An Economic Lesson From Michigan's Early History

(This piece originally ran Dec. 9, 1996, and provides a look back at what the state’s early governors did wrong, and right, to foster economic growth and private ownership. Dr. Burton Folsom Jr. is a history professor at Hillsdale College and senior fellow in economic education for the Mackinac Center for Public Policy.)

To many Americans who looked at a map in 1837, the year Michigan became a state, the "land between the lakes" seemed destined for obscurity. Why should settlers heading west make a right turn to the north and put down roots in a territory known for long winters and nasty swamps?

To many Michiganians today, the fact that our state became an economic powerhouse is taken for granted. Few citizens even know that Michigan’s early history produced a disastrous experiment in state government, followed by a new constitution that opened the door to a thriving free marketplace and the birth of world-class, private industries. It’s a story worth retelling.

At age 26, Michigan’s first governor and "Boy Wonder," Stevens T. Mason, was determined to get the state off to a fast start. To him, that meant an activist government, which would build and own railroads and canals to promote economic growth. With his encouragement, Michigan’s first constitution required the state to get into the highly controversial business of what was then commonly called "internal improvements." Mason and his allies were so confident state projects would flourish that they risked millions in tax dollars and put the state deeply into debt to make it all happen.

Among the first projects was a canal that was to begin in Clinton Township near Detroit and move 216 miles west to Kalamazoo. This Clinton-Kalamazoo Canal began with high hopes and much fanfare. Governor Mason broke ground in Mt. Clemens in 1838 to celebrate the digging of the canal. Bands, parades, speeches, and a 13-gun salute commemorated the occasion. Then came one of the worst engineering fiascos of Michigan history: The canal was built only twenty feet wide and four feet deep—too shallow for heavy freight and too narrow for easy passing.

After five years, and only sixteen miles of digging, the unfinished canal had cost the state over $350,000, and earned only $90.32 in tolls. State officials then abandoned the canal and focused on the railroads but ended up losing even more money.

The Michigan Central was to go from Detroit west through Ann Arbor, Jackson, and Kalamazoo and on to St. Joseph on Lake Michigan. Poor construction and management drained most of its revenues each year. The Central’s thin strap iron rails were too fragile to carry heavy loads. Rather than switch to a better quality rail, the state chose to run regular heavy shipments over the inferior tracks and repair them frequently. Not only was this practice dangerous, it was more costly in the long run. Under state ownership, the Central didn’t make it past Kalamazoo and did not earn enough to pay for needed repairs and new rails to go further west.

A second railroad, the Michigan Southern, was a stunning failure. In eight years of state management, tracks were only laid from Monroe to Hillsdale (halfway to its intended destination), at a cost of more than $1.2 million, with few customers to generate more than a trickle of revenue.

The state spent almost $4 million on the Clinton-Kalamazoo Canal, the Michigan Central, and the Michigan Southern. It spent another $70,000 surveying the Michigan Northern Railroad, from Port Huron to Lake Michigan, before abandoning it. It also spent $47,000 clearing the route for a canal and turnpike near Saginaw, but quit the project and left the materials to rot or be stolen by local residents. Legislators lobbied for these projects to go through their towns, resulting in routes that often made political but not economic sense.

In his final address as governor, Mason seemed to have learned an important lesson in government enterprise. Referring to the maze of failed projects, he spoke of "that fatal policy" for which "a corrective should be applied." A corrective measure eventually did come, but Mason never saw it. He died of scarlet fever at the age of 31 in January 1843.

Thomas Cooley, Michigan’s most prominent lawyer in the 1800s, observed firsthand the way the state ran its canals and railroads: "[D]oubts soon matured into a settled conviction that the management of railroads was in its nature essentially a private business, and ought to be in the hands of individuals."

It was left to Governor Alpheus Felch, in 1846, to shed the state of its failed experiments. During his administration, all of the state’s railroads, canals, and other "internal improvements" were either abandoned entirely or sold to private enterprise, reaping the treasury about 55 cents on the dollar.

By an overwhelming vote of the citizens, a new Michigan Constitution took effect in 1851. It emphatically took the state out of economic development and gave wide berth to free markets and entrepreneurship. Industries then arose in lumber, copper, and furniture, which would open the door to a thriving trade in carriages. Later, Michigan—where government had failed in the transportation business—would ironically become the world’s leader in the private ownership and production of automobiles.

Now you know, as commentator Paul Harvey would say, "the rest of the story."