bankruptcy, we both wondered whether this was a forgotten historical episode.

The answer, as we both suspected, is that Indiana was not bankrupt in the formal sense. In addition to the historical marker, Wikipedia (at least as I write this) says "after the state went bankrupt . . .," and the web page for the canal walk states that the project "bankrupted the state." Here, however, the word "bankrupt" is not being used in the formal sense but as a synonym for insolvent.

The facts are laid out in Jacob Piatt Dunn's book, Indiana and the Indians (vol. 1) (American Historical Society: Chicago and New York, 1919). Before I get too harsh on Wikipedia, I should concede that I found this book through a different Wikipedia page on Indiana state history, although curiously it directed me to the wrong page numbers in the book. The relevant material is on pp. 402-04, which you can read for yourself because the book is available through Google Books. Indiana, like many states in the 1830s, spent heavily on internal improvements, and after the Panic of 1837 found it difficult to service the accompanying debt. Indiana settled with its bond holders for the canal projects by giving them the canal properties plus 50% of the face value of the bonds. Whether this settlement amounted to a "repudiation" of the debt is apparently controversial with Mr. Dunn taken the strong position that Indiana met its obligations.

Tomorrow on Credit Slips: Bob adds a new blog archive category for pointless historical trivia.