The legislature's infatuation with these ventures has been described by James S.
Van Ness as follows:

Ironically, the two sleeping giants secured state financial support by employing almost
opposite appeals. Time after time, the C & O Company pleaded an insufficiency of capital
to keep construction going, noting that until at least Georgetown and Cumberland could
be connected, no revenues worth mentioning would accrue. In contrast, less than two years
after construction began on the railroad, trains were running between the city [of Balti-
more] and Ellicott Mills, generating a modest income. By the spring of 1832, the railroad
had reached the Potomac River at Point of Rocks. Systematic expansion of the line promised
continually increasing financial returns and more importantly, vigorous economic activity
in the vicinity of the roadbed. Both arguments struck responsive chords in Annapolis. Once
the legislature invested funds in the C & O Canal Company it was loath to see the project
abandoned with the consequent loss of state investments. With promising results by the
B & O Railroad Company, possibly increased state support would reap hoped-for rewards
more quickly if additional funds went to that institution. Between 1826 and 1840 the state
borrowed over ten million dollars to support the two projects. In addition it borrowed an-
other four and one-half million dollars to support the Baltimore and Washington Branch
Railroad (later taken over by the B & O), Baltimore and Susquehanna Rail Road, Tidewater
Canal, Annapolis and Elkridge Rail Road, and the Eastern Shore Rail Road.²⁹

The effect of this massive borrowing was to ruin the state's credit and, ultimately,
to render the state insolvent. Even small issues of state bonds sold at a 35 percent
discount. By 1840 the annual interest on the state's $15 million debt amounted to over
$585,000, for which adequate sinking funds had not been provided. Nor were the
revenues from the various improvement projects adequate to defray that cost.

As early as 1839 it had become clear that unless new taxes were levied the state
would inevitably default on its debt service obligations. Neither political party, how-

27. Acts of 1837, res. 26.

28. Acts of 1838, ch. 386.

29. Van Ness, "Economic Development," p. 195. Hanna, Financial History of Maryland, p. 94, tallies the
state's investments in these various projects as follows:

Form of Investment

Amount of
State Bonds Issued Common Stock Bonds Preferred Stock

Chesapeake and Ohio Canal $ 7,194,667 $ 625,000 $2,000,000 $4,375,000

Baltimore and Ohio Railroad 3,697,000 500,000 3,000,000

Baltimore and Washington Branch 500,000 550,000

Baltimore and Susquehanna 2,232,045 100,000 1,879,000

Railroad

Tidewater Canal 1,000,000 1,000,000

Annapolis and Elkridge Railroad 219,378 299,378

Eastern Shore Railroad 151,744 86,862

Chesapeake and Delaware Canal 50,000

Totals $14,994,834 $1,825,000 $4,879,000 $7,761,240