KEY EVENTS:

• The Midwest continued its rise to prominence during this period.  Settlement of northern Michigan, northern Wisconsin, western Iowa and Minnesota was completed.
  

• Industrialization continued apace and the Midwest became the undisputed agricultural center of America.  Chicago became the nation’s second largest city and its leading transportation hub, and a network of large and medium-size cities covered the Midwest.  Not coincidentally, the Midwest played a leading role in debating and resolving legal controversies generated by American industrialization.

• New waves of migrants entered the Midwest, primarily from western and central Europe.   The Midwest’s changed ethnic mix also created new cultural and religious tensions – for example, disputes as to who should control the education of old and new Americans children and what one must do to be a “real” American.  

Problems of industrialization:  the railroad subsidy wars

Hanson v. Vernon – Iowa, 1869 (27 Iowa 28); People ex rel. Detroit & Howell Railroad Co. v. Township Board of Salem – Michigan, 1870 (20 Mich. 452); Whiting v. Sheboygan & Fond du Lac R. Co. – Wisconsin, 1871 (25 Wis. 167)

•  The problem of subsidies.  The controversy over government railroad subsidies peaked in Iowa, Michigan and Wisconsin during the 1860s and 1870s.  Michigan suffered greatly when its subsidized railroads failed in the depression of 1837.  When Iowa and Wisconsin became states in the 1840s they prohibited state subsidies but did not think about local governments.  As a result, their cities and counties spent lavishly in order to attract railroads and suffered hard blows when the depression of 1857 led to new railroad failures.  It took nearly 20 years to clean up the mess. 

• Iowa went through an internal near-war over whether to repay bonds held by creditors of now-bankrupt railroads.  All three states rebelled against the national consensus that local railroad bonds must be paid, and triggered a national debate whether railroads were essentially public or private enterprises. 

• Iowa.  Iowa’s supreme court followed a twisting path:  in 1853 it held that local subsidies were allowed but in 1859, anti-subsidy forces secured a majority on the court and it reversed itself.  In 1862, it went further and said that municipalities did not even have to pay off bonds purchased during the period when they were legal.  

• The next year, in Gelpcke v. City of Dubuque, the U.S. Supreme Court reversed the Iowa court and denounced its behavior in blistering terms.  A standoff ensued.  In some Iowa counties, crowds threatened officials with violence if they attempted to levy taxes to pay old bonds; Iowa state courts sided with them, but federal courts said that Iowans must pay.

• In 1869, Iowa justice John Dillon tried to break the impasse in the Hanson case.  Dillon argued that railroads were private enterprises and at bottom did not serve a public purpose, therefore municipal subsidies unconstitutionally deprived taxpayers of their money without due process of law.  At the same time, he urged local officials to pay the bonds as a matter of honor.  Dillon provoked bitter opposition from his fellow justice Chester Cole, who counseled active resistance to the federal courts.  In 1871, with Dillon gone, the court repudiated Hanson. 

• Michigan.  In 1870, Michigan’s supreme court sided with Dillon and struck down a subsidy for a Detroit-based interurban railway.  Justice Thomas Cooley agreed that any public benefit railroads conferred was “secondary and incidental” to their nature as private companies.  Cooley’s opinion had a Jacksonian tinge:   he feared government subsidies would be used in an undemocratic manner to favor only powerful, well-connected corporations.

• Wisconsin.  Wisconsin’s path through the subsidy thicket, though less troubled than Iowa’s, was not without its legal thorns.  In 1859 Wisconsin refused to invalidate municipal subsidies, although one judge commented that “if the country … had seen the distress and financial ruin which [municipalities] brought upon themselves … a provision would have been incorporated [in the state constitution] … to prevent the evil.”  In Whiting, Chief Justice Luther Dixon attempted to resolve the subsidy problem by drawing an obscure and much-criticized line:  railroads that were owned or controlled by municipalities could be subsidized, but others could not.   

• These Midwestern legal wars attracted national attention.  Isaac Redfield, a former Vermont supreme court justice and a national authority on railroad law, praised Dillon and Cooley the and hailed the impending end of “illegal exactions from the people under the guise of taxation,” but he cynically noted that “there is such a fixed delusion in the public mind upon this and many other subjects connected with taxation, that we scarcely dare look for any speedy change.”  The controversy soon petered out:  Wisconsin put strict limits on municipal debt in 1874, demand for subsidies faded after 1880 as the national railroad system was completed, and bondholders eventually compromised with most of the resistant Iowa municipalities.  But the constitutional limits on government which Cooley and Dillon espoused would resurface and be magnified in the decades to come.

Railroad land sale poster, late 1800s
Courtesy Wikimedia Commons