, .:->.,. *<* *v , ^ M9, k -fS a lv.ru* THE UNIVERSITY OF ILLINOIS LIBRARY 1L NOI A * : "' r,-~-C' J ir' <^ BHnfliiriBas ' *j V * ,4. ** *O .->!<^- ^; j W* S. .'v^v^w The person charging this material is re- sponsible for its return to the library from which it was withdrawn on or before the Latest Date stamped below. Theft, mutilation, and underlining of books are reasons for disciplinary action and may result in dismissal from the University. UNIVERSITY OF ILLINOIS LIBRARY AT URBANA-CHAMPAIGN APR 2 978 MAY 3 ' 1W8 L161 O-1096 72d- UNIVERSITY OF ILLINOIS STUDIES IN THE SOCIAL SCIENCES Pages 121 to 136 ar* missing Apr. 1912 Financial History of Ohio BY ERNEST LUDLOW BOGART, Ph.D. Associate Professor of Economics University of Illinois URBANA-CHAMPAIGN, ILLINOIS PUBLISHED BY THE UNIVERSITY 1912 ' > COPYRIGHT 1912 BY THE UNIVERSITY OF ILLINOIS 1L PREFACE This work was begun some years ago at Oberlin Col- lege; laid aside for more pressing duties, it has since been carried to completion, at odd intervals and for the most part at a distance from Ohio. For some of the short- comings this may be held responsible. It is based almost exclusively upon official sources ; these had remained prac- tically unused in other publications relating to the state, and upon the latter therefore little reliance has been placed. In the present monograph two chapters, dealing respec- tively with Internal Improvements and Local Finance, were omitted because of limitations of space; but it is hoped they may be published at some future time. A "History of the State Debt of Ohio" has already appeared in the Journal of Political Economy, April, May, June, g 1911. Thanks are due the editor of the American Economic o ' Review for permission to reprint part of an article entitled "Recent Economic Reforms in Ohio", which appeared in September, 1911; and to the editor of the American Hi$- & torical Review, for permission to reprint a part of the article "Taxation of the Second Bank of the United States (V) by Ohio", which appeared in January, 1912. I desire publicly to record my obligations to Mr. A. S. Root, the Librarian of Oberlin College, to Mr. C. B. cT^Galbreath, the former State Librarian of Ohio, and to the Librarian of the New Jersey State Library ; to Mr. E. M. Fullington, Auditor of State of Ohio ; to Mr. E. O. Randall, President of the Ohio Archaeological and Historical ^ Society; and to Mr. A. R. Foote, President of the Ohio ~ State Chamber of Commerce, as well as to numerous other o> persons, who have courteously aided me with information 3 300905 or access to publications. Acknowledgements are also due Professor H. B. Gardner for suggestions as to the arrange- ment of the material in the tables on pages 124-141, and to the Carnegie Institute for assistance in gathering material for this study. ERNEST LUDLOW BOGART. University of Illinois, February 24, 1912. TABLE OF CONTENTS INTRODUCTION : TERRITORIAL HISTORY AND FINANCE Page Settlement of Ohio 9 Financial Organization and Taxation 10 Economic Conditions 16 PART I. FINANCIAL LEGISLATION AND ADMINISTRATION CHAPTER L FINANCIAL AND ECONOMIC HISTORY OF OHIO The pioneer state. 19 Expansion : schools, canals, and taxation /. . . 30 Panic, banking problems, and economy 39 The Constitution, currency, and corruption 47 Material development: agriculture and transportation 51 Slavery and Civil War 56 Labor, immigration, and industry 59 ! ;:,' i , . CHAPTER II. RECEIPTS AND EXPENDITURE: A STUDY OF THE BUDGET Early period, 1803-1824 68 Period of internal improvements, 1825-1845 77 Period of extravagance and defalcation, 1845-1860 82 Civil War period 91 Deficits and transfers 95 Enforced economy 99 Increased appropriations and insufficient revenue 103 Enlarged revenue and increased expenditure for public institutions 106 Conclusion 112 Appendices : Table I, State collections and disbursements 118 Table II, General revenue fund 124 Table III, Expenditures 134 CHAPTER III. FINANCIAL ADMINISTRATION AND BUDGETARY PRACTICE I. Treasury Administration and Accountability 145 The canal accounts 148 The reforms of 1856 and 1857". 154 The defalcation of 1857 161 Establishment of the independent treasury system 165 5 The present organization and administration of the treasury department 172 II. Budgetary Legislation and Practice 174 The Constitution of 1802 174 The Constitution of 1851 176 Present budgetary practice 178 PART II. THE HISTORY OF TAXATION IN OHIO CHAPTER IV. THE GENERAL PROPERTY TAX Page I. The Land Tax, 1803-1825 , 181 Assessment and collection of taxes 192 Exemptions 194 Sale and redemption of land 195 Criticisms of the existing tax system 200 II. The General Property Tax, 1825-1851 202 Revaluations 208 Sale and redemption of delinquent lands 212 The Kelley law, 1846 214 III. The General Property Tax Under the Constitution of 1851 221 The constitutional provisions 221 The act of 1852 223 The act of 1859 229 The Civil War period 232 The act of 1878 237 The tax inquisitor law 240 The tax commission of 1893 242 Abolition of the general property tax for state purposes 246 The tax commission of 1906 248 Recent reforms 250 CHAPTER V. HISTORY AND TAXATION OF BANKS AND BANKING Page History and taxation of banks to 1819 257 The attempt to tax the Bank of the United States 260 Struggle over note issues, 1819-1854 269 Regulation of the banks, 1839-1850 276 Bank taxation 280 Struggle with the banks over taxation 283 Crises of 1854 and 1857, and condition of the banks 286 Renewed struggle over taxation 289 Compromise 293 Organization of national banks and their taxation 296 6 CHAPTER VI. HISTORY AND TAXATION OF RAILROADS Early railroad building 302 State and local aid 305 Taxation of railroads, to 1851 311 Regulation and taxation, 1850-1866 3*5 Construction and taxation after the Civil War 320 Excise taxation, 1893 to date 323 CHAPTER VII. BUSINESS AND MISCELLANEOUS TAXES Page Lotteries 33O Banks. . .'. 330 Sales at auction 331 Income tax on lawyers and physicians 332 Tax on brokers 333 Tax on merchants and manufacturers 334 Insurance companies 336 Transportation companies 339 The taxation of telegraph, telephone, and express companies 340 Public service corporations 342 Foreign and domestic corporations 344 Liquor taxes 345 Tax on cigarets 348 Inheritance taxes 348 Miscellaneous business taxes and licenses 352 Conclusion 352 INDEX 355 7 ' LIST OF OHIO STATE PUBLICATIONS i Adjutant General, Report of. In Exec. Doc., 1860-1867. Archaeological and Historical Society, Annual Report of Ohio State. From 1885 to 1894 m Exec. Doc.; since 1895 published separately Publications of, at irregular intervals since 1887. Attorney General, Annual Report of. In Exec. Doc., 1846 date. Auditor of State, Annual Report of. In Senate and House Journals, previous to 1836. In Exec. Doc., 1836-1889. Published separately since 1890. Canal Commission, Annual Report of. In Exec. Doc., 1822-1837; 1888- 1895- Canal Fund, Annual Report of Board of Commissioners of. 1822, 1826. 1829, 1830, 1831. In Exec. Doc., 1836-1851. Comptroller of Treasury, Annual Report of. In Exec. Doc., 1858-1876. Debates of Constitutional Convention of 1851. (2 vols. Columbus, Ohio, 1851). Executive Documents. i836-date. Previous to 1836 executive documents were printed in the Senate and House Journals. Governors' Messages. In Senate and House Journals, 1803-1835. In Exec. Doc., i836-date. House Journals. Territorial, 1801-1802. State, i8o3-date. Immigration, Annual Report of Commissioner of. In Exec. Doc., 1863- 1869. Laws. Territorial, 1791, 1792, 1795, 1798-1801. State, 1803-1854, 1856 1894, 1896, 1898, 1900, 1902-4, 1906, 1908-1910. Legislative Practice, Manual of. Irregular since 1886. Public Works, Annual Report of Board of. In Exec. Doc., 1836-1853, 1855-1895. Published separately since 1896. Railroad and Telegraph Commissioner, Annual Report of. In Exec. Doc.. 1866-1879. Published separately since 1880. Senate Journals. i8o3-date. Sinking Fund, Semi-Annual Report of Commission of. In Exec. Doc., 1852-1890. Statistics, Annual Report of Commissioner of. In Exec. Doc., 1857-1868. Statutes. Compilations: Chase, 1788-1833, 3 vols. ; Swan, 1841 ; Curwen, 1849; Swan, 1854; Curwen, 1833-1860, 4 vols.; Swan and Critchfield. 1860, 2 vols.; Swan and Saylor, 1868; Saylor, 1861-1875, 4 vols. Revised Statutes, 1880, 1886, 1890, 1898, 1910. Tax Commission, Annual Report of. In Exec. Doc., igio-date. Published separately, igio-date. Treasurer of State, Annual Report of. In Senate and House Journals, previous to 1836. In Exec. Doc., i836-date. 8 INTRODUCTION TERRITORIAL HISTORY AND FINANCE. SETTLEMENT OF OHIO. The permanent occupation and settlement of Ohio did not begin until the passage of the Ordinance of 1787 gave assurance of a settled form of government for that terri- tory. The first band of immigrants, comprising the van of the Ohio company, arrived on April 7, 1788, at the mouth of the Muskingum River, where they formed a set- tlement which they called Marietta. 1 Soon after the adop- tion of the Ordinance Congress had organized the first terri- torial government, and appointed Arthur St. Clair gover- nor and commander in chief; three judges were also ap- pointed. In July, 1788, Governor St. Clair arrived in Ohio and formally established the first form of civil government in the territory. Under this the people had no concern in the actual business of government. The governor and judges were appointed first by Congress, and after the adoption of the federal constitution by the president. The whole legisla- tive power was vested in these officials, but it was limited only to the adoption of such laws of the original states as might be suited to the needs of the new territory. In fact, all power, legislative, executive, and judicial, was concen- trated in the governor and judges, and in its exercise they were responsible only to the distant federal head. 2 The first acts of the governor were the erection of Washington county, comprising the eastern half of the present state of Ohio, the establishment of a system of courts, and the organization of the militia. In 1790 he organized a second county, Hamilton, in the western half of the present state, and removed the seat of government to Cincinnati. 8 St. Clair and the judges also selected laws for the use of the territory, and enacted some original 'I. Schmucker, Ohio Statistics (1876), p. 15. 'Chase, Statutes of Ohio (Cincinnati, 1833), I, 18. *E. O. Randall, in Ohio Arch, and Hist. Soc. Pub., X, 419. 10 FINANCIAL HISTORY OF OHIO [10 ones, which was contrary to the Ordinance. Most of the legislation concerned the organization of government, but a few were financial in their character and may be briefly noted. The expenses of the government were defrayed in part by the United States; but for the most part were drawn from the pockets of the people in the shape of fees.* Consequently taxation played but a small role in early territorial finance. FINANCIAL ORGANIZATION AND TAXATION On August 1, 1792, a number of laws were promul- gated on this subject. One of the first created the offices of treasurer-general of the territory and of county treasurers, enumerated their duties, fixed their compensa- tion at 5 per cent, of all the money that passed through their hands, and required $1500 bonds. 5 As the territorial expenses were met either by the federal government or by special fees, the finances were as yet almost entirely local. The expenses of each county were to be estimated by the court of quarter sessions, and the estimate laid before the governor. 8 The amounts needed were to be apportioned among the townships by commissioners appointed annually by the judges of the courts of common pleas. The commis- sioners were to list male persons over eighteen, stocks of cattle, and land values annually, and all other property that might affect the apportionment. Assessors were also appointed annually by the judges, who were to assess the individuals of their town .... according to the best of their judgment in just proportion to their wealth in the county and ability to pay either in money or specific articles (4). The assessments could be paid either in money or in specific articles agreeable to the public use. Duplicates of the tax list were to be made by the prothonotary of the court of common pleas, and the taxes were collected by the sheriff. To compel the payment of taxes provision was 4 Chase, op. cit., p. 18. territorial Laws of 1792, ch. 25. r. L., ch. 26. 11] TERRITORIAL HISTORY AND FINANCE 11 made for the arrest of delinquents, and if necessary the seizure and auction of their property. Other acts had to do for the most part with the regulation of fees. 7 The first financial act enacted at this time had established an annual fee of $16 for a license to merchants, traders, and tavernkeepers, of which $15 was to go to the county and $1 as a fee to the commissioners appointed for the purpose of licensing them. 8 Various other fees were established, but they belong to local finance. In 1795 the governor and judges undertook to revise the territorial laws, and to establish a complete system of statutory jurisprudence, by adoption from the laws of the original states, in strict conformity to the provisions of the ordinance. 9 Most of the laws adopted at this time were taken from the statutes of Pennsylvania. A comprehensive act "for raising county rates and levies" was passed, 10 but no distinctively territorial tax was imposed as yet. From this time to the organization of the territorial legislation in 1799, there were no further acts of legislation, except ten laws adopted by the secretary and judges in 1798. 11 One of these, however, was for our purposes a most important one, as it levied for the first time a territorial tax on land. 12 It provided for commissioners or listers in each county, to be appointed by the judges of the court of quarter sessions. They were to take a written list from each land holder of all the lands he claimed within the territory, specifying the quantity and quality. The land was then to be divided into three classes, according to quality; 13 and the first rate land should be taxed at 85 'Such were T. L., ch. 36, 48, 81. *T. L., ch. 24. This repealed ch. 51, which had allowed $12 to the county and $4 to the governor. By act of Dec. 6, 1800, no fees were required. T. L., ch. 122. Chase, I, 26. T. L., ch. 53- "Chase, op. cit., p. 27. "Act of May i, 1798. T. L., ch. 90. "The "land shall be divided into three classes according to their quality . . . taking into view the surface of the earth as well as the quality of the soil". 12 FINANCIAL HISTORY OP OHIO [12 cents, the second rate at 60 cents, and the third rate at 25 cents per 100 acres. 14 Taxes were paid to the territorial auditor, or to the sheriff or collector of the proper county. Clerks of the peace in each county had to list the lands of non-residents. The sheriff of each county was made the collector of taxes, and must collect them after August 1 of each year. If the taxes were not paid, the collector was directed to sell at public auction so much of the land as would pay the tax; arrears of taxes bore 10 per cent, interest. In the meantime the population of the territory con- tinued to increase and to spread out. Before the end of the year 1798, the northwestern territory contained a popu- lation of 5000 free male inhabitants of full age, and eight organized counties. The people were now entitled under the ordinance to a change in the form of government. That instrument provided, that upon giving proof to the gov- ernment that there were 5000 free males of full age in the territory, the people should be authorized to elect repre- sentatives to a territorial legislature. This privilege was, however, confined to freeholders, in fee simple, of 50 acres of land within the district. No others were entitled to vote, and only freeholders in fee simple of 200 acres within the district were eligible as representatives. When chosen, the house of representatives was to assemble in convention and nominate ten freeholders of 500 acres, of whom the president of the United States was to appoint five, who should constitute the legislative council. Representatives were to serve two, and councilmen five years. The two "The rates were frequently changed, according to the needs of the territorial government, as shown in the following table. The act of May I, 1798, which was adopted from the statutes of Kentucky, laid the tax on every "100 acres of unimproved, uncleared land" ; those of Dec. 19, 1799, and Dec. 9, 1800, simply taxed "100 acres of land". YEAR. FIRST CLASS. SECOND CLASS. THIRD CLASS. 1/98 $.85 $.60 $.25 1799 30 .20 .10 I800 85 .60 .25 1801 55 .35 -I/ 13] TERRITORIAL HISTORY AND FINANCE 13 houses were to constitute a territorial legislature, with power to make any laws not repugnant to the national constitution or to the ordinance of 1787. The judges were thenceforth to be confined to purely judicial functions. The governor was to retain his appointing power, his gen- eral executive authority, and to have an absolute negative upon all legislative acts. The power of the governor under the new order was in fact more absolute than under the old. 15 On September 24, 1799, the first territorial legislature met for what proved to be a lengthy session, during which the finances of the territory were more carefully organized. To meet territorial expenditures the legislature created two funds a contingent and a general fund; the latter was composed of specific appropriations, and the limit of all expenditures was placed for the year at $5000 ; the con- tingent fund was largely though not wholly left to the order of the governor. 10 The office of territorial auditor of public accounts was created, in addition to that of treasurer. 17 He was given the duty of receiving and liquidating authorized bills, subject, however, to appeal. The salary of the treasurer was fixed at $400 and that of the auditor at $450. Some of the provisions of the act are especially interesting for the light they throw on the crude conditions: auditor's certificates could be received in pay- ment of taxes ; the auditor and treasurer were fined $1000 if they speculated in audited certificates, seeming to in- dicate depreciation and fluctuation; forgery of auditor's certificates was to be punished with death. A regular system of taxation was also established. The tax for territorial purposes was levied upon lands; that for county purposes upon persons, personal property, and houses and "Chase, op. cit., p. 27. "Chase, I, 285. In 1800, only $3000 was allowed for the contingent fund, but the general fund was net limited. Chase, I, 309. In 1802 the contingent fund was made $12,000, but was withdrawn from the order of the governor, being put under the entire control of the auditor of public accounts ; no limit was placed on the other fund. Chase, I, 349. "Act of Dec. 2, 1799. T. L., ch. 99. Chase, I, 231. 14 FINANCIAL HISTORY OP OHIO [14 lots. During this session a bill authorizing a lottery for a public purpose, passed by the council, was rejected by the representatives. 18 The legislature also fixed their own pay at $2.00 a day, and $3.00 mileage for every fifteen miles traveled. 19 On December 19 the governor terminated the first session of the legislature. He vetoed eleven acts, which were disapproved for various reasons, but mainly because the governor claimed that the power exercised in enacting them was vested by the Ordinance, not in the legislature, but in himself. This free exercise of the veto power excited much dissatisfaction among the people, which was strength- ened by the controversy with the legislature as to their respective powers. As a consequence the veto power was denied the governor when the first state constitution was adopted in 1803. In other ways too the conflict between Governor St. Clair, who was an extreme Federalist, and the adherents of the Republican party influenced to a noticeable degree the character of the laws. The demo- cratic environment of a pioneer settlement made the main- tenance of an aristocratic or paternalistic form of govern- ment impossible, and the desire for political independence and home rule culminated in the demand for statehood. During the territorial period, Ohio constituted a constant item of expense to the federal government, in connection with the land sales, the salaries of civil officials, and the pacification of the Indians. 20 In territorial finance and government there was a steady pressure towards decen- tralization, due both to difficulty of communication and wide dispersion of a sparse population over a large terri- tory, and to the consequent greater economy of local admin- istration of affairs. Money was very scarce in the territory and revenue for territorial purposes was raised with difficulty, so that great economy was necessary to meet even the modest "Chase, I, 29. "T. L., ch. 114. "Winsor, Westward Movement, p. 504. 15] TERRITORIAL HISTORY AND FINANCE 15 necessary expenses. The revenue was raised chiefly by a tax on uncultivated lands, which were in great part the property of non-residents. This called forth a protest from Governor St. Clair, with a recommendation that new sources of revenue be sought, as there was nothing in the treasury and the revenue had not been as productive as contemplated. 21 The House answered with a resolution defending the existing methods and expressing a hope that the present revenues would discharge all the demands against the territorial treasury. 22 An acrimonious corre- spondence now followed, in which the governor estimated that there would be a deficit at the end of the year of $5,419, which would have to be met by the "wretched ex- pedient" of a new emission of bills of credit. 23 On the other hand, the joint committee appointed to examine the books and accounts of the territorial treasurer and of the auditor of public accounts, headed by Thomas Worthing- ton, a political opponent of St. Clair, reported that there would be a balance of $8,978 in the treasury to meet cur- rent, expenditures, which would be ample for all needs. 24 The amount of assessed taxes for the year 1800 was $19,241 and for 1801 was $29,114, but considerable deductions had to be made from these sums on account of double entries of land, collection fees, etc. Audited certificates in circula- tion, not yet redeemed, were estimated at $1649. During the whole of the territorial period there was a struggle to make ends meet, but it was accomplished, and when Ohio became a state the finances and the revenue laws were in a fairly satisfactory condition. It will, no doubt [wrote the governor to the legislature 28 ] afford you much consolation on receiving from the proper officers, a statement of our finances, in discovering that the present revenue, if wholly reserved for state purposes, is adequate to all the necessary exigencies of government ; and that by a true economy, devoid of parsimony, the public faith and credit may be maintained. M Gov. address, Nov. 26, 1801. House Journal, 1801, p. 14. "Ho. /., 1801, p. 30. "Ibid., p. 34- "Ibid., pp. 52-54. "Gov. mess., Senate Journal, 1803, p. 10. 16 FINANCIAL HISTORY OF OHIO [16 The outstanding auditor's certificates were estimated at $1758, the taxes for the year 1802 at $26,098, and the available balance for current expenses at $13,952. 26 The examining committee, appointed for that purpose, reported that the books of the auditor and treasurer were kept in good order and with accuracy, and that no monies had been expended without legal authority. ECONOMIC CONDITIONS. The economic environment and the early hardships of the pioneer settlers in Ohio will perhaps be made clearest by citing a few facts as to the industrial and financial conditions during the territorial period. 27 The first colonists came by water, for there were no roads through the forests. Indian trails were followed when land travel was necessary, and these were gradually widened into bridle paths. Later, with the growth of population, roads were cut through between the five or six centers of settle- ment, but judged by present standards they were miserable, hub-deep in mud, dangerous to passengers, and costly for transportation of freight. On the rivers, which were the favorite means of communication, where possible packet systems grew up, the first of which was in operation as early as January 11, 1799. 28 Numerous boats of various descriptions were built for the freight business on the Ohio River and the tributary streams. Money was not to be had in the earlier days of the territory, 29 and exchange was conducted by barter or the use of some primitive substitute for money. Such in- dustries as existed were mainly local in character, or were carried on within the family. The tax laws provided that money or "articles agreeable to the public use" might be M Rep. of joint com. to examine the accounts of the auditor and treasurer. Sen. J., 1803, pp. 25-26. "Most of the facts brought together in the next three or four para- graphs were collected by former student of mine, Mr. E. C. Dye, of Portland, Ore. "Cist, Cincinnati in 1851 (ed. 1859), p. 156. "John Sherman, in Ohio Centennial Celebration, p. 248. 17] TERRITORIAL HISTORY AND FINANCE 17 paid for taxes. 30 The act of 1792, in providing for fees, states that since a dollar piece varied in its real value in the several counties, the fee taker could for every one cent of the act demand one quart of Inidan corn. Auditor's certificates circulated as money, and in 1795 the death penalty was provided for the forgery of auditors' certifi- cates and other public securities. 31 After the treaty of Greenville comparative security and prosperity were brought about by the removal of fears of Indian attack, and the rapid influx of a population of greater means brought in more money. The domestic industries provided leather and home- spun clothes. Log houses and rough furniture were con- structed with the use of ax, auger, hammer, and saw. 32 Wheat, corn, whisky, maple sugar, eggs, butter, hogs, sheep, and fresh game formed the staples of their food supply. There was one commodity which home industry could not supply, however; one locality along the Scioto River for a time had almost a monopoly of its production. This was salt. The demand was great, and people traveled long distances to get it, and paid enormous prices. 33 Salt at the Scioto salt works sold for $3 to $4 per bushel. After being transported a hundred miles the same amount com- manded $6 to $7. Salt in Trumbull county, in the north- eastern part of the state, sold for $20 a barrel, and one man in Cleveland paid $40 for a barrel and then spent four days in cutting out a road through the dense forest in order to haul his purchase to his objective point about twenty-five miles distant. One bushel of salt, worth $3.20 at the salt springs, would purchase on the spot ten bushels of wheat at 32c, which was an exceptionally high price for the latter, or three deer at $1.00 apiece. 34 But the price of iron completely eclipsed all this, for the mere carriage of a ton from Baltimore to Ohio cost $200, or ten cents a "E.g. Act of 1792, Chase, Ohio Statutes, I, 118. "Act of 1795. Chase, I, 198. "Curtis, in Ohio Arch, and Hist. Soc. Publ, X, 243. "Atwater, History of Ohio, p. 11. "John Sherman in O. C. C., p. 248. 18 FINANCIAL HISTORY OF OHIO [18 pound. 35 Every community had its mill, built beside a stream, to grind grist and flour. The first mill in Ohio seems to have been the Wolf Creek mill, built in 1789, about a mile above its junction with the Muskingum River. 36 Saw mills were also erected, and later fulling mills for textiles. At the end of this period grazing be- came quite an industry, and considerable profit was made through the herds of cattle and horses, driven over the mountains to the Atlantic coast; the first such drive was made in 1805. Wages in Ohio during the territorial period were not high. A school teacher who made $10 a month was con- sidered well-paid; 37 the soldiers in St. Glair's army got $2.10 for the same period. 38 Constables received 75 cents and grand jurors 60 cents a day; a coroner was allowed $3.00 for every dead body he viewed and his jurors 50 cents apiece. 39 Surveyors, as skilled laborers in great demand, obtained the highest wages of all, and received amounts ranging from $3.50 a day for the compass or head man down to $1.25 for his flag man. The auditors of their accounts were paid $2.00 to $2.50 per day. The auditor of the Northwest Territory received $450 a year, and the treasurer $400. 40 The general system of fees prevalent in the territory was likewise proportionately low; for in- stance, the justice of peace got 5 cents a person for admin- istering oaths. The county commissioners of assessment were allowed 60 cents a day and mileage of 2 cents a mile. 41 "Atwater, op. cit., p. n. M See my Economic History of the United States, p. 134. "Mag. of Amer. Hist., XVI, 5. "Roosevelt, Winning of the West, IV, 30. "Chase, Ohio Statutes, I, 133. "Ibid., I, 154. "Terr. Laws, di. 36. Aug. i, 1792. PART CHAPTER I ECONOMIC AND FINANCIAL HISTORY OF OHIO. THE PIONEER STATE. Ohio was admitted to the Union in 1803, 1 and the first session of the first legislature of the newly formed state met at Chillicothe on March 1, 1803. The governor and Senate repaired to the chamber of the House of Rep- resentatives, where the governor delivered his opening message in person; in 1806-7 he sent his written message, which was read, perhaps in imitation of the practice estab- lished by President Jefferson. In his message for 1803 the governor reported that "the present revenue, if wholly reserved for state purposes, is adequate to all the necessary exigencies of government." 2 One of the first tasks of the legislators was to fix the pay for their own services, which they did by conscientiously reducing the rate to two-thirds of what it had been for the territorial legislature, or the modest sum of $2.00 a day with a mileage allowance of $2.00 for every 25 miles traveled in reaching the state 'By act of April 30, 1802, Congress directed the creation of the state of Ohio. Ohio adopted a constitution, and formed the state, on Nov. 29, 1802. Congress recognized the state as a member of the Union, by act of Feb. 19, 1803. 2 The first governor's message after Ohio became a state may be found in Sen. J., 1803, p. 10, or in Ho. J., p. n. 20 FINANCIAL HISTORY OF OHIO [20 capital. 3 The tax laws of the territory were slightly modi- fied, and continued in force. An auditor and a treasurer of state were provided for by continuing the territorial officials with the same functions. 4 In addition to his other duties, the latter officer was charged with the receipt of three per cent, of the proceeds from the sale of the public lands, to be paid by the United States. Laws were passed for leasing the school lands and the salt reservations. 5 As might be expected in a pioneer state such as Ohio then was, all the legislators were engaged in agricultural pursuits. To them no object was more important, and few absorbed more of their time and attention than road legislation. Indeed one of the terms upon which Ohio entered the Union was that five per cent of the proceeds from the sale of public lands within the state should be set aside for the building of roads. It was later agreed that three per cent, should be granted to the state for the construction of common highways in the various counties, and the other two per cent, be used in the building of a national road from tide water to Ohio. Most of the early roads in the state were built over the old portage ways between waterways, 6 thus showing the importance of the portage in the pioneer period of development. By June, 1805, some 1030 miles of road had been built out of 3 The pay of members of the general assembly for the first quarter of the nineteenth century was fixed as follows : Dec. 19, 1799 ....$3.00 a day and $3.00 mileage for 15 mi. travel Jan. i, 1802 3.00 a day and 3.00 mileage for 20 mi. travel March 24, 1803 2.00 a day and 2.00 mileage for 25 mi. travel Feb. 16, 1810 2.00 a day and 2.00 mileage for 25 mi. travel Feb. 18, 1816 3.00 a day and 3.00 mileage for 25 mi. travel Dec. 19, 1821 2.00 a day and 2.00 mileage for 25 mi. travel Dec. 29, 1823 3.00 a day and 3.00 mileage for 25 mi. travel The act of Feb. 18, 1816, also provided for raising other salaries, which were fixed as follows: judges of supreme court, $1200; governor, $1200; secretary of state, $800; president of court of common pleas, $1000; auditor, $1200; treasurer, $700. *Act of April 15, 1803. 'Chase, I, 36. 'E.g. between Cayuhoga and Tuscarora rivers. Sen. J. 1803, p. 63. 21] ECONOMIC AND FINANCIAL HISTORY 21 the proceeds of the 3 per cent, fund. 7 A great deal of time was taken up in the discussion of roads and the best use of the 3 per cent, fund, and many local and temporary acts were passed. Yielding to the pressure from every quarter, the legislature dissipated the fund by distributing it among the counties, no one of which secured enough to effect any large or permanent improvements. That good roads were necessary if trade were to be developed and Ohio dispose of her surplus products in the eastern markets was evident. A great stimulus was given to the movement by the first successful attempt to drive cattle from Ohio across the Alleghenies, which was made in 1805. Of the 68 head, 22 were disposed of at Morefield, Va., and the remainder were driven to Baltimore, where they were sold at a net profit of $31.77 per head. 8 In December, 1803, the second general assembly met. During this session the revenue system of the state was simplified and improved. The main reliance for revenue continued to be upon lands. The burden of the land tax was borne in great part by non-residents, who had no property of any other kind in the state, 9 but it had the desirable result of hastening the transfer of lands so held into the hands of resident proprietors. Two-thirds of the tax were paid into the state treasury, and one-third into the several county treasuries. County commissioners and township trustees were also authorized to assess taxes for certain purposes within their respective limits. To en- courage immigration a law was passed at this session to enable aliens to acquire and hold land within the state, and granting them the same proprietary rights as native citizens. Burr's reputed effort to lead an insurrection in the western states against the federal government aroused considerable exictement in Ohio, but T S>. /. 1805-6, p. 25. *L. N. Bonham, American Live Stock, in Depew : One Hundred Years of American Commerce, I, 225. 'Chase, I, 37. 22 FINANCIAL HISTORY OF OHIO [22 except this event [wrote Chase, the legal historian of early Ohio 10 ] the period now under review was marked by few striking or important incidents. The attention of the general assembly was chiefly bestowed on local legislation. The erection of new counties, and the incorporation of towns, banks, manufacturing companies, academies, and religious societies, indicated the rapid progress of the state in population, wealth, and character. Some of the early legislation is of great interest, as showing the minute regulation of industry that was thought necessary at this time, even in a primitive com- munity. An act of January 12, 1805, fixed the rates of toll for grinding : for wheat, rye, or other grain, the charge was one-tenth; for corn, one-eighth, etc. 11 By act of February 20, 1805, provision was made for the inspection of certain articles of exportation. 12 This act provided for the appointment of inspectors in each county "to inspect or pack all wheat or rye flour, Indian corn or buckwheat meal, biscuit, butter, hogs' lard, pork or beef." The in- spectors were to be paid by fees, as, for example, three cents for each barrel of flour; and articles were to be branded by them after packing or inspecting, if satis- factory. The law even described and prescribed the kind of barrel, firkin, etc. This is interesting not only as an illustration of the persistence of mercantilist notions, but also as showing the existence and character of an export trade from Ohio in agricultural products. Probably the difficulty of enforcing such an act under the conditions existing at that time made it a dead letter. In his message of 1809 the governor 13 congratulated the legislature upon the uninterrupted state of prosperity which the state had thus far enjoyed from the beginning. But an early act of the legislature thus felicitated seemed to indicate some degree of financial stringency and lack of sufficient money for the use of the community. The "Statutes of Ohio, I, 38. 11 O. L., 1805, ch. 20. a O. L., 1805, ch. 10, Cf. also act of Jan. 9, 1802, in Chase, Ohio Stat., I, ch. 151. "Gov. Mess. 1809, p. 43. 23] ECONOMIC AND FINANCIAL HISTORY 23 auditor was required to issue bills for even sums of $20, $10, and $5 in payment of accounts due individuals by the state; for any sum less than $5, a bill for the "precise balance of account" was to be drawn. 14 These treasury warrants were intended to circulate and to serve as cur- rency, and they seem to have served this purpose very well. By 1813 the number of banks had increased and the necessity for this form of currency was not so pressing; accordingly the auditor was authorized to draw a single warrant in settlement of any account, with the consent of the person to whom it was due. 15 In the following year it was provided that auditors' certificates should no longer draw interest. 16 The progress of the state in culture and wealth is evidenced by the fact that in 1810 there were fourteen newspapers published in Ohio. 17 In the same year the first blast furnace in the state was built and operated in Summit county. Efforts now began to be made to develop manufactures, and in his message for 1811 the governor adverts to the desirability of granting legislative aid for this purpose. To this end [he wrote] some encouragement for the raising and improving of the breed of sheep, and granting certain privileges to individuals or asso- ciations for prosecuting the most useful manufactures, would not be unworthy of the attention of the legislature. 18 . [In the following year he recurred to the subject:] In order to encourage domestic manufactures, upon extensive plans, "an act authorizing incorporations for manufactur- ing purposes", would be useful, that capitalists might associate, and have the regulation of their funds established in some degree under the sanction of law. 1 * The trade down the Ohio and Mississippi rivers was expanding during this period, and simple manufactures were beginning in the Ohio valley. While the earlier ship- ments had consisted only of raw agricultural products, "Act of Feb. 18, 1809. "Act of Feb. 9, 1813. "Act of Feb. ii, 1814. "Ryan, History of Ohio, p. 67. "Gov. Mess. Ho. /., 1811, p. 10. "Ho. /., 1812, p. 12. 24 FINANCIAL HISTORY OP OHIO [24 they later were subjected to some process of treatment, and were shipped in the form of pork, flour, etc. Soon after- wards simple manufactured articles, such as bagging, rope, twine, candles, glass, and iron, began to appear, and thereafter became increasingly important. 20 The character of Ohio's manufacturing industries and ambitions at this time is probably gained most clearly from the list of tax- able property enumerated in the tax law of 1831. In 1795 water, fulling, and oil mills, boats of twenty barrels bur- den and upwards, "and any other property producing yearly incomes," had been subjected to local taxation. 21 But in 1831 the list was considerably amplified and was made to include the following: 22 all grist, oil and saw mills ; all manufactories of iron, glass, paper, clocks and nails ; all distilleries, breweries and tanneries ; all iron, brass and copper f ounderies ; all money loaned at interest ; all stocks or capital invested in steam-boats ; all pleasure carriages with two or four wheels. 23 In 1811 there occurred an event of revolutionary importance in its effect upon the subsequent development of Ohio : this was the introduction of the steamboat upon the Ohio River. Not until four years later, however, did it succeed in making the trip up the Mississippi Kiver against the swift current. With that event began the era of successful steam navigation on the Ohio. It is impossible to give the number of steamboats in Ohio alone, but the total number on western rivers increased rapidly, from 14 in 1815 to 200 in 1829, and 450 in 1842. Following the example of New York, which had granted Livingston and Fulton a monopoly of the Hudson River, the state of Louisiana had likewise granted them a monopoly of the 20 See my Economic History of the United States, p. 178. "Chase, I, 168. "Chase, II, 1476. "A curious communication from one John Geo. Baxter, a textile manufacturer of Philadelphia, Pa., was printed in the Senate Journal for 1808 (p. 20), in which the writer urged upon the Ohio legislature the desirability of establishing textile mills for the purpose of giving employ- ment to the inmates of penitentiaries. "My weavers," he wrote, "who are all women, weave from 15 to 20 yards of cotton-bagging per day, or from 50 to 60 yards of girth-webbing per day." 25] ECONOMIC AND FINANCIAL HISTORY 25 lower waters of the Mississippi. This limitation upon freedom of navigation was the occasion of much injury and bitterness to steamboat owners and shippers in the Ohio valley as is evidenced by a resolution, 24 passed in 1816 by the Ohio House of Representatives, setting forth the evils inflicted upon navigation by the attempt to enforce the monopoly, and instructing the Ohio members of Congress to endeavor to secure a settlement of the controversy. 25 The interests of Ohio were too vital and the matter too important not to resist such pretensions as those of New York and Louisiana, and the state did her best to protect the interests of her citizens. An act of 1822 pro- hibited the landing of passengers on the shores of Ohio [i. e. of Lake Erie] from any boat which shall claim the right and privilege to navigate so much of the waters of Lake Erie, as is within the jurisdiction of the State of New York, under color of any law of said state, granting the exclusive right of navigation to Robert R. Livingston and Robert Fulton. 26 Further reprisals \vere rendered unnecessary by the deci- sion of the Supreme Court in the celebrated case of Gibbons v. Ogden, which threw open the waters of the Hudson to free navigation, and by implication also those of the Mississippi and other rivers. A considerable stimulus was thereby given to steamboat navigation in Ohio. When the legislature met in 1813 war had been de- clared between England and the United States. Through- out the whole of this contest, the scene of which lay at times upon her very border, the conduct of Ohio was eminently patriotic and honorable. 27 She took occasion at this time to express her position in no uncertain language : 28 Impressed with a full conviction, that the war in which this nation is involved, is, on our part, just and necessary; that the course pursued by the administration, in recommending the measure, and in its mild, con- ciliatory and continued efforts to secure to this nation an honorable peace, *Ho. J., 1816, pp. 371-373- *Ho. J., 1816, p. 371. "Act of Feb. i, 1822. "Chase. I. 41. n Sen. J., 1813, pp. 115-116. 26 FINANCIAL HISTORY OF OHIO [26 merits the entire approbation of this great assembly; and that not only the honor and dignity of this people, but its continuance as a free and independent nation, depends upon a vigorous prosecution of the war therefore, Resolved by the general assembly of the state of Ohio, That in the name and in behalf of our constituents, we pledge ourselves to aid the national government in the present emergency, to the extent of our resources ; and we do this in the hope that the goodly heritage of our freedom may descend from us to posterity as we received it, excellent and unimpaired. Be it further resolved, That we have seen, with emotions of much concern, the protracted delay of the English government to render justice to this nation, for its outrageous depredations upon us ; and that we will afford to the constituted authorities, in whose wisdom and firmness we place confident reliance, our utmost support in their efforts to sustain the honor of the nation, and to obtain suitable amends for its injuries. But not merely in words did Ohio lend her encourage- ment to the national government. When Congress laid a direct tax upon the people, Ohio promptly assumed her quota and paid it out of the state treasury. "Her sons volunteered, with alacrity, their services in the field; and no troops more patiently endured hardship, or performed better service." 29 In 1814 resolutions were passed in the House of Representatives, approving the conduct of the war by the federal government, and condemning the acts of the enemy, and also of those at home who opposed the war. 30 A dissenting resolution was presented in the Sen- ate, but was not passed. 31 Upon the conclusion of the war, Ohio took part ener- getically in a renewal of commercial operations with the rest of the country, and expanded rapidly. Her develop- ment at this time is described as follows by a contemporary writer : 32 Excessive importations were made of foriegn goods. The tide of emigra- tion, which had been restrained by the war, now poured into Ohio a large accession of population. The numerous banks, which had been chartered before and during the war, and which continued to spring into existence in every part of the state, supplied an abundant circulating medium, "Chase, I, 41. "Ho. /., 1814, pp. no-iii. n Sen. J., 1814, p. 340. 32 Chase, I, 42. 27] ECONOMIC AND FINANCIAL HISTORY 27 Speculation, stimulated by every incentive, ran into wild and extravagant excesses. Improvements of every kind, under its strong propulsion, advanced with wonderful rapidity. But this unnatural state of things could not long continue. Men who had contracted debts found, when called upon for payment, that the means were wanting. Banks, which had made excessive issues, found themselves unable at all times to redeem their paper on demand, and the currency of course began to depreciate. The disordered state of the currency affected also the state finances, and created difficulties in the payment of taxes by the people, and in the receipt of depreciated bank notes by collectors and the state treasurer. The gov- ernor thought it absolutely necessary, that the legislature should designate by law, what shall be received by the collectors of public money in payment of state and county taxes. 83 The following year he reported that there was an un- expended balance in the treasury of about $32,000. The nominal amount of taxes received, and expected into the state treasury, would indicate its prosperous condition ; were it not, that many of the bank bills, which collectors are compelled to receive, if the collec- tion be effected, are in a lamentable state of depreciation. 84 Again the next year it was stated that the nature of a part of the funds, in the treasury, has caused some difficulty, in transacting the business of that department ; and the public creditors remain unsatisfied, to the amount of more than twenty-six thousand dollars ; which would have been discharged, but for the deprecia- tion of the bank notes, of which the remaining fund consists. 85 Resort was again had to the expedient used so suc- cessfully in 1809, of authorizing the auditor to draw bills on the treasurer, in the settlement of accounts due in- dividuals by the state, of even sums of $10, $20, "or any fraction between them, or for the whole amount to which a person is entitled" ; but for any sum under $10 only one warrant should be drawn. 36 Two years later this was re- enacted and the faith of the state pledged for the redemp- tion of the bills. 37 As this act was not repealed until ^Gov. Mess. Ho. /., 1819, p. 10. *'Gov. Mess. Ho. J ., 1820, p. 10. "Gov. Mess. Ho. J., 1821, p. 13. ""Act of Feb. 22, 1822. "Act of Feb. 24, 1824. 28 FINANCIAL HISTORY OF OHIO [28 1831, 38 the money stringency was evidently a long con- tinued one, and the auditor's warrants filled a real want, taking the place of depreciated or worthless bank notes. The reason for this depreciation was to be found in the too extensive and injudicious use of their credit by sanguine borrowers, who were unable to meet their engage- ments when prices fell and trade declined. The banks were thus left with unnegotiable paper on their hands, and having themselves over-issued, were unable to redeem their circulating notes. At the time, the people held the Bank of the United States, which had established branches at Cincinnati and Chillicothe, responsible for most of their financial troubles. These branches issued notes, redeem- able on demand, to a considerable amount, and the presence of this convertible paper doubtless tended to hasten the depreciation of the state currency. The United States branch banks also insisted that the local banks redeem their own notes on presentation, but few could endure this ordeal, and their notes either depreciated greatly or in several cases became absolutely worthless. 39 In 1816 the seat of the state government was estab- lished permanently at Columbus, then a town of only three years growth, yet boasting 200 houses and 700 inhabitants. A contemporary described it as follows : 40 The streets are filled with stumps of trees and environed with woods, which give the town the appearance of having just emerged from the forest. The houses generally are small and indifferent as the town was laid out on a large scale, considerably scattered. The people have been collected from every quarter and having great diversity of habits and manners of course do not make the most agreeable company. An elegant state house is being erected, about eighty feet square, constructed of brick and finished with elegant white marble. The governor, in 1816-17, used part of the contingent fund placed at his disposal for the purchase of books for ""Act of Jan. 31, 1831. "For a full account of the operations of the Bank of the United States in Ohio, and the efforts of the legislature to drive the branches out of the state, see chapter on Banking, below. "Atwater, History of Ohio, p. 177. 29] ECONOMIC AND FINANCIAL HISTORY 29 the state, and thus laid the foundation of the present state library. In spite of banking troubles and primitive conditions, the wealth and population of the state continued to in- crease rapidly. The lands, lots, and dwelling houses in Ohio were valued at $61,347,215 in 1815 ; while the popula- tion grew from 230,760 in 1810 to 581,434 in 1820. The state enumeration of free white males above twenty-one years of age showed 64,814 on May 1, 1815, 41 and 98,780 on January 1, 1820. 42 The largest proportion of the settlers in Ohio were from the middle states, as Pennsylvania and New Jersey; these were to be found in the central and southern part of the state. Another large contingent came from the South, though not so numerous as the other; these consisted almost entirely of the poorer whites, the non- slaveholding elements. New England made the smallest contribution, and the settlers from that section were to be found chiefly in the northern tier of counties. In the Ohio legislature in 1822 there were 38 members of middle state birth, 33 of southern (including Kentucky), and 25 of New England. The character of the composite population thus brought together soon showed itself by the stand it took upon the slavey question that was now presenting itself in Congress as a political issue. While the debate over the admission of Missouri was exciting the interest of people throughout the Union, the legislature of Ohio sent the fol- lowing instructions to their representatives: 43 Whereas, the existence of slavery in our country must be considered a national calamity, as well as a great political evil ; And whereas, the admission of slavery within the new states or territories of the United States, is fraught with the most pernicious consequences, and calculated to endanger the peace and prosperity of our country : Therefore, Resolved by the General Assembly of Ohio, That our senators and representatives in congress be requested to use their utmost exertions to prevent the admission or introduction of slavery into any of the territories of the United States, or any new state that may hereafter be admitted into the Union. "Sen. /., 1816, p. 277. "Sen. J., 1820, p. 127. "Sen. J., 1820, p. 169. 30 FINANCIAL HISTORY OF OHIO [30 EXPANSION : SCHOOLS,, CANALS, AND TAXATION. In January, 1821, the first tax for the support of schools was levied by the legislature. Up to that time they had been supported, so far as they existed, by the proceeds from the sale of school lands. When Ohio was admitted to the Union, it was on the condition that section sixteen in every township should be granted the state for the use of schools, and that additional tracts of land equal in quantity respectively to one thirty-sixth of the Virginia reservation, of the United States military tract, and of the Connecticut reserve should be ceded. In addition to this, three per cent, of the proceeds of the public lands sold within its limits were to be given the state for the construc- tion of roads. As a return, it was provided that Ohio should not tax lands sold by the United States, for five years after sale. Efforts were made to lease the school lands, and to incorporate school societies and libraries, but these were ineffectual as the lands in their wild state could yield no income. 44 Little was done in the way of establishing schools, as the benefits of public schools were then not fully understood, and there was little money in the state. The law of 1821 made the levy of the tax volun- tary on the part of the school district, and was therefore inoperative in most sections of the state. Agitation for better schools was carried on by a committee appointed in 1822 by Governor Trimble, consisting of Caleb Atwater, Ephriam Cutler, and Nathan Guilford, and was finally made a political issue. By joining forces with the canal party, laws for the establishment of schools and the con- struction of canals were passed at almost the same time. 45 The important feature of the school act was that the county commissioners were ordered to levy a tax of half a mill on the dollar "to be appropriated for the use of common schools," in their respective counties. In 1829 the tax was "Rep. of Com'r of Statistics. Exec. Doc., 1859, I, 817. The canal bill passed Jan. 28, 1825, by a vote of 58-13 ; and the school bill on Feb. I, by a vote of 46-24. 31] ECONOMIC AND FINANCIAL HISTORY 31 raised to three-fourths, and in 1836 to one and a half mills. The principle of a general school tax had now been adopted, but in practice the act remained very ineffective. During the thirties Governor Lucas urged in his messages the irrevocable appropriation of various trust funds to the support of schools, which was strongly seconded by the Educational Convention in 1836. The result was the en- actment of the act of March 7, 1838, which established a permanent school fund to consist of "the interest on the surplus revenue, at 5 per cent., the interest on the proceeds of salt lands, the revenue from banks, insurance and bridge companies, and other funds to be annually provided by the state to the amount of $200,000." The proceeds from the sale of school lands were rather unfairly distributed among the counties and townships according to their re- spective interests in such lands. 46 In the following table is shown the growth in the amount of taxes and funds of all kinds devoted to the support of common schools : 47 TOTAL AMOUNT OF ALL YEAE. STATE TAXES. FUNDS (STATE AND LOCAL) 1825 $ 29,763 f 29,763 1841 128,353 507,353 1858 1,259,092 2,906,020 The state of the treasury called for notice in the gov- ernor's message in 1822, and was described as less encouraging than I could have wished ; and it will become necessary, in justice to present and future creditors, for the legislature to examine what sources of revenue they can command, to supply with least vexation, the deficiency occasioned by depreciation and defalcation; and what retrenchment can be made in expenditure, without injury to the public service .... The debts, some time since contracted by improvident speculation of the adventurous, and probably aggravated by a too careless economy in general, continue to bear, though with abated weight, on the industry of our community. The resource of the country's productions you will be sensible, has greatly failed to remove this embarrassment, from the want of demand and their low price, since the late war. 4 * The staple products of Ohio were practically excluded from "Exec, Doc., 1859, II, 41. "Rep. of Com'r of Stat. Exec. Doc., 1859, I, 823. "Gov. Mess. Ho. /., 1821-22, p. 8. 32 FINANCIAL HISTORY OF OHIO [32 the Atlantic market, owing to the heavy charges for trans- portation from the interior ; while perishable articles were always exposed to the hazard of a too hot climate when sent to New Orleans. The necessity of relying on our internal resources admits not of a ques- tion [concluded the governor 49 ] but the manner in which those resources can best be called into action, for immediate alleviation of distress, and to provide, at the same time, for future prosperity, is more doubtful, and demands the most discriminating intelligence of our statesmen. One of the evident means to mitigate the present hardships, and promote our independence, is in those manufactures which can be economically executed in our country ; but to what extent the skill and industry of the inhabitants have, hitherto, been able to provide those necessaries for which they had depended on importation, appears too little known; yet it is believed to be very considerable. In his message of 1823, the governor recurs to the sub- ject as follows: The industry, frugality and rigid economy so generally observed are gradually relieving the country from embarrassment, and the agricultural, manufacturing and commercial interests of the state are manifestly im- proving. 50 To add to the financial distress the year 1821 was "un- usually sickly", 51 while in 1823 "an epidemic widely extend- ed in its range and unusually virulent in its attacks" 52 visited a large portion of the state. At the same time there was a partial failure of the crops in that part of the state where the fevers were most prevalent. Nevertheless the governor believed that "the products of the year will be found sufficient for the subsistence of the inhabitants, leaving a surplus for exportation, equal perhaps, to the present limited demand for our bread stuffs." 53 By 1825 the growth of population and production had increased the agricultural surplus of Ohio beyond the then existing means of transportation. The state census of 1825 showed the number of white male persons in the state "Ibid., p. g. "Ho. /., 1823, p. 30. "Gov. Mess., Ho. /., 1822, p. 8. "Gov. Mess., Ho. J., 1824, p. 15. "Ibid., p. 15. 33] ECONOMIC AND FINANCIAL HISTORY 33 on January 1, to be 124,724, 54 while the total number of inhabitants was estimated at over 700,000. As agriculture was practically the only occupation, 55 and an outlet for its products was to be found only in those districts bordering on the rivers or lake, the surplus in the interior counties was almost valueless. Thus in 1825 wheat was sold in the interior counties for 37 cents a bushel and corn for 10 cents/' 6 . The need of an outlet for this produce to the Atlantic seaboard was strongly felt, and led to the agita- tion for a system of canals which should connect the Ohio River with Lake Erie and provide water communication for the interior counties. Accordingly in 1825 work was begun on the Ohio canal, which crossed the state from M Ho. J., 1825, p. 428. "In 1830 the governor writes : "Our state is essentially agricultural". Ho. J., 1830, p. 10. M Ringwalt, Transportation Systems, p. 155. The following quotation from the History of Seneca County (Springfield, Ohio, 1880, />. 213"), by W. Lang, describing conditions as they existed in the twenties, is of particular interest, and is therefore given in extenso : Great was the trouble owing to scarcity of money. Barter and trade was the order of the day, and while this exchange was all right in some respects, it would not answer for others. Taxes could not be paid in that way, and the merchant, after waiting a long time, had to have cash with which to meet his bills in New York or Philadelphia. When a man had anything to sell, it found no market for money. He could trade it away for something he wanted from his neighbor. If a man wanted an article from another, and had nothing to exchange for it, he paid in work by the day, or agreed to clear so many acres of land for the article. Men bought their cows, their horses or hogs, in that way. Corn and wheat were hauled by ox teams, generally to Mansfield or Sandusky, to be sold for money. Wheat was hauled to a market forty to sixty miles away, where it could be sold for only 30 cents a bushel in cash, or for 3 shillings [37^2 cents] in trade. Sandusky was the principal market [of Seneca county] for wheat, and many a load was sold there, at 3 shillings a bushel, for salt at $5 a barrel, when it took about one week to make the trip. Getting grinding done at the few mills there were then in the county, was attended with equally great hardship. After the City Mill of Tiffin was put up, farmers from Crawford, Hancock, and Marion counties, came here to get their grists ground, and at times 15, 20, or more teams waited their turn and camped out a whole week. 34 FINANCIAL HISTORY OP OHIO [34 Portsmouth on the Ohio Biver to Cleveland on Lake Erie, and on the Miami canal between Dayton and Cincinnati. During the next few years the legislature gave its almost undivided attention to the building of these canals, and devoted little to other matters. The reports of the auditor, the governors' messages, and the journals of the general assembly, contain little but discussions of the canal, and later railroad, construction, coupled with prophesies of the future greatness of Ohio as a result of the policy of internal improvements. Nor is much additional light on current events to be gained from the laws, which seem directed only to the single end of canal legislation. 57 The completion of the Ohio canal in 1833 opened up the whole interior region of the state to the northern and eastern, as well as to the southern, markets. Continuous water communication was now possible from a large part of Ohio via the Ohio canal, Lake Erie, the Erie canal, and the Hudson Kiver to New York City and the Atlantic sea- board, and thence to Europe. As a result the agricultural exports of Ohio increased enormously and at the same time better prices were received. In 1835 there were shipped from the state of Ohio through by canal to New York 86,000 barrels of flour, 98,000 bushels of wheat, and 2,500,- 000 staves. 58 But the effects of the canals were not con- fined to Ohio alone. The pouring of this vast amount of western produce into the eastern markets reduced the prices of those products in New England and the East, lowered the price of farms, and started a wave of migration to the Central West. Ohio experienced an unprecedented wave of prosperity and grew rapidly in population and resources. The population of the state increased from 937,679 in 1830 to 1,515,161 in 1840. In 1835 the white male inhabitants over twenty-one years of age were 235,- 225. The character of the immigrants was high; they "The financial and legislative history of this period will consequently be found at greater length in a forthcoming monograph on Internal Im- provements in Ohio. **Rep. on Internal Commerce of the U. S. (1887), p. 202. 35] ECONOMIC AND FINANCIAL HISTORY 35 possessed habits of industry and enterprise, and speedily converted the forested areas into fruitful fields, and helped to build up thriving villages. There was a slight check to the general expansion in 1833, owing to the prevalence of the cholera in parts of the state, 59 but it did not continue long. A decided stimulus was given to the agricultural interests of the state, and in 1833 an act was passed by the legislature to authorize and encourage the establish- ment of agricultural societies. In response to this sugges- tion a number of such societies were formed in the counties of Licking, Washington, Greene, Clinton, and Pickaway, "exhibiting very flattering tabular statements of the con- dition of their respective counties in an agricultural and manufacturing point of view." 60 The chairman of the stand- ing committee on agriculture reported to the House in 1834 1 that "within a few months an association has been formed for the purpose of importing the best breed of European cattle", that "another association has also been formed with the view of selecting for this valley, some of the best stock in the northern part of the Union". Similar efforts were also made to improve the breeds of sheep and hogs. The state was still distinctively an agricultural state, and continued to be so as long as labor could be more profitably employed in agricultural than in manufacturing pursuits. There w-as, however, a considerable development of domestic manufactures, which was described in the gov- ernor's message of 1834. 62 In speaking of manufactures, [he wrote] I do not allude to establish- ments that require large investments of capital and protecting duties to enable them to sustain themselves, for we have few such in Ohio, but to such as have been established by our enterprising citizens, for manu- facturing materials produced within the state. Those carried on by mechanics in their shops ; and particularly that description of manu- "Rep. of Canal Commissioners. Ho. ]., 1833, p. 297. "Ho. J., 1834, p. 622. n Ho. J., 1834, P. 455 "Gov. Mess. Ho. J., 1834, p. 8. 36 FINANCIAL HISTORY OF OHIO [36 factures in which our industrious females are the principal operators, and may be found in the greater portion of families in the state, where the various articles of common clothing, bedding, carpeting, and sundry other necessary articles for the use of the family are manufactured ; these manufactures are calculated to render us independent as a people, par- ticularly the last which is truly domestic in its character, extensive in its benefits and cannot be too highly commended. Of factories in the modern sense there were none, nor was production on a large scale present. "With the exception of the articles of salt and iron the manufactories in Ohio are not extensive," wrote the governor in 1836. 63 The year 1825 had also been marked by a thorough revision of the revenue laws. The act of February 3, 1825, 64 for the first time abandoned the primitive practice of classifying the land according to the quality of the soil, and added other sources of state revenue to the land tax, from which almost the whole of the income of the state had up till now been derived. Town lots and buildings, dwelling houses, horses and cattle, pleasure carriages, and the capital of merchants and exchange brokers were now subjected to taxation. By this act the principle of the general property tax, and much of Its administrative machinery, was introduced, though it was by no means fully carried out in practice. In 1831 the list of taxable objects was considerably enlarged, and a number of kinds of property, especially that engaged in manufacturing of all sorts, was added to the list of taxable property. No further charge was made until the thorough-going applica- tion of the theory of the general property tax in 1846. The results of the changes in the tax laws were promptlv seen in the improved financial condition of the state treasury. "The receipts from taxation annually exceed our calculations," wrote the auditor in 1831. 03 There was evidenced in this fact not merely improvement in the revenue laws, but even more clearty the rapid growth of wealth and prosperity in the state. The period was one "Gov. Mess. Exec. Doc., 1836, No. i, p. 23. "Chase, II, 1476. "Aud. rep. Ho. J ., 1831, p. 24. 37] ECONOMIC AND FINANCIAL HISTORY 37 of general expansion and of undoubted prosperity, though it was given an artificial stimulus by the over-issue of bank notes and the development of speculation. In these regards the experience of Ohio was not very different from that of other states. The success of the Ohio canal induced the state to enter upon a more ambitious and comprehensive system of internal improvements. Additional canals were projected and begun : the Miami and Erie connecting the Ohio River at Cincinnati with Lake Erie at Toledo, the Wabash and Erie, Hocking Valley, the Muskingum improvement, etc. Every part of the state was clamorous for improvements and they were begun simultaneously at various points. Nor were they confined to canals alone; turnpikes, slackwater navigation companies, railroads, etc., also claimed assistance. The major part of the business of the legislature during this period of expansion consisted in incorporating companies for purposes of internal improve- ment. Thus, during the sessions of 1835-6 and 1836-7 the following local acts were passed: 1835-6 1836-7 Sale of public lands 13 15 Manufacturing companies 16 Insurance companies 13 Railroad companies 32 15 Roads 50 58 Turnpike companies 14 23 Bridge companies 5 6 relating to bridges 7 2 Canal companies 5 relating to canals 13 Slackwater navigation companies 5 Many of these projects were visionary and impractic- able, but the enthusiasm of the times had blinded people and legislators alike to the usefulness or feasibility of schemes of internal improvement. Additional stimulus was given, if any was needed, by the act of Congress in distributing the surplus revenue of 1837 among the states. Ohio accepted her share of the act of December 19, 1836, 38 FINANCIAL HISTORY OF OHIO [38 and distributed it among the counties, where it could be loaned out by the commissioners, subject, however, to the recall of the state in 1851. The proceeds were devoted to the support of the common schools. The following year Ohio passed her famous loan law, according to which the credit of the state was loaned to railroad companies; and the state was authorized to subscribe, under certain conditions, to the stock of canal, turnpike, bridge, and other companies. The result was the multiplication of these companies, and the straining of the credit of the state almost to the breaking point. A reversal of parties in 1838 resulted in the repeal of much of the rather radical legislation of 1836, and the enactment of new measures. Provision was made for a new state house, by the appointment of three commis- sioners!, who were authorized to offer three prizes of |500, |300, and |200 for the best plans. 60 The board of public works, which had been created two years before, was abolished and the old board of canal commissioners reinstated; banking legislation was also passed. But in the following year the canal commissioners were put out of office again, and the legislation of 1838 reversed. The board of public works was restored, the commissioners for the new state house removed, 67 and the banking legisla- tion repealed. In 1838 Ohio rather tardily joined the list of states which had abolished imprisonment for debt, by abolishing it for debts under f 100. 68 The growth of the state and its rapid settlement is shown by the fact that there were now seventy-five counties, of which some con- tained towns of considerable size. The price of land varied throughout the state from $1.25 to f 100 an acre. As proof of the prosperity that prevailed a contemporary writer stated that the price of labor was 50 per cent, higher than in the Atlantic states, while provisions were about 50 per cent, cheaper than there. 69 "Act of Jan. 26, 1838. "Act of March u, 1840. "Act of March 19, 1838. "Atwater, History of Ohio, p. 316. 39] ECONOMIC AND FINANCIAL HISTORY 39 PANIC, BANKING PROBLEMS, AND ECONOMY. The panic of 1837, which followed the undue expansion of industrial activity, the investment of so much capital in fixed and often unproductive forms, and the excessive currency inflation and speculation, affected Ohio along with the rest of the country. Conditions were never so bad in the Ohio valley, however, as in the East. "In this state", wrote the governor in January, 1839. 70 our citizens have felt the pressure to a considerable extent, and are still laboring under its unfavorable influence. It has not, however, fallen with the same force on us as on the citizens of some other portions of the Union. This is owing to the fact that we are more an agricultural, than a manufacturing or commercial people ; and, comparatively speaking, but little in debt. The embarrassment and pressure among our business men in Ohio, I am convinced, will be of but temporary duration. Their business habits, energy of character, with the great ami increasing re- sources of the country, will soon enable them to recover from their present difficulties. The mechanical and agricultural portions of the community being generally out of debt, have not experienced the same embarrassments that have been felt by the merchants, and those engaged in heavy business, demanding large capital and extensive credit. The contraction of the banks, and the consequent scarcity of a circulating medium, when compared with former years, increased the embarrassment. Between April 30, 1837, and September 30, 1838, the discounts of the banks were reduced $8,237,537 and the circulation $1,824,419. A still more drastic reduction of the circula- tion was made the following year, between April 30 and September 30, 1839, of $4,460,775; the outstanding bank notes were now only $3,697,098. At the same time an unusually abundant harvest of wheat depressed the price of that staple, and made the payment of debts contracted under the regime of high prices still more difficult. 71 As a consequence of these embarrassments, the legis- lative session of 1840 showed great economies: the loan law was repealed, as was also the act for the erection of the new state house ; the number of members on the board "Gov. Mess. Exec. Doc., 1839, I, 6. "Gov. Mess. Exec. Doc., 1840, I, 23. 40 FINANCIAL HISTORY OF OHIO [40 of public works was reduced, the receipts and disburse- ments of the canal fund were brought under the control of the auditor, and canal appropriations were cut heavily. As evidence of good faith in their economies, under the heavy pressure that was brought to bear upon them, the legislature soon after reduced their own pay and that of most of the state officers. 72 But as soon as the immediate pressure was removed they restored their own pay again to the previous rate, 73 and the following year repealed the rest of the act. 74 But not merely were public economies affected; "a laudable spirit of economy seems to pervade the whole community''. 75 There was during this whole period a large balance of indebtedness against Ohio in favor of the East for manufactured goods and for interest on borrowed capital, which necessitated an excess of exports every year. To the payment of these obligations the people of Ohio manfully and energetically applied themselves. The interest on the public debt was faithfully met, and private debts were rapidly paid off. That the economic foundations upon which Ohio had reared her structure of credit during these years w r as at basie sound, is shown by the exports from the state in 1840. 76 "Act of Jan. 27, 1844. The pay of members of the general assembly was fixed at $2.00 per day, and $2.00 for every 25 miles traveled to the state capital. The governor was allowed a salary of $1,000; the secretary of state $500; auditor, $730; treasurer, $730; judges of the supreme court, $1000 ; president judges of the courts of common pleas, $730 ; etc. 73 Act of Jan. 29, 1847. The rates were now $3.00 per day for the first sixty days of the session, and $1.00 per day thereafter; and $3.00 mileage for every 25 miles travel. "Act of Feb. 7, 1848. "Inaugural address of Governor Shannon, Dec. 14, 1842, p. 4. "Rep. of Commissioners of Canal Fund. Exec. Doc., 1841, Doc. No. 49, P. 17- 41] ECONOMIC AND FINANCIAL HISTORY 41 EXPORTS IN 1840 ESTIMATED VALUE Breadstuffs, mostly wheat and flour . . .$ 7,098,810 Other agricultural products, including distilled spirits 1,874,402 Products of domestic animals, chiefly pork, lard, butter, cheese, and wool 2,315,069 Domestic animals driven from the state on foot 2,600,000 Products of mines and forests 782,700 Manufactured articles 5,000,000 Total $19,670,981 During this same year 7,500,000 acres of land were reported to be in cultivation, most of which was devoted to wheat growing. Ohio every year sent a considerable surplus of this staple to the East, and some of it abroad. "A large amount of the wheat of Ohio and Michigan has found its way to England, through the Canadas, within the past few years, by paying mere nominal duties. 77 The depression in the value of wheat made it difficult for the farmers to pay their taxes, which the extravagant under- takings of the state had raised to a high rate, while even at this early date the soil began to show signs of exhaus- tion from steady cultivation of wheat and lack of fertilizers. By neglect and unskilful tillage [wrote the governor in 1845"] nearly one-half of the products of this great source of wealth and prosperity [i. e. agriculture] may be lost. Already it is apparent in some parts of the state that a deterioration of the soil has taken place, and great want of skill exists in the production of crops. The agriculturists in our state have not adopted those improvements and useful discoveries which have been made in the cultivation of the soil. One interesting and natural result of the panic was the almost complete cessation of works of internal improve- ment. Thus the laws incorporating new companies, and providing for works of this sort, dropped to almost noth- ing. In 1843 acts of incorporation were passed for only three banks, one canal company, five turnpike companies, and to lay out two state roads. As contrasted with the feverish activity desplayed in 1835-36 or 1836-37 this marked a great decline. Such a change must be regarded IT Gov. address, Dec. 14, 1842, p. 7. n Exec. Doc., 1845, I, 6. 42 FINANCIAL HISTORY OF OHIO [42 as a gain, for the time and attention of the legislature had been absorbed in the work of special and local legislation for years, and evils of lobbying and illegitimate influences had inevitably grown up at the state capital under such a system. The banks had possibly been the worst offenders, as they were the greatest beneficiaries. So great had grown the evil that in 1844 the governor devoted special attention to it in his annual message to the legislature. 79 The fol- lowing extracts are of especial interest : It is apparent that special and local legislation in this State has been indulged until it has truly become an evil. Within the last six years, two thousand and fifty-nine acts have been passed, of which seventeen hundred and forty-six are special statutes, and three hundred and thirteen fall under the denomination of general laws Of the seventeen hundred and forty-six special acts above mentioned, eleven hundred and twenty-seven relate to corporations the grants of exclusive privileges and special immunities to associations of individuals. This class of special legislation has been continued in nearly an equal ratio for the last ten years ; and should it be persevered in, and corporations continue to multiply as heretofore, for the next twenty years, the State will be literally thatched with charters of incorporations, and the past subterfuges, pretenses, frauds and profligacy of corporations will form but a miniature epitome of what vi ill be exhibited in future One of the evil tendencies of the present age is a venal spirit of adventure, stimulated by a thirst to acquire property without earning it, and a desire to transact business through the agency of acts of incorporation. Wealth has its appropriate influence, and possessses naturally intrinsic advantages over labor ; but when associated under charters, and favored with special immunities, and exclusive privileges, it builds up oppressive monopolies in the business of the country, and acquires an undue ascendency over the interests and rights of the private citizen. Although the activities of the state were checked in works of internal improvements, the local governments did not withdraw so quickly from the field. When once the virus had entered the blood the fever of speculation was not so easily cured. An act of 1846 provided for holding a referendum in counties, in case the county com- missioners wished to subscribe to the stock of a railroad, turnpike road, or other incorporated company. 80 There **Gov. Mess. Exec. Doc., 1844, I, n. "Act of Feb. 28, 1846. 43] ECONOMIC AND FINANCIAL HISTORY 43 seems to have been a shifting of these works from the state to the local governments, rather than a complete with- drawal from works of public improvement. By vigorous efforts and loans at almost ruinous rates of discount the state pushed the work on the canals to completion by 1848. In that year the state debt reached its highest point, and measures were taken to create a sinking fund for its liquidation. The effect of these acts on the credit of the state was at once apparent, and Ohio's credit rose high in the loan market; the six per cent, stock of the state was quoted in New York at 1031/4. 81 Meanwhile another problem was pressing for solution at the hands of the legislature that of banking. In Ohio, as elsewhere at this time, the idea had prevailed that the prosperity of the state was dependent upon the increase in banking institutions and the expansion of bank issues. At the sessions of 1835-6, 1836-7, 1838-9, and 1840-41, petitions for more banks were crowded upon the legisla- ture in unequaled numbers. 82 A majority of the bank charters were to expire in 1843 and 1844, and it was now possible for the legislature to prescribe more carefully, if they wished, the conditions of banking. This they did by a general act of March, 1842, which superseded the old special charters and imposed rigid restrictions on the abuses heretofore practiced. This was alleged to be too severe, and though it was modified the following year, no banks were organized under it. Finally, by act of Feb. 24, 1845, the State Bank of Ohio was established with seventeen branches, and nine so-called independent banks were chartered; in addition to these there still remained eight banks doing business under charters granted under the old banking system. The aggregate amount of the banking capital of these thirty-four banks on November 1, 1846, was |5,826,677, and the whole circulation was f 5,674,- 769. 83 The new law provided for a more careful regula- $1 Rep. Board of Canal Fund Com'rs, Jan. 15, 1849, p. 107. **Exec. Doc., 1844, Doc. No. i, p. 11. "Gov. Mess. Exec. Doc., 1846, I, 10. 44 FINANCIAL HISTORY OF OHIO [44 tion and supervision of the banks than had been the prac- tice, and limited the circulation so as to provide a more uniform and stable currency. And already [wrote the governor at the beginning of 1846] the people of Ohio begin to feel the influence of this system in the restoration of confidence, the revival of business, the increase of the wages of labor, and the rising prosperity of the State. 84 But the hard times were by no means over, as is evidenced by an act of 1845, 85 for the relief of borrowers of the surplus revenue fund in the hands of the counties, extending the time of payment of interest and of execu- tion for non-payment. To meet the needs of the state and make good the decline in ordinary revenue, the legislature sought out new sources of taxation, as money brokers in 1845. 86 They also proceeded to close the doors as far as possible to loose use or misuse of the public funds by an act of 1846, 07 to punish embezzlement of the public moneys. This was broadly defined as using, loaning, or investing such money and was punished by a fine of from $50 to $500 and the loss of office ; contracts for personal advantage were also forbidden. The enactment of such a law certainly points to the existence of loose methods of handling the public moneys, and a desire to improve conditions. Progress along cultural and industrial, as well as financial lines, was evidenced by a number of isolated events. In 1844 public executions were abolished. 88 Two years later a state board of agriculture was established; 89 it met and organized April 1, and made its first report on December 25 of the same year. The wave of democracy that swept over the country at this time affected Ohio also. In 1850 it was provided that the members of the board of public works, the attorney general, and other appointive state officers, should thereafter be elected by the people. 90 **Gov. Mess. Exec. Doc., 1845, I. 5- "March 11, 1845. "March 12, 1845. "March 2, 1846. "Act of March 12, 1844. "Act of Feb. 28, 1846. "Act of March 22, 1850. 45] ECONOMIC AND FINANCIAL HISTORY 45 The industrial development of the state also claimed the attention of the legislature: in 1847 an act was passed "to facilitate the construction of the Electric Telegraph", by providing that lines might be constructed in any place "so they do not incommode the public"; 01 and in 1851 lotteries were absolutely forbidden. The following year the legislature passed the first state law regulating the hours of labor for children under 18 years of age and for women. 92 This antedates the law of Massachusetts, claimed to have been the first on the subject, 93 by fourteen years, and is consequently worth quoting at length : SECTION i. That in all manufactories, workshops and other places used for mechanical or manufacturing purposes, in the state of Ohio, where children under the age of 18 years, and women, are employed, the time of labor of the persons aforesaid, shall not exceed 10 hours for each day. (Employers who offended were to be fined from $5 to $50, and all fines were to be used for the support of the common schools). SECTION 2. That in all engagements to labor in any mechanical or manufacturing business, a day's work, when the contract of labor is silent upon the subject, or where there is no express contract, shall consist of 10 hours. As the act was rather loosely drawn, especially in the second section, which was not expressly limited to women and children, and no provision seems to have been made for the administration or enforcement of the law, it is probably to be regarded rather as a"pious wish" than a practical measure. The need of a new and more commodious and better built state house had long been felt, and after the destruc- tion of the old one by fire it became imperative. Accord- ingly, when the pressure of financial stringency was re- moved, the legislature returned to the work, which had been begun in 1838 and suspended in 1840. Three commissioners were appointed in 1846 to take up again the work of build- ing. 94 The work dragged along for six years and then the "Act of Feb. 8, 1847. "Act of March 19, 1852. "E. g. by C. D. Wright, Industrial Evolution of the United States, p. 267. "Act of Feb. 21, 1846. 46 FINANCIAL HISTORY OF OHIO [46 acting commissioners were removed and others appointed, for the "more efficient and expeditious completion of the state house". An act of 1848 provided for the use of con- vict labor in its construction, 95 and convicts from the state penitentiary were employed to cut stone and as laborers, thereby saving considerable for the state. It was not completed, however, without some suspicion of graft. 96 The state house then erected still serves the state, though rather inadequately, and stands as a monument to the architectural taste of the designer and the efficiency of the builders. Since the inauguration of the system of state taxation by means of a general property tax in 1825 the state had grown greatly in population and wealth; new forms of property had come into existence and new sections of the state had been settled. The law of 1825 had exempted numerous forms of property from taxation, and although this was largely corrected by the act of 1831, the system was still very unequal and full of favoritism and incon- sistencies. Accordingly the act of March 2, 1846, was passed, "for levying taxes on all property in this state according to its true value". The general property tax, which had simply been initiated in 1825, was now intro- duced in modern form, with the necessary administrative machinery, and an effort was made to tax all property in the state with some few exceptions. It was slightly amended by two minor acts, 97 and was then entirely re- pealed and replaced by the long act of March 25, 1851, w r hich, however, introduced few changes except the exten- sion of the list of property exempt from taxation. Hardly had this act been passed when it was rendered obsolete by the adoption of the new constitution, and was swept out of existence together with a mass of other legislation. "Act of Feb. 24, 1848. **See chapter III, on Financial Administration. "Feb. 8, 1847, Feb. 22. 1848. 47] ECONOMIC AND FINANCIAL HISTORY 47 THE CONSTITUTION, CURRENCY,, AND CORRUPTION. For almost half a century no change had been made in the fundamental law of the state, and the constitution that had been framed for a pioneer population of 50,000 scattered agriculturists did not meet the needs of a larger and more heterogeneous population with diversified in- terests. An attempt to call a constitutional convention in 1820 had been defeated by the decisive vote of 29,315 to 6,987, 98 although only about one-third of the qualified voters of the state expressed their preference on the ballot. In 1851, however, it was decided to amend the old constitu- tion. The convention that was called at this time con- sisted for the most part of representatives of the agricul- tural interests of the state, and were animated by a determination to subject the corporations, and especially the banks, to taxation equal to that borne by the rest of the community. They accordingly embodied in the new con- stitution the requirement of equal taxation and uniform treatment of all property, corporate as well as individual. One great improvement, involving an enormous economy of time and effort to the general assembly, was the passage of a general incorporation act in 1852." Thus the local laws passed by the session of 1850 comprised 709 pages, as opposed to only 98 pages of general acts. Of these local acts the majority related to the incorporation or amendment of the charters of corporations. For in- stance, in 1850 there were 42 acts to incorporate turnpike companies, and about as many more to repeal or amend previous incorporation acts; in 1851 there were 21 acts to incorporate rail-road companies, 29 acts to amend previous incorporation acts, and 36 other acts re- lating to subscriptions, stock, and other business of rail- road companies. On the other hand, in 1852, after the passage of the general incorporation law, there were only 24 local acts passed during the whole session, and most of M Ho. J., 1820, p. 12. "May 3, 1852. 48 FINANCIAL HISTORY OF OHIO [48 these related to counties and townships. A more striking example of the value of such a general act would be difficult to find. The session of 1852 was a long and hard working one, continuing until May 3. The time was taken up largely with overhauling and codifying and reenacting laws, so as to bring them into conformity with the new state constitu- tion. One of the results of their labor was a long and care- fully worded act, 100 applying the principles of the constitu- tion "an act for the assessment and taxation of all prop- erty in this state, and for levying taxes thereon according to its true value in money". This was a thorough-going attempt to tax all property uniformty under the same law, which has since given so much trouble in the taxation "of corporations, but which has so far resisted all efforts to change it, 101 although amendments to the constitution have been repeatedly urged. In addition to the tangible real and personal property hitherto taxed, money and credits, securities of every sort, corporations, and banks were specifically enumerated and listed. The list of property to be returned was lengthened, and the duties and powers of officers entrusted with the assessment and collection of the taxes employed. Numerous amendments corrected the faults of the original act, and closed the doors to evasion and fraud. The banks resisted the act vigorously and refused to pay taxes levied under its provisions, questioning its fair- ness and its constitutionality. In consequence the legisla- ture in the following year directed a savage act 102 against them, giving the county treasurers the right to seize coin and securities if the tax were not paid, and imposing pen- alties of $1000 fine or imprisonment in jail for 60 days, or both, for any official who concealed coin or securities for 100 Act of April 13, 1852. m ln the elections of Nov., 1909, the voters approved of a constitu- tional convention to revise the constitution. This section will undoubtedly be changed by the convention now in session (March, 1912). 102 Act of March 14, 1853. 41) J ECONOMIC AND FINANCIAL HISTORY 49 the purpose of evading the tax. Not until after four years of constant struggle between the banks and the legislature was this act repealed, 103 and a compromise effected by which they were taxed very clumsily upon their business 104 instead of their property. The following year a constitu- tional amendment was presented to the people on the subject of the separate taxation of banks. It was provided that in voting on this proposition the voter should write on his ballot the words: "Bank and individual taxation equal yes; bank and individual taxation equal no". This looks like a shrewd method of defeating the proposed amendment, and the banks evidently so regarded it, for upon its rejection, they again resisted the collection of the tax, and the law of March 14, 1853, wasi virtually re-en- acted. 105 Although they succeeded in breaking down these laws in the courts, the banks were finally forced to yield, as their charters needed renewing; while other banks, whose charters 106 guaranteed them other methods of taxation, were induced 107 to assent to the pro- visions of the general tax law of 1852. The burden of high taxes was more than once com- plained of during this period, 108 and they certainly showed an alarming increase. Between 1846 and 1859 the aggre- gate taxes increased 255 per cent. ; the rate of increase for the state taxes being 165 per cent., and for local taxes 329 per cent. 109 The state taxes made up barely one- third of the total, so that complaints were more justly directed against the local taxes, especially those levied by the counties. It was estimated in 1853 that the total state and local taxes constituted an annual exaction of $25 from every voter and of nearly $6 from every individual in the "Act of Feb. 26, 1857. "Act of April i, 1856. "Act of April 12, 1858. "Under act of Feb. 24, 1845. "Act of April 8, 1856. ""Gov. Mess., 1855, p. 10 ; 1859, p. 93; aud. rep., 1854. *Rep. Com'r of Stat. Exec. Doc., 1859, I, 799. 50 FINANCIAL HISTORY OF OHIO [50 state. 110 In addition to these taxes there were considerable fees paid to county, township, and other local officers. But the taxes had not grown any faster than the wealth of the people and their taxable property. At no former period in the history of the state [wrote the auditor in 1854'"] has her population, and the various avocations in which they are engaged, been more abundantly prospered, than in the golden era in which they are now embarked. The following year witnessed a slight set-back and the auditor noted "the financial embarrassments which have prevailed among states as well as individuals" during the year, in spite of which Ohio discharged all current liabili- ties, paid the interest of the public debt, and redeemed almost $700,000 of the principal. Provision had been made by the law of February, 1825, which provided for the construction of the canals and created the state debt, for the establishment of a sinking fund, by which the debt should be paid. During the period of state encouragement of internal improvements, however, this fund had been used to provide means for additional undertakings without resorting further to taxation. In 1848 112 the plan of a sinking fund was revived, and three years later was made compulsory by the constitution. The provisions of the constitution were carried out by the act of 1853, 113 which provided for an appropriation for the current year of $100,000, and for each year thereafter com- pounding at the rate of 6 per cent, per annum until the debt should be paid. 114 The decade was characterized by loose financiering, and even by graft and corruption, for the statute books of this period are full of enactments designed to check abuses. In 1856 three joint investigating committees were ap- pointed to investigate (1) the acts of all public agents ll Gov. Mess. Exec. Doc., 1853, p. n. m Aud. rep., Feb. 12, 1853. ^Act of Feb. 24, 1848. "Act of March 14, 1853. n *See my article on The State Debt of Ohio, in Journal of Political Economy, May, 1911, p. 390. 51] ECONOMIC AND FINANCIAL HISTORY 51 who have or had the custody or disbursement of public moneys; (2) the acts of the board of public works; and (3) all the transactions and expenditures about the new state house, the penitentiary, the three lunatic asylums, the blind, and deaf and dumb asylums. 115 This was followed the next year by an act which provided that all state officers should keep accurate and distinct accounts. 110 Meanwhile, however, the treasury had been looted and in June, 1857, when it was necessary to provide funds for the payment of the semi-annual interest on the state debt, the state treasurer confessed to a defalcation of over $580,000. Subsequent investigations raised this amount to $744,000. A commission appointed the following year 117 to investi- gate the subject discovered that the misappropriation of state funds ran back almost a decade and involved the good name of two state treasurers, while the officials of various banks were not altogether free from blame or from suspicion of sharing in the spoils. 118 MATERIAL DEVELOPMENT: AGRICULTURE AND TRANSPORTATION. In spite of official corruption, of disordered currency, and of the prostration of credit resulting from the panic of 1857, the material development and prosperity of Ohio proceeded without abatement. During the panic year of 1857 the harvests were abundant, 119 and the general health unbroken. "'Act of April ii, 1856. "'Act of April 16, 1857. "'April 12, 1858. ""See below, p. 88. "The wheat crop for this year was the largest, with one exception, in the history of the state (3rd an. rep. Com'r of Stat. Exec. Doc., 1859, I, 767). The following table shows the crops in millions of bushels: 1849 14.4 bu. 1854 1 1.8 bu. 1850 31.0 bu. 1855 19.5 bu. 1851 25.3 bu. 1856 15.3 bu. 1852 22.9 bu. 1857 25.3 bu. 1853 17.1 bu. 1858 17.6 bu. 52 FINANCIAL HISTORY OF OHIO [52 No year [wrote the governor 120 ] since the organization of the state gov- ernment, has been more conspicuously distinguished by substantial in- crease in all the elements of real wealth, permanent power, and true greatness. The panic affected Ohio but slightly, and though the suspension of specie payments was general in the eastern states, not a bank in the Ohio valley found it necessary to resort to this expedient. The state was still predomin- antly agricultural, probably four-fifths of the total popu- lation being engaged in farming. 121 Practically all of the 25,776,960 acres of land in the state had now been reduced to private ownership, and was in the hands of 270,000 proprietors, exclusive of the owners of town lots, each cultivator holding on an average about 90 acres. During this period a new plant, sorghum, was intro- duced into Ohio, probably about 1852. By 1857 the prac- ticability of its culture had been fully demonstrated, an event of which the governor said "no single fact .... is probably of greater importance". 122 It is interesting to note in passing that this was the only commercially important plant introduced into the United States during the century after the adoption of the Constitution. 123 An exaggerated idea of the importance of this plant as a sub- stitute for sugar cane was entertained at first and con- siderable land was planted with it ; and an especial impetus was given to its culture by the Civil War, which cut off the southern supply of sugar. The statistics of production were given for the first time in 1863, and by 1866 the pro- duction of both sugar and molasses had doubled, the prod- uct for this year being 55,147 pounds of sugar and 4,696,- 089 gallons of molasses, which sold for 75 cents a gallon. The culture of the plant was similar to that of corn, and the yield was about 75 dollars an acre. 124 The number of acres planted with sorghum was 46,239 in 1866, but de- ""Gov. Mess. Jan. 4, 1858, Exec. Doc., 1857, I, 347. "Gov. Mess. Jan. 6, 1862. Exec. Doc., 1861, I, 333. ""Gov. Mess. Exec. Doc., 1857, I, 349. 1M See my Economic History of the United States, p. 67. "'Rep. Com'r of Statistics. Exec. Doc., 1867, I, 940. 53] ECONOMIC AND FINANCIAL HISTORY 53 clined after that until the crop became negligible and dropped out of the reports. During the twenty-year period from 1840 to 1860 there was a rapid filling up of the middle states east of the Mississippi; as most of the settlers took up land the production of agricultural commodities was greatly stimu- lated. Even more important were the improvements in agricultural machinery, which economized the labor needed and permitted an expansion otherwise impossible; and in transportation facilities, which made it profitable to market the increased production. The aggregate of all cereal crops, including potatoes, was as follows: 1839 71,464,603- bushels; 184992,945,164 bushels; 1859152,- 349,155 bushels. This increase was nearly double the ratio of increase in the population. The total products of Ohio in 1857 were put at $261, 867,500, and the exports from the state at |70,000,000, leaving |191,867,500 worth of domestic commodities to be consumed at home. 125 Three years later it was estimated that Ohio raised brendstuffs enough, in addition to feeding domestic animals, for ten millions of people, or four times her actual population. 126 At the same time the prices received for the crops were good. 127 The proportion of the population and of the capital in the state engaged in mining, mechanical and manufac- turing industries was rapidly increasing. In his annual message for 1856 the governor warns the legislature that the financial burdens of the state be not permitted to press, in dispropor- tioned measure, upon them. These pursuits of industry supply a great Exec. Doc., 1857, I, 351- 1M Gov. Mess. Exec. Doc., 1861, I, 333. 117 A comparison of prices received by the farmer for his crops and paid by him for his purchases shows a great improvement in his economic well-being during the previous thirty years (Rep. of Com'r of Stat. Exec. Doc., 1859, I, 789) : PRICES. YEAR. WHEAT. CORN. SUGAR. COFFEE. 1829 $ .50 per bu. $ .25 per bu. $ .09 per Ib. $ .15 per Ib. 1858 1.03 per bu. .70 per bu. -07?4 pe r Ib- - 12 P er Ib. 54 FINANCIAL HISTORY OF OHIO [54 market, constantly becoming greater, for the productions of agriculture." 8 He also called attention to the growing importance of railroads in Ohio among the instrumentalities by means of which intercourse is carried on between different parts of the state and different sections of the country, railroads may now be regarded as the most important. 129 In other lines of material development, Ohio's progress was even more marked during this period than in agricul- ture. As early as 1854 Ohio had more miles of railroad in operation than any other state in the Union, najmely 2367 ; by 1857 the mileage had grown to 2844, built at an estimated cost of |90,000,000. 130 Of 352 vessels built in 1856 on the waters of the west, 97 boats with a tonnage of 29,636 tons were built in Ohio. 131 The improvement and cheapening of transportation indicated by this growth made possible a rapid development in mining and manu- factures. Between 1840 and 1860 there was an extra- ordinary expansion in the mining of coal and iron, which increased more rapidly than agriculture or population. Coal as a fuel was coming more ajid more into use, while the use of it for driving machinery was also fast increasing ; there was also a growing exportation of coal to the upper lakes, to Canada, and down the Mississippi. 132 The most noteworthy advance in manufactures had been in the pro- duction of salt, iron, wood, and distilled liquors, all closely related to the extractive industries. The following table presents some of these facts concisely : 133 Year Iron furnaces Pig iron Coal Salt tons value bu. | value bu. | value 1840 1860 19 59 29,959 105,500 $ 648,975 3,171,000 3,513,400 50,000,000 $ 286,000 5,000,000 297,310 |$ 89,205 2,000,000 | 500,000 Exec. Doc., 1856, Part I, Doc. No. 10, p. 435. "Ibid. "Gov. Mess. Exec. Doc., 1857, I, 351. m lst an. rep. Com'r of Stat. Exec. Doc., 1857, II, 517- In 1846 the number was 52, with a tonnage of 9616. 1S2 3rd an. rep. Com'r of Stat. Exec. Doc., 1859, I, 787. ""Gov. Mess., Jan. 6, 1862. Exec. Doc., 1861, I, 333. The increase in the production of coal was stated by the commissioner of statistics to have been as follows: 1840 3,513,409 bu. ; 18508,000,000 bu. ; 1857 46,100,000 bu. 3rd an. rep. Exec. Doc., 1859, I, 787. 55] ECONOMIC AND FINANCIAL HISTORY 55 Indeed the growth of the state in population and re- sources during the decade 1850-60 was marvelous. The states between the Alleghanies and the Mississippi River entered upon an era of extraordinarily rapid railroad con- struction during this decade. Chicago was connected with New York City in 1853, and the following year the Mississippi was reached. Ohio probably profited as largely as any other state as a result of these improvements in the means of transportation, as it was the thoroughfare for all the through movements of freight. The price of practically all agricultural products was increased when the outlet on the seaboard was made cheaper and easier, and the value of farm lands went up at the same time that the yield increased. Some statistics taken from the census reports show a wonderful development for this period. 134 PERCENTAGE OF INCREASE, 1850-60. Population 18 Manufacturing, Mining and Grain crops 50 Mechanical industries 90 Pig iron 100 Railroads 700 Coal mined 600 Cash value all property 75 Manufactures proper 112 Two or three isolated and disconnected facts call for mention at this point. The constitution of 1851 had pro- vided for biennial sessions of the general assembly, but that body had evaded the constitutional requirement by holding regular sessions during the even and adjourned sessions in the odd years. In 1855 the legislature did not meet, but this was the only year in which they did not hold a session until 1895, when biennial sessions were made an actual as well as a legal fact. There was a steady growth in the numbers and importance of the German element in the population, many immigrants of this nationality having found their way to Ohio, where they had bought up the supposedly deteriorated farms from their former careless owners. They were now sufficiently numerous to secure the translation and printing in German of various public "'Quoted by Gov. Chase in his message of Jan. 7, 1861. 56 FINANCIAL HISTORY OF OHIO [56 documents; 135 the establishment of German schools was also authorized in Akron, a strong German settlement, and such other places as wished them. 130 The canals showed a deficit over and above their expenses of operation after 1856, and partly owing to this fact, and partly owing to public dissatisfaction with the manner in w r hich they had been administered, a movement began for their sale or lease. Finally, in 1861, they were leased for a period of ten years, at an annual rental of $20,075. 137 For almost twenty years after this the canals practically cease to figure in the legislative annals. SLAVERY AND CIVIL WAR. There is clearly perceptible during this period a grow- ing friction over the problem of slavery and the presence of free negroes in Ohio. Slavery had been forbidden in the state, but at the same time measures were taken to prevent the immigration of free blacks. 138 By reason of her posi- tion Ohio had developed a very profitable trade down the Ohio and Mississippi rivers with the southern states. Many of her citizens looked with favor upon slavery, though they did not wish to see it introduced into the state; this was particularly true of the southern counties and of Cincinnati, between which and the South the economic ties were especially close. As a state it is our interest, in Ohio [wrote Caleb Atwater in i838 139 ], to leave slavery in the slave-holding states for a century yet, otherwise our growth would be checked. The broad and deep streams of wealth, numbers, enterprise, youth and vigor of the slave-holding states, now rolling into Ohio like mighty floods, would be stayed. In order not to lose their profitable trade and to retain the goodwill of the south during the growing bitterness of the slavery controversy, the people of Ohio, in legislature, ""Act of March 24, 1860. 57 O. L. 92. '"Act of April 12, 1861. 137 Act of May 8, 1861. ""R. E. Chaddock, Ohio before 1850, p. 82. ^History of Ohio, p. 331. 57] ECONOMIC AND FINANCIAL HISTORY 57 press, and public meetings endeavored to suppress the abolition movement in Ohio, and declared in favor of letting the slave-holding states settle the problem for them- selves. The passage of the national fugitive slave law, however, injected the question into Ohio politics and aroused the people to take sides in the slavery controversy. The influence of the southern members is evident in the repeal by the general assembly in 1859 of various acts pro- hibiting slave-holding and kidnapping in Ohio, though such laws would seem to have been superfluous in view of the provisions of the Northwest ordinance. Governor Chase, an anti-slavery Republican, in his next message urged the re-enactment of these laws because of the growing practice of seizing free persons, without process of law, under guise of their being fugitive slaves. 140 Before any further legislation was enacted the outbreak of war ren- dered it useless. With the actual outbreak of the Civil War Ohio proved herself thoroughly loyal, and was among the first states to rally to the support of the federal government. Within a week after Fort Sumter was fired on, the legislature made generous provision for calling out and equipping the militia. For arms and equipment $450,000 was appro- priated; $500,000 additional to be expended by the gov- ernor to carry into effect any requisition of the president of the United States; and $50,000 as an extraordinary contingent fund under the control of the governor. 141 To raise this money a loan of $750,000 was authorized by the same act. Fortunately, the condition of the treasury was exceptionally strong. "The finances of the state have not, for several years," reported the auditor, 142 "been in as good a condition as they are at this time". To meet military expenses the commissioners of the sinking fund in 1861 borrowed and paid into the state treasury $1,212,- 134, which, with $345,000 refunded by the United States Exec. Doc., 1859, II, 59. "'Act of April 18, 1861. 58 O. L. 89. 141 Aud. rep., Dec. 27, 1861. Exec. Doc., 1861, IT, 30. 58 FINANCIAL HISTORY OF OHIO [58 and some small sums in addition, constituted the "military fund", which was drawn against for military purposes exclusively. Other funds were also established during the war, such as the soldiers' allotment fund, the soldiers' relief fund, etc., which make a clear understanding of the war finances difficult. Upon the conclusion of the war the auditor reported that the expenditures of the state for military purposes during the four years, 1861-65, was $10,410,239. 143 In addition to this direct outlay the state also con- tributed its share to the federal treasury by its assumption of the direct tax of $1,587,089, which had been imposed by Congress by act of August 5, 1861. By prompt payment of this tax Ohio secured a reduction of 15 per cent. To raise the necessary money for this purpose, an additional levy of 1-K mills was added to the general property tax. 144 But in spite of this addition to the tax rate, the total burden of taxation was but slightly increased because of great economies effected in both state and local expendi- ture. The taxes too were unusually productive. Under the stimulus of patriotism, taxes were paid promptly and without complaint, while the delinquencies were never so small: in 1861 the collections amounted to 99i/ per cent, and in 1862 to 99 per cent. 145 The taxable valuation of property in the state increased in 1863 over 1862 by $47,085,952. At the same time the debt was being paid off more rapidly than at any other time in the history of the state. But Ohio's loyalty was shown not merely by her con- tribution of money, but even more by the number of men she sent into the field. On December 31, 1861, there were 100,224 men enlisted in Ohio for the Civil War, of whom 77,844 were for three years and the others for three months. 146 A year later the total number of Ohio men m Aud. rep. Exec. Doc., 1865, I, 329. 144 Act of April 16, 1862. O. L., p. 52. ""Aud. rep. Exec. Doc., 1863, I, 54- 1M Rep. of Adj. Gen. Exec. Doc., 1861, II, 164. 59] ECONOMIC AND FINANCIAL HISTORY 59 enlisted in the state organization was 170,121, in addition to whom there were many men in the regular army and navy, as well as in regiments mustered in neighboring states, such as Indiana and Illinois. 147 In 1863 an act was passed "to organize and discipline the militia of Ohio", requiring all white males between 18 and 45 years of age to perform military duty. 148 At the end of the war the adjutant general reported that Ohio had sent 310,650 men to war, or 10,811 more than her quota under various calls. 149 This was considerably more than half the number of able-bodied men between the ages of 18 and 60, who were estimated at 554,857 on December 1, 1864. 150 LABOR, IMMIGRATION AND INDUSTRY. The effect of this wholesale withdrawal of the active laborers of the community was gradually manifest in the agricultural and industrial operations. Up to the summer of 1863, the war had produced no sensible effect on the market for labor. Labor was abundant in this state, and she had sent out 100,000 laborers before the diminution began to be sensibly felt in the operations of farming. One great reason for this was the introduction of agricultural machinery. The reaper, mower, thresher, etc., were doing in Ohio the work of 50,000 men. Notwithstanding this, in 1863 the want of labor was seriously felt, and in 1864 the harvesting could not be got through with without the aid of female hands in many places, and in some it was scarcely done at all." 1 As a result of the scarcity of labor, there was a falling off in the cultivated land of Ohio to the extent of more than 700,000 acres between 1862 and 1864. 152 The cereal "'Rep. of Adj. Gen. Exec. Doc., 1862, II, 418. "Act of April 14, 1863, O. L. 1863, p. 97. "'Exec. Doc., 1866, I, 30. 130 Rep. Com'r of Stat. Exec. Doc., 1864, I, 755. 1M 8th an. Rep. Com'r of Stat. Exec. Doc., 1864, I, 730. at gth an. rep. Com'r of Stat. Exec. Doc., 1865, II, 922. 60 FINANCIAL HISTORY OP OHIO [60 crops were diminished somewhat in amount in 1862 and 1863 owing to drought, but the value was greater than in previous years; in subsequent years the scarcity of labor was the chief factor in reducing the output. The agriculture of the state was developing during the war period, and a more serious loss was prevented by the introduction of various improvements, especially agricultural machinery. The commissioner of statistics enumerated the following causes of advance: 153 the intro- duction of agricultural machinery, drainage and manures, the introduction of new plants, such as Hungarian grass, sorghum, the vine, and other fruits, deep plowing, and the spirited efforts of agricultural societies. 154 The diversifica- tion of crops and changes in methods of culture were evi- dence of the increasing competition of the newer states in the growing of the great staple crops of corn and wheat. The production of these had practically reached their limits in Ohio, and were now being displaced or supple- mented by crops requiring more intensive cultivation. The culture of flax, clover seed, potatoes, fruit, sorghum, and tobacco w r ere all increasing. This was the same process that had taken place in all the older states as they had growin populous; New England, New York, and New Jersey had all been declining in the production of grain for many years. In 1866 there were 1,295,530 acres in the state planted in wheat, or almost half a million less than in 1850 ; the crop was almost a total failure, yielding only 5,824,747 bushels, or one-sixth of the yield in 1850. On the other hand the corn crop was a good one and showed an increase over earlier years. 155 In 1863 a commissioner of immigration was appointed and for the few years the office remained in existence some "Exec. Doc., 1863, I, 606. 1M Ohio received in 1864 a grant of land for agricultural education, under the Morrill act of July 2, 1862, amounting to 630,000 acres. As the amount of good land in Ohio open to entry was only 80 acres at that time, she received this in land scrip, which entitled her to locate that amount elsewhere in the public domain. 1M Rep. Com'r of Stat. Exec. Doc., 1867, I, 932. 61] ECONOMIC AND FINANCIAL HISTORY 61 interesting information on this subject was collected. As no salary was provided for the commissioner, nor provision made for his going outside the state and soliciting immi- grants, 150 the purpose of the legislature in establishing this office could not have been very serious. The first incum- bent of the office, however, Benno Speyer, a German Ameri- can, took his appointment very seriously, and visited Eu- rope at his "own exclusive expense" for the purpose of dis- seminating information as to" the advantages Ohio offered the immigrant. 157 In Europe he distributed pamphlets and information, chiefly in Germany, where he encountered some opposition from agents working in the interests of Brazil and Canada, and also of New York, Illinois, and Missouri. The two latter states had especially favorable laws for immigrants, and attracted a great many. In 1868, of 32,620 immigrants who passed through Ohio, 3757 re- mained in the state; the greatest number, 7314, went to Missouri, while 5725 went to Illinois. The following year California passed laws to induce immigration, and began to attract an increasing number. During the four calendar years 1863-66 the number of immigrants to Ohio was as follows: 1863, 6574; 1864, 8782; 1865, 10,383; 1866, 15,000. 158 The Germans constituted over two thirds of the total number, with English and Irish ranking next in importance. 150 A new industry of great importance in the state of Ohio was born with the discovery of petroleum in 1859. The first official recognition of this industry in the laws was in the act of May 1, 1862, 100 providing for "inspectors of petroleum oil". The general assembly raised the pay of its own members in 1866 to $5 a day and $3 mileage for every 25 miles traveled to or from home to the state capital, "Act of April 14, 1863. m ist an. rep. Com'r of Immigration, Oct. 12, 1863. Exec. Doc., 1863, II, 799- "*Rep. Com'r of Immig. Exec. Doc., 1866, I, 310. lw Rep. Com'r of Emigration. Exec. Doc., 1868, II, 878. The name of the office was changed this year why, it is difficult to see. m O. L., 1862, p. 84. 62 FINANCIAL HISTORY OF OHIO [62 and also increased the salary of the governor to $4000. 161 In view of the general rise of prices and the growth of the state these payments were still very modest. In 1868 the legislature abolished the office of commissioner of statistics, but created a bureau of statistics in the office of the secre- tary of state and directed that officer to make an annual statistical report. 162 This was done very perfunctorily for a few years, when it was finally entirely discontinued. For the student of the economic or social history of Ohio the excellent reports of the commissioner of statistics consti- tuted a storehouse of material, and their discontinuance is much to be regretted. IThe legal rate of interest was fixed at 8 per cent in 1869. As the interest rate indicates the opportunities for profitable investment, and throws some light upon the supply of capital in a community, it will be of interest to trace the changes from the beginning. By the act of No- vember 15, 1799, the legal rate of interest had originally been fixed at 6 per cent. The first state act was that of December 29, 1804, which stated that interest on bond, bill, promissory note or other instrument in writing . . . . on all judgments .... and on all decrees .... [should be] at the rate of 6 per cent, and no more, and if any person shall demand or receive more than 6 per cent, per annum .... that person shall forfeit the whole amount of the debt on which such illegal interest was charged and received. 18 * In 1824 this was re-enacted, but the penalty clause was omitted. 164 By act of March 14, 1850, the maximum legal rate of interest was fixed at 10 per cent ; but at 6 per cent if there were no stipulation to the contrary. 165 Governor Chase urged the repeal of this law and the reduction of the 1M Act of April 2, 1866. O. L., 1866, p. 65. Gov. Tod had urged an increase of 50 per cent, in the salaries of state officers, in his message of Jan. 4, 1864, P- 3- "*Act of April 17, 1868. The first statistical report of the secretary of state is in Exec. Doc., 1868, I, 297. "*O. L., 1804-05, p. 149. 0. L., 1824, p. 108. m O. L., 1850, p. 87. G3] ECONOMIC AND FINANCIAL HISTORY 63 maximum rate. 160 On the other hand the auditor advocated raising the legal rate, where no stipulation existed, to 10 per cent : "Ohio capitalists are to a large extent investing in New York, where the rate of interest is 7 per cent and in Illinois and other western and northwestern states, where the rates are still higher." 107 In 1869 it was provided that the rate of interest on any bond, bill, promissory note, or other instrument in writing, should not exceed 8 per cent; on all judgments, decrees, etc., where no stipulation was made, it should not exceed 6 per cent. 108 This law is still in force. 169 After the Civil War the finances of the state as well as the industrial life of the people returned very speedily to normal conditions again. 170 The cessation of the extra- ordinary war expenditures enabled the legislature in 1867 greatly to reduce appropriations and to lower the tax rate, making a saving over the previous year of about $3,000,000. 171 The auditor thought $500,000 more could be spared, and urged economy and the cutting down of unnecessary expenses. 172 The following year he pointed out the alarming growth of taxation, especially for local purposes, the aggregate of taxes for 1867 being greater than for any year during the war. 173 Two years later he spoke of the "frightful rate" at which taxes had increased in Ohio during the past twenty years, the largest propor- tion of which came from expenditures for benevolent iL'St,.- tutions, and also for the judicial and legislative depart- 1M Gov. Mess., Jan. 3, 1859. Exec. Doc., 1858, II, 104. m Aud. rep. Exec. Doc., 1866, I, 149. He repeated this appeal, with additional arguments in 1867 and 1868. Exec. Doc., 1867, I, 64; 1868, I, 86. "Act of May 4, 1869. O. L., 1869, p. 91. '"Bate's Annot. Stat., 3179-83. "The governor wrote on Jan. 3, 1865, "the machinery of the state government has worked so smoothly under existing legislation, that I have few recommendations as to modifications". Exec. Doc., 1864, I, 47. m Gov. Mess., Jan. 6, 1868. Exec. Doc., 1867, I, 147. m Aud. rep., Dec. 12, 1868, p. 94. 178 Aud. rep. Exec. Doc., 1869, I, 379. 64 FINANCIAL HISTORY OF OHIO [64 ments. 174 The panic of 1873 affected Ohio in common with the rest of the country and made the high taxes prevailing especially burdensome. Economy was urged upon the leg- islature by Governor Allen in 1874, 175 and repeated the two following years. In 1871 Ohio was surpassed in wheat production only by Illinois, but the following year a poor crop pushed Ohio down into seventh place. The crops of 1873 and 1874 were normal and Ohio in these years held fifth and fourth places respectively. The center of wheat production was moving steadily to the northwest and the great wheat states of Minnesota, Wisconsin, Iowa, and California were taking the lead. In Ohio, on the other hand, the number of acres in wheat was steadily declining; from 1,667,659 acres in 1871 they fell to 1,354,569 in 1877. The rank of the principal wheat producing states in the years 1871-4 was as follows (the number in brackets beside Ohio indi- cates the crop in millions of bushels) : 1871, Illinois, Ohio (22.2), Pennsylvania, Indiana, Wisconsin, Iowa; 1872, California, Illinois, Minnesota, Wisconsin, Iowa, Indiana, Ohio (18.0) ; 1873, Iowa, Illinois, Minnesota, Wisconsin, Ohio (21.9); 1874, Iowa, Illinois, Calif ornia, Ohio (26.8). 17 In the business of pork packing, too, Ohio had now lost her pre-eminence to Illinois, and the business was moreover declining from year to year. Between the years 1873-4 and 1874-5 there was a decrease in the number of hogs slaughtered in Ohio of 25,891 and an increase of those in Illinois of 233,915. 177 Ohio was now no longer predominantly an agricultural state ; manufacturing and mining and commercial pursuits absorbed an increasing proportion of the labor and capital in the state. Unpleasant evidence of this fact was given by the riots in Cincinnati and in the Hocking Valley, and by 174 Aud. rep., Dec. 15, 1871, p. 200. 17S Gov. Mess. Exec. Doc., 1874, I, " ""Stat. rep., Sec. of Stat. Exec. Doc., 1872, I, 149; 1874, II, 297; 1875, I, 548. 1T7 Stat. rep., Sec. of State. Exec. Doc., 1875, I. 605. 65] ECONOMIC AND FINANCIAL HISTORY 05 the great strikes of May, 1886. Business of every kind was then suffering from the industrial depression of 1884 and the subsequent years. Many of the most important industries were suspended and thousands of laborers were without employment. By 1889 general prosperity had re- turned and the governor was able to congratulate the legis- lature upon the improved conditions both of the people and of the state treasury. 178 On Washington's Birthday, 1887, the legislature re- pealed the so-called "Black Laws", which had provided for separate schools for colored children and prescribed pen- alties for the intermarriage of white and colored persons. 179 Beginning with the year 1893 Ohio entered upon the policy of deriving a larger state revenue from corporations, especially those engaged in transportation and communica- tion, and leaving the general property tax, particularly the tax on realty, to the local governments for local purposes. The segregation of the sources of revenue for state and local purposes has since been carried almost to complete realization. In 1903 the state debt was finally expunged, seventy-eight years after its first creation. At the same time the canals, to build which the debt was chiefly incurred, were rescued from the decay into which they were falling, and increased appropriations were made to repair and improve them. In conclusion we may briefly characterize Ohio's in- dustrial position at the beginning of the twentieth century. Between 1850 and 1905 the number of industrial estab- lishments in Ohio has increased from 10,622 to 13,785; the capital from $29,000,000 to $857,000,000 ; and the average number of wage-earners from 51,491 to 364,298. 180 There has been a large growth in the manufacturing and mechan- ical industries of the state during the past half century, and the population has steadily become more industrial 1TS Gov. Mess. Exec. Doc., 1889, I, iii. "'Act of Feb. 22, 1887. O. L., 1887, p. 34. This act repealed sec. 4008, 6987, and 6988 of the Rev. Stat. '"Census of Manufactures: 1905. Ohio. Bulletin 58. 66 FINANCIAL HISTORY OF OHIO [66 and less agricultural. Of the various causes which have contributed to the early development and steady progress of manufacturing in Ohio, the great commercial advantages of the state are undoubtedly the most important. Water communication, by lake, river, or canal has always been excellent, and this was early supplemented by the building of railroads. The effect of the water routes is clearly seen in the localization of some of the great manufacturing centers on them. Among the natural resources of Ohio are a fertile soil, extensive hard-wood forests, and an abundance of coal and natural gas, though the last has been nearly exhausted by now. Waterpower is not very extensive. Of the industrial establishments in Ohio in 1905, 48 per cent were owned by individuals, 22 per cent by firms, 29 per cent by corporations, and 1 per cent were miscel- laneous. Thirty-five per cent had capitals of less than $5000; 30 per cent of $5000 to $20,000; 23 per cent of $20,000 to $100,000 ; 11 per cent of $100,000 to $1,000,000 ; and 1 per cent of $1,000,000 or over. From these figures it is evident that Ohio is still in the main the home of the comparatively small individual undertaking, though it must be said that the number of establishments declined slightly between 1900 and 1905, showing a movement to- wards concentration. The manufacture of iron and steel is the most import- ant industry in Ohio, and since 1870 the state has ranked next to Pennsylvania in the whole United States. In 1905 the value of the products was $152,859,124. This is due to the presence or proximity of ore and fuel, as well as to her advantageous situation for the distribution of the fin- ished products. Closely allied to this are the foundry and machine shop products, which rank second in Ohio, with a value in 1905 of $94,507,691. Third in rank come flour and grist mill products, with a value of $40,855,566 ; and fourth, slaughtering and meat packing, with products valued at $26,380,884. These last two are more closely allied to agriculture than pure manufactures, and are due to the 67] ECONOMIC AND FINANCIAL HISTORY 67 large corn and wheat producing area in or near the state. After these come in order boots and shoes, malt liquors, cars and general shop construction, pottery and clay pro- ducts (in the production of which Ohio ranks first in the United States), men's clothing, and lumber products. The census of manufactures enumerates forty selected indus- tries, but it will not be necessary to continue the list in order to show the character of the chief industries in Ohio. CHAPTER II RECEIPTS AND EXPENDITURES. EARLY PERIOD, 1803-1824. The early accounts of the finances of Ohio are very meager and present no detailed information as to receipts and expenditures. Detailed statements of the revenues were not printed in the auditors' reports until 1814, and those of expenditure not until 1822, with the exception of two isolated statements, one for the year 1803 and the other for 1813. As a matter of interest these tw r o are here given in detail, after combining some of the scattered items; for purposes of comparison the territorial budget for 1799 is also given. The act of April 16, 1803, 1 appro- priating these sums, was the first appropriation bill passed after the state was admitted to the Union. APPROPRIATIONS FOR 1799, 1803, AND 1813* ITEM 1/99 1803 1813 Contingent fund 3 $ 5,ooo $IO,95O $ 2,034 Governor =;oo 1,1(12' Secretary 4 SO 5OO Judges 250 } 7-350 5 6,400' Attorney general 400 1 Treasurer 400 j 500 Auditor 4 CO 1,900 Members of legislature 12,000 6,OOO 12,626 Special Agent to Congress . . . Distribution of laws 582 IOO 1,024* 830 Listers of land 2,000 I.22Q 9 Military 3-748 10 Interest and rent 1,230 84 Printing 6/8 548 1,727 Furniture and repairs 24 81 Stationery, postage, and fuel.. Wolf bounties in 116 597 3,94O Auditor's office 36 212 Miscellaneous . 30Q 122 x Chase, II, 377. 'Acts of Dec. 19, 1799, and April 16, 1803. Rep. of Joint Com. of Finance, Ho. J., 1814, p. 144. Similar appropriation acts were passed on Dec. 9, 1800; Jan. 23, 1802; Feb. 18, 1804. The members of the legisla- 69] RECEIPTS AND EXPENDITURES 69 Even such totals as were printed in the legislative journals are not very reliable, and do not agree with one another from year to year. 11 No regular record was kept of warrants issued prior to the year 1803, but during the six years ending November 10, 1805, it appeared that $88,693 of warrants had been redeemed. From the fact that more warrants were redeemed than were drawn during the year 1806, there appears to have been a deficit on November 10, 1805, of upwards of |9000. The first few legislatures were compelled to resort to the issue of treasury warrants in excess of the available receipts, in anticipation of taxes, because of the difficulty of getting tare must have been very dependent on their pay to meet their expenses, for on Jan. 16, 1804, they passed what might be called an "emergency appropriation" of $4000 for part payment of the "wages of members and officers of members of the general assembly"; it was the third act of the session. On Dec. 27, 1804, they again appropriated $4,400 for this purpose at the opening of the session. *The contingent fund was placed at the disposal of the governor to be expended by him. That for 1799 included items for printing, clerk hire, copying land entries, etc. ; that for 1803, the payment of members of the constitutional convention, the distribution of the laws of the state, the pay of members of the legislature, printing, the state seal, stationary [sic], etc. *In 1799 this item was for the governor's secretary; at the other dates for secretary of state. There were included under this single item the salaries of governor, judges of the supreme court, presidents of the courts of common pleas, secretary of state, auditor, and treasurer. "Salary of governor, $900; clerk hire, $212. 'There were three judges of the supreme court at $1000 each; four president judges of the courts of common pleas at $850 each. 'Compensation to federal electors. Compensation to town director, $503; refund of tax improperly collected, $726. "Compensation to adjutant general and inspectors of brigade, $1027; to provide blankets, etc., for the Ohio militia, $2721. "In view of this fact reliance has been placed in this study on a table prepared in 1825 by a committee of audit, although the figures differ slightly from those given in the auditor's and treasurer's annual reports, which in turn do not agree with one another. Table in Ho. J ., 1825, pp. 16-20. 70 FINANCIAL HISTORY OF OHIO [70 the tax machinery quickly in running order. The lack of specie, too, rendered it difficult to make the necessary payments on the part of the treasury and to collect the revenue. The auditor was therefore required to issue treasury warrants for |20, $10, and $5, payable at the treasury, and bearing interest. 12 These warrants went into circulation and served the double purpose of maintaining the credit of the state and of supplying the lack of cur- rency. 13 By 1805, however, the governor was able to con- gratulate the legislature on the increased revenue "suffi- cient to justify, after this year, a cessation of issuing paper, which, at our first essay towards self-government, the legislature were compelled to resort to." 14 In 1808 excessive appropriations again left some $4000 of unredeemed treasury warrants in circulation. 13 The following year a loan of $9000 was made from the three per cent, fund, thus avoiding a deficit of that amount. This was the first occasion on which was practiced that method of transferring money from one fund to another, which was later to prove such a source of confusion and even deception in Ohio finance. The "loan" was repaid the following year with interest, leaving the treasury with a nominal deficit of $290 but with unredeemed warrants outstanding of over $12,000. A reduction in appropria- tions and an increase in revenue sufficed to wipe out this deficit the next year, and by 1812 a surplus of over $8000 stood in the treasury. In his report for the next year the auditor recommended, 16 in view of the "prosperous situa- tion of our finances", that the method of drawing treasury warrants in small amounts with interest be discontinued and that instead a single warrant be drawn for each sep- arate account without interest. This was done, though the a E.g. Act of Feb. 18, 1809, 2. M Aud. rep. Ho. /., 1813, p. 24. "Gov. Mess. Ho. J., 1805-6, p. 14. "The calculations in the report of the auditing committee of 1825, which state a deficit of $9000 for this year, are evidently in error. M Aud. rep. Ho. /., 1813, p. 24. 71] RECEIPTS AND EXPENDITURES 71 act stated that the person to whom it was due must agree to accept a single warrant for the whole sum. 17 A "mod- erate reduction of the present burdensome rate of taxation" was also urged. 18 Before this suggestion could be acted upon, however, the breaking out of the War of 1812 necessitated a resort to heavier taxation and to a policy of loans in addition. The war spirit ran high in Ohio, and considerable was spent directly in arming and equipping troops to take part in the struggle. Thus $4000 was appropriated to purchase blankets for the Ohio militia, in the service of the United States, and $40,000 for the purpose of paying bounties of $12 a month to the members of the militia who continued under the command of William H. Harrison. 19 The fed- eral government also levied upon the states. To meet, partially at least, the expenses of the war, a direct tax of $3,000,000 was laid upon the states, of which Ohio's quota was $104,150. This tax was apportioned among the states on the basis of the census returns of population of 1810, and within each state it was even apportioned among the counties. The option was given the state, however, of assuming the whole amount apportioned to it, and in order to ensure prompt payment a discount of 15 per cent, was granted if paid before February 10, 1814. Ohio willingly assumed her quota and by act of December 20, 1813, appro- priated $88,528 for that purpose, having saved the differ- ence by her early action. 20 To raise this sum, the surplus of $26,000 was used, together with the proceeds of a loan of $55,000 for one year at 6 per cent, from the banks of Chillicothe and the Miami Exporting Company. 21 In the year 1814 the auditors report for the first time states the sources from which the revenue was derived, from which we see that $62,000 was obtained from the tax "Act of Feb. 19, 1813. u Ho. /., 1812, p. 24; Sen. /., 1812, p. 21. "Acts of Dec. 19, 1812; Feb. 2, 1813. Chase's Statutes, II, 784, 793. "Rep. of Com. on Direct Tax, Ho. /., 1814, p. 51. n lbid., p. 142. Act of Dec. 20, 1813. 72 FINANCIAL HISTORY OF OHIO [72 on land. 22 As the ordinary expenses of the state govern- ment for the past six years had averaged less than $35,000 a year, the state's finances were in a strong position. In 1814 Congress levied a second direct tax of |6,000,000, which was made annual ; Ohio's quota was $208,300. Again the state accepted the burden promptly and almost eagerly, 23 securing the discount offered by her prompt payment. The reduced amount of the tax was $177,055, which was met by a loan of $104,000 and by the appropria- tion of a surplus of $25,000 and of current revenues to the amount of $30,000. 24 To provide the means for meeting these enlarged expenditures, the joint committee of finance of the general assembly recommended an addition of 75 per cent, to the present land tax, a tax on bank stock, and a tax on processes and proceedings in law and equity. 25 These suggestions were adopted, and as a result the taxes on land increased from $62,000 in 1814 to $201,000 in 1816. The tax on processes and proceed- ings in court was trifling, and was repealed three years later, but the 4 per cent, tax on the dividends of bank- ers brought over $5000 into the treasury in 1816. It is interesting to note that these were the first state taxes, other than those on land, levied in Ohio. In 1816, however, the system of bank taxation was changed, and the plan was adopted of having each bank give the state one share in every twenty-five in lieu of taxes. After 1817 the effect of this plan is apparent in the decline of the revenues from this source. The United States direct tax of 1816 was $3,000,000, and for the third time Ohio met her quota promptly, and "No figures are given in the auditor's report for 1815, so details as to receipts for that year are lacking. The total amount is given in the report of the Com. of Audit of 1825. Ho. J., 1825, p. 16. ""From a full persuasion that it will operate materially to aid the general government in its operations". Rep. of Com. of Finance, Sen. J., 1815, P. 337- "The act of Feb. 14, 1815, authorized a loan of $155,000 for one year at 6 per cent., but the whole amount was not necessary. K Sen. J., 1815, p. 338. 73] RECEIPTS AND EXPENDITURES 73 thus secured the discount for early payment. This time the legislature did not wait for the tax to be assessed, but authorized a loan to the amount of $200,000 for one year at 6 per cent ; 26 the following year they authorized another similar loan "in case Congress should continue in force the direct tax"; 27 but this was not needed, as no further requisitions were made upon the states. The revenue from the tax on land for 1816 was about $200,000, and from banks about $500; to make up the balance required, a third loan of only $32,000 was necessary. In 1817 the land tax brought in $162,000 and the tax on banks $1250, or much more than was necessary for the ordinary expenses of government. Accordingly the auditor, in his report for 1817, estimating the available surplus at $30,000, recom- mended a reduction in the rate of taxation to what it had been in 1814, which was done. 28 The legislature, after considerable discussion, voted to raise the per diem pay of its members from $2.00 and mileage, at which it had stood since 1803, to $3.00 per day. 29 It is impossible to trace the financial operations of this period with any accuracy, for no information exists in the reports of any state officer or in the legislative pro- ceedings to show how the loans made necessary at this time were paid. But from the fact that the receipts aver- aged over $200,000 a year for the five years 1814-1818 or almost double what was necessary to pay the direct tax and to repay the loans, it is safe to assume that the loans did not run over one year each, and were immediately repaid out of the proceeds from the increased taxes. During the year 1818 there was a general reduction in both revenue and expenditure and a return to normal con- ditions. The finances of the state were now "in a flourish- ing condition". 30 In 1819 there was a decided decrease in "Act of Feb. 7, 1816. "Act of Jan. 27, 1817. "Ho. J., 1818, p. 68. "Act of Jan. 12, 1816. Ho. J., 1825, p. 107. "Gov. Mess. Ho. J., 1819, p. 11. 74 FINANCIAL HISTORY OF OHIO [74 the returns from the land tax, to $75,000, and in total receipts to about $100,000. In this year for the first time appear the receipts from the Ohio penitentiary. The year 1820 was marked by several events which united to plunge the state, which had successfully weathered the burden and stress of the War of 1812, into a deficit. The legislature first of all reduced the rate of taxation about 25 per cent. The death of the treasurer, H. M. Curry, revealed a defalca- tion in his accounts of $11,112. And the report of a com- mittee to investigate the condition of the treasury showed about $20,000 in the treasury in depreciated bank notes, and paper, together with $6,583 outstanding loans to in- dividuals that had been authorized by the general assembly, none of which would be collectible under two years and probably not then. 31 Furthermore, there was owing to the state for back taxes, with interest and penalties, a sum not less than $50,000. No arrears in taxes had been col- lected since 1816. This all indicated very loose management of the finances. Down to 1816, during the incumbency of Benja- min Hough as auditor, the treasury had been economically and efficiently conducted; but his successor, R. M. Osborn, who w r as auditor from 1816 to 1830, was engaged in outside enterprises, paying little attention to the duties of his office, and not safe-guarding so carefully the finances of the state. 32 The receipts fell off for the year 1819 to $101,000 and for 1820 to $94,000, which might have been sufficient for the ordinary needs of government, but instead of reduc- ing expenditures the legislature increased them. Conse- quently, a deficit was estimated for the year 1821 of $30,000, to meet which a loan of $20,000 was advocated. 33 This was not made, but to tide over present embarrassments a transfer of $5000 was made to the general fund from the M Ho. /., 1821, p. 355. The treasurer a year later reported that only $432.50 of these loans had been paid back, and that judgment was secured against the others. Ho. J., 1822, p. 48. M See chapter III. "Ho. J., 1821, p. 559. 75] RECEIPTS AND EXPENDITURES 75 Virginia military district school fund. The effect of this shiftless financiering was to cause a depreciation in the treasury warrants, of which some |32,212 were outstanding and unpaid on December 3, 1821. 34 To relieve this situa- tion, and probably also to relieve the money stringency which made itself felt after the failure of the banks and the panic of 1819, the legislature in the following session authorized the issue of treasury warrants for f 10, $20, or for any fraction between them. 33 Two years later the faith of the state was pledged for the redemption of these bills. 36 The legislature of 1822 faced a truly embarrassing situation, but acted resolutely. Mr. Thomas Worthington, of the committee on the revenue, brought in a thorough- going report. 37 He advised retrenchment in appropria- tions, the suspension of the road tax for one year or rather its application to the deficit instead of to roads, the doubling of the tax on land, 38 and that all treasury warrants bear interest at 6 per cent, until redeemed. While this report was not adopted, rigid economies during the next two years and a fifty per cent, increase in the land tax made it possible to redeem the outstanding warrants by the spring of 1823, 39 and to leave a nominal surplus of almost $50,000 in the treasury. Of this nominal surplus, $33,933 consisted of bank notes for which specie could not be obtained at the banks issuing them : $11,081 was "toler- able current" ; $1,483, "immediately lost to the state" ; the rest doubtful. Only one bank in twenty-one redeemed any of its notes, and that one redeemed only $5000 out of $16,000. One of the economies effected was a reduction in the pay of members of the legislature from $3.00 per day, at M Aud. rep. Ho. /., 1822, p. 41. "Act of Feb. 2, 1822. "Act of Feb. 24, 1824. This legislation was not repealed until 1831. "Ho. /., 1821-22, pp. 132, ff. M The rates of the land tax are given in ch. V, on the General Prop- rty Tax. "//o. /., 1825, p. 20. 76 FINANCIAL HISTORY OF OHIO [76 which point it had been fixed in 1816, to |2.00 a day. 40 In 1823, however, the same pressure for retrenchment no longer existing, the legislature restored its pay to the figure of 1816. The effects of the crisis of 1819 had now passed away and good times had returned. "It is gratifying to state", wrote the governor, 41 "that the collection of the revenue within the last year has been attended with less difficulty and inconvenience to our citizens than for some years past. It is expected that the receipts of the present year, will be sufficient for the redemption of the audited bills in circulation, amounting to about $30,000, to defray all the expenses of the government for the ensuing year, and leave a balance in the treasury unexpended". Improve- ments in the tax laws and the remission of penalties on delinquent lands in 1822, to induce the prompt payment of taxes, were attended with a very happy result and the revenue increased beyond the most sanguine expectations ; 42 in 1822 it was $51,000 and in 1823 it had grown to $85,000. A more thorough-going revision of the system of taxation in 1825, by which numerous forms of personal property in addition to land were subjected to taxation, led to a still further increase, to $103,000 in 1827. From 1823 to 1827 there was a yearly balance in the treasury of between $50,000 and $60,000, and the finances were in a most pros- perous and well-managed condition. The detailed expenditures of the state were published by the auditor in his annual report for the first time in 1822, with two isolated exceptions. From this report we see that the executive, legislative, and judicial branches spent considerably more than half the modest total. The Ohio penitentiary called for $10,000, but returned to the state $2,700; printing the journals, etc., cost $2,400; the militia spent $3,300; while $10,600 was paid to counties the state here acting simply as collecting agent, and $2,200 was refunded for taxes improperly collected. Other "Ho. ]., 1825, p. 107. "Gov. Mess. Ho. /., 1823, p. 30. 42 Aud. rep. Ho. J., 1824, p. 26. 77] RECEIPTS AND EXPENDITURES 77 miscellaneous items brought the total up to f 77,000. 43 PERIOD OP INTERNAL IMPROVEMENTS, 1825-1845. The year 1825 marks the beginning of a new epoch in Ohio finances. In that year commenced the policy of granting aid to public improvements, and a beginning was "Among these items is that of bounties for wolf scalps. This had been offered first in 1795 by an act that was copied from the Penn- sylvania statutes, for the killing of wolves, foxes, or wildcats. In 1799 it was offered for wolves alone, because "the raising of sheep ought to be encouraged in this territory" ; and in 1802 for wolves and panthers ; in 1810 the panthers were eliminated. As it survived beyond the time of its actual need, it called into existence a regular wolf breeding industry. This was recognized by the act of 1852, reviving the system after its abolition in 1851, which required of the person receiving the bounty an oath "that you have not spared the life of any she wolf . . . with a design to increase the breed". As the legislation was so continuous and so interesting in itself the acts and the rates of bounty offered are appended. Quite as interesting was a related act passed December 24, 1807, "to encourage the killing of squirrels". This provided that all persons subject to a county tax should produce annually from 10 to 100 squirrel scalps (the number to be decided annually by the trustees) ; if any person failed to produce the required number, he was to be fined 3 cents for each one lacking; if he had an excess, he should be paid 2 cents for each one over. The table of bounties for killing wolves follows ; the amount actually paid out for this purpose may be seen in column 12 of the table of expenditures. (Appendix, Table III.) Date of Act Under 6 months of age Over 6 months of age June 19 I/9S- .... $ 1. 00 50 i .00 1.50 .50-3.00 2.OO 1.50 2.50 2.50 Repealed prev 2.50 4.00 $ 2.00 1.25 2.OO 3.00 I .00-4.00 4.00 3.00 4.25 . 4.25 ous legislation 4-25 8.00 Dec 19, 1799 Dec. 2, 1800 Jan. 9, 1802 Dec 20 1805 . Feb 19, 1810 Dec 22 1821 . . Dec 24, 1829 Feb 9 1831 March 25, 1851 April 26 1852 April Q. i8s6 The last payment was made in 1873, but no law repealing them appears in the index of the laws. 78 FINANCIAL HISTORY OF OHIO [78 made in canal building. This was a momentous step financially, for it increased the expenditures greatly, added to the taxes, and involved the state in a debt which was not paid off for almost eighty years. A thorough revision of the laws at the same time gave the state practically a new revenue system. A new method of stating the receipts and expenditures was also begun, which makes them not easily comparable with the previous reports. In 1829 the system of book-keeping changed also. Warrants were not all issued by the auditor and redeemed by the treasurer; 44 but the funds for canal purposes were transferred to a board of canal fund commissioners, who checked them out independently of the auditor. Consequently, after 1829 canal expenditures do not appear in the auditors' reports, and a full account of them must be sought in an account of the canals themselves. 45 The subject of the construction of a canal across Ohio to connect the Ohio Elver with Lake Erie had been dis- cussed in the state and broached to the legislature as early as 1817, but no decisive action was taken until 1825. In that year, after two or three years spent in preliminary surveys, etc., the work of actual construction was begun, and $46,000 appropriated for that purpose. This expendi- ture appears in the auditor's reports for only five years, after which it is transferred to the reports of the board of canal fund commissioners and of canal commissioners. It may, however, be traced in column three of the general table of receipts and expenditures, in the constantly in- creasing gross expenditures, which culminated in the year 1839. The effect of the new revenue act is also clearly seen in the increasing receipts from land and property, and in the more strict enforcement of the law. In 1824 for the first time appears the item of payments on land delinquent for taxes and sold therefor. The easy going methods of **As had been done hitherto under the act of Feb. 18, 1809. **This will be contained in a forthcoming monograph on Internal Improvements in Ohio. 79] RECEIPTS AND EXPENDITURES 79 collection and the remission of penalties for non-pajanent of taxes were stopped, and the law administered strictly. There was a steady and gradual increase in the revenues until 1839, with a temporary set-back in 1835, owing to a reduction in the tax rate, the first change that had been made since 1826. 4(J The tax on banks was renewed in 1826, the sale of public lands began but as the proceeds from this were used for canal purposes they were soon there- after transferred to the control of the board of canal fund commissioners and other taxes were resorted to increas- ingly. In 1831 the property tax was revised, and a number of things such as personal property and manufacturing companies were taken out of the exempt class and sub- jected to taxation. The state government seems to have been conducted economically and well during these years; the expenditures grew slowly and normally, keeping pace with the growth of the state in population and wealth. The only item that shows any considerable expansion is that of expenditures for charitable, correctional, and penal institutions. Ohio now entered upon the policy of state care of the dependent and defective classes, and began to erect buildings in which to place them. In 1829 the first appropriation was made for the education of the deaf and dumb, and in 1833 was begun the erection of buildings for this purpose. The first appropriation for a lunatic asylum was made in 1835 and for a blind asylum in 1837, while continuous appropriations for a new penitentiary were made during the years 1832-39. The total amount spent on the construction and repair of buildings for all these purposes during these eight years was |120,986, while the expenditures for care and main- tenance during the same period were $285,725. On the other hand, it should be noted that during the period 1838-44 the Ohio penitentiary turned back into the state "The act of March 9, 1835, fixed the state rate at iV* mlils on the dollar. It had been i l /2 mills. In 1830 the auditor reported, "the receipts from taxation annually exceed our calculations". Aud. rep. in Ho. J., 1830, p. 24. 80 FINANCIAL HISTORY OF OHIO [80 treasury an average of over $11,000 a year, from the labor of the convicts. The canals, too, were economically and honestly man- aged down to 1833 at least, and probably down to 1837. In his report for the latter year the auditor made a detailed comparison of the expenditures in Ohio with those of the neighboring states of New York, Pennsylvania, and Ken- tucky, and showed that practically every item of expense was smaller in Ohio than in the other states. 47 But in 1837 the legislature entered upon the unfortunate policy of loaning the state's credit in support of turnpike and canal companies, railroads, and similar works of internal improvement, and was soon involved in debt to the amount of about $3,000,000. This law was repealed in 1840. In- deed this year saw great economies along a number of lines -the loan law and the law for the erection of a new state house were both repealed, the receipts and disburse- ments of the canal fund were brought under the control of the auditor, the number of members on the board of public works was reduced, the appropriations for canals were cut heavily, and in other ways expenses were reduced. The most notable economy was in the work of internal improve- ments. The appropriations for this purpose had been steadily expanding until in 1839 they reached the enormous total of $366,000, in addition to the proceeds of loans. All work was now suspended except that necessan* to complete improvements almost finished ; during the five years 1840-44 the appropriations for canal purposes averaged only $38,000 a year. This economy permitted a reduction of over half in the gross expenditures of the state during this period. The expenditures for state purposes only also show a considerable decline, from $266,000 in 1839 to $201,000 in 1845. Drastic economies were effected in every branch of the public service; a general reduction of salaries took 4T Aud. rep., 1837, pp. 13-18. 81] RECEIPTS AND EXPENDITURES 81 place, in some cases even below those of 1813. 48 The year 1839 measured the high- water mark of both expenditures and receipts. There was then a tremendous shrinkage in the gross receipts of the state treasury, from |529,000 in 1839 to $164,000 in 1845, of which almost seven-eighths is attributable to the decline in the general property tax from $397,000 in 1839 to $125,000 in 1845. Wholesale evasion of taxes occurred, and the list of delinquencies grew alarm- ingly. Eloquent testimony to the hard times of these years is furnished by the sudden growth in the item of taxes on lands in arrears for taxes, 49 from $307 in 1836 to over $20,000 in 1844. The surplus in the state treasury was reduced from $127,000 in 1838 to $23,000 the following year, and to $11,000 in 1840. Not only was the surplus smaller, but the character of the funds, of which it was composed, deteriorated. Of the nominal balance in the treasury in 1842 of $64,361, over $25,000 consisted of depreciated funds certificates of deposit and notes of failed or suspended banks. 50 In all these changes is seen the effect of the crisis of 1837, which affected Ohio as it did the rest of the country, though the full effects were not evident for a couple of years. At no time, however, was the credit of Ohio seriously affected, nor did she ever repudiate any of her legitimate obligations. Bravely and successfully she met all burdens and was able to weather the storm that ruined the credit and reputation of so many of her sister states. Gradually the economies of these trying years restored order to the finances; expenditures were kept well within actual receipts, loans were made to "By act of Jan. 27, 1844, the following salaries were fixed: members of general assembly, $2.00 per day and $2.00 for every 25 miles traveled; governor, $1000; secretary of state, $500 and fees; auditor, $730; treasurer, $730; judges of supreme court, $1000; president judges of courts of common pleas, $730; etc. The pay of members of the general assembly was raised again by act of Jan. 29, 1847, and the rest of the act was repealed Feb. 7, 1848. Cf. table on p. 20 above. 4 'See column 3 in Table of General Revenue, in Appendix. "Aud. rep., 1842, p. n. 82 ( FINANCIAL HISTORY OF OHIO [82 complete the public works, and the balance on hand steadily grew until it amounted to f 133,000 in 1844. During the years 1843 and 1844 the payments made by the auditor's office under the appropriation acts were stated separately for each item of appropriation and the totals under each head in the general tables could be ascer- tained only with a disproportionate amount of labor, for the system of keeping a separate fund for each branch of expenditure w r as used. As there were 37 of these funds under the general revenue fund alone, and the totals were nowhere given by the auditor, it is clear that to the average legislator or layman the great detail and unsystematic arrangement must have precluded any clear understanding of the finances. The practice was a common one in state finance of assigning sources of revenue to different objects and having all expenditures for that purpose defrayed out of the "fund" so created. Even after the system of dis- tributing income in this way was given up, the method was maintained of keeping separate the different funds for w r hich the appropriations were made. It w r as then only a book-keeping device, and served merely to confuse the accounts. From a study of receipts and expenditures in Ohio, and the steady growth of the balance on hand, it may safely be concluded that the finances were economically administered down to 1844. PERIOD OF EXTRAVAGANCE AND DEFALCATION, 1845-1860. In 1845 a new method of stating receipts and expendi- tures begins in the auditor's reports. All receipts and expenditures, whether for the state or for schools, or canals, etc., passed through the auditor's office, and were reported in one set of tables ; these I have called gross receipts and expenditures. Those for state purposes alone are entered under the head of the general revenue fund, and correspond with the figures hitherto given in the auditor's reports. It has seemed best therefore to continue to trace, in the detailed tables the net receipts and expenditures of the state government, rather than the gross revenue and 83] RECEIPTS AND EXPENDITURES 83 expense account handled by the auditor's office. As a specimen of the latter the first statement under this system, in the auditor's report for 1845, is given : RECEIPTS. (1) State revenue $ 154,533 (2) School revenue 191,235 (from l /t mill on grand list, interest from counties on surplus revenue, taxes on law- yers and physicians, banks, bridge and in- surance cos., from auction duties, and peddlers' licenses.) (3) Canal revenue 726,343 (from 5J/2 mills on grand list.) (4) Tolls, water rents, etc., on canals 466,599 (5) Miscellaneous 44,746 DISBURSEMENTS. Stare government $ 201,472 School funds 282,960 Canals 307,641 Interest on domestic debt 44,237 Interest on foreign debt. 1,033,628 Total $1,869,938 Balance 232,594 $2,102,532 Total $1,583,456 [Balance from 1844] 519,076 $2,102,532 The management of the finances of Ohio was marked by the most extraordinary looseness and corruption during the decade and a half from 1845 to 1860. A crowd of pro- fessional office-holders and grafters were in control of the state administration, and they strained the resources of the state worse than had been the case in the days of greatest legislative extravagance during the period of internal improvements. Hardly once in this period were the finances in a normal condition, for no sooner was one financial difficulty disposed of than another arose. Graft in the construction of public buildings, embezzlement and defalcation on the part of public officers, and laxity of oversight and administration all contributed to the financial disorder. For the ten years 1845 to 1854 inclusive the disbursements for state purposes exceeded the receipts 84 FINANCIAL HISTORY OF OHIO [84 by $426,000, showing that appropriations during this period far exceeded the legitimate revenue. Three times actual deficits occurred, and the rest of the time were obviated only by the existence of a large cash balance in the treasury, by transfer of money from other funds, or by loans. Indeed the receipts exceeded the disbursements only four times during this whole period. The legislature must be held in part responsible for this condition of affairs, for they did not attempt to grapple with the situation energetically until 1856. But the corruption was deep-seated and involved bank-presidents, contractors, and public officials in a general raid upon the state treasury. A new revenue law was passed in 1846, which really introduced the system of the general property tax into Ohio, and made a determined effort to tax personal prop- erty as well as realty. At the same time a revaluation of the real property of the state added considerably to the amount of this form of property subject to taxation. The effects are clearly seen in a prompt increase of receipts from this source and of revenue for state purposes. But, rapidly as the revenues grew, the appropriations expanded even more rapidly. The fiscal year 1844 had closed with a very respectable balance of $133,000 in the treasury. This was cut down to $86,000 the following year by appro- priations which were over $50,000 in excess of revenue; those for 1846 were $30,000 in excess. Appropriations for 1847 were quite as large, but a large increase of over $60,000 in receipts fortunately restored the shrinking balance, and obviated the deficit which such a policy would ultimately make inevitable. The legislature took advantage of this favorable opportunity to raise the pay of its own members, restoring them to the level that had existed before the reduction in 1844, namely $3.00 a day and $3.00 for each twenty-five miles travel. This pay was limited, however, to a session of sixty days only ; after that it was only $1.00 a day, a rate of remuneration that ensured short sessions. The appropriations were largely increased again in 85] RECEIPTS AND EXPENDITURES 85 1849 and 1850, without any corresponding tax being authorized by the general assembly to meet the payment of the additional appropriations. 51 There was an actual deficit the latter year of $83,000. In his report for 1850 the auditor warned the legislature that such a course left "only one alternative the general assembly must provide for borrowing the money, or adequate taxes must be levied to make up the deficit". The latter was, however, the last thing the legislature wished to do, as the constitutional convention was even then revising the constitution and a change in the tax laws was probable. Things were there- fore permitted to drift for another year, when appropria- tions almost $100,000 in excess of revenue swelled the deficit to unmanageable proportions $195,534. On November 16, 1851, the excess of expenditures over revenue had reached an aggregate of $225,021. 52 This situation was met by permitting the money raised for the payment of the debt and subject to the control of the sinking fund commissioners, to remain in the treasury, where it was used to pay the ordinary expenses of government. 53 The auditor warned the legislature that the light tax of one mill on the dollar then in force would not be sufficient to liquidate this overdraft in addition to the ordinary expendi- tures of the year, and urged heavier taxation. Moreover the auditors' reports for 1852 and 1853 pressed upon the legislature the necessity of limiting the appropriations to the amount of revenue which would accrue under the tax levy of the previous year, "but in neither case was the advice regarded". 54 At the same time that the treasury was so embarrassed for want of funds the prosperity of the people in this "golden era" is commented upon, 55 showing that the shiftless financiering of the legislature was not due to the poverty of the people. M Aud. rep., 1850. "Special rep. of aud., Feb. 12, 1853. "Spec. rep. of aud., Jan. 2, 1852. M Aud. rep., Dec. 26, 1853. "Spec. rep. of aud., Feb. 12, 1853. 86 FINANCIAL HISTORY OF OHIO [86 The sinking fund was now exhausted, so that resort to that again was impossible, but the line of least resistance was once more followed, and instead of raising additional taxes, the legislature transferred $250,000 of the surplus revenue fund, 50 which had been loaned to the counties, to the general revenue fund for state expenditures. 57 Ex- travagant appropriations for this and the next year again plunged the state into debt, the deficit for 1854 amounting to $44,000, but this time relief was found in great economies in expenditure the next session, combined with largely increased revenues. Part of the increase in appro- priations was due to the raising of the level of salaries for the judiciary and members of the legislature after the adoption of the new constitution. But by far the greatest part was caused by the construction of new buildings for state institutions, on which expenditures began in 1848, and which had swelled to alarming proportions by the end of a decade. A new state house had been projected in 1838 and the preliminary work begun, but after a couple of years had been given over in view of the hard times. It was now revived on a larger scale, and appropriations were made for this purpose continuously from 1848 to 1861, 58 whicli far exceeded the original estimates. In 1852 new lunatic asylums at Cleveland and Dayton were authorized, 59 but it was stipulated in the law authorizing them that "the entire cost to the state, of each of said asylums, shall not exceed in the aggregate, when perfectly completed", $70,- 000. The amount of money originally appropriated was $140,000, but the trustees contracted for the erection of buildings costing far more, and persuaded the legislature in 1854 to grant an additional $50,000. By the end of *This was the surplus revenue fund distributed among the states by the federal government in 1837. "Act of May I, 1852. In his report of Feb. 12, 1853, the auditor sug- gested that this transfer be made permanent ; i.e. that no attempt be made to restore the money to the surplus revenue fund. "See column 8a in Table of Expenditures, in Appendix. "Act of April 30, 1852. 87] RECEIPTS AND EXPENDITURES 87 1855, there had been drawn from the treasury f 198,989, and the buildings were still uncompleted. 00 In 1854 the legislature began the improvement of practically all the other state institutions, and the erection of new buildings, for the penitentiary, the blind, and the deaf and dumb asylums. The expenditure in many cases was prodigal. 61 Charges of graft and fraud were freely made in connection with the letting of contracts and the work of construction and repair, and apparently not without warrant. The debts for these buildings far outran the appropriations, though these were increased greatly beyond the original estimates. Finally, in 1856, the legislature was forced to meet the accumulated liabilities by a special appropriation of |493,138, which cleaned up the bills temporarily. The completion of the buildings, however, called for still further appropriations even after this, which continued until 1860. The responsibility for this extravagance must be divided between the legislature and the administrative officers entrusted with the erection of the buildings. More careful provision was made in 1853 "for the publication of an accurate and detailed statement of the receipts and expenditures of the public revenues." 62 It provided that every officer of the state who was charged with the receipt and disbursement of public money, should make a detailed annual report. The auditor was required to classify and arrange these under proper heads, "so as to present in detail an accurate account" of the finances. The only discernible effect of this was to introduce a new method of keeping accounts in the auditor's office and to render his reports comparable with earlier ones with diffi- culty. Itemized expenditures are given under the heading "net amount drawn on the treasury", which does not correspond with the item called "audited bills redeemed" of previous reports, 63 for it includes bills outstanding and "Aud. rep., 1855. "See columns 5 and 53 in Table of Expenditures, in Appendix. "Act of March 14, 1853. "See Table of General Revenue and Expense Account in Appendix. 88 FINANCIAL HISTORY OP OHIO [88 not yet presented for redemption, and is therefore larger. Nor does it agree with the item called "bills drawn on the treasury'', i. e. appropriations, for it does not include un- expended balances of appropriations, and is therefore smaller than this. The table, however, has been carried on as before. It seemed as though the worst financial difficulties of the state had now been weathered. Acts were passed in 1856 providing for the appointment of investigating com- mittees to inquire into the expenditure of public moneys, to punish embezzlement, and to define more carefully the duties of the auditor and treasurer. Suddenly a new financial complication arose. On June 10, 1857, William H. Gibson, the treasurer of state, announced a deficit in his office, occasioned, as he alleged, by the defalcation of John G. Breslin, his immediate predecessor. Three days later he resigned his office. On that date he stood charged on the books of the treasury with an aggregate balance of $776,141. Instead of this sum only $99,055 was actually found in the treasury, of which but $34,940 was available and only $170 in cash. 64 The actual deficit proved to be $744,084. Most of this $411,312 belonged to the general revenue fund and reduced by so much the amount imme- diately available for state purposes; $337,324 belonged to the sinking fund, and was designed for the payment of the interest on the state debt, due July I. 65 Immediate steps were taken to meet this crisis and an arrangement was made with the Ohio Life Insurance and Trust Company under which that institution advanced to the state in New York City, on July 1, the sum of $150,000, which, together with what had been previously provided, paid the interest on the debt, and fully protected the credit of the state. 66 To meet the outstanding warrants of the auditor and "Spec. Rep. on the Condition of the Treasury, Nov. 15, 1857. "Rep. of Board of Sinking Fund Commissioners, Feb. 15, 1859. **Gov. Mess. Exec. Doc., 1857, Pt. I., p. 357. The Ohio Life Insurance and Trust Co. was wrecked a few weeks later by the defalcation of its cashier. 89] RECEIPTS AND EXPENDITURES 89 provide for paying those which would necessarily have to be drawn before other means could be provided for their payment, an arrangement was made with the State Bank and branches by which these institutions agreed to pay direct to parties holding auditor's warrants the amounts due them, and await reimbursement from the incoming revenues. 67 Immediate necessities were thus tided over and the state was enabled to meet all its obligations punctually. The financial condition of the state treasury had apparently never been stronger than it was in 1855, but the double coincidence of extravagance and corruption had proved too great a strain for even an apparently full treasury. As Governor Chase said: 68 "If there had been no defalcation, the means in the treasury would have been ample to pay the debts of 1855 and meet all other demands. ... If there had been no debts, the defalca- tion would not have sensibly embarrassed the operations of the treasury". The debts thus alluded to amounted, at the end of 1857, to f 639,666. These had been contracted as to the greater portion without warrant of law ; but as they originated in supplies and labor furnished to the state and its institutions, for the most part in good faith, payment could not properly be denied the creditors. 69 On the convening of the legislature at the opening of 1858, the governor clearly stated the situation to the legislature : 70 it will now be necessary to reduce the appropriations of the current year by an equal amount, or to authorize a temporary loan to make good the deficiency, and to increase the taxes of the coming year by the small addition needed to discharge it. The first was manifestly impossible, though a slight reduc- tion of about |35,000 below the previous year was made in appropriations. Accordingly a temporary loan of $700,- 000 at 6 per cent, was made, to be paid before March 1, "Ibid., p. 362. "Gov. Mess. Exec. Doc., 1857, I, 367. m lbid, p. 365. TO Gov. Mess, of Jan. 4, 1858. 90 FINANCIAL HISTORY OF OHIO [90 1861. 71 The act also levied a tax of 7-20 of a mill for the years 1858, 1859, and 1860, for the payment of the loan, "the proceeds of which tax is hereby irrevocably pledged to the purpose aforesaid". A commission was also appointed by another act on the same day, to examine into the condition of the treasury, and the causes of the defalca- tion. The following year the slate was wiped clean and a number of unusual charges were met by the general revenue fund. These consisted of various old and unavailable claims, which had been accumulating for years, and counterfeit notes, together amounting to $64,853; extra- ordinary expenditures for canals, including the purchase of the Lewistown reservoir and the National Road; and the expenses of the treasury investigating committee. 72 They aggregated about $175,000, and reduced the balance in the treasury to $4,569, but at least they left the docket clear. It is indispensable to every sound financial system, [wrote Governor Chase] that the appropriations be limited by revenues, and expenditures by appropriations. The derangements which have sometimes embarrassed our finances may be traced, almost invariably, in the absence of crime, to a disregard of this salutary principle. In order to meet the existing deficiency the auditor had urged strongly the celling of the state's railroad and turnpike stock, pointing out that it had already depre- ciated considerably, and that this should be done rather than increase the taxes. 73 The governor, however, though he had expressed himself previously in favor of their sale, thought the time an ill-advised one, and that the proceeds of the sales ought not "to be applied to any other purpose than the reduction of the public debt". 74 This was the beginning of an agitation in favor of the sale, not only of the stock owned by the state, but also of the public works themselves, and finally resulted in the lease of the canals in 1861 and the sale of the stock a few years later, in 1865 and 1866. "Act of April 12, 1858. "ist an. rep, of Comptroller, Nov. 16, 1859. Exec. Doc., 1859, I, 455. "Aud. rep., 1857. "Gov. Mess., 1857. Exec. Doc. I, 368. 91] RECEIPTS AND EXPENDITURES 91 CIVIL WAR PERIOD, 1860-1865. At the outbreak of the Civil War the finances of the state were on a firm basis; they "have not, for several years, been in as good a condition as they are at this time", wrote the auditor. 75 The revenue system was now in good working order, the old debts had been cleared up, expendi- tures on the public buildings and institutions had come to an end, and the recent experiences of the state had resulted in a thorough political house cleaning, so that the state government was practically free from extravagance and corruption. Under these circumstances the burdens im- posed by the war rested more lightly upon the people of Ohio than they did in most states. The most serious loss involved was occasioned by the drain of men from farm and city; between 1861 and 1865 Ohio sent 310,654 of her sons into the Union armies. The war expenses of the state government during these years was as follows : 76 YEAR EXPENSES. RELIEF FUND. TOTAL. 1861 $1,458,482 none $ 1,458,482 1862 1,386,614 $ 533,179 1,919,793 1863 420,260 935,703 1,355,963 1864 878,301 2,012,050 2,800,351 1865 597,717 2,137,933 2,735,650 $4,741,374 $5,618,865 $10,360,239 Claims allowed and not yet paid, but for which the state is liable 50,000 $10,410,239 Of this state expenditure, |1,059,079 was raised by means of loans still outstanding at the end of the war ; and $1,851,899 was refunded by the federal government on account of the direct tax levied on the states, leaving a "Aud. rep., 1861. Exec. Doc., II, 30. "Rep. Adjutant General. Exec. Doc., 1866, I, 29. In addition to these 92 FINANCIAL HISTORY OF OHIO [92 balance of about $7,500,000 to be raised by taxation. 77 In spite of this extraordinary drain upon her resources, Ohio yet succeeded in reducing the state debt $1,374,921, and found it necessary to raise the rate of taxation by only 1.35 mills. 78 The explanation of this seeming miracle is to be found in the increase in taxable property returned for taxation, and the promptness with which taxes were paid under the stimulus of patriotism, the delinquencies falling in 1861 to less than 1 per cent, of the total. 79 At the same time economies were introduced in expenditures for ordinary purposes and these were maintained nearly on a stationary level in spite of rising prices. Not until the last year of the war, 1865, was there any marked in- crease in expenditures. But even more striking than the economies in state administration were those effected by the local govern- ments. Of the local revenues, the governor wrote in 1861, 80 expenditures on the part of the state government a much larger amount was raised for local bounties to enlisted men. AMOUNT OF TOTAL AMOUNT YEAR. NUMBER MEN. BOUNTY. OF BOUNTIES. 1862 42,031 $25 $1,050,775 1863 16,472 100 1,647,200 1864 96,457 400 38,582,800 1865 22,212 50O II,IO6,OOO $52,386,775 Veterans 20,708 100 2,070,800 54,457,575 Of which there was paid by municipal corporations. $14,000,000 By individual subscription 40,457,575 $54,457,575 "In the auditor's report for 1865 there is a mistake in subtraction, the latter figure being given as $8,449,261. Exec. Doc., 1865, I, 329. '*The rate of state taxation was as follows : 1860, 3.95 mills ; 1861, 4.55 mills; 1862, 4.65 mills; 1863, 5.05 mills; 1864, 5.30 mills; 1865, 5.30 mills. , "See chapter V, on the General Property tax. *Gov. Mess. Exec. Doc., 1861, I, 484. 93] RECEIPTS AND EXPENDITURES 93 it is believed that at least 33 per cent, may, without serious and but temporary detriment to the people of the state, be withheld from the several special purposes and made applicable to the general treasury. So energetically was this principle carried out during the first two years of the war that, in spite of heavy war ex- penditures, there was a decrease of over $1,000,000 in the aggregate taxes for all purposes within the state. The following table makes this point clear : 81 1861. 1862. State taxes for ordinary purposes $ 3,744,454 $3,285,609 State taxes for war purposes 311,925 843,863 County taxes 3,222,373 2,783,735 City, town, and special taxes 3,972,376 2,849,301 Aggregate $11,071,128 $9,762,508 The laws of 1860 did not contain the word "militia" in the index, and the state expenditures for militia and military affairs amounted to only $6,656, which was double that of the previous year. With the outbreak of war, how- ever, Ohio promptly appropriated the money necessary to arm and equip her soldiers. The act of April 18, 1861, provided for the rapid organization of the militia, appro- priated $450,000 for arms and equipment, and $500,000 for the support of the federal government, to be spent under the direction of the governor; a contingent fund of $50,000 was also placed at the disposal of the governor, and a loan of $750,000 was authorized. 82 The following years still greater expenditures were authorized. 83 As Ohio's southern boundary was exposed to invasion, the legislature showed itself very fearful of attack from that source; by act of April 11, 1863, a loan of $500,000 was authorized in case of invasion, which, however, was not made. The same year Morgan's raid (June 27- July 26) showed the danger to be a real one, and during the next session $35,000 was appropriated to repel invasion and *'Rep. Com'r of Stat. Exec. Doc., 1862, I, 462. "O. L., 1861, p. 89. "Acts of May i, 1862; Jan. 20, 1863; April 13, 1863; March 30, 1864; April 13, 1865. 94 FINANCIAL HISTORY OF OHIO [94 suppress insurrection, while a loan of $400,000 for the same purpose was authorized. 84 This bore 6 per cent, interest and the bonds were exempt from state taxation; it was sold to the citizens of Ohio and yielded a premium of $502. 85 The following year an appropriation of f 500,000 was made, to be used if necessary to repel invasion or sup- press insurrection. 80 The war governor of Ohio was David Tod, but on January 11, 1864, John Brough, who had formerly been one of Ohio's most able auditors, was inaugurated. In his last official message, Governor Tod urged the abolition of the office of comptroller, as useless and unnecessary a recommendation also made by the auditor and also an increase in the salaries of state officers by 50 per cent. 87 The over-issue of paper money by the federal government had led to a rise in prices, but the pay of state officials had remained constant at the point at which they had been fixed years before. Two years later, when the war w r as over, the legislature followed this advice, taking care at the same time to raise their own pay to $5.00 a day and $3.00 mileage for every twenty-five miles traveled ; the salary of the governor was fixed at $4000. 88 Partly as a result of extraordinary expenditures occa- sioned directly or indirectly by the war, partly as a result of the higher prices, and partly as a result of normal growth, and possibly of growing extravagance engendered by the paper money regime, the disbursements of the state government were steadily mounting upwards. The gross expenditures of the state grew from $3,683,000 in 1800 to $12,435,000 in 1865, while the net expenditures of the general revenue fund increased from about $800,000 to $2,275,000 in :he same period. The year 1865 was, how- ever, an abnormal vear, being more than double the "Act of March 30, 1864. O. L., p. 81. "Rep. Com'r of Skg. Fd. Exec. Doc., 1864, I, 205. "Act of April 13, 1865. O. L., p. 164. "Gov. Mess., Jan. 4, 1864. Exec. Doc., 1863, I, 3. "Act of April 2, 1866. O. L., p. 65. 95] RECEIPTS AND EXPENDITURES 95 previous year, 89 and the largest in the history of the state down to the present time. Part of this increase was occa- sioned by the payment of the direct tax of $766,897 to the federal government, while the benevolent institutions called for $225,000 more than the previous year, and print- ing, binding, and stationery showed an excess of $110,000. In even greater degree the local expenditures and taxes grew. The state budget became permanently larger from this time on, and, though economies along some lines were effected and the swollen items of 1865 were cut down, it was never again brought back to the ante-bellum figures. DEFICITS AND TRANSFERS. Upon the cessation of war the state tax rate was restored to the old figure of 1859, and an effort was made to cut down expenditures. The act of April 5, 1866, fixed the rates of taxation for state purposes as follows: state government, including benevolent institutions, 1 mill; sinking fund 1.2 mills ; common schools, 1.3 mills. The low- ness of these rates led to the boast that Ohio had the cheape.st state government, in proportion to population, that could be found. 90 The whole amount of salaries paid to state officers in 1866 was only $21,207. This was soon altered by an act of this same year providing for a gen- eral salary increase. The budget of 1867 and 1868 accordingly saw a great increase in the salaries of administrative and judicial officers and in the pay of members of the general assembly. The cost of maintenance of the charitable, correctional, and penal institutions also showed a rapid and continuous expansion, from $375,000 in 1864 to $645,000 in 1865, $780,000 in 1866, and $935,000 in 1867. In the following year it passed the million dollar mark, and only once since has fallen below that figure. This growth of public expenditures called forth a protest in 1868 from the "Gov. Mess., Exec. Doc., 1865, I, 205. "Rep. Com'r of Stat. Exec. Doc., 1866, I, 667. 96 FINANCIAL HISTOKY OF OHIO [96 auditor; 91 he thought $500,000 a year could be .sa-, r ed, "and the public service be better performed than under the present wasteful system of management". To carry out this policy of retrenchment he urged shortening the term of the legislative sessions, docking the pay of absentees, forbidding extra compensation, etc. Not all of the expendi- tures, however, were caused by legislative extravagance, for the decade following the war saw the application in Ohio of a vigorous policy of debt payment. In 1867 the claims due the state from the federal government and the balances of various funds then in the treasury were trans- ferred to the sinking fund and used to pay the debt. 92 By 1867 the extraordinary expenditures belonging to a state of war had ceased, thereby making an annual saving to the people of Ohio of about $3,000,000. 93 Tho state tax was reduced to the same point as before the war, and a decrease in expenditures might have been anticipated. Such was far from being the case, however. Rising prices caused by depreciated paper money induced legislative and administrative extravagance and also necessitated higher taxes, while the growth of population and the rapid in- crease of cities and towns called for larger expenditures to satisfy legitimate needs. A comparison of the various rates of taxation for state and local purposes makes it evident that the real growth during this period was in the local governments rather than in the state. This is clearly shown in the following table: 94 PURPOSES. 1859. l866. 1867. State tax 3.5 3.5 3.5 Aggregate local taxes 7.7 10.0 12.5 Other special taxes 1.3 1.4 1.4 Aggregate 12.5 14.9 17.4 During all this period the receipts from taxation were steadily increasing, although the rate for state purposes w Aud. rep., Dec. 12, 1868. Exec. Doc., I, 94. M Gov. Mess., Jan. 6, 1868. Exec. Doc., 1867, I, 148. "Ibid., p. 147. M Rep. Com'r of Stat. Exec. Doc., 1867, I, 948. 97] RECEIPTS AND EXPENDITURES 97 remained unchanged. In 1867 the valuation of the taxable property in the state increased $32,545,858 over that of the previous year; this the governor thought was due to the increased care and accuracy in the administration of the tax laws, and the growing familiarity of local boards of equalization with their duties. 95 More important, however, was probably the general rise of prices, which by this time had affected real estate and property values. But in spite of the growth of revenues, expenditures were growing still more rapidly. In 1868, as a result of the increase of legislative appropriations $90,000 in excess of the estimates, and other causes, a deficit appeared in the state finances. To avoid borrowing or raising the tax rate the auditor suggested a transfer of $200,000 from the sink- ing fund. 96 In spite of its unconstitutionally this advice was followed, and $175,000 was transferred from the sink- ing to the general revenue fund, on condition that it be repaid by January 1, 1871. 97 This method of covering deficiencies and yet permitting extravagant appropriations was so easy, that it was resorted to again in 1869. This time there was transferred from the sinking fund $150,000, from the school fund $71,000, and from the canal fund $25,000, or a total of $246,000. 98 In spite of these tem- porary loans, there were on November 15, 1869, outstand- ing appropriations against the general revenue fund amounting to $1,303,407, for which there were no monies available. 99 For the coming year the auditor estimated that there would be, on the basis of existing revenues and expenditures, a deficit of $510,000, to meet which he urged an additional tax levy of .5 mill, and in case the taxes could not be collected in time then a temporary loan of $300,000 would be necessary. "Gov. Mess., Jan. 6, 1868. Exec. Doc., 1867, I, 148. "Aud. rep. Exec. Doc., 1868, I, 85. "Act of May, 1868. For a full discussion of these transfers and their legality, see The History of the State Debt of Ohio, in Journal of Political Economy, June, 1911, p. 464. "Authorized by appropriation act of May 5, 1869. "And. rep. Exec. Doc., 1869. I, 373. 98 FINANCIAL HISTORY OF OHIO [98 The embarrassment of this fund [he wrote 100 ] has been produced by the last two sessions of the General Assembly, by the addition of eleven new judges to the judicial forces of the state, by the purchase of lands, and establishing thereon a Reform School for Girls, the unusual expenses of traveling committees of the Legislature, and the extra- ordinary appropriations for miscellaneous purposes made at the last two sessions of the General Assembly There is such a mania for office, for squandering the public moneys, in fat jobs to favorite con- tractors, and improvident purchase of property from favorites at exhorbitant prices, that without some such restraints as are here indicated there is danger of great public demoralization; of oppressing the enter- prising and industrial classes of the people, and driving whole communities into bankruptcy. The largest item in the increased expenditures was for the construction and support of the benevolent institutions of the state. Ohio was at this time entering upon the policy, which has been adopted now by all the advanced states of caring for the defective and dependent classes at state expense, instead of leaving them to the mercy of the local governments. In carrying out this policy there were built during this period state asylums for the deaf and dumb, for the blind, and for imbecile youth. The Northern Lunatic Asylum had been burned and was rebuilt. Although the governor urged that the state alsc undertake the complete care of the insane, 101 this reform was not effected until the end of the century, and the insane poor remained in county almshouses. Indeed the reforms under- taken threatened to equal the aggregate revenues. "The people of Ohio are grievously taxed", wrote the auditor in 1871, 102 and in the following year he pointed out that 54 per cent, of the entire receipts of the state, or 72 per cent, of the amount received from taxation, was disbursed for the State public benevo- lent institutions. . . . More than 98 per cent, of the entire receipts from taxes into the revenue fund are to be absorbed by state charities. 10 * The estimated receipts of the general revenue fund for 1872 were $1,627,625, and the estimated disbursements for the benevolent institutions were $1,600,000. Ibid., pp. 373, 381. 101 Gov. Mess. Exec. Doc., 1872, II, 572. im Exec. Doc., 1871, II, 200. 103 Aud. rep. Exec. Doc., 1872, II, 325. 99] RECEIPTS AND EXPENDITURES 99 Desirable as were the reforms which the state was carrying out, they were threatening to absorb the funds needed to defray the ordinary expenses of government. The general revenue fund was actually overdrawn during most of the year 1872, but transfers from the sinking fund and the common school fund were authorized by the gen- eral assembly and an actual deficit was thus temporarily averted. 104 By the end of the fiscal year, however, the real deficit of the general revenue fund was $170,867. 105 To meet the growing demands upon the state the auditor urged that the rate of taxation for this purpose be increased from 1.1 mills to 1.7 mills, making the total state levy 3.5 mills. On the basis of existing revenues and estimated appropria- tions he prophesied a deficit for the next year of $380,000. ENFORCED ECONOMY. The following year the legislature resolutely attacked the financial situation. They reduced expenditures $427,- 485 below those of the previous year; the tax levy was in- creased by .6 mill, in accordance with the auditor's sugges- tion, while a windfall of $94,000 was added to the receipts through the payment of some Avar claims by the federal government. 100 At the same time an effort was made to separate the extraordinary expenditures occasioned by the building of benevolent institutions from the normal ex- penses of running the state government, by the creation of a separate fund for the former purpose, called the asylum fund. This was established by assigning to it 70 per cent, of all the taxes collected for the general revenue fund. 107 The latter could not stand this drain, however, and after transferring $929,306 saw its own balance reduced to only $21,108. The following year $45,957 additional was trans- ferred, leaving $17,264 still owing "to be transferred when >04 Act of April 27, 1872. '"And. rep., ut supra, p. 325. 1*/"*/ 22,033 J $H,782] ^JVWV 161 22,103 jNov. 20, 1806 28,626 28,685 IO2 19,207 Nov. 20, 1807 21,611 21,017 697 21,708 Nov. 20, 1808 20,206 20,902 I. 25,070 Nov. 20, 1809.... 37,484 37,o83 4O2 35,36l Nov. 20, 1810.... 34,280 34,.972 290 45,289 Dec. 2, 1811 48,481 48,175 16 31,130 Dec. 3, 1812 51,515 42,975 8,556 37,002 Dec. 6, 1813 53,210 35,58i 26,185 35,489 Dec. 5, 1814 117,788 139,123 4,749 135,586 Dec. 4, 1815 265,573 265,368 4,954 265,526 Dec. 2, 1816 312.343 312,650 4,646 312,594 Dec. i, 1817 108,513 204767 1,607 202,886 Dec. 7, 1818 130,190 117,400 11,183 117,632 Dec. 6, 1819 101,438 83,544 29,078 86,992 Dec. 4, 1820 93,804 85,793 26,078 112,460 Dec. 3, 1821 94,569 96,777 23,869 100,774 Nov. 15, 1822 81,040 78,995 25,915 77,470 Nov. 15, 1823 124,352 101,077 49,189 69,889 Nov. 15, 1824 121,401 107,055 - 63,535 95,621 i 119] RECEIPTS AND EXPENDITURES 119 pooooooooooooooooooo oovp oooooooooopooopo Jf 4^4-4xGjOoOv>OoCoCoCoCoCoCo to to 10 10 tO 4^ Co to O VO OOV| ONOn * Co to "-I O VO OOVJ O\Oi Year Ending Nov. 15 lOIOlvilO'-'On^teColOtOtOMlOfcOtO'-'HHfc-i-i vio\te*'Ooto>-vSooonvi oNco Q o opco to oo vi Co 00* Co 00 "-i OS "- i-i "-ivionOnOCnVOOoVO O Gross receipts as given by auditor VQ b\* * 7* On O VI Co vb to VO Co bx* O bx^jp On Q vi to 1-1 On S 10 On ON vi on P-H op o\ to OOOn vj vo On vo >-i OSon -H vo to vo vi vi on vi ONOn On ^. O VI to M K5 M H. tO O\CX> KltOtOtOtOKJtOlOtOtO'-i'- 1 '-' OJ C*> to *O vo Oo to OOCo Co V| QOCf\ Co Q O to -t>. " -& >OCovi tOCn tO*.vi O\^n vi OO O Osvo VI O\Co 4^ Cn Gross expenditures as given by auditor 1 4^. ^xlo b "bo VI CnbCoOvitn -ivioo O>4^ O lo *>. O\ O\ CVO to O O\ CT\ OsCn *> O VO O O CTsCo 10 -HtOCoO>-iCoOJ'-ii-iO\OOOOwOOi-iO4x O\O t-t-10 viO\; >-cCnCotOO\ C?\4> CoOi tOCr; 4^.C3\Ovivivilo4iiCoO\ Loans and Trans- fers to other funds [column 2 less 4] VJ bNVl Cn b\vi . M \O * b\Co bNCn >O tji -U O\ OOVl vi 5o-P>. O\-. Co Cn On Co 004^ 10 vi to vo OOCo vi O\tOtO-iCnOCnO 00*. Real expenditures for State purposes [i. e. auditor's bills redeemed] VO OpOVO Ki O\loO O\GO O\Co to O VO Co O\\O to 4^.\O^tOtovi\St0^5tOCo-Ho5ot^vO4^00OOO covi'pvii.'b "o b ^b vi vi ocVicob>bi>.4i.vi viOpOOOOvivi to 00\p vi 4^ tn vi vi vo NO 00 4i. O J to 00 C\ 00*. Co ON* O3 C\ -i Co Cn 4x QOOi 1 1 CovOONOv'-'IOIOJi.CoCoi-iwto _h-on O\4^ lO4i.*.Co -iCoVi o ~Co O\O O O\ O\On vi Jx Ji. VQ Balance as given by Auditor [dif- ference between i and 2] 00 OOCo Cnji. O OCoCovo OxQvi O to O\tO*. OOtO to Q OsC/\ O OOCn O * vo to O OOVI QO to VQ VI c/i O to OO-^CovjCoOiOO ON\O Co OCnCn OCovOCn OOVt Payments, i. e. payments made on account of appro- priations O vo to O\Co vo OxOOOsCo HH M vo Co ONVO O 1^ to Co O\ O O OOOi Ji. O vi M to VO Co CCO O\ b\co co "to vb b bob fc>co i. "bovi vi Z* vi (o On Co c5\Co Q On Co 00 O 10 OOVl vj vo On 4^ vi(3on lovivOCoOOOO OSOn On OOvi vi vi O On ~ 'Ji CoCo4>toCo4>*tO " Co O ^ OOCo To 8 Co S p * JJOVi 4> Co vo O _00 Co 4^ tO "OO*. On Co bvvb * b\* b VO vi Co "HH M 4>vo4>4i.OnCovi OOOvi4i. OOtOViviooVO M ^OTovOvi - J_ 01 Ovion to OOOOOCovOvi Unexpended balances Appropriations [i e. 6 + 7] ^v?-8v04t! : : : : : :::::::: : : < 6\- \ t s 'oVv? in H f > H 2 > 120 FINANCIAL HISTORY OF OHIO [120 sjuq -a *i 'suopBudojddv O vO IN IN 5\ Tf HH ON Oj co T? co~ IN of IN O\ ON -i O ON to w 1-1 04 00 CO Tf O 00 OOOO to 11 11 O\ 1-1 VO ON ON to to to rf to >-. vo vo IN I-H TJ~ M o n VO ON O 04 to Q\OO rf >H IN to TT o IN IN IN CO ON IN TfN O M HH IN n 04 rj- Tj- to O\00 IX tOOO Cq c^tOfO Tt\O ^O to -OO iOO\fOONO\txtx N fi w W5 ^ t? 5 * ^ 5 !^ e * N to w co ONOO to IN CO O CO tx trj TfOO O\ M" O\VO Tf >-i OO N OO O to TJ-VO Jx rr O\ tr)iOi-. Ox tx\O N \O >-i tOOO lO n *> TJ- ^- to to VO VQ VOOO 5\O ^}-\O TJ- O - N O\M5\'tCS tOi-H (N TCM^OvO\>ON c^toO O t^OO OO ^ N 00 pajtpny "3 '! sjuauiasjnqsiQ i-T of i-Tco" t< t-Too" rx ro of vd" 6" i-<" 'f o^ cooo" of JU3UJUJ3AOS jo jjoddns joj INOOOCO OOO CO ^ " O\ * f*5 '" 00 " " P iiO' vCVOOO C\ ON IN. IN to IO\O <* ^f tO\O OOOOoOtOONN 04 04 HH vO iO OO v OOi fOtNCO O i-itO to co i- ONVO C ? D}3 'SJBUBO 'punj jooqDS 'aiB^S JO} SJU31U -asjnqsiQ ON ^ Tf VO 1-1 tOOC O i- 04 rj- 04 O\ tOOO O <*5 OO O co to fO O^vo INVO 0(5 to Ix O to to >-~ofofofofofofofcicococococococotoio tOVO Of IN 10 rfOO O CO 1-1 fOO\tOi-l IN 'S3XB; [BUBO 'spunj jooqos UOUJIUOO '3nU3A3 Suipnpui SSOJQ f to 04 OiOO IN r^OO *> <*5 ^O 01 PO O IN c*5VQ O "- 1 04 COVO * co tOOO OOO | -'toiOOQONiotOO4iOlNONO4 v O04 tOVO O \O "- 1 f^OO C> 5 IN t^ i- to\O toil- CO 1 - 1 INi-" I tOlNi-i ON " to TfOO O\ Tf n COINCOO4 tOVO fNC oc- o^"c3"c Ov O n 04 CO 137] RECEIPTS AND EXPENDITURES 137 ,\O uivp Ol Tf txvO OlOv'-'QNONOVO IxOO O OJ Oi g> Ix tx Ov 10 0) 00 tx Ix OX ^O 0) 00 lOO i OOO Ix. O f500 O\ 1-1 CiONM ON Ol ON Tj- 04 00 fi ^"VO 00 vO OO t*5 ^tO Tf cf rx fi t^o" ol if)\ -TO Csi0^t?5 l^rfio 10 iO\O 'T Ov C^vcT 10 d\ rC 100 1^0 fO^O 't 10 *-fOO O\ lOOO N PO\O >O 10 O Ov 04 O piEd A[aadoadiui S3XB} punpy Ix Ix IxvlS 00 00' O O\ Q> O) iO 1-1 IxOO 01 H- o; piBj C\ 01 OJ M O *5 -^ xo Tf -H fO O\ i- Ot vO VO asEtpand PUB uop -EDijqnd ' 1 O 00 ;oo" cK SDIJSIJEJS pus uoistAjadng [Eujsnpuj O f5 ^O of ro ; -f ^o of vo" rf -<" of r}- i-T ; ; ; ; ; ; co rf pipa PUB guioj-j . PUB SJ9lp|OS [sdjBDS lx O M OC IxO C>) O - *O i- i-T Pf of <^ Of ro CO rO -f -^ fO Of O -o\ ^too rx r^ c^ VO .T-VO^OvOO i-T ' >O '. CO PO CO Tf of ON 00 PUB BIJIJI ro O O \O puB uotprujsucQ sSutpijng q e q "f o - i ^ ro '-r -tc o 10 o *o 10 o^ f *ooo vcToc^o i 00 vO vo I >- 04 *- F <^ of of 33UEU3UHEJV sSutp[tng ic "i-roco-iO)oooi(N>oo>*tQoix.o> rj-v I vO 10 I-. w^ (N T N OC "^vo Ix OO 0) vO TOO v ^60 O "T -t 10 _ q^ CN e3>oO 10 ix c^ vq_CC O O "1 "} -T i~, >r. ir, \r. 10 10 10 iO >O lOMD vOvO oooocooooooooooooooooooo 138 FINANCIAL HISTORY OF OHIO [138 plIE JIBddJ puE uoipnjjsuon s8uipjtng sSuipjtng 'S[EUBD puB SAVBJ Supnqujsip pus Suiqsiiqnd 'Suipuiq 'Suijuuj; '[BUOJP9JJ03 's>[Ooq XjBptpnf S3UE[EC; S9UE[EC; J3q;o - 38E3IIIU pUB A"E,J A"[qui3ssy S3UBIES UBqj o sasua S3DIHO S3UEIES T CO ONVO T 5QVO T 1-1 O\ co ON T lOOO CO O\00 01 "t ON 10 CO 10 O tx TVO CO TOO OiO*-Oio01coiOiO-i>-'01TOl5o001 T ix - co COOO 60- '" ^r oT 0) 01 ~, vo O T O ON T covO O 01 OO *OV tx 1-1 IxOO 01 OO lOVO 1-1 VO CO TONtxOOi-ii-iiO OOi- iov I- \rf (500" 0<01r'3i-i TvO O 1-1 10 O ON O co tx tx 1-1 i- VO -r o" i-" -"oo" txVO tx 01 O\vO O txoq oo^ ON ix q_vo_ cr O" CN o" o",vo" 10 o" OWOOiOiOi-i CO 1 ^- lOOO TOO OO Ix O\ CO q\oo i-ioo oi >-i 01 oioooo 10 TT y$vS 10 i-TooT C~oo" o"oo" o" o" ix 10 10 of oo" 05 01 01 tx $\VO T co T 01 O O txOO 00 OVO OO COOC 00 OO O 10 Q\VO O C CO ~OvO ON co i^ >^ S rr 10 co txOO lOtx coix^fONOl 1x000 O tx co 01 vo Ix fj m rOVO OO M 00 ^CC O tx PO IOVO VOOO 1-1 VO 1-1 tx >-i TOO \C^UOO\1OIO01 - n >-> Ix lOOQ co Jxvo <5 O^vO tx OVD OsvO IxN vO txO --OOCO ! IX w _ ,_rog^i-itx00txlx I-H a uj rx loo txo COCOTO\IXT TOO co >- <^ ON TVO T t>.vO_ 5 VO OVO Ol i-^VO 1-1 txOvq^>-i txi-^ VO* Ix Ix i-" O~ ON iovo" co co tx >O o" ^ ^ 10 O\ c" O 10 O~ O\ c" O O\ txVO Ollx co 10 ")o TJ- i- ; vo 01 ^8 : of of VO 01 O 00 T i-i 01 COOO 01 -i OOQiOTlx txONtxco txOO^ O_ O_ oivo" co of of of oo'cio" 10 co o" covp'vo" 10 C\ O O 1-1 tx ON O\ O\ 1-1 01 01 1-1 01 co -OlOlOlCVlOlOlOlcococococococo :f, ;-i Ol co -T 1OVO txOO O\ Ix Ix Ix tx tx Ix tx Ix Ix OOOCOOOOOOOOOOOOOO *- 01 co "T IOVQ txOO O O 0< co T 10 OOOQOCOOOOOOOOOOOO O QN C* &&& OOOODCOOOCOOOCOOOCOCOOOOOCOOClC 139] RECEIPTS AND EXPENDITURES 139 rOOO 00 P4 >* O IONO NO 00 rx ON NO ONwOTt-O~tOi 11 ON ON oo N$ NS ioo ONOQ co rx 11 ON tooo NO f. 50 to ON fO to O ON PI ON ON *^OO O ONNO O tx fO O t/^ NO" < to to f? Tp pf OO" Pf to Pf tx ^f NO" pf ro Tf to to C^NO P4 to 10 4 fO Jx, ON5 O C - ON n 00 txNO NO NO ON to TT ^r v, i" pf pf pf Pf pf 00 ^ - sjossassy PUB sjasiBaddy jo pjBog 3UIBJ) pUB qSK[ pooj PUB A"JIBQ 'jpojs 3Aiq SUOlSStUIUICT) to rx o rx rx fo ? O^NO i- " Pf piBd Xjaadoaduij ' SUOIP3J3 jo asBtpjnd puB uoijBDiiqnj 00 ; -^ SDIJSIJBJS puB uoisiAjadns IBujsripuj PI CO tvO to P) \O n OO O txOO vO3'OO\O'tO\P>- | OO O\OO OO n O 00 35 Q\\O OO \O O\ 10 O\ i- TfOO OO PI fO to ro r> 5\ LO O\ O 55- P< to O <*5 N,\3 fO txvo O * O tx c*5 COi-OO ^O O <^5iOTj- Pf rCv P P4 (/)- puB PUB PUB fO "*"$" O^ "T" *-O^O ^O O ^*5 O\ r^x ^^ ^5 ^f ^O O* ^^ Q -TOO CK PI Q NO 0\ fO f>00 IX O 00 rx PI 00 00 NO rxOO ONO- l O< v >nOOO'Tto>-iO< v 2 ..... ; \rT pf pf "-"vcT n' * PIOOPlPiPO }[OAV] Jx,Olx,OtxPl \OOP>OONP1 ^-OO\P) '' O r^OO vO O\O P -I" MOO OPJtO IOOO tx,Ov T to 00 <"OOO OO to to n tx^f tx tx PUB ix, PI IONO tx PI n n txoo NO ''SIxO PIOONO i QNO ON PI tx P) ro PI NO <*>NO O ) i-Tu^ioioiotooo'^foc'od O} rxOO ON O ixixixogoo OOOOOOOCOCOOOOOOOOOOOO 140 FINANCIAL HISTORY OF OHIO [140 sapapog O} SJIBWE PUB 3DUEU3}UIEJ\[ sSuipung SJ 1 J A\. siEuanof pun SAVBJ Surui -qu;sip '8uiqsi[qnd 'Suipuiq 'Suijuuj suopnjpsuj [EU3d '[BUOIP3J -JOD ' I CNfOfJ-txfOtxtxfrON Ix NO 00 f*2 t <^5 Q ON tx Ix 10 ft C\ O ON Ov ft ON t o do ix ON ") o >- O ft r*5 >- OJ O 00 NO ro o^oq^Nq^oc^ fooq N >ONO"NO" ff ff 00 i 00* NO NO 1-1 ft tx 1000 IN - >- C^OC\OX rf Tf- N fr> 01 of O bx n5 Ov ^f O\ tx O\ Mt^ TT^O \O "i <*5 rx w N ClNQt^ TJ- ^O 00 Op i- r^ CO O /Og ro -i O CS ff tx C^ Ix tx txOO ONOO PJ O P^ O^ Oi N O\ Ot CM ^f M" O) C^ 01 's>joog 'sa S9UEIBS XaEiDtpnf PUB XBJ S3DUJQ 3AIJBJ}SlUIlUpy lOQO OO fO O 10 ^-^ ONOC NO IONO 3 ONNO" tx O\ of o" ONNO~ tx -T O o omo otxromo IOO mtxO ONNO HH (xiO CM i-i i NCONfOOOf*}"") O rx 1-1 OO f5 txNO NO Tt i-i ON i-i NO TtmjXfOU-JONQNtONOO 1-1 i-l -i NO f5"NO ffNO NQ ^ OM txOO O\O ON^OOJ ftoj _ _ _ O ON H-fti i^^ONOlONOJj ONNO ff ff tx I^NO" of (Nf ro O" of NO" ff lONO NO ONIOONON^IOO OOO 0) O <^ W- " NO" i OCOO NO | 141] KECEIITS AM) KXI'KXWTfUES 141 sjossassy puB sjasiBjddy 'uou Ejjiqjy jo pJBog 31UBQ PUB A"jtEQ :is aAiq 'SUOISSHUUICT) 9JUJ X w UEOq puB Suipjmg pttE uoisiAjadns jBujsnpui puB 3tuo-[ ( sjo[iB PUB sj3ip|6 PUB 3jru[noijSY' f5 <"> PO PO 1/500 <"5 O O lN.T|N, oo ,Tr p^TTtoiopoo VO -C >0\O 1OM\OOO I^O\OOO\O . - <^.X t^ ^t Cv^- - 1- "5 O\ T to 1^ 10 ^ r^ 10 rx ir> r^vO ioOO^ 'TO o" lA o j\ tO TO IN, IN. lOO IN.O' lN.(X IN. IN. Ix lN.00 00 1/5 1/5IN.CNOO ^) T T N >G r^ <>o O Qi T T O\ tn\O C\ O T T f^,O OO T N IN. tooO 00 Ix^O O; d " * '" " OiOC* OO'OO" PO to IX IN! 10 \O-OOO\-O^iT-O O vQ VO ^ -t T T <*> T "T T\O T T T T to v T IN. ^X VO T 0000 O\ T IN. - "5 O 6. <^ lN.00 O 0) VO to - IN. -r "I X* "^ <^ Q 10 l< ro in t T ^1 IN. ^1 O OC OO jT?^ O *" T T 01 OJ c\ rA .o" TO'O" ix i be strictly observed and adhered to, a careful study of its provisions leads me to the opinion that very little modification is necessary in them." A decade later, however, that third wheel in the system, the office of comptroller of the treasury, was abolished. 77 It had served its purpose and had acted as a salutary check upon the other officers during a period of distrust and reorganization, but had now outlived its use- fulness. The treasury department and the board of public works had been reformed with such thoroughness that no further irregularities developed in those places. But the fever sores of corruption had not been completely eradi- "Rep. of Treas., Exec. Doc., 1865, II, 41. "73 O. L., p. 79. See also Aud. rep., Exec. Doc., 1876, I, 7. 172 FINANCIAL HISTORY OF OHIO [172 cated and broke out once more in connection with the institutions of the state. There was looseness and irregu- larity in connection with purchases of supplies and expen- diture of public funds, against which an act of March 9, 1882, was directed ; 78 this provided for monthly statements to the auditor from the superintendents and trustees of all the benevolent and reformatory institutions of the state. Another act of the same session to prevent errors and irregularities in the several state departments 79 provided that all state officers, heads of departments, commissioners, and other officials should make monthly statements to the auditor of state of the checks and requisitions made by them, on blanks to be furnished by the auditor. The latter was directed to compare such statements and file them. In this way a more careful control and audit of accounts of the state institutions was made possible. THE PRESENT ORGANIZATION AND ADMINISTRATION OF THE TREASURY DEPARTMENT. After the abolition of the office of comptroller in 1876 the auditor became by law the chief accounting officer of the state. His financial duties are defined as follows: He shall keep in his office full and accurate accounts of all moneys, bonds, stocks, securities and other property and effects paid into or deposited in the state treasury, and manage and direct all negotiations and corespondence concerning the same. He is compelled to keep accurate account of all appropria- tions made by law, and of moneys drawn to meet the same ; in this respect his duties are those of the federal Register of the treasury. No money may be drawn from the treasury except upon his warrant. Every state officer, board, or department which receives money belonging to the state is required to make weekly payments to the state treasurer, and to file a verified statement of such receipts with the state auditor. The auditor and treasurer must compare statements and balance accounts weekly, publish a joint monthly statement, and make quarterly reports to the gov- "79 O. L. 32. "Act of April 7, 1882. 79 O. L. 77. 173] FINANCIAL ADMINISTRATION 173 ernor. In December of each year the treasurer must pub- lish in two Columbus papers a tabulated statement of receipts and expenditures for the preceeding year. Money coming into the treasurer's hands is not permitted to lie idle, but must be deposited, since 1894, with certain banks and trust companies called state depositories and desig- nated after competitive bidding by a board of deposit. The auditor must keep a strict account of all moneys and securities. The auditor's books should at all times show the exact financial status of the treasury. The con- trol of the state's finances has been virtually concentrated in the auditor's office, and the treasurer's position has been reduced to that of custodian of the public funds. The latter official has practically ceased to make an annual report, his brief statement simply repeating the totals of the exhaustive report required by law of the auditor. Upon the treasurer, however, some other duties of a non-financial character have been laid; thus in 1872 he was given the task of making an annual statistical report, hitherto made by the state statistician ; this is done in a most perfunctory manner. He is also the head of the state board of elections, and one of his chief duties is the compilation of statistics and election returns. The auditor stood at the head of the taxing system of the state until the establishment of the permanent tax commission in 1910. Abstracts of the assessment rolls were always returned to him. Settlements must be made with him in February and August of each year. He has also the power to examine the county treasuries upon request made by the county commissioners or county auditor. The comptroller of the treasury had formerly had the power of appointing accountants to examine the county treasuries at his pleasure, but rarely used it. A long step forward in the direction of centralized control in financial matters was taken with the passage of the act for uniform accounting in 1902 80 . This act created a bureau of inspec- ts O. L., p. 511. 174 FINANCIAL HISTORY OF OHIO [174 tion and supervision of public offices, at the head of which stands, ex officio, the auditor of state. He is directed to formulate, prescribe and install a system of accounting and reporting that shall be uniform for every public office and every public account of the same class. Every taxing body, public institution, and public service industry must report annually to the auditor. The law practically centralizes the control of Ideal finances in the hands of the state auditor and gives him firm control. 81 The powers of the state auditor are, however, by no means limited to statutory grants. As financial head of the state administration he meets with the House and Senate committees on Finance and on Taxation, and prac- tically frames the budget. The most permanent 82 and powerful official in the capitol, his advice is both sought and heeded by a shifting and uninformed body of legis- lators, and he is able to direct as well as to restrain. Prac- tically all important financial legislation is formulated in his office. 83 He has evolved into a powerful administrator of the state's finances, as well as a supervisor of local finances. He is without doubt the most important financial officer in the state. II. BUDGETARY LEGISLATION AND PRACTICE. THE CONSTITUTION OF 1802. The constitution of 1802 sketched in outline only the form of government and left to the legislature the task of filling in the gaps; and perhaps in no respect were the gaps greater than in the case of financial provisions. In the six following paragraphs are stated all the commands M See article on "Recent Tax Reforms in Ohio", in American Economic Review, Sept., 1911, p. 517. **The present auditor has held the office since 1909. His immediate predecessors held office respectively thirteen and eight years. "This statement needs modification in view of the great influence exerted by the Ohio Chamber of Commerce, under the energetic leader- ship of Mr. A. R. Foote. 175] FINANCIAL ADMINISTRATION 175 or restrictions contained in this instrument in any way related to the subject of finance : Article I, sec. 16. Bills may originate in either House, but may be altered, amended, or rejected by the other. Sec. 17. Every bill shall be read on three different days in each House, unless, in case of urgency, three-fourths of the House where such bill is so depending shall deem it expedient to dispense with this rule; and every bill having passed both Houses, shall be signed by the Speakers of their respective Houses. Sec. 21. No money shall be drawn from the treasury, but in con- sequence of appropriations made by law. Sec. 22. An accurate statement of the receipts and expenditures of the public money shall be attached to, and published with the laws, annually. Article VIII, sec. 23. The levying of taxes, by the poll, is grievous and oppressive ; therefore, the legislature shall never levy a poll tax for county or state purposes. Practically the only safeguard prescribed against an improper application of the public funds was the provisions contained in sections 21 and 22 of Article I. The power to impose taxes or to raise revenue was not expressly given to the legislature by the constitution, but was exercised as a power necessarily implied. 84 Neither of these legislative functions, of appropriation or of taxation, was very jealously guarded by the legislature during the early history of the state, but were delegated to executive officers or were exercised by them without express grant of authority. The early laws and especially the tax law of 1825 made the auditor of state a very important and power- ful functionary. When there was not enough money left out of the revenues of the canals and public works after improvements had been paid for, the auditor had the power to levy upon the citizens to secure money for the payment of the interest upon the public debt. In conjunction with the state treasurer and one act- ing commissioner of the canal board, he could make grants of large sums which were annually expended for the repairs of the public works. On a limited scale Ohio had a com- plete system of income and expenditure without the agency "Chase's Statutes, I, 33. 176 FINANCIAL HISTORY OF OHIO [176 of the legislature. The provision that "no monej' shall be drawn from the treasury but in consequence of appropria- tions made by law" was for years a practical nullity. 85 The withdrawal from the treasury of any amount of money that might be claimed as needed for the repair of the public works, or the payment of interest on the public debt, was held to be authorized by the provisions of a law that re- mained unrepealed on the statute books. The system was later characterized by the judiciary committee as follows : Our enormous expenditures are authorized in conclave by a handful of men without actual or effective practical responsibility. The deliberations of the Venetian Council of Ten were known by their effects; the delibera- tions of our council of ten are known by nothing else. 86 Dissatisfaction with the system of taxation, as also the way in which money was appropriated, led finally to a demand for a change. It was evident that a solid founda- tion of constitutional law was needed upon which to build an effective system of taxation and control of expenditures. This solid foundation was not to be secured out of the fragments of the first constitution, which dealt so lightly with finance and taxation. New material and more defi- nite provisions were needed, which could be obtained only by framing a new constitution. THE CONSTITUTION OF 1851. The constitution of 1851 contained careful and specific provisions on the subjects both of appropriations and of taxation. The purpose of the former was to bring the expenditures of public money more thoroughly under the restraints of law, and less subject to the control of in- dividual officers. For the passage of bills, budgetary as well as others, the same legislative procedure was pre- scribed as had been provided for in the constitution of 1802. 87 The further provision was added, however, that "Aud. rep., Feb. 12, 1853. "Report of Judiciary Committee on Senate Bill 24, Feb. 12, 1849. "See p. 175- 177] FINANCIAL ADMINISTRATION 177 no bill should contain more than one subject, which should be clearly expressed in the title. 88 The appropriation and disbursement of money was more carefully guarded in the following section: "No money shall be drawn from the treasury, except in pursuance of a specific appropriation, made by law; and no appropriation shall be made for a longer period than two years". 89 All discretion was there- by taken away from administrative officers as to the appli- cation of public funds; each general assembly was made the judge of its own needs, and could not bind its suc- cessors. On the other hand, the determination of the rate of taxation, and the raising of the necessary revenue, was placed definitely under the control of the legislature in the sections dealing with taxation and finance. After pro- hibiting the levying of poll taxes, and providing for the uniform taxation of all property, 90 real and personal, cor- porate and individual, the following sections appeared: 91 The general assembly shall provide for raising revenue, suffiicent to defray the expenses of the state, for each year, and also a sufficient sum to pay the interest on the state debt. No tax shall be levied, except in pursuance of law ; and every law imposing a tax shall state, distinctly, the object of the same, to which only, it shall be applied. The state shall never contract any debt for purposes of internal improvement. In every one of these clauses can be seen the fruit of past experiences. Deficit financiering was to be avoided if possible, as was the practice of borrowing to pay the interest on the public debt. Any further debt for the con- struction or improvement of the canals was forbidden, thus making impossible, without a constitutional amendment, any comprehensive scheme of enlargement such as that adopted in New York for the Erie canal. The clause of section 5, providing for the application of every tax to a "Art. ii, sec. 16. "Art. II, sec. 22. "See Chap. IV, The General Property Tax. "Art. XIII, sec. 4-6. 178 FINANCIAL HISTORY OF OHIO [178 specific object, was unfortunate in so far as it led to the segregation of different sources of income, or the proceeds from certain taxes in separate "funds". The device of having a separate fund for almost every item of expenditure led to a confusing multiplication of such funds, which had no practical significance, were mere bookkeeping abstrac- tions, and served only to complicate the accounts of the treasury department. There was a steady tendency to merge them all in the general revenue fund, and today there exist, outside of this, only the school fund and sinking fund. PRESENT BUDGETARY PRACTICE. The budgetary practice of Ohio does not differ materially from that of other states. 92 Certain restrictions are placed in the constitution upon the power of the general assembly to levy taxes. Thus, they are forbidden to levy a poll tax, and they are forbidden to classify different objects of taxa- tion, but must tax all property by a uniform rule. 93 In the matter of appropriations, too, they are restrained by the usual provisions as to the reading of bills on three separate days, etc.; no money may be drawn from the treasury except in pursuance of a specific appropriation, made by law; and no appropriation may be made for a longer period than two years. No money may be appro- priated for any claim the subject matter of which is not provided for by existing laws, unless it is approved of by two-thirds of the members elected to each branch of the leg- islature. 94 The general assembly meets in biennial session in January of each even numbered year. No limit, such as exists in fully half of the states in the Union, is placed upon the length of their session, and extraordinary sessions are frequently called in the intervening years. The fiscal year, ^See my article on "Financial Procedure in State Legislatures", in Annals of the Academy of Social and Political Science, Sept., 1896. "Art. XII, sec. i, 2. "Art. II, sec. 16, 22, 29. 179] FINANCIAL ADMINISTRATION 179 on the other hand, begins on November 16, but any incon- venience that might arise from having the legislature con- vene almost two months later than the beginning of the fiscal years is averted by making the appropriations so that the appropriation period takes in three-fourths of one fiscal year and one-fourth of the next. The general assembly has five or six weeks therefore in which to deliberate before it becomes necessary to provide new appropriations. As a matter of fact, however, two regular deficiency bills are generally introduced at the beginning of each session, one providing for "authorized deficiencies", and the other for "unauthorized deficiencies". Aside from these practically all appropriations are provided for by a general appropria- tion bill. The committee which has this in charge usually meets in the office of the auditor of state, whose advice carries great weight. Appropriations are usually limited by the revenues that may be expected under the existing tax rates. Money bills may originate in either branch, but usually originate in the House. The various stages of debate and vote in the passage of financial legislation is not subject to any very different procedure from that accorded ordinary bills. There are standing committees on Finance in both Senate (11 mem- bers) and House (13 members) ; one on Taxation in the Senate (11 members), and one on Taxation and Revenues in the House (13 members). There is no committee of audit in either branch. The rules of the Senate provide that the yeas and nays shall be called upon the adoption of all resolutions providing for the expenditure of money, and a majority vote of all the Senators elected shall be neces- sary to the adoption of such a resolution. 95 Both Senate and House rules provide that a separate vote may be taken on any item in an appropriation bill, upon the demand of five Senators or ten Representatives; such item to be stricken from the bill imless receiving a majority of all the "Manual of Legislative Practice in the General Assembly of Ohio (1910). Rules of the Senate, Rule 43. 180 FINANCIAL HISTORY OF OHIO [180 members elected, and the yeas and nays to be recorded on such vote. 96 The House stands alone in requiring the refer- ence of every bill carrying an appropriation to the finance committee before its third reading. A peculiar feature of the Ohio constitution had been the fact that the governor did not possess the veto power, but this was given him by an amendment adopted in No- vember, 1903. He now has the power to veto any bill or any separate section or item of appropriation, but the gen- eral assembly may pass it over his veto by a two-thirds vote. His signature is necessary to every bill which he approves, before it can become a law ; but if he does not sign or veto a bill within ten days, it shall be law in like manner as if signed. 97 He is allowed ten days in which to make up his mind in Ohio, though most of the states do not allow so long a time. Money which has been appropriated must be expended within two years, or it reverts to the treasury. 98 To supply casual deficits or failures in revenues, or to meet expenses not otherwise provided for, the state may contract debts to the amount of $750,000. In case of a deficiency which occurs when the legislature is not in session, an emergency board consisting of the governor, auditor, attorney-general, and the chairmen of the House and Senate finance commit- tees may authorize deficiencies, which are subsequently met by the bill for "authorized deficiencies". "Senate rules, 78 ; House rules, 87. "Constitution of Ohio, Art. II, sec. 16. "Art. II, sec. 22. PART II. THE HISTORY OF TAXATION IN OHIO CHAPTER IV. THE GENERAL PROPERTY TAX. I. THE LAND TAX, 1803-1825. From 1803 to 1825 the state of Ohio derived the main portion of its revenues from the tax on land. Not until 1825 was the general property tax introduced. The first la win relation to~taxation which was passed by the legis- lature after Ohio became a State, was enacted April 16, 1803. This was entitled "an act to revive and continue in force, several acts levying taxes, and for other purposes." Under the earlier acts thus referred to land was divided into three classes, "according to their quality .... taking into view the surface of the earth as well as the quality of the soil. 1 As a guide for the listing of land under these three heads, the act continued: "when the greater part of a tract shall be superior in quality to the second rate, it shall be denominated first rate; when a greater part of a tract shall be inferior to the first rate and superior to the third rate it shall be denominated second rate; and when a greater part of a tract shall be inferior to second rate it shall be denominated third rate". The rate of taxation on the first rate land was about 50 per cent more than that on second rate, and this in turn was about 50 per cent higher than that on third rate land. This method of dividing the lands into three classes for purposes of taxation continued 'Act of May i, 1798. For a fuller description of these acts, see chap- ter on Territorial Finance, p. n. 182 FINANCIAL HISTORY OF OHIO [182 unchanged until 1825. The following table gives the rates of taxation from 1799 to 1825 : RATES OF TAXATION FOR IOO ACRES. Years. 1/99 1800 .85 1801 .55 1802 .60 1803 .60 1804 .70 1805 .90 1806 .90 1807 .90 1808 i.oo 1809 i.oo 1810 1.25 1811 1.25 1812 1.25 1813" 1.25 1814 2.00 1815 3.60 1816 3.00 1817 3.00 1818 2.00 1819 1.50 1820 1.50 1821 i.oo 1822 1.50 1823 1.50 1824 1.25 1825 1.50 ist Rate. 2nd Rate. $ .20 .60 -35 .40 .40 SO .65 .65 .65 75 75 i.oo I.OO I.OO I.OO 1.50 2.68 2.25 2.25 1.50 I.OO I.OO 75 3rd Rate $ .10 25 17 .20 .20 .26 40 .40 .40 50 50 65 .65 65 65 I.OO 1.78 1.50 1.50 I.OO .50 .50 So 75 75 56 75 Penalty for not returning property for taxation. No penalty. 10 per cent 50 per cent 50 per cent. 25 per cent. 25 per cent. 100 per 100 per loo per 100 per loo per 100 per loo per loo per loo per 50 per 25 per 25 per 25 per 25 per 25 per 25 per cent cent, cent, cent, cent, cent, cent, cent, cent, cent, cent cent, cent, cent cent, cent. By another early law 4 the owners were required to give 2 Table taken from auditor's report in Ho. J '., 1825, p. 22, for years 1800-1818. The rest of the auditor's table is incorrect, and the rates are taken from the laws. 'The Ho. J. for 1814, p. 147, gives the rates for 1813 as follows : First rate, $1.87^; second rate, $1.50; third rate, . 4 Act of Dec. 19, 1709. 183] THE GENERAL PROPERTY TAX 183 a list of their lands, on oath, to the county commissioners ; those refusing were fined $30 and their taxes were doubled. Any person giving evidence of a violation of this law was to receive one-half of the fine. The taxes were collected by the sheriff, or other collector, who received 6 per cent 5 of all he collected by way of compensation. Lists of lands belonging to non-residents were kept by the county auditor and clerk of the peace. It is clear that under this system of individual listing of land for taxation there was a strong temptation to omit lands altogether from the list or to place the land in a lower class, for which the tax-rate was smaller. The basis of classification adopted by the listers and county commis- sioners was also unfair in many cases. Bottom lands, along the streams and rich prairie, were first rate and paid the highest tax. These lands might be worth very little from many circumstances, such as their liability to be overflowed by freshets, and might be distant from any town, so that even third rate lands might be far more valuable than the first rate lands. For mere cultivation, the second rate lands, lying generally on what was denominated second bot- toms, were better adapted to produce grain than those of the first class.* The result of this system was a steady transference of land from the higher to the lower classes, practically all of the new entries being listed as second or third rate. This tendency is clearly shown in the following table : 7 B The compensation of the sheriff was raised to /% by act of Jan. 23, 1802. "Atwater, History of Ohio. 'This table is compiled from the auditor's annual reports. The table now reprinted each year in the auditor's report is not complete, and not altogether accurate. 184 FINANCIAL HISTORY OF OHIO [184 AMOUNT OF LAND IN DIFFERENT CLASSES, AND AMOUNT OF TAXES THEREON, 1802-1825. First Quality of Land. Second Quality of Land. Third Quality of Land. *0 0> t/5 o oJ Years. at cI2 O a) fc H e e u K crs l Resident II e V e 'Z V K 1808 34,322 112,770 3,360,754 1,719,379 3,932,714 1,309,090 7,337,789 3,141,240 47,169.86 20,331.75 1809 30,392 111,413 2,134,978 1,827,847 4,180,831 1,629,572 6,355,201 3,568,832 40,967.00 23,025.00 1810 1811 1812 28,773 100,968 2,248,350 1,929,600 4,086,663 1,538,745 6,263,787 7,279,081 6,623,019 3,569,314 4,855,696 4,747,012 55,317.00 127,927.00 112,250.00 30,647.00 42,620.00 42,888.00 20,179 165,596 2,994,363 2,591,004 3,608,477 1,990,413 1813 1814 1815 1816 18,356 17,718 161,310 162,652 2,070,096 1,758,489 2,788,654 2,955,352 3,576,707 3,583,245 2,319,200 2,412,295 5,665,159 5,359,452 5,269,164 5,530,299 62,424.00 78,726.00 46,342.00 80,390.00 18,948 154,792 1,543,576 2,823,269 3,462,512 2,635,994 5,025,036 5,614,056 107,023.00 122,875.00 1817 11,403 154,089 1,536,996 3,490,394 3,261,143 2,877,595 4,809,842 6,522,078 100,812.00 130,999.00 1818 1819 9,560 9,751 195,784 116,387 1,377,826 1,310,655 3,796,900 3,940,615 3,168,788 3,022,081 3,165,616 4,249,551 4, 556,174|7, 158,500 4,352,487|8, 306,553 73,903.00 6S.51J.OO 95,281.00 100,963.00 "Act of Jan. 27, 1806. "Between 1808 and 1809 there was a decrease of 554,996 acres, in spite of a large number of new entries. Aud. Rep., Ho. /., 1810, p. 15. "The returns were not given separately for residents and non- residents before 1808, nor after 1819, nor for the year 1815. 1ST] THE GENERAL PROPERTY TAX 187 Kesidents were required, as formerly, to enter their lands with the listers of the townships in which they re- sided, but the inadequacy of this provision soon became evident. As there was no penalty for neglecting this duty a great deal of land was not returned for taxation. It was often discovered, when some new resident or purchaser gave in his land, that tracts had not been charged with the tax for years back, but no way was open to the auditor to ascertain these facts or to recover the back taxes. 17 While the evasion of taxes by placing the land in a lower class was not as marked in the case of resident as of non-resident proprietors, still the third rate land always showed the largest increases. In the years 1809 to 1810 there was practically no increase in the amount of land owned by residents. As a remedy for these evils the auditor sug- gested the making of one general and effectual list both as it respects the quantity and quality, and render such list permanent; subject, however, to such transfers as any proprietor may legally cause to be made, in case of sales, or otherwise. 18 To meet these criticisms the long and important act of 1810, "levying a tax on land", was passed. 19 A lister was appointed in each county, who was to require of each resident listing his lands for taxation an oath 20 that the list he presented was correct. If the resident refused to make out a list, then the lister was to enter the lands as first rate and charge them with a double tax. All lands were to remain each year upon the list at the same rate until sufficient proof was produced that it should belong to a superior or inferior class, when it would be changed and put in its proper place. The county commissioners were required to make two alphabetical lists of resident lands; to appoint one collec- tor for each county, who should collect the taxes after "Gov. Mess. Sen. /., 1809, p. 16. See also message for 1810 in Ho. /., 1810, p. 27. M Aud. Rep., Ho. J., 1810, p. 16. "Act of Feb. 19, 1810. Chase's Stat., ch. 244. The oath, as a remedy for defective legislation, is to be found in Ohio tax laws from this date down to the present time. 188 FINANCIAL HISTORY OF OHIO [188 August 1. If the tax should not be paid by November 1, he was empowered to sell the personal property of the de- linquent at public auction. For non-residents, the state was divided into six districts, and one collector was ap- pointed in each, who was to advertise the manner of col- lection, the time of payment, etc. The state auditor was to make out the list of non-resident lands. If the tax were not paid by December 1, a penalty of 100 per cent was to be added. Non-residents were required to relist all lands within one year, under oath ; if this were refused, then the auditor was to enter them as second rate. The old laws were repealed and codified in 1816, 21 when this act of 1810 was virtually re-enacted at greater length, but no im- portant changes were introduced. It was provided that when land was found not taxed it was to be charged as second rate, and back taxes with penalty were to be im- posed. In 1810 what may be considered as the first general valuation of real estate in Ohio was made. 22 A list of all the lands of resident proprietors was taken, setting forth the owner's name, the original proprietor's name, the quantity of acres then listed, and the rate of each tract, as also the quantity of acres contained in the original tract, the number of entry (having allusion to lands in the Virginia military district), or grant (lands within the French grant), or range, township, section or lot (having reference to the lands purchased from the United States, the lands in the Connecticut reserve, in Symmes' purchase, the Ohio company's purchase, that tract called the dona- tion lands, the United States military district, and the Refugee tract). The list was very poorly made, wrong num- bers inserted in describing the tract, and so many errors introduced that it led to great confusion, and to omission of some lands from the lists and of double taxation of others in subsequent years. The additional burdens necessitated by the war of "Act of Feb. 26, 1816. "Act of Feb. 19, 1810, 4, 5. See Aud. Rep., in Sen. J., 1815, p. 190. 189] THE GENERAL PROPERTY TAX 189 1812 caused a considerable increase in the amount of taxa- tion. In 1813, 1814, and 1816 the federal government laid a direct tax on the states, and gave them the option of assuming the tax so laid as a state obligation or having it assessed and collected by federal officers. Ohio in each instance assumed the tax and paid it promptly. The quota apportioned to Ohio by the direct tax of 1813 was $104,150 ; this was subject to a deduction of 15 per cent if paid by February 10, 1814, or 10 per cent if paid by May 10. 23 By the eighth section of the act levying this tax the states of Ohio and Louisiana were authorized to tax the lands pur- chased of the United States, in spite of the previous com- pact with these states that such lands were not to be taxed until five years after their purchase. In order to take advantage of the discount offered for prompt payment of the tax, a temporary loan of $55,000 was made, which was paid the following year out of increased taxation. The House Committee on Finance estimated 24 that an increase of 50 per cent on the present rates of tax for land heretofore subject to taxation, with the existing rates of tax applied to land newly subjected to taxation, 23 would probably yield $110,545 for the year 1814; as the current expenses of the state government were estimated at only $37,500, this would leave a surplus after paying off the loan of $55,000. The same committee disapproved any change in the system of taxation in the direction of taxing personal property or banking corporations. 20 The rate of taxation was raised about 50 per cent, being increased from $1.25 per 100 acres in 1813 to $2.00 in 1814 for first rate land. 27 a Act of Congress, Aug. 2, 1813. Ohio paid her quota before the first mentioned date, thereby reducing it to $88,528. M Rep., Jan. 18, 1814, Ho. J., 1814 p. 142. "Under act of Congress of Aug. 2, 1813, as cited above. The legisla- ture, however, did not take advantage of the permission thus given, as it was felt it would involve a breach of contract with the purchasers of these lands. "Ibid., p. 179. "See table on p. 182. The rates on other grades of land were changed proportionately. 190 FINANCIAL HISTORY OF OHIO [190 In 1814 the state again met the second direct tax by means of a temporary loan of f 104,000 and a further increase in the rates of taxation, from $2.00 to $3.60 for first rate land. In 1816 a third loan of $32,000 was raised, but this time it was found possible to reduce the tax-rate slightly to $3.00 on first rate land, as the taxes were now so lucrative. The amounts raised by taxation during the five-year period from 1814 to 1818 were as follows : Year Resident Non-resident 1814 $ 80,390 $ 78,726 1815 1816 122,875 107,023 1817 130,999 100,812 1818 95,281 73,903 Attention had now been directed to the tax system and as its defects became more apparent a movement for a change began. On January 11, 1815, the Senate passed a res- olution asking the state auditor to report as to "the difficul- ties and embarrassments that exist in the present system of taxation" and to suggest "a more perfect system, in whole or in part." The auditor could find no defect in the law, though he admitted that errors did occur in the listing of the land of resident proprietors for taxation, which he at- tributed to the negligence of the listers or of the proprietors themselves; in the case of non-residents he thought the system would be improved by permitting non-residents to pay their taxes directly into the state treasury. 28 A more serious study was made of the situation a few years later by the standing committee of Finance in the House, for which the chairman, Mr. Kelly, presented a report which criticized existing methods and yet had no very far-reaching remedies to offer. 29 They were convinced that many defects existed in the present system, and thought the most equitable and simple method of taxation was to levy a tax on lands in proportion to their value. But on account of the expense and the constantly chang- M Aud. rep., Jan. 13, 1815. Sen. J ., 1815, pp. 190-196. "Ho. J., 1820, pp. 105-108. 191] THE GENERAL PROPERTY TAX 191 ing values of land all over the rapidly growing state, any system which involved the frequent valuation and equaliza- tion of land did not seem desirable. It was also impolitic as well as unjust to tax improvements. The committee did not think a perfect remedy could be devised for the existing inequalities in the assessment of lauds, but sug- gested the creation of a fourth class and the entering of certain tracts as fourth rate. The present system was found to be too complicated and intricate, especially in the matter of making transfers, where errors often removed many tracts of land from the lists both of resident and of non-resident proprietors, while other tracts appeared in both lists and were doubly taxed. The remedies suggested did not go to the root of the matter; they were that all taxable lands, and transfers, should appear on the tax list of the county in which they were situated; that the taxes be payable either in the home county or at the state treas- ury, at the option of the owner ; and that the office of non- resident collector be abolished. Later in the session was passed an act, 30 "levying a tax on land'', embodying these and other suggestions, the first important law relating to the system of taxation that had been passed since 1810. 3] This was a long act of 63 sections, repealing and codifying previous acts, but not introducing any change in principle. The duties of county auditors and collectors, and of the auditor of state, were prescribed more carefully, and in greater detail; and the county auditor was to be elected annually. To secure more certainly the listing of all lands, it provided that if a proprietor should refuse or neglect to furnish a list, the county auditor should charge his land as first rate until he should furnish a list and prove that the land was in the wrong class. An amendment of February 25, 1824, provided that non-resident proprietors might pay their taxes to the state auditor, instead of to the county officials. *Act of Feb. 8, 1820. Chase's Statutes, 472. "An unimportant act of Feb. 8, 1819, had reduced the salaries of col- lectors of taxes on lands of non-residents by 25 per cent. 192 FINANCIAL HISTORY OF OHIO [192 Below is given a copy of the form of returns used by the commissioners in the listing of land for taxation under the act of 1820 ; 32 it is difficult to believe it could have been satisfactory, it is so brief and, it would seem, inadequate. The change in the tax system met with hearty commenda- tion, however, the state auditor citing the greater central- ization of power and responsibility in the county auditors as the chief advantage. 33 It has brought into taxation very many tracts of land that had never before been on the duplicates, and many others that were either lost by transfers from non-residents to residents, from one county to another, or from intention or negligence in the commissioners. No further changes were made until the tax law of 1825 introduced an entirely different system. ASSESSMENT AND COLLECTION OF TAXES. Owing in part to the inefficiency of governmental legislation and administrative machinery, and in part to the wide dispersion of a scattered population over a large territory, the early returns of taxable property were loosely and vaguely made, and the assessments tardily and imperfectly collected. "In a word, our fiscal estab- lishment is as destitute of strength and circumspective activity, as it is of necessary checks." 34 The defalcations, or delinquencies, in the assessed taxes were large through- out the whole of the early period, under the system of the land tax. In 1806, they amounted to $2,000 in a total of |50,000, or 4 per cent ; 35 in 1809, they were $7,500 in a total of $37,000, or 20 per cent. 38 All land was grouped in three classes, for purposes of taxation, and to each an arbitrary value was assigned, on which different rates were imposed. There was naturally an irresistible temptation to take land 82 The return called for the taxpayer's name, the quantity of land, on what water course and county, by what title, what rate, amount of tax. "Aud. rep., Ho. J., 1821, p. 62. "Rep. of joint com. to examine books and accounts of auditor and treasurer. Sen. J. 1804, P- 201. *"Aud. rep. Sen. J., 1805-6, p. 16. **Aud. rep., Ho. J., 1810, p. 267. 193] THE GENERAL PROPERTY TAX 193 out of the higher and put it into the lower classes, espe- cially as the owner practically listed his own land. 37 Much land also escaped taxation altogether, as there was no penalty for omitting it. But not merely was there laxity, with respect to the assessment of taxes; there was equal looseness in regard to their collection. Taxes were collected by district col- lectors and by them paid into the county treasuries, which then remitted to the state treasury the share due it. There was, however, no way of compelling the payment from the counties to the state of its share, and as the counties seem for several years to have anticipated or overdrawn their funds, they could not respond to the calls made upon them. The state must therefore wait until such counties have a surplus of money in their treasuries, and are willing to return the sums thus improperly made use of ; which ought, of right, to have been punctually paid over for the use of the state, as required by law. 88 Several counties were at this time indebted to the state treasury for considerable sums. No provision was made for the collection of infor- mation as to the sums expended for county and township purposes, but the governor in 1820 estimated that they ex- ceeded three-fourths of all the taxes paid. 39 In the same year the standing Committee on Finance of the House reported that the system of taxation was too complicated and that the assessments were unequal, and suggested as remedies that all lands should be assessed, transfers made, and taxes collected in the counties in which the lands lay, and that the office of non-resident collector be abolished. 40 New lists were made the following year, and corrected much of the confusion and mistakes of the lists of 1810. 41 I7 Gov. Mess., Ho. J., 1810, p. 27. Aud. rep., ibid., p. 15. **Aud. rep., Ho. J., 1810, p. 260. Cf. also Aud. rep., Ho. J., 1811, p. 18. "Gov. Mess., Ho. J., 1820, p. 11. M Ho. J., 1820, pp. 105-108. "Ho. J., 1821, p. 14. 194 FINANCIAL HISTORY OF OHIO [194 EXEMPTIONS. The first exemption made by the tax laws of the state of Ohio was contained in the act of February 18, 1804, 42 which provided that lands purchased from the United States after June 30, 1802, should not be taxed for 5 years from the date of sale. In the act of February 19, 1810, there was contained the statement that "all lands within this state and not exempted by any contract between the United States and this state shall be subject to taxation". In the tax law of February 26, 1816, the provision "and not exempted by any law of this state", was added; but as no exemptions were made by the laws of the state until 1821, this clause was meaningless. In that year the first specific exemptions from taxation were made by act of February 2, 1821. 43 This act declared that all tracts of lands with the houses and improvements not exceeding fifteen acres, the title of which is vested in any person or persons for the use and in trust for any religious society within this state, and occupied solely by such society, as a meeting house or burying ground, shall here- after remain free from taxation, for state, road, township or county purposes; as shall all land which is the property of any academy, college, or other seminary of learning, which now is or hereafter may be estab- lished within the state. The modern practice of exemption by specific enumer- ation may be said to have been introduced by the act of February 25, 1824, which added considerably to this list: it exempted lands of any religious society, not exceeding fifteen acres; Congress lands for five years after date of sale; all lands the property of any college or academy of learning; the property of the state; all land included within the plat of any town that now is or may hereafter be regularly laid out and recorded according to law. By this last provision, town lots would seem to have been reserved for local taxation, a notable step in the segrega- tion of the sources of revenue to have been taken thus "Chase, Statutes of Ohio, I, ch. 45. "Chase, Statutes, I, ch. 510. 195] THE GENERAL PROPERTY TAX 195 early. 44 This separation was, however, abandoned the next year when the general property tax was introduced as a means of raising state revenue. The list of exempted property was still further ex- tended by the act of February 2, 1825. This enumerated the land and improvements of any religious society (not over 15 acres) and of any school or college, when used exclusively for educational or religious purposes; the lands and improvements owned by any county for the use of the poor (not exceeding 200 acres) ; all public grounds and buildings; lands sold by Congress for five years after sale; also one cow where the owner has no other taxable property; all grist and saw-mills ; all woolen and cotton factories ; all manufactories of paper, salt, iron, or glass, all distilleries, tanneries, and all nail factories. These exemptions show clearly the progress which manu- factures had made in Ohio, and what industries it was desired to foster. SALE OF LAND FOR NON-PAYMENT OF TAXES, AND REDEMPTION. The early laws are full of severe provisions and penal- ties directed against delinquent tax payers. The collec- tors of the taxes were paid collection fees of 4 per cent of the taxes on the property of non-resident proprietors, and 6 per cent of the taxes on the property of residents. That it was extremely difficult to collect the taxes, especially in the case of non-residents, is abundantly shown by the amount of defalcations in the assessed taxes reported from year to year. In a barter economy, such as still prevailed to a considerable extent in Ohio at this time, even the moderate taxes seemed a heavy burden. In 1806 it was estimated that the defalcations would amount to about 5 per cent. 45 The amount of money paid into the state treasury in 1809 was $28,270, and the defalcations $7,518, "By the act of February 23, 1824, all inlots and outlots in towns with improvements and all other houses over one hundred dollars in value were made subject to county levies, and the rates were fixed at one-half of one per cent of the value. "Sen. J., 1805-6, p. 16. 196 FINANCIAL HISTORY OF OHIO ' [196 or one fifth of the total. 46 In 1814 the amount of taxes levied was f 162,196, while the amount collected was $132,- 403. In 1816 the amount levied was $229,897, while only $187,459 was collected. In 1819 the figures were $179,476 and $129,519. And the same difficulty prevailed through- out the entire period 1802-1825. The worst offenders in this respect were the non-resident proprietors, most of whom probably held their land for purely speculative pur- poses. Accordingly we find that Ohio began very early to provide for the collection of delinquent taxes by authoriz- ing the sale of property for back taxes. The first law on this subject was the territorial law of May 1, 1798, which provided that arrears of taxes should bear 10 per cent in- terest, and authorized the collector to sell at public auction so much of the land as would pay the taxes. This was re- peated the following year, 47 and extended to the lands of non-residents : If any person does not pay his taxes by the first of October, the sheriff may distrain his goods and chattels, and if the taxes are not paid within twenty days, the things shall be sold at public auction and the amount above the taxes shall be returned to the owner.* 3 If goods and chattels to an amount sufficient to pay the taxes could not be found, then part of the land should be sold. Evidently this law proved too harsh, for in 1800 49 the further sale of non-residents' lands was postponed until March 20, 1801. In 1802 50 the law was re-enacted in a still stronger form : if the tax was not paid by the first of October, the sheriff was to sell enough personal prop- erty to pay the tax ; if no personal property could be found, a penalty of 50 per cent was to be added, and if this were not paid by the first of November, enough land should be sold to pay the tax and the penalty. In 1804 the first state law on the subject was passed, 51 "Sen. J., 1810, p. 208. 47 Act of Dec. 19, 1799. "Ibid, sec. 12. *Act of Dec. 9, 1800. ""Act of Jan. 23, 1802. "Feb. 18, 1804. 197] THE GENERAL PROPERTY TAX 197 but in less severe form than the territorial laws, which had meanwhile prevailed. If the tax, with penalty, was not paid within one year from the listing of the property, the collector was to advertise a public sale in the county and in five other places, and to sell enough land at public auction to pay the tax and penalty. A slight variation was introduced in 1806 52 if the taxes of a non-resident were not paid by December, the collector was to sell the land to that person who would pay the tax and interest for the smallest quantity of land. One-half of the tax was to go to the county within which the land lay, and one-half to the state. 53 By the act of 1810 54 lands returned delinquent, on which no tax was paid for three years, were to be sold at public auction to the highest bidder. For the next decade there was no further legislation on the subject. Indeed, after the War of 1812 and the consequent "hard times" the system broke down com- pletely. It was found very difficult to collect the taxes and still more so to find purchasers for delinquent lands. Acts were passed in 1815, 1818, and 1819, 55 to postpone the sale of lands for non-payment of taxes for one year, and in 1820 56 for two years. The real reason for the break- down of the system, however, lay in the laws providing for the redemption of lands sold for taxes and in the insecure title given to the purchasers of such land. Although taxes were levied on lands, for the support of the state govern- ment, .yet they were so poorly paid and the sales for taxes were so loosely, carelessly made by the collectors, that a tax title on land was good for nothing. The more of them one had, the poorer he would be. 07 . A brief survey of the laws providing for the redemption of lands sold for taxes will make this point clear. By the territorial law of 1802 58 lands sold for taxes were to revert to the owner on payment, within one year, "Jan. 27, 1806. The share of each is given in the table on p. 184. "Act of Feb. 19, 1810. "Feb. 14, 1815; Jan. 29, 1818; Feb. 8, 1819. "Feb. 8, 1820. "Atwater, History of Ohio. "Act of Jan. 23, 1802. 198 FINANCIAL HISTORY OF OHIO [198 of the tax, costs, and 60 per cent penalty; the purchaser was to have his money refunded. The laws of 1804, 1806, and 1807 59 provided for the redemption of lands sold for taxes and belonging to minors, feme coverts [sic], insane persons, or persons in captivity, within one year by pay- ment of the tax, interest, and penalties. While the act of 1808 60 was slightly more severe on the delinquent tax- payer, yet it made the position of the purchaser of a tax title still more insecure and removed the incentive for the purchase of such lands. It provided that the owner might redeem his land, if sold for taxes, within one year by paying the tax, costs, and 100 per cent damages. The purchaser of the tax title must claim his money back within six months; after six months and up to three years he must produce the certificate of sale. 61 The purchaser, more- over, was saddled with the tax of the following year. The only wonder is that under such a system there were any purchasers of delinquent lands. The purchase of tax- titles was a pure speculation, involving a certain loss if unsuccessful, and a title of doubtful validity if successful. No purchaser could afford to risk making any improve- ments on land so held, and the interests of all concerned suffered under such a system. No further change was made in the law governing this subject until 1822. 62 The act of January 30, 1822, "for the sale of lands for taxes", completely reversed the easy-going, slip-shod methods of the earlier laws, and by giving the purchaser of delinquent lands a valid title stimulated the purchase of such lands and brought about the prompt payment of taxes. First of all the books were cleared of the accumu- lation of back taxes: if arrearages of land taxes be paid by December 10, it was provided that all penalties should "Feb. 18, 1804; Jan. 27, 1806; Jan. 31, 1807. "Feb. 2.2, 1808. "Apparently he lost his money unless he demanded it within three years and produced the certificate of sale. "The laws of Jan. 4, 1816, and Feb. 26, 1816, sec. 34, relate to the mode of redeeming lands of minors, feme coverts [sic], insane persons. 199] THE GENERAL PROPERTY TAX 199 be remitted. 63 If this was not done, the law then pre- scribed a careful procedure for listing, advertising, and selling such lands. After advertising, a judgment of the land to the state is to be secured from the court of com- mon pleas. The purchaser of such lands at the tax sale shall receive a deed from the auditor which shall be received in all courts in this state and elsewhere, as prima facie evidence of good title to the lands mentioned therein, nor shall the title conveyed by such deed, be invalidated or affected by any error in charging or collecting the tax or in the tax sale. This act cleared up the old difficulty of disputing the validity of tax sales on technical errors, and gave a secure title to the purchaser. The process of correcting the lists of delinquent lands was, however, a slow one. Often the owner did not know that lands were on the delinquent list until they were declared forfeited and advertised for sale, and in many cases lands on which taxes had been paid were thus treated, owing to errors in recording. In many cases, however, the taxes had been evaded or unpaid. For- feited lands were exposed to sale in the neighborhood where they were situated, when "persons from almost every part of the county, came forward, either to correct or pay the taxes on their lands which stood in arrears". 64 In order to hasten the clearing of the docket of these interminable delinquencies, the act of January 18, 1826, enacted that all lands upon which taxes had not been fully paid up to January 1, 1826, should be deemed delinquent, and that all penalties and delinquencies must be paid by August 1. This brought forth a protest from the non- resident, as well as the resident, owners, and the legisla- ture was compelled to recede from this position; twice they extended the time for the payment of the taxes and penalties. On December 15, 1826, there still remained of lands forfeited to the state for the non-payment of taxes, "The act of Dec. 15, 1823, suspended this for four and one-half months because of many errors in the lists of delinquent lands; that is, until the -errors could be corrected. "Aud. rep., Dec. 15, 1826. Ho. /., 1827, p. 84. 200 FINANCIAL HISTORY OF OHIO [200 not yet redeemed, 604,590 acres; this represented unpaid taxes to the amount of $127,912. The interests involved were sufficiently powerful to compel still further conces- sions, and on January 29, 1829, there was passed a bill remitting all penalties at that time due, but requiring the payment of the taxes. This ended the struggle over the delinquencies of the land taxes under the old system. CRITICISMS OF THE EXISTING TAX SYSTEM. In referring to this system of taxation, as it existed between 1803 and 1825, Solomon P. Chase subsequently expressed himself as follows: 65 That this system was inconvenient and inequitable, is very manifest. The assessment of taxes for state and county purposes, on different descrip- tions of property, was productive of no little embarrassment and difficulty; while the assessments according to rates and not according to value, resulted in great and grievous inequality, which became more and more conspicuous and vexatious with the progressive, but very unequal in- crease, in the value of land. But an even more important reason leading to the reform of the existing system of taxation was the necessity of larger revenues. In 1825 the work of building canals was entered upon by the state, and for this purpose and the payment of interest on loans, it was necessary to in- crease the revenues of the state. The governor, in his message for this year, 66 suggested that the whole product of the land tax be made payable to the state treasury for state purposes, 67 and that additional taxes be imposed as follows: on judicial processes in civil cases, on capital employed in trade, on pleasure and travel carriages, on brass and other clocks and on gold and silver watches ; the product of such taxes in whole or in part to be made paya- ble to the county treasury of the respective counties where- in the tax is levied. That part of the message which related to the revenue of the state was referred to a joint com- mittee of the legislature, which brought in a lengthy re- "Gov. Mess., Jan. 2, 1860. Exec. Doc., 1859, II, 29. "Gov. Mess., Ho. ]., 1825, p. 14. "One-fifth was paid to the counties in which the tax was collected. 201] THE GENERAL PROPERTY TAX 201 port 68 and a bill embodying the principle of the general property tax. The report reads like that of a modern tax commission and is of such importance as to justify quoting at some length. The present system was adopted by the first territorial legislation at their session of 1/99, and went into operation in 1800, when the popula- tion was about 40,000 and the settlements recently made At this early period of the settlement of the country, the improvements on land and personal property were inconsiderable, and a tax on lands alone could be relied on for support of the government. Under the system then as now, the lands were to be entered for taxation, as ist, 2nd, and 3rd rate, and the relative fertility of the soil alone fixed the rate in which it was to be entered, without regard to situation or any local advantages The system therefore, though defective in detail, was at the time of its adop- tion, and in the early stage of the government, perhaps best suited to the circumstances of the country. The unparalleled increase of the population, and progress of improvement in the state, together with a change of lands from non-resident to resident proprietors, have produced almost an entire change ; and in the landed property a different state of things. Towns have grown up; the benefit accruing from vicinity to these to navigable streams to public highways water privileges and other local advantages, have produced an inequality in the value of lands on which the present system does not nor cannot operate. .. .The defects of the present system of revenue will be examined in the following order: ist. The injustice done the state from improper entries. 2nd. The inequality of the revenue paid by the different counties of the state. 3rd. The inequality of taxes on individuals. 4th. The difficulties occasioned by subjecting different objects to taxation for county and state purposes. Under the first head the committee pointed out the steady transference of land from the first and second rates to third rate ; in the year 1820 only 225,082 acres had been entered as first rate, while the committee estimated that at least 2,000,000 acres should have been put in that class. By reason of the improper entries, which were an inevit- able result of permitting owners to list their own lands, they estimated that the state was defrauded of over $31,000 in taxes in 1820. As between counties there was similar inequality ; for instance, the taxes levied in 1824 for state purposes in *Ho. ]., 1825, pp. 153-156. 202 FINANCIAL HISTORY OF OHIO [202 Hamilton county amounted to $2,080, while Athens county, with less than one-thirteenth the value of real property, paid taxes to the amount of $2,142. 69 The inequality of taxes on individuals of the same county was equally marked. As all land was rated accord- ing to its fertility only, it might happen that one tract of land of 1000 acres would be worth $2000 as agricultural, while another tract of the same size and fertility, but sit- uated near a town or river, would be worth $20,000, yet both be taxed exactly the same amount, say $17.50. The difficulties occasioned by subjecting different objects to taxation for county and not state purposes, are the creation of many unnecessary agents as collectors, assessors, and listers, producing inequality in the value of property in different townships and causing much unnecessary expense. Besides it produces discontent and unpleasant feelings between the people of the towns and country, and a great inequality in the assessment of taxes. II. THE GENERAL PROPERTY TAX, 1825-1851. In accordance with the suggestions contained in this report and in the governor's message, a bill was intro- duced into the legislature "establishing an equitable mode of levying the taxes of this state", which was promptly enacted into law. 71 This act marks the beginning of the general property tax in the ^_sta.te .oflfSaQl Tt abolished the old system of land classification and at the same time introduced a number of new features: the taxation of all property for state purposes, instead of land alone; the valuation of real property at its true value in money ; the specific enumeration of all the forms of property to be taxed; the establishment of boards of equalization, and the other machinery of the general property tax. Owing to its importance the chief features of the law deserve to be presented with some fulness. "Hamilton county contained the prosperous town of Cincinnati, while Athens county was agricultural. Several other instances were cited. 70 Rep. of Com., p. 156. Now that the policy of segregating the sources of state and local revenue has been undertaken, it is interesting to read this early argument against such a principle. "Act of Feb. 3, 1825. Chase, Statutes, II, 1476. 203] THE GENERAL PROPERTY TAX 203 All lands, all in-lots and out-lots in towns with the buildings thereon, and buildings in towns on lands granted by Congress for school or for religious purposes, not used for educational or religious purposes; all dwelling houses of the value of $200 other than those on town lots; the capital of all merchants and exchange brokers employed within the state; all horses, mules, and asses, and neat cattle of three years old and upwards, except such as were exempt ; and all pleasure carriages over the value of $100, were declared to be subject to taxation. The chief de- pendence, it will be observed, is still real property; the amount of personal property actually valued was still small, and the list of exempted property was very large, including not only land and buildings used for religious or educational purposes, but mills and factories almost without exception. 72 Merchants and brokers were ar- ranged in certain classes by the associate judges, according to their capital, and were taxed according to the class, without reference to the amount of capital actually em- ployed by different members of the same class. Lands, town lots and buildings, dwelling houses, and carriages were to be valued on actual view at their true value in money; but horses, mules and asses were assessed with appraisement at $40 each and neat cattle at $8. It will be seen that the act of 1825 initiated, rather than established, the rule of valuation and of taxation according to value. The modes of levying, assessing, and collecting the taxes were based largely upon previous practice, with such changes as experience dictated. An assessor was to be appointed in each county by the court of common pleas, 73 and was to be furnished with lists of land and copies of maps by the county auditor; the owner was to list all his property minutely, but the assessor was to make the true valuation, upon actual view. If the owner were absent or "See supra, p. 195. "The assessor had to take an oath of office and was put under bond of $1000. As compensation he received 6 per cent on property assessed under $1000; 3 per cent on properties between $1000 and $3000; and 2 per cent on all over $3000. 204 FINANCIAL HISTORY OF OHIO [204 unable to give a list, the assessor should make it out; persons refusing to give, or giving a fraudulent list, to be charged with three times the amount of the tax. The col- lector's duties were defined by the act of February 8, 1825 : he must call at the place of residence of every person charged with a tax by November 1; if the tax were not paid by November 20, he might distrain sufficient goods and chattels to satisfy the tax, advertise, and sell them. The auditor acted as collector and was allowed mileage of eight cents a mile. County boards of equalization were established, consisting of the commissioners, auditor, and assessors of each county, with power to add to or deduct from any valuation made by the assessors. A state board of equalization was constituted of members of the legisla- ture, chosen by itself, one from each congressional district, together with the auditor of state, which w T as given power to equalize the valuations as between counties. Full as the original law was 74 the multitude of small amendments which appeared the next few years are elo- quent witnesses of the difficulties attending the introduc- tion of the effort to tax all property. By act of January 31, 1827, non-residents were permitted to pay their taxes to the state auditor, instead of in the county where they were situated. The proper taxation of grazing cattle offered a problem to the legislators. They w^ere registered in no county and were evidently in no county long enough to be listed; the act of February 7, 1829, provided that they were to be recorded in the county in which the owner lived. But some of the owners lived in counties far from their cattle and some lived out of the state; and all were rather hard to find when the taxes were due, so on Febru- ary 22, 1830, a further amendment made cattle, grazing in any county and belonging to a non-resident, taxable in the county where they were grazing. After the passage of the act of 1825 a valuation of all the taxable property in the state was undertaken, which constituted the first Grand List, upon which were to be "It contained forty sections. 205] THE GENERAL PROPERTY TAX 205 assessed the necessary levies for state, county, and town- ship purposes. The value of lands was f 39,729,411, of town lots and personal property $18,745,096, making a total valuation of $58,474,507. The act of 1825 fixed no period for a second general valuation. The appraisement made under it was to remain unaltered until further legislation. The county assessors, however, were required to ascertain in the spring of each year, what land had become liable to taxation during the preceding year, and what new im- provements had been made by structures on lands. The value of this land and these improvements, annually ascer- tained by the assessors, together with that of all taxable personal property, computed according to arbitrary rates fixed by law, added annually to the equalized value of the real property, was to constitute the Grand List, and form the basis of taxation for the current year. Owing to the rapid and uneven growth in the value of property, due in large measure to the building of the canals and of the na- tional road through certain sections of the state, the valua- tion of real estate established in 1826 soon revealed inequalities. Consequently a revaluation was made in 1834 and at irregular intervals thereafter until the con- stitution of 1851 provided for decennial valuations, begin- ning in 1861. 73 The effect of the new law upon the revenues of the state was pronounced. Under this system new sources of revenue were tapped and the resources of the state greatly enlarged. The entrance of the state during the same }^ear upon the policy of internal improvements committed the state to greatly increased expenditures, and necessitated large additional revenues. Owing to the fact that the whole attention of the legislature and the people during this period was absorbed by the subject of constructing the new state canals, the general property tax law received less attention than it otherwise would have. The imposition of "Valuations of the real property in the state have been made in the years 1825. 1834, 1840, 1846, 1853, 1859, 1870, 1880, 1890, 1900, 1910. Hereafter they are to be quadrennial, dating from 1910. 206 FINANCIAL HISTORY OF OHIO [206 heavier taxes for canal purposes moreover somewhat con- fused the actual effect of the general property tax as such. The following table shows the growth of the taxable prop- erty and of the revenue to the state and local governments : GRAND DUPLICATE OF OHIO, 1826-1909. Years. Value of Realty. Value of Personalty. Total Value of Taxable Property. State Tax. Total." State Rate Mills. 1826 $15,946,840 $11,035,820 $57,982,640 $105,816 $392,783 1.50 1831 50,627,110 15,793,666 66,420,776 240,991 615,651 1.50 1836 72,223,906 27,029,444 99,253,356 211,932 1,007,216 1.25 1841 100,851,837 27,501,820 128,353,657 642,153 1,890,405 1-75 1846 109,940,636 40,352,496 159,293,132 1,214,897 2,589,073 3-oo 1851 346,341,233 115,807,387 462,148,620 1,687,392 4,957,013 3-60 1856 580,634,487 240,026,550 820,661,037 2,626,132 8,009,514 3.20 1861 634883,552 248,966,532 892,850,084 4,056,379 11,656,814 4-55 1866 663,647,542 446,561,379 1,106,208,921 3,867,167 18,868,437 3,50 1871 1,025,619,034 476,510,937 1,502,129,971 4,350,728 22,955,388 2.90 1876 1,076,788,367 520,681,599 1,597,469,966 4,626,629 28,521,256 2.90 1881 1,101,457,383 485,750,196 1,587,207,5/9 4,598,057 27,606,380 2.90 1886 1,173,106,705 515,569,463 1,688,676,168 4,894,594 33,378,558 2.90 1891 1,151,038,931 556,164,445 1,707,203,376 4,181,143 35,861,610 2.75 1896 1,226,988,666 514,039,771 1,741,028,437 4,942,533 40,638,201 2.84 1901 i,377,253,i83 591,026,817 1,968,280,000 5,686,249 47,980,509 2,89 1906 1,520,998,646 718,788,257 2,239,786,903 3,012,115 60,974,046 1-35 1909 1,619,462,263 770,516,086 2,389,978,349 3,214,085 71,706,371 1-35 Taxes still fell most heavily on the farmers. The items of "town lots and buildings" of "merchants' and brokers' capital", and of "pleasure carriages" formed but a small part of the total amount of taxable property in the state. In 1831 they constituted a little less than 20 per cent of the whole. The valuations of property and the taxes for that vear were as follows : 77 "The total includes the per capita on dogs which amounted in 1909, to $255,774- "Aud. rep., Ho. /., 1831, p. 28. 207] THE GENERAL PROPERTY TAX 207 PROPERTY VALUATIONS. Value of land, including houses $40,152,151 Value of town lots, including buildings 8,327,151 Value of horses 7,103,840 Value of cattle 2,853,824 Merchants' capital 3,987,235 Carriages 29,212 Total $62,453,423 TAXES. State and canal tax $ 224,484 County and school tax 224,267 Road tax 61,807 Township tax 44,755 Tax on lawyers and physicians 1,528 Total $ 577,576 The first important amendment to the new system was the result of an effort to enlarge the list of taxable prop- erty, and especially to subject intangible personalty and capital employed in manufacturing to taxation. This was done by the act of March 14, 1831, which enlarged very considerably the descriptions of taxable property, reduced the list of exemptions, and extended the application of the principle of appraisement, though it still retained in some cases the principle of arbitrary valuation by the legisla- ture. In addition to the list of taxable property given in the act of 1825 the following objects were enumerated: "all grist, oil and saw mills; all manufactories of iron, glass, paper, clocks and nails; all distilleries, breweries and tanneries; all iron, brass and copper foundries; all money loaned at interest ; 78 all stocks or capital invested in steamboats; all pleasure carriages with two or four wheels." As most of these items were taken from the exempt class of the earlier law, this was now reduced to very small proportions; it contained only lands and build- 78 Mr. N. W. Evans is in error when he writes in his book, A History of Taxation in Ohio, (p. 19) : "I cannot find that money was made directly taxable in Ohio, until by the Kelley law of March 2, 1846". 208 FINANCIAL HISTORY OF OHIO [208 ings of religious, 79 educational, and charitable institutions, public grounds and buildings, and Congress lands for five years after purchase. Merchants dealing in domestic merchandise, with less than $200 stock, were also ex- empted. The attempt to classify merchants and exchange brokers was given up; they were now to be taxed "accord- ing to the value of the stock in trade used". 80 Credits were made taxable by this act for the first time in Ohio, and provision made for the careful listing of other forms of personal property. The assessor was to call upon all persons having anything mentioned in the description of taxable property for a complete list. Land and buildings, mills and factories, pleasure carriages, etc., must be valued at their true value upon actual view; stock in steamboats to be valued by the owner upon oath; "all money loaned at interest on notes, bonds, single bills or mortgages, over and above- amount on which the said person pays interest shall be valued and assessed as so much capital", which must be declared by the owner upon oath. All property must be listed by March 1, and dupli- cates must be prepared by the assessor by June 1, during which month the county board of equalization met to cor- rect the lists. No changes were made in the constitution or duties of these boards, or of other officers. Gradually the system of the general property tax, according to which all property is assessed and taxed under a uniform law, which had been introduced in 1825, was being enlarged and made all-embracing. REVALUATIONS. The changes introduced into the tax system by the law of 1831, which expanded the list of personal property rendered taxable, but made more manifest the inequalities in the valuation of real estate. The first appraisement had "The amount of land belonging to religious institutions exempted was limited to 10 acres, which was cut down to 2 acres by the act of Jan. 18, 1836. The act of March 21, 1840, provided for taxing the capital of ex- change brokers and stock jobbers. 209] THE GENERAL PROPERTY TAX 209 not been altogether satisfactory and the rapid and uneven growth of the state since had introduced new inequalities. "Complaints are made", write the governor 81 only five years after the passage of the law of 1825, that errors and mistakes exist, which need correction; that the equaliza- tion have [sic] imperfections that usually attend first experiments, and have left upon portions of the state unequal burdens. If this is the case, the principles upon which the law originated, would seem to require, as soon as practicable a revaluation, in order that its provisions might have an equal operation. The subject of a revaluation was also urged upon the attention of the legislatures in successive reports of the auditor. In 1834 the auditor wrote: 82 The important revaluations that have taken place in the property of the state, particularly on our navigable waters, and upon the lines of our canals, which were not commenced when the value of the property of the state was first estimated, seems to require that a more equitable mode of assessment be adopted. The subject of revaluation has been twice recommended by my predecessor ; and I can but respectfully second his views on this important subject of financial policy. In response to these repeated appeals the legislature in 1834 83 tardily provided for a reappraisal of the value of real estate. The county commissioners were empowered to appoint one or more appraisers in each county, who "shall appraise at its fair cash value all real estate", made taxable by the act of March 14, 1831. The county com- missioners, auditor, and appraisers were to constitute a special board of equalization for each county, while the commissioners, auditor, and assessors constituted a county board of equalization. The state board was comprised of the auditor of state and one person from each congres- sional district, who should be appointed by joint resolu- tion of the general assembly. As a result of the revaluation new property to the value of |18,000,000 was added to the aggregate of taxable "Gov. Mess., Ho. J '., 1830, p. 27. This executive does not seem to have been a master of either English or taxation. "Aud. rep., in Ho. J., 1834, p. 109. The date of this act was not given in the laws, but it was probably Feb. 24, 1834. 210 FINANCIAL HISTORY OF OHIO [210 property of the state in one year. 84 The total amount of taxable property was increased over 37 per cent, and the proportion of taxes borne by the farmers was somewhat lessened. The equalized value of the lands and town lots was 173,932,892, and the total amount of the Grand List for 1835 was $95,927,396, of which the personalty therefore constituted about 25 per cent. In nine years the value of taxable property had increased $37,452,889, and the pro- portion of the personal property had also grown. In spite of the oaths of assessors and tax-payers, however, the value of real estate as returned at this time was only about one- fourth of its true value. The rate of taxation 14 mills on the dollar in 1837 should therefore be divided by four to get a correct idea of the burden of state and local taxes upon the people. 85 The complaints in relation to land subject to taxation, but which was not entered upon the duplicates, still con- tinued. The evil was a serious one, according to the audit- or : 86 "in many cases land became lost in the annual copy- ing of the duplicates, and in neglect on the part of the auditor and assessors in restoring them". But worse than "Aud. rep., Ho. J., 1836, p. 174. ^Gov. Mess., Exec. Doc., 1837, I, 12. The governor rather longingly compared Ohio with other states where "the state tax is merely nominal, their government being supported from income on stocks of different descriptions ; and in the state of Alabama no state tax exists, the state governments being supported by an income from bank capital." For a still more exaggerated estimate as to the existence of lucrative state funds, see the report of the House Committee of Finance, January 18, 1814: "While most of the states composing this Union, are possessed of a public or state fund, to which on any exigency resort may be had, this state is utterly destitute of any. Without the imposition of taxes, many of our sister states, it is believed are enabled, not only to expend vast sums, in the con- struction of roads, canals and public institutions ; in forming military magazines, and in procuring implements of war but also, from the annual product of their public funds, to the support of all the expenses of their civil government. Having such a fund to resort to, international commotions and foreign invasions, to which from the nature of things all states must be exposed, and against which they should guard, will never find them destitute of resource." Ho. J., 1814, p. 178. M Aud. rep., 1839. Exec. Doc., No. 2, p. 17. 211] THE GENERAL PROPERTY TAX 211 official carelessness was the undervaluation of some lauds, and the changes in relative values of others brought about by the rapid development of certain sections of the state, and also by the collapse in the land speculation which reached its culmination in 1837. Consequently a third valuation of the real estate in Ohio was made in 1840, and was equalized in 1841. This was provided for by the act of March 13, 1840. This act was more carefully drawn than either of the two preceding ones, and is especially interesting for the light it throws upon the economic development of Ohio, as shown by the growth in the list of taxable properties. The court of common pleas in each county was required to appoint appraisers, who should appraise at its "fair cash value", 87 between April 1 and September 25, the fol- lowing list of property: (1) real estate, taking into con- sideration its fertility, location, etc., but having no refer- ence to the value of the improvements; (2) town-lots, in the same fashion; (3) dwelling houses, warehouses, shops, etc., over the value of $200 ; 88 (4) grist mills, oil mills, saw mills, paper mills, fulling mills, and carding machines, over the value of $200 ; 8S (5) all distilleries, breweries, and tanneries, and all manufactories of cloths, carpets, cotton yards, iron, glass, clocks and nails, all iron, brass, and cop- per foundries, over the value of $200. 88 The appraiser was to make a list, place the value opposite each item, and inform the owner. For the correction of errors, the county commissioners, county auditor, and appraisers constituted a special board of equalization; the ordinary county board of equalization was made up as under the acts of 1825 and 1831. The legislature was still experimenting with the state board of equalization, which had evidently been un- satisfactory ; it was now constituted of the state auditor and one person from each senatorial district, appointed "This was evidently not done, for four years later the auditor spoke of the necessity of adopting the principle of a "cash valuation". Aud. rep., Dec. 3, 1844. In fact it never has been done, assessors' oaths to the contrary notwithstanding. "I.e., the excess over $200 only. 212 FINANCIAL HISTORY OF OHIO [212 by joint resolution of both houses. The equalized valuation of the real estate was $99,154,745, an increase over that of six years before of $25,221,853 ; the grand list for 1841, embracing all assessed property, both real and personal, was $128,353,657. SALE AND REDEMPTION OF DELINQUENT LANDS. We traced the legislation on this subject down to the year 1830. The sound policy laid down by the act of January 30, 1822, still formed the basis of the law on the matter of the redemption of lands forfeited for non-pay- ment of taxes. This was, however, reversed by the act of March 3, 1831, which provided that all lands which had been or might be sold for taxes might be redeemed within two years. The applicant should apply to the court of common pleas of the county, give six weeks notice in a newspaper, and deposit the redemption money with the clerk, including costs and a penalty of 50 per cent. The court should then award the applicant the premises. The purchaser was to be paid for the land and also for all im- provements made by him. Another act of the same year 89 provided "for the sale of lands forfeited to the state for non-payment of taxes" prior to January 1, 1831. The state auditor was to make a list of such lands, the county auditor to advertise and sell them at public auction to the highest bidder. After 1831, lists were to be sent out and sales made biennially. The purchaser at tax sales was to be considered as the assignee of the state. In view of the previous act of March 3, this last clause was of value only in case the former owner did not attempt to redeem his land. The title was now valid, but the position of the purchaser was again an insecure one, for he might be ousted any time within two years. As time went on greater familiarity with the new sys- tem seems to have bred a certain amount of contempt, and also ability to evade its requirements. The old evils of non-payment of taxes and forfeiture of lands began to "Act of March 14, 1831. 213] THE GENERAL PROPERTY TAX 213 assume proportions as great as before 1825. By 1842 the delinquencies in taxes exceeded $30,000 a year and were steadily increasing. 90 During the preceding session an act had been passed providing for the publication of the list of forfeited lands, and extending the time for redemption to January 1, 1843 ; but only a small amount was redeemed. "It is a moderate estimate", wrote the auditor, 91 "that one- fourth of all the lands advertised this fall, will be returned as "not sold for want of bidders", and consequently be- come forfeited to the state. There is no fear of a tax sale on the part of the owner and no confidence on the part of the purchaser. The rule of construction on the part of the courts, invariably sets aside these sales; for, in the present confused state of our legal enactments, it is im- possible they should all be observed by the several officers charged with the assessment and collection of taxes". The following year the amount of taxes levied but uncollected amounted to one-ninth of the whole levy, and the auditor summed up the whole matter in a single sentence: "the present laws are totally inefficient". 92 The act of March 12, 1845, amended the law of 1831 by providing that the former owner of land sold by the state for non-payment of taxes might redeem the same within six months from the date of sale by depositing with the county auditor the amount of the sale plus 50 per cent, and paying all expenses. In this, as in most of the legislation on the subject, every opportunity was given to the former owner to regain his land. Under such a system there could have been little inducement to buy land at tax sales. This act was still further strengthened in 1850 by an amend- ment providing that a person might redeem land sold for taxes by depositing the amount required by law with the county auditor, and that the auditor should give a receipt, Aud. rep., Dec. 6, 1842. "Ibid. "Aud. rep., Dec. 5, 1843. In his report for Dec. 3, 1844, the auditor refers again to the need of "a thorough change in the laws for the sale of lands delinquent or forfeited for taxes, so as to render them efficient in their character." 214 FINANCIAL HISTORY OF OHIO [214 and that the deposit should "operate as an extinguishment of all rights conferred by such sale". 93 In the same year the auditor reported that the losses and delinquencies, and cost of collection of the taxes for the four years previous, amounted to less than 3 per cent. "No example can be found", he added, "of a more efficient and economical system." THE KELLEY LAW, 1846. The existing tax system, in spite of efforts to improve it, failed to yield sufficient revenue, but produced instead many inequalities and great dissatisfaction. Instead of using the taxing power solely for the raising of revenue, the legislature used it to favor or discourage special inter- ests or objects. Improved lands were valued and taxed without any reference to the improvements, as if they were still in a state of nature, in order to favor the agricul- tural interest. The exemption of tools and machinery was designed as an encouragement to the mechanics and manu- facturers of the state. Taxing banks on their profits only was held out as a bonus for foreign capital ; while the exemption of property appropriated to educational and charitable purposes, was intended as an approval of those objects. Under this policy the duplicate decreased until it embraced only about one-fourth of the actual wealth of the state; 94 at the same time the revenue was insufficient to meet the expenditures of the state, and for ten years after 1836 there were annual deficits. Interest on the debt and current expenses were met by borrowing, probably $1,500,000 being added to the principal of the state debt during this period. The attempt to favor every deserving object in society multiplied the pleas for further exemp- tions, and there was danger that the true idea of taxation would be entirely lost. In order to raise the necessary revenue various special taxes were imposed, as on banks, insurance and bridge companies, auctioneers, lawyers and physicians, etc., which however produced but little. "Act of March 23, 1850. M Gov. Mess. Exec. Doc., 1855, I, 13. 215] THE GENERAL PROPERTY TAX 215 As a result of these facts dissatisfaction with the reve- nue system grew serious. Complaints as to the working of the laws of 1825 and 1831 found typical expression in the indictment of the system contained in the auditor's re- port for 1842. In this he spoke of the great inequality between the various kinds of property, and the undue burden placed upon the land; of the injustice of the pres- ent appraisement between the farming and the town inter- ests; 95 of the undue burden upon the owners of small tracts, owing to the burdensome taxes on domestic animals. But it was between real and personal property 96 that there existed the most marked disproportion in the character of the public burdens. For instance, the county of Hamilton, with all the vast resources and wealth of the greatest city of the west, returned last year, under the head of "merchants' capital, and money at interest", $1,364,196 whilst the county of Ross, returned the sum of $403,799 being very nearly one-third the amount returned by the county of Hamilton. No one acquainted with the wealth and business of the two counties, will hazard the assertion, that this is anything near an adequate apportionment. The probabilities are, that in the one a strict and rigid rule has been observed, whilst in the other a very considerable amount has been suffered to escape." One or two feeble attempts at improvement were made. The act of January 24, 1840, 98 provided for subjecting canal lands of the state, which had so far escaped, to taxa- tion. Another act, four years later, 99 declared leased school lands taxable for school purposes. In 1845 an effort was made to tax intangible personalty more rigidly. The act "to provide more effectually for a correct and equal assess- ment of Money and Capital in trade, for the purpose of "'The town property and personal property together paid only one- third of all the taxes. "The personal property paid a little less than one-seventh of the whole taxation of the state. "And. rep., Dec. 6, 1842. The city of Cincinnati in Hamilton county was the center of western trade and of the packing industry ; the county had a population of over 80.000. Ross county was agricultural and its largest town was Chillicothe ; the population of the entire county was only 27,500. -38 O. L. 10. "March 12, 1844. 216 FINANCIAL HISTORY OF OHIO [216 Taxation", 100 provided that the assessors might require written statements under oath from the tax-payers; defined more carefully money and discounted evidences of debt, and merchants, bankers and brokers ; and amended the act of March 14, 1831, by exempting pleasure carriages under $40 in value, and by taxing stage-coaches. It was mani- fest, however, that more thoroughgoing changes would have to be introduced if the difficulties and evils of the existing system were to be remedied. This Avas attempted in 1846, when the so-called Kelley act was passed, 101 which thoroughly revised the existing laws concerning taxation. Previous errors w r ere thereby partially remedied, but many flagrant ones were continued from ill-advised partiality until they w r ere swept away by the constitution of 1851. The purpose of the new law was indicated in its title : "an act for levying Taxes on all property in this State according to its true value". The first section further stated that "all property, whether real or personal, within this state, and all moneys and credits of persons residing therein, unless exempted, shall be subject to taxation." Important additions were made to the descriptions of tax- able property; personal property was defined as "every tangible thing, being the subject of ownership, whether animate or inanimate, other than money and real prop- erty", and was declared taxable together with money, credits, and real property. For instance, "other domestic animals" were added to horses and cattle, which alone had been taxed before this; and watches, pianos, and un- enumerated articles were added to carriages. Exemptions were restricted and defined with greater precision, though the list was still extremely long and gen- erous. It comprised schools and religious buildings with twenty acres of land; graveyards; buildings of scientific, literary or benevolent societies with the land they occu- 100 March 13, 1845. 101 March 2, 1846. 40 O. L. 85 ; 2 Cunven, 1260. It was introduced by the Hon. Alfred Kelley. 217] THE GENERAL PROPERTY TAX 217 pied, moneys or credits belonging to the above and used for their specific purposes; public property of Ohio or of the United States ; lands sold by the United States for five years after sale; county buildings with ten acres of land, county or township buildings for the poor; public build- ings and works, state stocks; furniture, etc., of private individuals not exceeding $ 100 in value ; furniture, etc., of taverns or boarding houses not exceeding $200; wearing apparel of every person, food, animals not specifically sub- ject to taxation, farming implements, mechanics' tools up to $150; each family, unless taxed for over $100, might have exempt one cow, eight sheep, and four hogs. Property was to be returned and taxed in the county or town where situated; owners were permitted to list their own property, filling out an elaborate schedule of nine heads, but from the list of moneys and credits might deduct debts owing. If the assessors demanded it, they must take an oath to verify it. Rules of appraisement were prescribed with a view to ensure a closer approximation of valuation to value ; the principle of actual appraisement was for the first time applied to all objects of taxation to which, in the nature of things, it was applicable; clear directions were given for the annual listing and valuation of lands becom- ing taxable for the first time, of improvements, and of all personal property; a new valuation of all real property was directed, and provision was made for future valua- tions every sixth year. In place of the county assessors appointed by the court of common pleas, district assessors were now provided for to be appointed by the county com- missioners, while in each township local assessors were to be elected. The county board of equalization was to con- sist of the county auditor, surveyor, commissioners, and district assessors; while the state board of equalization should consist of one person appointed by the general as- sembly from each senatorial district, who must have been a resident of the state ten years and of the district five years. Banks, merchants, manufacturers, and general corpora- tions were taxed on their capital, but were permitted to deduct actual debts. A great increase took place in 218 FINANCIAL HISTORY OP OHIO [218 "merchants' and manufacturers' stock, money, and cred- its" ; under the earlier laws manufacturers' stock had been entirely exempted. s The effect of the new law upon the amount of property returned for taxation and the revenues of the state was at once apparent. The whole property of the state returned upon the tax list of 1844 was valued at f 136,142,666, upon which a tax of 7 mills upon the dollar for state purposes was levied, amounting to $948,997. The duplicates of 1846, when the new law was only partially in operation as to personal property amounted to $150,293,132, upon which a state tax of eight mills on the dollar was levied, amounting to $1,208,562, making a difference in two years of $259,565. 102 Most of the increase came from personal property, and the tax burden w r as thus made more equit- able. Over $100,000 of taxes were collected and paid into the treasury in 1846 upon property and capital which had never been subject to taxation before, and at the same time a reduction of about eight millions was made in the valua- tion of domestic animals, a class of property which had previously paid more than double its just proportion of the taxes and had imposed an unduly heavy burden upon the farmers. 103 The value of several classes of personal property, entered on the grand list for taxation, for the vears 1844-1848, was as follows : Years. Domestic Animals. Carriages, Watches and Pianos. Enumerated and unenumerated articles. Merchants' and Mfrs.' stock, and moneys and credits. P^ Q* O 3 1844 20,667,271 783,238 7, 550, 005 29,OOO,5I4 1845.. 21 274 824 I O55 742 13 556 507 35 887,073 1846 13,626,572 1,485.277 2,545,003 22,695,554 40,352,496 1847.. 29 105 088 3 065 464 43.841.530 70,876.703 1848 3O.QO 5 147 -3 74.1 420 ooi o8- 104 47 462 313 85,880,874 -yoj 102 Aud. rep., Dec. u, 1847. At seven mills on the dollar, the tax would have yielded $1,052,052, or a difference of $103,055 in two years. 103 Aud. rep., Dec. 15, 1846. I(M Unenumerated articles only. 219] THE GENERAL PROPERTY TAX 219 In 1847 the fourth general revaluation of the real property of the state was made, as required by the law of 1846, and amounted after equalization to $324,495,804. This form of property now for the first time approximated, though still remotely, its actual value. 105 The total grand list for this year exhibited an aggregate of $410,763,160, of which personalty contributed 20 per cent. 106 As was inevitable in the case of such a comprehensive and sweeping law as the "Kelley act", amendments and corrections were necessary. In 1847 a feature was added to which the present inquisitorial system in the state may be traced. The auditor was authorized to correct false returns after notice to the tax payer, and to file in his office a statement of the facts or evidence upon which he made such correction. 107 A penalty of 50 per cent was imposed if taxable property were not returned. In 1848 book credits to the amount of $200 were exempted and liquidated credits to the amount of $100 ; 108 this was done because of the difficulties experienced in trying to reach these objects. In 1849, all lands hereafter sold by the United States in Ohio were made subject to taxation. 109 Since 1802 such lands had been exempt for 5 years from the date of sale 105 Gov. Mess. Exec. Doc., 1859, II, 32. 106 The valuation and taxes before and after the revaluation under the new tax law are given for the years 1844-48 in the following table : Years Valuation Rate of Tax Amount Collected 1844 $136,142,666 7 mills $ 942,608 1845 144,160,469 7 mills 989,883 1846 150,293,132 8 mills 1,208,562 1847 410,763,160 2.75 mills 1,132,398 1848 421,067,991 3 mills -1,240,000 Kettell, writing at this time in Hunt's Merchant's Magazine (21:409), stated that "the taxes have been paid with the most extraordinary punctu- ality". In 1848 the aggregate amount of state and local taxes in New York was $5,295,598, or only $2,000,000 more than those in Ohio for the same year. 107 Act of Feb. 8, 1847, sec. 14. los Act of Feb. 22, 1848. "Act of March 8, 1849. 220 FINANCIAL HISTORY OF OHIO [220 under the act of Congress to which Ohio assented when she entered the Union. By another act of January 26, 1847, Congress removed this restriction, and assented to their taxation from the date of their sale ; Ohio accordingly took advantage of this opportunity to add these lands to the list of taxable property, as soon as they passed into private hands. In 1851 the total sources and amounts of taxes in the state were as follows: 110 PROPERTY. 111 Lands $269,010,542 Towns 77,320,691 Personal 104,495,278 J't Stock Cos 1,821,193 Total 452,657,708 TAXES. 1U State tax on prop $1,621,228 State tax on jt. st. cos 18,030 State tax on professions 9,034 Co., sch., and township 2,117,106 Road 244,01 1 Special 662,422 Total 4,671,831 In 1851 a long act of seventy-two sections was passed, 112 "for the assessment of all property in this state, and for levying taxes thereon according to its true value", repealing and replacing the law of March 2, 1846. The changes introduced were few and unimportant, the chief one being an extension of the list of exemptions to include : one man's saddle and bridle, one woman's saddle and bri- dle, one loom not exceeding $10 in value, firearms kept for the use of the owner, bees to the value of $10, cash on hand to the amount of $25, and books used by a student. This is interesting as evidencing the primitive development of "Aud. rep., 1851, p. 5. "'Does not include bank stock or taxes thereon. " 2 Act of March 25, 1851. 221] THE GENERAL PROPERTY TAX 221 Ohio even yet, for it is essentially the list of a pioneer farmer. Slight changes were also made in the county and state boards of equalization. As the act was not to go into force until December 1, 1851, and before that date was rendered obsolete by the new constitution, it never became operative. III. THE GENERAL PROPERTY TAX UNDER THE CONSTITU- TION OF 1851, 1851-1910. THE CONSTITUTIONAL PROVISIONS The dissatisfaction with the partiality exhibited by the legislature towards certain fori^s of property nml tain favored corporations wff^lflTTt" jrlfcT^t^ner allayed^ by" the act of 1 846. ^TFenrn^F^f equality inHESitfon was recog- nized as a general principle, but there were still many exceptions, and the feeling was strong that it must be enforced universally. It was held that the only safe way to guard the interests of the people was to withdraw all matters in which selfish interests were opposed to those of the people from legislative caprice, and to regulate them in the organic law of the state itself. Under these in- fluences the constitutional convention met in 1850. No change had been made in the constitution since 1802, when Ohio had entered the Union, and the funda- mental instrument that had been drawn up at that time was felt to be quite inadequate to meet the very different conditions which existed a half century later. In the interval, Ohio had developed from a pioneer agricultural state to a highly diversified one, in which the growth of cities, of manufactures, corporations, and many new forms of wealth offered new problems to the legislature in the establishment of an equitable system of taxation. Banks and intangible personalty especially had escaped their due share of the tax burdens, the former because of the desire to promote them and the latter because of the difficulty of finding them, and now the effort was made to subject them both to taxation in the same proportion as other forms of 222 FINANCIAL HISTORY OF OHIO [222 property. This was provided for in sections 2 and 3 of Article XII. Section 1 was copied verbatim from the earlier constitution of 1802. The important section of the new constitution is, however, section 2, in which the phrase "by a uniform rule" has determined the whole subsequent development of taxation in Ohio. It also proved to be a most serious obstacle to reform, when it became clear that the principles of the general property tax were inadequate, if not contradictory, to the development of an equitable system of taxation. The sections of Article XII of the constitution, pertaining to taxation, are as follows : Section I. The levying of taxes by the poll is grievous and oppres- sive, therefore the general assembly shall never levy a poll tax for county or state purposes. Section II. Laws shall be passed, taxing by a uniform rule, all moneys, credits, investments in bonds, stocks, joint stock companies, or otherwise ; and also all real and personal property according to its true value in money ; but burying grounds, public schoolhouses, houses used exclusively for public worship, institutions of purely public charity, pub- lic property used exclusively for any public purpose, and personal prop- erty, to an amount not exceeding in value two hundred dollars, for each individual, may, by general laws, be exempted from taxation ; but all such laws shall be subject to alteration or repeal; and the value of all property, so exempted, shall, from time to time, be ascertained and pub- lished as may be directed by law. Section III. The general assembly shall provide by law for taxing the notes and bills discounted or purchased, moneys loaned, and all other property, effects or dues, of every description, without deduction, of all banks now existing or hereafter created, and all bankers, so that all property employed in banking shall always bear a burden of taxa- tion equal to that imposed on the property of individuals. 113 113 The other sections of 'Article XII, which do not so closely relate to this subject, are as follows : Section IV. The general assembly shall provide for raising reve- nue sufficient to defray the expenses of the state for each year, and also a sufficient sum to pay the interest on the state debt. Section V. No tax shall be levied except in pursuance of law and every law imposing a tax shall state distinctly the object of the same, to which only it shall be applied. Section VI. The state shall never contract any debt for purposes of internal improvement. 223] THE GENERAL PROPERTY TAX 223 The principle laid down in these sections was the abrogation of all arbitrary taxation, and, in view of the previous history of taxation in the state, must be regarded as marking a distinct advance. "Man, as such, his busi- ness, occupation, and profession, are no longer subject to legislative caprice. Property is the measure and basis of taxation.'- 114 But while this marked an advance over the past, the inclusion of these rules in the constitution crys- tallized them and prevented any further advance, as will appear later. A few exemptions were authorized, but these w r ere for objects of general interest, as to which there could be little or no objection. THE ACT OF 1852. The adoption of the new constitution in 1851 necessi- tated a complete revision of the tax laws, in order to bring their provisions into conformity with the require- ments of the constitution. This was done by the compre- hensive act of April 13, 1852, containing seventy-eight sec- tions, "for the assessment and taxation of all property in this state, and for levying taxes thereon according to its true value in money." This act embodied the principles of the new constitution, and is the beginning of the attempt to tax all property under the same law by uniform methods. The general property tax now remained for some years practically the sole source of revenue; but the inadequacy and inequitableness of this system gradually led to the splitting up of this complex of taxes into parts, and the imposition of separate taxes. The following are the main provisions of this important act: 115 Section 1 provided that all property, whether real or personal, in this state, all moneys, credits, investments in bonds, stocks, joint stock companies, or otherwise, of persons residing therein ; the property of corporations now existing or hereafter created, and the property of all banks or banking companies, 114 Gov. Mess., Exec. Doc., 1855, I, 14. 115 Some verbal amendments were made by the act of March 14, 1853, but otherwise the law remained practically unchanged until 1859. 224 FINANCIAL HISTORY OF OHIO [224 now existing, or hereafter created, and of all bankers, except such as is hereinafter expressly exempted, shall be subject to taxation; and such property, moneys, credits, investments in bonds, stocks, joint stock com- panies or otherwise, or the value thereof, shall be entered on the list of taxable property, for that purpose, in the manner prescribed by this act. Section 2 contained definitions of the various terms used : personal property was defined to include 116 (1) every tangible thing other than money, (2) capital, undivided profits, etc., of all companies, (3) moneys and credits. The list of exemptions (sec. 3) included school houses and colleges, burying grounds, state or United States property, 117 county property, poor houses, charitable insti- tutions, fire apparatus, markets and public squares, per- sonal property in value not over $200. 118 No person was required to list uncollectible credits, or investments in companies which were required to list their property for taxation. The next five sections provided by whom, where, and in what manner property should be listed, and did not differ materially from the rules laid down in the act of 1846. 119 The rules of appraisement were, however, much stricter, and provided that real estate should be valued at its true value in money, "but the price for which such real property would sell at auction, or at a forced sale, shall not be taken as the criterion of such true value" ; personal property was to be valued at the usual selling price, invest- ments at their true value, and money and credits at their full value. Section 10 occasioned a great deal of trouble before the matter was finally adjusted; it stated that bona fide debts might be deducted from money and credits. Excep- tion was taken to this on the ground that it infringed against the second section of Article XII of the constitu- tion providing for uniform treatment of all taxable prop- "'Cf. Act. of 1846, p. 216. "'State bonds were added by Act of April i, 1856. us Reduced to $50 by act of March 12, 1853. "'See p. 217. 225] THE GENERAL PROPERTY TAX 225 erty. In February, 1854, the Supreme Court of Ohio upheld this view and declared this section of the act to be unconstitutional, on the ground that as no deductions lor debt were permitted in the case of real estate or other tangible property, it was unreasonable to permit it in this instance. These objections were met, however, by the act of April 1, 1856, which subjected to taxation only the excess of credits over debts, and doubled the tax if an attempt were made to evade it by fradulent conveyances. The methods of listing and valuing the property of merchants and manufacturers, and of bankers, exchange brokers, and stock jobbers were prescribed in sections 12-18. In the case of merchants and manufacturers the average monthly value of all their property during the past year was to be taken, and in the case of bankers, brokers, and jobbers the value of all moneys, stocks, etc. Bankers (sec. 19-22) must return (1) the average amount of notes and bills discounted during the past year, and (2) the average amount of all other loans. Canal, rail- road, turnpike, insurance, bridge, telegraph, and other companies "shall list for taxation, at its actual value, its real and personal property, moneys and credits, within this state." Property was to be returned to auditor of the county where it was situated, and moveable property was apportioned pro rata according to the value of the fixed property. The powers and duties of township assessors were prescribed carefully (sec. 23-32) : one assessor was to be elected in each township who was to assess personal prop- erty every April and May, and to return his lists to the county auditor in the latter month. District assessors (sec. 33-39) were to be elected once in six years for the purpose of assessing "from actual view'' the value of all real property and buildings, of which he must make his return to the county auditor in September; each county was to be divided by the county commissioners into four districts every six years for this purpose. The county auditor was the pivot of the whole system 226 FINANCIAL HISTORY OF OHIO [226 (sec. 40-52) ; all returns must be sent to him and from these a duplicate or tax list of the county made out, an abstract of which he must send to the state auditor in October. In case of a refusal on the part of a tax-payer to list his property, the auditor was directed to add a 50 per cent, penalty; he also added omitted lands and cor- rected false statements. No penalty seems to have been imposed for the latter, but on the other hand the auditor was compelled to pay the costs of the investigation, if his suspicions were incorrect; 120 it is difficult to see what incentive he could have had to institute an inquiry. The duty of the county auditor as to making tax lists and duplicates, and assessing taxes, was set forth at great length (sec. 63-78). It was the duty of the state auditor to transmit every sixth year the statement of the state board of equalization to the county auditor, and to notify him each July of the rate of taxation for the state, for schools, etc. (sec. 58-59). Three boards of equalization were provided for. The annual county board, consisting of the county commis- sioners and county auditor, met every May for the equaliza- tion of real 121 and personal property (sec. 60-62). The county board, consisting of county commissioners, auditor, surveyor, and district assessors, met every sixth year in September, to equalize the values of the real property of the state, which was to be revalued every six years (sec. 53-55). The state board of equalization, consisting of the state auditor and one member elected from each senatorial district of the state, met every sixth year in November to equalize the returns sent up from the different counties. They were forbidden, however, to reduce the aggregate "This was changed in act of April 5, 1859, 34, so as to place the costs upon the tax-payer, unless he was shown to be innocent of wrong intention. m An amendment of May i, 1852, provided that real estate was to be taxed as valued until a new revaluation was made. Only new improve- ments could be equalized, therefore. 227] THE GENERAL PROPERTY TAX 227 valuation of the counties more than ten million dollars (sec. 56-57). A general valuation of real property was ordered for 1853 and every sixth year thereafter. The aggregate of the equalized valuation was $558,725,542. The personal property listed the following spring was valued at $297,- 061,572, so that the grand list for 1854, including the values of lands and new improvements listed in the spring, was $866,929,982. "The increase in seven years had been again startling," wrote Governor Chase. "It was $456,- 166,822. The appraised now more closely approached the real value, and no such apparently rapid augmentation of the list could be in future expected.'' 122 The following table shows the effects of the law of 1852 and of the valua- tion of real property in 1852 upon the amount of property returned for taxation : Real Property Personal Property Total Year In towns Not in towns 1852 $8i,5S8,374 $2/3,378,773 $152,644,763 $507,581,911 1853 85,321,192 278,169,709 229,905,947 593,396,848 In 1852, real estate paid 70 per cent, of all the taxes, but in 1853 this proportion had been reduced to 62 per cent. ? owing to the large amount of personal property subjected to taxation. As the largest increase is shown in the schedules of personal property it will be of interest to take up some of the more important items in detail and note the changes. This is shown iu the table on page 228. The large increase in domestic animals 78 per cent. was probably partly due to an undervaluation of this species of property in 1852. Pleasure carriages now for the first time included wheel vehicles of every variety, which accounts for the very large increase in the second item. The value of property pertaining to merchandise and manufacturing did not at all correspond to the actual amount invested in these businesses, but was slowly in- creasing. The greatest relative increase was shown in the M Gov. Mess., Exec. Doc., 1859, H, 32. 228 FINANCIAL HISTORY OF OHIO [228 Personal Property Returned for Taxation, 1852-3 (in millions) Property I 0) Bonds and Stocks of 3 pertain- j ing to 1 Q v <*> X ^^ V I O u -2.2 rt 1 = oO c 1 12 O c 1 ~ O o B s .3 o u o O '5 bo ^.^ ^.^ w rt ^ tn a u o u bo n 3 s ^' o o 2 z^ 3! C Jss u IS ^ *^ u rt U o 3 ' ft J 3 C rt" "S jj 2 rJ o .- W -o g = 7. rt o w u 2 2j ,-t^ u u x'u * P . u M M 5 = nl - 5 C. g g u u 5 w ~. rt 'o , ^ 5 1852 33.7 3-5 18.1 5-5 1.2 41.8 incl. in (3) incL in (3) 9 14-3 5 1853 57-8 IO.O 21.5 6.0 7-8 54-0 .2 .2 .6 24.8 7 property returned by brokers and private bankers, who were being fairly taxed for almost the first time. As the system of taxation was improved and a larger proportion of the taxable property in the state was re- turned, complaints began to be made of the increasing burden of high taxes. 123 In 1855 the taxes levied in Ohio were as follows: Total state taxes $2,754,808 Total county taxes 2,762,305 Total township, city, and special taxes 2,943,618 It will be seen that the state taxes made up barely one-third of the total, so that complaints were more justly directed against those levied by the counties. In addition to the direct taxes there were numerous fees paid to county, township, and other local officers, of which no account was kept that was accessible to the public. There had been a notable increase of the taxes since 1846, when the general property tax had been fully introduced, and here again ""Aud. rep., 1854; Gov. Mess., 1855, p. 10; Gov. Mess., 1859, Exec. Doc., II, 93; Rep. Com'r. of Stat., 1859, Exec. Doc. I, 799. 229] THE GENERAL PROPERTY TAX 229 the greatest gain was shown by the local governments. Between 1846 and 1859 the state taxes increased 165 per cent, and the local taxes 329 per cent. The same fact was illustrated by the respective increases of the tax rates: Rate of state tax in 1847 was 2.8 mills ; in 1859, 3.5 mills Rate of local tax in 1847 was 3.9 mills; in 1859 7.7 mills Perhaps because of the burdens imposed, an act of the latter year 124 provided for the semi-annual collection of taxes, the tax-payer being given the privilege of paying one-half his taxes on December 20 and the other half on June 20. In the same year the sixth general valuation of real property took place, and the returns showed an increase in the valuation since 1853, of about 15 per cent. The value of the realty was raised from $584,114,004 in 1859 to $639,894,311 in 1860. The personalty showed a decline, however, from $251,795,937 to $248,408,290, so that the aggregate gain on the grand list was only about $42,- 000,000. The state taxes for 1860 amounted to $3,503,713. THE ACT OF 1859. The act of April 5, 1859, 125 was simply a codification of previous laws on the subject of taxation, and brought to- gether in one comprehensive act the matter contained in many scattered acts, especially those concerning bankers, brokers, etc. Little new matter was added to previous legislation, though in some cases more careful definitions were framed, or errors discovered in the act of 1852 were corrected. Credits were defined as the "excess of legal claims over bona fide debts", thus permitting the deduction of debts from personalty. The amount of personal prop- erty exempted for each individual was limited to $50. Corporations and joint stock companies were to be taxed like individuals, except banking corporations for which special provision was made (sec. 60-68). Banks were to return annually in May (1) the average amount of notes and bills discounted, (2) the average amount of 124 Act of April 2, 1859. O. L., 1859, p. 101. 125 O. L., 1859, pp. 175-218; 2 Swan and Critchfield, 1438. 230 FINANCIAL HISTORY OF OHIO [230 all moneys, etc., loaned, invested, or otherwise used with a view to profit, less the amount of specie reserve on hand. Taxes should be paid to the state treasurer and by him distributed to the counties and townships in which the banks were situated. A new feature was that regarding the "non-resident personal tax" (sec. 85-91), which seems to indicate both successful efforts to evade the taxes on personalty, and attempts on the part of legislators and officials to check the evasion. The county treasurers were to notify one another when a tax-payer moved out of one county into another in the state, and back taxes were to be collected, if any were due, by the second county treasurer ; such taxes were to be distributed to the counties to which they belonged. On one point the legislators did not seem able to make up their minds, and that was as to the frequency of re- valuations of real property in the state. Frequent ap- praisements were expensive, but if too long a time elapsed between valuations then injustice was done. The law of 1852 had provided for sexennial valuations and this was repeated in the act of 1859, which fixed the next one for 1864. By the act of April 7, 1863, the date was postponed to 1868 and the valuations were made decennial; another postponement to 1869 was made by the act of May 8, 1868. These various changes necessitated other changes in the provisions governing the meetings of the boards of equali- zation. The duties and composition of these boards were unchanged. 126 The powers and duties of the county auditor, which had expanded enormously with the develop- ment of the system were carefully codified in a long act, containing fifty-seven sections, passed April 4, 1859. 127 He was to be elected for two years; indeed all the officials 128 An amendment of April 18, 1874 (O. L., p. 92; 2 Sayler 1645) pro- vided that the county boards of equalization should not reduce the value of the real property in any county below the aggregate value as fixed by the state board, nor below its aggregate value on the duplicate of the preceding year, excepting that in oil counties where oil was exhausted the aggregate value might be reduced. **O. L., 1859, PP. 128, ff. 231] THE GENERAL PROPERTY TAX 231 named in these acts were now elective instead of appointive. The laws respecting delinquent taxes, methods of en- forcement and penalties, were gradually being developed, as experience showed the weak points. In 1857 128 it was provided that if one-half the tax charged against lands should not be paid by December 26, it should be charged on the duplicate with 30 per cent, penalty and interest ; if this were not paid, together with remaining half of the tax, by June 20, then the lands were to be placed on the delinquent list. At the March meeting of the county com- missioners the delinquent list for five years previous was to be read, and they w r ere to try to collect the unpaid taxes with interest. 129 Lands forfeited for non-payment of taxes were to be advertised and sold by the county treasurer on the third Tuesday in January. Lands sold for taxes at delinquent sales might be redeemed in two years, but in that case the former owner must pay for all improvements. 130 The new constitution had now been in force for almost a decade and its principles had been presumably carried out in two comprehensive tax laws. Had the standards of equity, uniformity, and no discrimination set up by the constitution been carried out by legislation or by adminis- trative practice? The question was an inevitable one. It was raised and answered by Governor Salmon P. Chase in his message of December, I860. 131 128 55 O. L., 65. Later the penalty was reduced to 20 per cent. ^Act of May i, 1854, 52 O. L., 112. This act made it the duty of each county treasurer to find out the new address of every delinquent tax payer who moved away, and to send a statement of the taxes assessed and not paid to the county treasurer of the county to which the taxpayer moved. This treasurer should then collect all such taxes. If the taxpayer moved after the delivery of the tax duplicate, a penalty of 25 per cent was to be added. Delinquent taxes so collected were to be distributed to the proper counties. "Act of April 5, 1859, sec. 92-109. Amended by act of April n, 1865 (Swan and Sayler, 781), and of 1877 (74 O. L. 69) which provided that the former owner must reimburse the purchaser for all taxes, penalties, in- terest, etc., paid by him to the state. Exec. Doc., 1861, I, 348. 232 FINANCIAL HISTORY OF OHIO [232 It is argued by some that a successful effort is yet to be made to adapt our tax laws to the constitution ; that by the present law different kinds of property are not treated by a uniform rule, but are valued by different methods and at dissimilar periods ; that the obvious meaning of \vords in the constitution has been perverted by legislative defin : tions contrary to their true meaning, by reason of which some classes of property are twice taxed, and other classes not taxed at all; that the exemptions provided for in the constitution have been overstepped; that no man is now ta.xed cither according to the value of what he owns or what he is worth. But in his inaugural address a few weeks later the gov- ernor 132 designated the system of taxation in force "as per- fect and equitable as can well be devised/' . . . "if faithfully executed." The taxation of real property at its true value in money he thought generally well attained, 133 but that a large amount of invisible property, particularly money and credits, escaped taxation. He recommended that "more severe penalties, certain of enforcement, be provided for failures to give in to the assessors this species of property." This easy method of meeting the evil was simplified still further by the auditor in his report for 1864. After calling attention to the fact that a large amount of property escaped taxation, he concluded: 134 "The remedy for this evil is very easy of attainment: re- quire every man to swear simply, that he has listed all his property." THE CIVIL WAR PERIOD. With the outbreak of the Civil War new problems pre- sented themselves. There was less discussion of method and more of means. Under the stress of necessity and the Exec. Doc., 1861, I, 484. ^A comparison of the census tables of taxable property in Ohio, which undertook to give the real value, shows that the assessed values come very close to these (Rep. Com'r. of Stat. Exec. Doc., 1862, I, 460) : Assessed value Real value 1850 $433,872,632 $ 504,726,120 1860 959,867,101 1,193,898,422 Increase 525,994,469 689,172,302 Exec. Doc., 1864, I, 224. Italics in original. 233] THE GENERAL PROPERTY TAX 233 impulse of patriotism large sums were raised by means of taxation without a murmur of complaint. A system that displayed many weak points when every effort was being made to evade taxes, easily yielded large revenues when the tax-payers responded fairly to the calls upon them. Additional funds were raised to defray the expenditures caused by the war, not by the slow imposition of new taxes, as in the case of the federal government, but simply by raising the rate of the general property tax. Criticism of the tax system died out of the official reports and messages absolutely; on the other hand much satisfaction and pride were expressed in both the system and the results. The valuations of property and the taxes levied in Ohio during the four years of the war are shown in the following table (in millions) : Total of all Value of Value of Total Value State Tax Property Realty Personalty of Taxable Taxes Year Property (State and Local) 1860 $640 $248 $888 $3.5 $10.8 1861 635 249 893 4.0 1 1.6 1862 646 244 889 4.1 10.1 1863 650 287 936 4.7 11.7 1864 655 351 1.007 5-3 16.6 1865 661 409 1,070 5.7 20.9 It will be noticed that while the state taxes were increasing, the aggregate taxes, during the first three years of the war at least, did not show a corresponding growth. The reason for this was the introduction of considerable economies in ordinary civil expenditures. Thus, while the state taxes for war purposes increased from 312 thousand dollars in 1801 to 844 thousand in 1802, there was a saving of half a million each in state taxes for other purposes and in county taxes and over a million dollars in city, town, and special taxes, reducing the aggregate burden on the people by one and one-half million dollars. Not until 18P>4 and 1865 was there any marked increase in the total of all taxes, and this was due almost entirely to the expan- 234 FINANCIAL HISTORY OF OHIO [234 sion of local taxation and expenditures. Part of this was attributable to the war itself, as in the case of levies for the payment of bounties to soldiers, and indirectly because of the higher prices brought about by the over- issue of depreciated paper money ; but the larger part was due to the growth of cities and towns and the increase of expenditures for various purposes of town comforts and conveniences. 135 The war itself then can scarcely be said to have entailed any considerable extra burden of taxation upon the people of Ohio, except in so far as it involved a diversion of expenditures from productive into unproduc- tive channels, and prevented the immediate satisfaction of legitimate local or state wants. The readiness with which Ohio responded to the call of the federal government for financial support was well illustrated by the action of the state in regard to the direct tax laid upon the states by act of Congress of August 5, 1861. The total tax was $20,000,000, and Ohio's quota, apportioned according to the number of her repre- sentatives in Congress, amounted to $1,567,089. It was provided that any state might assume the tax as a state obligation, otherwise it would be assessed and collected by federal officials ; if paid before July 1, 1862, it was subject to a deduction of 15 per cent., and of 10 per cent, if paid before October 1. Ohio assumed the tax and imposed an additional state tax of 1M mills, to be added to the June levy. 136 From this source $380,000 in money was paid to the Treasury Department at Washington, and over $1,000,- 000 in accounts and vouchers for moneys expended by the state for the military service of the United States, exceed- ing the state's quota and securing for it the discount of 15 per cent. One of the most interesting features of this period was the promptness with which all taxes were paid, and the absence of complaints or attempts at evasion. The delin- quencies declined to less than one per cent. ; in 1863 they 135 Rep. Com'r. of Stat. Exec. Doc., 1867, I, 948. ""Act of April 16, 1862. O. L., p. 52. 235] THE GENERAL PROPERTY TAX 235 were % of one per cent., in 1862 they were 1 per cent. 137 The delinquencies and costs of collection together amounted in 1860 to 3~y 2 per cent.; in 1863 they declined to a little over 1 per cent. ; they were 2 per cent in 1865 and 1866, after which the good effects of patriotism seems to have worn off, so far as evasion of taxes was concerned. For 1867 delinquencies and cost of collection were extra- ordinarily light and amounted to only 2.8 per cent. ; for the following years they were somewhat greater, amount- ing in 1868 to 4.5 per cent., 1871 to 4.73 per cent., and for 1872 to 4.63 per cent., 138 which was probably about normal. An interesting table was compiled by the commissioner of statistics in 1864, 139 to show the distribution of the tax- able property among the different interests. Agriculture was shown to be the dominant industry and to bear over two-thirds of the taxes. It is herewith reproduced : Class Taxable Property Percent Agriculture $620,927,1 17 68 Town houses, lots, gas, street railways, etc. 168,751,157 19 Manufacturers' and mechanics' capital 12,460,455 2 Merchants' and brokers' capital (excl. money) 103,61 1,345 1 1 Miscellaneous 140 (incl. money) 110,132,365 Pro-rated among others The appointment of a tax commission to revise the tax laws was urged by the auditor in several successive re- ports, 141 and was finally authorized by act of March 18, 1867. They were to report what changes were necessary to systematize and make consistent the existing statutes on taxation. The committee of finance was appointed to this task and in the following session brought in eight bills for enactment. These were "somewhat considered" by the " 7 Aud. rep., Exec. Doc., 1863, I, 54. 138 Aud. rep., 1864 p. 220; 1866, p. 132; 1867, p. 148; 1869, p. 373; 1871, p. 198; 1872, p. 351. 13 *8th an. rep. Exec. Doc., 1864, I, 741. ""Includes such items as furniture, carriages, watches, etc. 141 E. g. Aud. rep. in Exec. Doc., 1866, I, 134. 236 FINANCIAL HISTORY OF OHIO [236 legislature, 142 but only one of them was passed. This was the act of May 8, 1868, which codified the legislation regarding the division of counties into tax districts, the election of district assessors, returns to the county auditor, county and state board of equalization, the annual county board, and special boards in cities. No changes in prin- ciple were introduced. During the same session an act was passed requiring the assessors to ascertain and report all bonds, federal and state, and legal tender notes exempt from taxation, held by Ohio tax-payers. 143 The returns showed $21,907,- 795 of such exempt property held in the state, or about 5 per cent, of the value of chattel property listed for taxa- tion. This evidently seemed to the legislature worth tax- ing, for in the following year bonds, treasury notes, and fractional currency of the United States, held or owned by individuals, companies or corporations in the state, were made subject to taxation. 144 A statement of their amount was to be made to the assessor under oath, and they were to be taxed locally. This law was later declared unconstitutional. The valuation of property on the grand duplicate was increased $32,545,858 in 1867 over that of the previous year. This the governor attributed to "the increased care and accuracy in the administration of the law, and the growing familiarity of local boards of equalization with their duties." 145 A re-appraisement of the real property in the state was made and equalized in 1870, as a result of which the valuation was increased from $697,018,203 in 1869 to $1,025,619,034 in 1871. At the same time there was a slight increase in the valuation of personalty from $459,- 762,252 to $476,510,937. The next valuation was fixed 142 Gov. Mess., 1868, p. 4. No report of this commission was printed, as it was only a statutory commission. ""Act of April 3, 1868. Rep. of Sec. of State. Exec. Doc., 1868, I, 339- I44 Act of May /, 1869. 3 Sayler 2216. w Exec. Doc., 1867, I, 148. 237] THE GENERAL PROPERTY TAX 237 for 1880. 14C The state tax for 1871 was |4,350,728; local taxes meanwhile had grown to over 18,600,000 or five- sixths of the total amount raised in the state. So great was the increase in this direction that the governor thought it "wise to restrict, by legislative enactment, the power of minor political organizations to create debts and impose taxes." 147 For twenty years after the passage of the act of 1859 there was practically no new tax legislation, except changes in the rates. Indeed so completely did the legislature keep their hands off this subject that in the index of the sessions laws passed from 1809 to 1876 there were no references to taxes or taxation, except to municipal and local laws. 148 A general revision of the statutes of Ohio was made in 1878, and all the general statutes on the sub- ject of taxation were consolidated and revised. They formed Title XIII, chapters 1-8 of the revised statutes of 1880. THE ACT OF 1878. 149 There was little that was new in the act of 1878, and no changes in the essential principles of taxation that had been in practice since 1846. Chapter 1 dealt with defini- tions and property to be taxed in almost the same language as previous laws. 150 Chapter 2 covered the listing of per- sonal property and was the longest. Foreign insurance companies were added to the list of corporations required to make returns of their taxable property (sec. 7-13). A more elaborate and careful procedure had been developed ""Act of March 2., 1871. O. L. p. 33; 2 Sayler 1644. m Gov. Mess., Jan. 5, 1847. Exec. Doc., 1873, II, 218. This was done by act of May n, 1878, ch. 5. "It has been this enormous weight of local taxation that has pressed so heavily on the people." Aud. rep. Exec. Doc.. 1870, I. 317. 148 O. L., 1876, App., p. 42 et scq. In the index of laws of 1872 the words did not occur at all. "'Act of May ii, 1878. O. L., 1878. pp. 436-507. 1M Soldiers' monuments were added to the list of exempt property. The amount of personal property exempted was raised from $50 to $100. 238 FINANCIAL HISTORY OP OHIO [238 for banks: incorporated banks were to be taxed on their shares in the city where the bank was located, their real estate being taxed where situated (sec. 29-36) ; unincor- porated banks and bankers were required to make out a list of the average amount of their (1) notes discounted, (2) accounts receivable, (3) cash, (4) stocks, bonds, etc., (5) real estate, (6) deposits, (7) accounts payable, exclu- sive of deposits, (8) capital paid in. The auditor was to subtract items 6-8 from items 1-5, and they were to T)e taxed on the balance (sec. 25-28) . Railroads were to be ap- praised and assessed by the county auditors (sec. 37-43). Foreign express and telegraph companies were required to list through their agents the annual amount of their gross receipts; but express companies were permitted to deduct from this the amount paid railroads for transportation (sec. 44-47). Chapter 3 contained the legislation concern- ing the assessing of real estate. Seven boards of equalization were now provided for: (ch. 4) the annual county board, consisting of the county commissioners and auditor, to equalize individual assessments ; the annual . city board, with similar duties, consisting of the county auditor and six citizens of the city appointed by the council; the annual state board for banks, consisting of the state auditor, treas- urer, and attorney general, to equalize the value of the shares of incorporated banks; the annual state board for railroads, consisting of the same officials, with similar duties for the railroads of the state; the decennial county board, consisting of the auditor, surveyor, and county com- missioners, to equalize the real property in the county ; the decennial city board, consisting of the county auditor and six citizens appointed by the council, with similar duties for the city; and the decennial state board, consisting of as many members as the state senate and elected from the senatorial districts, with similar duties for the state. These last three were to meet in 1880 and every tenth year thereafter. In the multiplicity of these boards is eloquent testimony to the growing complexity of the tax system, and 239] THE GENERAL PROPERTY TAX 239 of the need of different treatment of different forms of property, in spite of the constitutional requirement of uni- formity. The levying of taxes was treated in chapter 5. The rates for state taxes were to be fixed by the legislature, those for county taxes by the county commissioners, and those for townships by the township trustees. County and township rates were both limited according to the amount of taxable property, decreasing as the amount increased. But in the case of townships the trustees were empowered to levy an additional road tax, payable in labor. Large county improvements must be submitted to the voters of the county before being made. One section (sec. 12-13) was reminiscent of the early days of internal improvements and of the reckless subsidies and loans of credit that were made at that time. This authorized any county, city, or township that had subscribed to the stock of any railroad company and had issued its bonds, within five years before the maturity of those bonds, if the stock of the railroad company should be less than 75, to levy a tax of not over one mill to balance the discount on the stock ; the proceeds of such tax to constitute a sinking fund for the payment of the bonds. In the subject of collection of taxes (ch. 6) there was one pregnant section (sec. 18), which was destined to open the way for the development of a unique method of collect- ing back taxes, the so-called tax inquisitor system. This provided that a duplicate of the unpaid personal property tax was to be given by the county auditor to the county treasurer, after the semi-annual settlement in August; the treasurer should then collect the delinquent taxes and be allowed five per cent, on all he collected. From this to the employment of unofficial assistants to aid him and to ferret out new and undeclared personalty was but a step, which was taken by the act of April 14, 1880. 151 If false returns were made or evasions attempted, the county 1M /7 O. L. 205. 240 FINANCIAL HISTORY OF OHIO [240 auditor was authorized to add 50 per cent, penalty and to go back four years in the collection of the evaded taxes; "but as to former years, no penalty shall be added, and only simple taxes shall be claimed." Chapters 7 and 8 dealt with the subjects of delinquent and forfeited lands, their sale and redemption, but made no changes in former procedure. THE OHIO TAX INQUISITOR LAW. 152 The act of 1880, just referred to, had legalized the employment by county commissioners of private individuals to detect property improperly omitted from the tax dupli- cates. The county commissioners of Hamilton county had been employing men for this purpose before 1880, paying them a commission on the agnount of taxes collected through information furnished by them, but the commis- sions thus paid had been borne wholly by the county though the state shared in the increased taxes. By this law the state was made to bear part of the expense. 153 In 1885 authority was given to the counties of Hamilton, Cuyahoga, Lucas, and Franklin, containing the four largest cities in the state (Cincinnati, Cleveland, Toledo, and Colum- bus), to employ tax inquisitors and to compel the state to share in the expense. 154 Finally, in 1888, the power to employ tax inquisitors was extended to all the counties in the state. 155 The compensation of such persons was limited to 20 per cent, of the amount of taxes actually paid in as a result of their researches. Tax inquisitors were bonded at f 1000, and provision was made for the punish- ment of assessors or auditors who wilfully omitted prop- erty from the tax duplicate: they were held guilty of a 133 A good account of the workings of this system has been given by T. N. Carver, in Economic Studies of the American Economic Association (1898), vol. Ill, No. 3; also by E. A. Angell, in Yale Review, vol. 5, p. 350. ^Constitutionality of act was upheld by Supreme Court in State ex. rel. v. Coppellar. 39 O. S. 214. ^Act of April 23, 1885. 82 O. L. 152. Constitutionality upheld in State v. Crites, 48 O. S. 142. "Act of April 10, 1888. 85 O. L., p. i/o. 241] THE GENERAL PROPERTY TAX 241 misdemeanor and fined not exceeding |200 or imprisoned in county jail not exceeding sixty days. Under these various laws there grew up in Ohio a unique system of ferreting out omitted property by the employment of private detectives. A further law provided that the county auditor might go back five years in correct- ing false returns and add a 50 per cent, penalty for each year in which the taxes were evaded. 150 Other legislation had given the auditor almost drastic power to investigate, to summon witnesses, administer oaths, take testimony, etc., which taken in connection with the inquisitor features would seem to have made the concealment of personal property almost impossible. In actual practice, however, the system did not work out as well as was anticipated. As his position was a political one the auditor often showed himself unwilling to co-operate with the tax inquisitors in placing the full amount of the omitted property on the duplicate. 157 The results hardly seemed to justify the system, for the increase in the assessed valuation of personal property was slight after 1880, and in those forms of property in which the services of the inquisitors would be most valu- able, namely credits and intangible personalty, there was either no increase or a slight decline. The amount of omitted property placed on the tax duplicate by the tax inquisitors ranged from f 12,000,000 in 1896 to $99,000,000 in 1902. 158 The system was never adopted by all the eighty-eight counties in the state, the largest number making use of it at one time being fifty-five in 1893 ; since that date it has been less generally used. In 1904 the system was abolished. The following account will serve to show fairly clearly the workings of the system. 159 1M Act of April 14, 1886. 83 O. L. 82. Held to be constitutional in Sturges v. Carter, 114 U. S. Sup. Ct. 512. 157 See a notable case cited by Carver, op. cit., p. 184. ''"'"Statistics prior to 1893 are not available. ^Cleveland Plain Dealer, Dec. 17, 1903. 242 FINANCIAL HISTORY OF OHIO [242 Tax Inquisitor Morganthaler and his local representatives have stirred up a veritable tempest among investors by securing information of local investments from the stock books of a number of the big corpora- tions. From these stock books Morganthaler has learned of large blocks of stock held in the names of well known people and not returned for taxation. Some of the blocks of stock he found are very large and had been held by the owners for several years. Morganthaler is following up his clews with great speed and is presenting to the holders of the stock bills for delinquent taxes and penalties for forgetting to make proper returns. One wholesale merchant has settled with the inquisitor for $3,000 for a large block of United States Steel, preferred, which he had held since the company was organized. Other local financiers have had calls from the tax man and have negotia- tions for settlement under way. The feature of most interest to the local holders who are receiving calls from the tax man is the manner in which he gets the information from the stock books of the corporation. Morganthaler is very specific in the bills he presents to the forgetful men. He details the date of purchase, number of shares, length of time owned, if it has been sold, and all other information to show that he has done his work with fidelity. When he presents the bill with the detailed informaiton to the owners there is nothing to be done but talk settlement and that is what the men are doing. A few months ago Morganthaler secured the records from the stock book of the Detroit United Railway and caught several Clevelanders who owned that stock and had forgotten to return it for taxation. That stock was widely held in the city and Morganthaler located every one of the forgetful owners and the back taxes were compromised quietly. There is a rumor in circulation that Morganthaler has much other information of similar nature and that many other holders of this widely scattered stock will be called upon in Cleveland and other Ohio cities and settlement demanded. It is difficult to discuss the facts when the tax man comes armed with dates and the number of shares and settlements are usually made privately. It is understood Morganthaler is bending the greater part of his efforts along this line and has uncovered a great amount of stock in various corporations held by residents of Ohio that escaped the memory of the individuals when they made their tax returns. THE TAX COMMISSION OF 1893. After 1878 there were practically no new tax laws passed for about fifteen years; the codification of the statutes in 1878 160 had added little. In the meantime, how- 140 Act of May 11, 1878. 243] THE GENERAL PROPERTY TAX 243 ever, corporations were developing, especially in the fields of transportation and transmission companies, and in- equalities in the general property tax were becoming~mdre~ marked and causing" greaTer dissatisfaction: Governor Foraker in 1886 complained that in the counties of Lucas and Cuyahoga (in which were situated the cities of Toledo and Cleveland) it had become habitual for the assessors, county auditors, and boards of equalization to value per- sonalty for taxation at 60 per cent, of its true value, while in other parts of the state the appraisement was much higher. 161 Two years later he again referred to the gross inequalities that existed in the valuation of property for taxation : 162 "personal property to the extent of hundreds of millions of dollars in value escapes taxation entirely. . . . There should be no delay in providing for the taxation of foreign corporations on their gross receipts, or in some equivalent way, the better listing of mortgages and other securities, and the more equitable taxing of A private banks." As a result of the dissatisfaction with the existing system, and especially with the constitutional requirement of uniformity in the taxation of all forms of property, and the insufficiency of income for state needs, the legislature in 1893 took two decisive steps to improve conditions. By joint resolution they drew up a rather ambiguous amend- ment to Article XII, section 2, of the constitution, to be submitted to the people at the next election. 103 This pro- vided for "taxing rights, privileges, franchises, and other such matters as the general assembly may direct." This proposed amendment was rejected at the polls by the peo- ple, perhaps not undeservedly. The other important step toward reform lay in the appointment of a bipartisan com- mittee of four to investigate the subject of taxation. 104 A statutory commission had been appointed for this purpose ""Gov. Mess. Exec. Doc., 1885, I, 419. " 2 Gov. Mess. Exec. Doc., 1887, I, xi. ""Joint resolution, April 22, 1893. O. L., 1893, p. 384. 1M Joint resolution, April 24, 1893. O. L., 1893, P- 3^5- 244 FINANCIAL HISTORY OF OHIO [244 in 1883, and an appropriation of $1630 had been made for their expenses, 165 but they had confined themselves to recommending some slight changes in the administration of the general property tax. The tax commission of 1893, however, went energetically to work, and made their report on December 23 of the same year. The first topic discussed in this report was the power of the general assembly over tl^ subject of taxation, under the existing constitution, and the conclusion reached was that while that instrument prohibited the taxation of per- sons, it left the taxation of business wholly to the discre- tion of the legislature ; as to property, it must be taxed by uniform rule according to its true value in money. The existing methods of taxing property and business in Ohio were then examined and the conclusion reached that "in the main the Ohio system of taxation will compare favor- ably with those of other states." The third and most im- portant problem, whose consideration made up the bulk of the report, was then stated as follows : How shall property now being excessively taxed be relieved, and property now escaping taxation be charged, so as to equalize the burdens of taxa- tion, and increase the revenues of the state? In answer to the first part of this question the com- mission established the fact that "all but a mere bagatelle" of the intangible property was escaping taxation; that real estate was bearing a disproportionate share of taxa- tion, paying from 14 to 25 per cent, of its gross rentals, while railroads paid only 5 to 12 per cent, of their net earnings. Banks were contributing their fair share. But intangible property as a whole paid less than 10 per cent, of the taxes of the state, while the tax inquisitor law pro- duced not over 2 per cent, of the taxes collected; they recommended the abolition of the latter system. As to remedies the commission recommended a change in the administration of the general property tax, by con- centrating the duties of the various state boards of equali- zation in one single state board of assessment and equaliza- 1 BANK TAXATION. We have now reached the point where for the first time an effort was made to tax banks like other property. Heretofore they had been treated with great partiality by the legislature, in the belief that the prosperity of the state depended upon the development of banking institutions and that their growth ought consequently not be interferred with by burdening them with taxes. The favoritism dis- played to them and other interests had in fact led to a strong reaction against this legislative policy, and brought about the passage of the tax law of 1846, which had as its avowed purpose the equal taxation of all property. 89 It may be well, however, at this point, before taking up this act, to review briefly the history of bank taxation in the state up to this time. The first law imposing a tax on banks in Ohio was, as we have seen, the act of February 8, 1815, which levied a tax of 4 per cent, on dividends; it further provided that if any banks failed to report their dividends the auditor was to levy a tax of 1 per cent, on their nominal capital. Hardly had this act been put in operation, however, when the new legislature reversed the policy of taxation, and enacted the law of February 23, 1816, according to which all banks accepting its provisions were to be exempt from **Aud. rep., Dec. 16, 1846. ""See Chapter IV, on The General Property Tax, p. 214. 281] HISTORY AND TAXATION OF BANKS 281 taxation. In return they were to set aside for the state one-twenty-fifth of their capital stock, to be paid for out of the profits on this stock in twenty-five years. Such banks as did not avail themselves of this act, were still taxed under the law of 1815. The attempt to tax the branches of the Second Bank of the United States in 1819 belongs less to a history of taxation of banks in Ohio than to that of an effort to oust a rival institution from the state by means of the taxing power. It had, obviously, no effect on the status of other banks. The act of March 12, 1831, levied a tax of 5 per cent, on the dividends of banks, insurance, and bridge companies. The revenues from this source increased steadily until they readied almost $75,000 in 1836, after which they fell off again as a result of the panic of 1837. By 1842 those from the tax on bank dividends seem to have practically disappeared. 90 By thefcict of March 2, 1846, the principles of the general property tax were generally applied to the prop- erty and industries within the state, though even yet ex- ceptions were made in particular cases. Banks, merchants, manufacturers, and other corporations were dealt with by special rules. That relating to banks imposed a tax of six per cent, on their gross profits. But as many of the existing banks, through their charters or by reason of previous legislation, were exempt from the operation of this act, it failed to bring about uniformity in the taxa- tion of banks. The percentage of taxes paid on their average capital for the year 1846 by the different classes of banks was as follows: 91 independent banks, $1.04; State Bank, 76 cents; old banks, 41 cents. As the rate on real and personal property for the same year was 63 cents, it was clear that the "new" banks were taxed more heavily and the "old" banks less heavily than other property under the general property tax. The reason for the more lenient treatment of the old banks was that under the ace of March 14, 1836, to prohibit the circulation of small bills, *And. rep., Dec. 6, 1842. "'See table on p. 280. 282 FINANCIAL HISTORY OF OHIO [282 a proposition was made by the state to these banks, to release them from the liability to pay more than five per cent, on their dividends, upon the condition that they would relinquish the right to issue small bills. This propo- sition was accepted by most of the old banks, and tliey were consequently exempted from the payment of more than five per cent, upon their dividends. 92 In 1850 an act was passed 93 providing that all banks should be taxed alike on their capital and surplus at the rate of general state taxation, and the banks were asked to accept this method instead of the other forms of taxa- tion to which they were entitled by their charters or through earlier laws. By December of that year only five banks had accepted the provisions of this act. 94 This same year saw the meeting of the constitutional convention and the following one the adoption of a new constitution. In this the principle of equality in taxation was affirmed, and all discrimination between different forms of property forbidden. Section 2 of Article XII required that "laws shall be passed, taxing by a uniform rule, all moneys, credits, investments in bonds, stocks, joint stock companies, or otherwise". But section 3 was directly specifically against the banks and left no doubt whatever as to the intentions of the framers of the consti- tution. They were on the whole hostile to the moneyed interests and corporations in the state ; they were afraid of their power in gaining exemptions and favors for them- selves; and they distrusted the legislature. Consequently they insisted specifically that banks must be taxed like other industries or individuals. They forbade the granting of special privileges or exemptions of any sort, and they incorporated these provisions in the organic law of the state itself. Section 3 read as follows: The General Assembly shall provide by law for taxing the notes and bills discounted or purchased, moneys loaned, and all other property, effects or dues, of any description, without deduction, of all banks now "Aud. rep., Dec. 16, 1846. "Act of March 23, 1850. **Aud. rep., 1850. 283] HISTORY AND TAXATION OF BANKS 283 existing or hereafter created, and all bankers, so that all property em- ployed in banking shall always bear a burden of taxation equal to that imposed on the property of individuals.* 8 It remained now to carry out by legislation the man- dates of the constitution, and the effort to do this led to a protracted struggle between the legislature and the banks, which continued until the reorganization of the banking system in the sixties. STRUGGLE WITH THE BANKS OVER TAXATION. The efforts to enforce the principles of the constitution as to equality of taxation and the abolition of special privilege led to the passage of a great deal of banking legislation, much of it decidedly hostile to the banks, and all actuated by the determination to restrict the abuses which had characterized the two previous decades. Before taking up the account of the struggle over taxation, we must note a new banking act for the organization and note issue of future banks. This was the "free banking act" of 1851, 96 which opened the business of banking to any association of three persons complying with the provisions of the law. Up to 1842 banks had been chartered by special acts of the legislature, and the same evils had been ob- servable in Ohio that led in New York and other states to similar free banking measures. The minimum capital was fixed at $25,000. A bank might begin business when sixty per cent, of the capital stock had been paid in. The notes were to be secured by the deposit with the state auditor of bonds of the United States or of Ohio, and notes might be issued to the amount of bonds thus deposited, but in no case above their market ""Other sections of the constitution dealt with the organization and other features of banks and other corporations, but as these relate to the history of banking rather than to that of the taxation of banks, we shall not consider them here, except to cite section 7 of Art. XIII, which is indicative of the general attitude towards banks at this time : "No act of this general assembly, authorizing associations with banking powers, shall take effect until it shall be submitted to the people, at the general election next succeeding the passage thereof, and be approved by a majority of all the electors, voting at such election." "Act of March 21, 1851. 284 FINANCIAL HISTORY OF OHIO [284 value (or par value if the market value was above par), nor in excess of three times the amount of the paid in capital. A reserve of thirty per cent, of the outstanding circulation must be kept on hand by each bank, of which one-half must be in coin. The denominations of the notes were fixed at 1, 2, 3, 5, 10, 50, and 100 dollars. Thirteen banks organized under the provisions of this law. 97 There were now four systems of banks in Ohio: the "old" banks (those chartered before 1845), the State Bank with its branches and the independent banks (both char- tered under the act of 1845), and the free banks (chartered by the act of 1851 ) . The banking capital of the state was distributed among them in 1854 as follows: Old banks $1,550,000 State Bank and branches 4,100,000 Independent banks 720,000 Free banks 695,000 Another act 98 was passed on the same day that the free banking law was enacted, providing that banks should be taxed on their capital and surplus at the same rate that other property in the state was taxed, in lieu of the old taxes on profits or dividends. The following year a stronger act was passed, to carry out the constitutional provisions for uniform taxation of all property, ordering that all banks must return to the auditor ( 1 ) the average amount of notes and bills discounted during the past year, and (2) the average amount of all other loans. 99 These laws materially increased the taxes on the older banks and were bitterly resisted by them. A struggle now began between the banks and the legislature over the ques- tion of the right to tax them in this way, and continued through the rest of the decade. The banks succeeded in breaking down these laws in the courts, on the ground that they violated the contracts made with the banks when they were chartered, or in the case of the "old" banks when they acceded to the conditions of the act of March 14, 1836, "Aud. rep., Feb. 12, 1853. "Act of March 21, 1851. This was simply a repetition of the act of March 23, 1850. "Act of April 13, 1852. Swan's Statutes, 1854, p. 905. 285] HISTORY AND TAXATION OF BANKS 285 prohibiting the circulation of small bills. 100 The old banks were tin^y compelled to yield, however, is fieir charters ran out and -hey c^uld obtain a renewal of them only by met ring the new cou'i'iions. The attitude of the banks is graphically set forth in a report by the auditor of state, from which we quote at length: 101 At the date of making this report, but few of the Banks of Ohio have paid the taxes assessed against them under the provisions of the act of April 13, 1852. This delinquency is not a matter of accident, but is attended by circumstances which betray the existence of a conspiracy to trample upon, and override the very authority which gave to the con- spirators their corporate existence. In numerous instances, the officers of banks by closing their vaults upon the treasurer, have taken from him all opportunity of making distress without first forcing an entrance. A want of clearness in the law respecting the extent to which the powers of a treasurer reach, has been seized upon as a ready and successful means of intimidating many well disposed officers from exercising the rights which it is believed were intended to be conferred by existing statutes. In other instances, all the valuable effects of the banks have been taken from the banking house, and removed to some unknown place of concealment. By these, and other means involving, in some cases, the bodily peril of the treasurers, the collection of the taxes has been success- fully defeated. In order to compel the payment of their taxes the auditor suggested that the accruing interest on the bonds deposited with the state officers by the "free" and the "independent" banks to secure their circulation be retained to an amount sufficient to pay the delinquent taxes. The legislature did not follow the suggestion of the auditor, but instead passed a drastic act, known as the "crow-bar'' law, providing for the seizure of the property of delinquent banks. 102 It was entitled an act to enforce the collection of taxes which now are, or may hereafter be due from banks and other corporations, from bankers, brokers, and stock jobbers, and from the agents of foreign corporations, and to pro- tect county treasurers and other officers charged with the collection of the public revenue in the performance of their duties. 100 i6 Howard, 369. Quoted by Sumner, History of Banking in the U. S., p. 442. For the provisions of the law of 1836, see above, p. 272. m Aud. rep., Feb. 12, 1853. 103 Act of March 14, 1853. Swan's Statutes, 1854. p. 928. 286 FINANCIAL HISTORY OF OHIO [286 The act provided that the county treasurer should demand taxes then unpaid, or unpaid on December 21 of any year, assessed under the act of April 13, 1852, of all banks, brokers, and stock-jobbers, with five per cent, pen- alty. If the taxes were not paid in five days, then the coin and property at the office might be seized, and sold at public auction. But the bank might get back it? prop- erty by paying the taxes and penalty. The state auditor might do the same for companies doing business in more than one county. Sales or transfers of coin or property for the purpose of evading the tax were declared to be void; and the concealment of coin, securities, etc., for the purpose of avoiding the tax, was declared a misdemeanor, punishable by a fine of $1000, or imprisonment in the county jail, or both. THE CRISES OF 1854 AND 1857 AND CONDITION OF THE BANKS. In 1854 there was a bank crisis in Ohio and the neigh- boring states. A heavy run commenced in May upon the Ohio banks for coin, and continued for sixty days before any bank suspended. "A crisis then showed itself in the whole monetary operations of the western country." 103 The notes of many banks, in Ohio fell to a discount and the banks suspended. The Ohio valley had been the scene of extensive and rapid railroad building, which was checked by the discovery of fraudulent practices in the issue of stock. 104 A very great reduction of bank circulation took place, especially in the states of the Ohio valley. The bonds deposited with the state auditor declined so in value as to afford insufficient security for the note circulation of the free banks. The notes of the old banks, for whose safety no special provision was made, became almost valueless. In 1857 a more general financial crisis occurred throughout the country. This resulted largely from specu- lation and from the undue expansion of credit. The in- 10 *Aud. rep., quoted by Sumner, Hist, of Banking in the U. S., p. 444. 1M Ibid., p. 424. 287] HISTORY AND TAXATION OF BANKS 287 flux of gold resulting from the California and Australian discoveries in 1848 and 1851 greatly augmented the amount of money in circulation, and this was still further increased by a large expansion of credit currency. Be- tween 1848 and 1857 the increase in the amount of coin and of bank notes in circulation was as follows: 105 COIN AND BANK NOTES IN THE UNITED STATES. Coin. Bank Notes. 1848 $126,753,027 $128,506,041 1857 276, 100,442 214,778,222 Increase $149,367,418 $ 86,272,181 There were over 1400 banks in the United States, of which 54 were in Ohio. The following table shows their condition for August and November, 1857; while their position was fairly strong in the former month it had been materially strengthened by November. 106 OHIO BANKS IN 1857. LIABILITIES. RESOURCES. Circula- Deposits. Specie. Other Discounts, tion. cash res. bonds, etc. Aug. 3 $8,132,305 $5,155,031 $1,726,277 $3,517,230 $15,829,751 Nov. 2 7,637,955 3,738,652 1,616,255 3,022,552 14,639,945 Probably the financial readjustment and liquidation which had occurred three years previously, and perhaps also the restrictive legislation of the past decade, had put the Ohio banks in a better position to weather the storm than those of the eastern states. 107 One of the few banks to fail was the Ohio Life Insurance and Trust Com- pany, the strongest single bank in the state, which went down on August 24, 1857. This failure was entirely unex- pected and was due immediately to the speculation and de- falcation of the New York agent. The bank was unable to ""Message of Gov. Chase, Jan. 4, 1858. Exec. Doc., 1857, I, 351, 353. Ibid., p. 354- I07 The suspension of specie payments was general except in the Ohio valley, in South Carolina, at New Orleans, and by the Chemical Bank in New York City. Sumner, ut supra, p. 427. 288 FINANCIAL HISTORY OF OHIO [288 withstand this shock, however, for the more fundamental reason that it had advanced loans, probably to the amount of five million dollars, for railroad building, upon which it could not realize in its hour of need. The governor's messages and auditor's reports for this period are full of adverse criticisms of prevailing banking methods, and earnest in their advocacy of a coin currency. 108 Some of the worst banking practices w r ere carried on, not by the legally authorized banks of issue, but by private bankers ; the Ohio Life Insurance and Trust Company had probably been involved in these practices, the disastrous effects of which were first apparent upon its failure. Many of these bankers borrowed notes from banks outside of the state, at low rates of interest, which they put into circula- tion in Ohio and redeemed when they returned to the issu- ing bank. The effect of these arangements was to introduce into the state a mass of foreign bank paper which expelled from circulation not only nearly all the coin, but also nearly all the notes of the Ohio banks, and exposed the community to great inconvenience and loss. So real w r as the evil that Governor Chase urged an amendment to the act of February 24, 1848, relating to the circulation of unauthorized bank paper, in order to stop it. 109 By this time the charters of the "old" banks had "'Especially interesting are the statements of S. P. Chase, who became governor of Ohio on Jan. i, 1855. In his inaugural message he writes, "the best possible currency, in my judgment, would be a currency of coin, admitting the use of large notes only for the convenience of commerce." In view of his later official utterances and actions as Secretary of the Treasury, his earlier views, of which this is only one example, are of particular interest. Exec. Doc., 1854, I, 4; 1857, I, 357. 109 Gov. Mess., Jan. 4, 1858. Exec. Doc., 1857, I, 357. In 1859, it was estimated that the issues of foreign banks, then in the hands of the people of Ohio, were equal to the issues of the Ohio banks, or about eight and a half million dollars. "Of this sum a very considerable portion consists of the issues of banks which have suspended specie payments, embracing the bank of Pennsylvania, Maryland, Virginia, Missouri, and parts of the issues of other states. All such issues have depreciated in the hands of the people of Ohio, at least ten per cent., amounting in the aggregate to several hundred thousand dollars." Gov. Mess. Exec. Doc., 1860. I, 549. 289] HISTORY AND TAXATION OF BANKS 289 expired and they had either been wound up or had re- organized as "free" banks. There were now consequently only three classes of banks in Ohio, whose relative im- portance, character of business, and financial stability are shown in the following table: 110 CONDITION OF OHIO BANKS, AUG. 3, 1857. 8 Indpt. 10 Free Resources Banks Banks Specie $ 153,989 $ 157,516 Other cash res 438,397 529,007 Bills discounted, state and U. S. bonds and other res 2,589,997 2,504,798 36 State Branches $1,414,772 2,609,826 10,734.955 Total 3,172,384 8 Indpt. Liabilities Banks Circulation $ 707,700 Due to banks and Indpt. Treasury... 1,009,373 Cap. stock and other liabilities 1,472,265 3,191,320 14,759,553 10 Free Banks $ 853,265 1,057,711 1,280,345 36 State Branches $6,571,340 3,089,948 5,098,265 Total 3,172,384 3,191,320 14,759,553 RENEWED STRUGGLE OVER TAXATION. After the failure of the savage act of March 14, 1853, to attain its purpose, there was evidently a sort of tacit compromise effected between the banks and the legislature, for in 1856 111 a clumsy act was passed which taxed the banks on their business instead of their property, although it endeavored to secure the results of the latter method. The important provisions of the act were as follows : Every bank must furnish the assessor with two statements: the first of the average amount of notes and bills discounted, moneys loaned, and all other property; the second of the capital, the undivided profits, and the amount of time deposits these three added together shall be deemed the property employed in banking. The county auditor shall enter the first statement on the duplicate, and shall charge 118 Gov. Mess., Jan. 4, 1858. Exec. Doc., 1857, I, 354. "'April i, 1856. 53 O. L., 51. 290 FINANCIAL HISTORY OF OHIO [290 thereon such rates of taxes as will produce the same sum as would be produced by charging on the property em- braced in the second statement the average rates of taxa- tion on the property of individuals for state and local pur- poses. The rule thus laid down was very inconvenient in practical application, and afforded an opportunity for withdrawing a considerable amount of bank property from actual taxation, of which the banks were quick to take advantage. 112 The constitutional requirement that prop- erty employed in banking should be assessed equally with other property was thus set at naught, and it seemed as though the old policy of favoritism was to be revived. A week later another act, 113 known as "Kelley's Bank Tax Law", was passed, providing for the taxation of those banks which had been chartered under the act of February 24, 1845. These "independent" banks and the State Bank and its branches must be taxed, according to their charters, on their profits ; but this act provided for a different method in the case of those banks which consented to it. These banks were to furnish the assessor with a statement of their capital, surplus, and undivided profits; these were to be placed on the duplicate and taxed like other personal property; that portion of their capital, etc., invested in real estate already taxed was to be deducted. "Under this system, for two years, the banks were taxed without any serious objection on their part." 114 During the fall elections of 1856 the pro-bank party came into power in the legislature, and the next session carried out a peace policy in the effort to get the banks to submit to taxation on their property at the general prop- erty rate for the state. First the "crow-bar" tax law of March 14, 1853, was repealed ; 115 next it was provided that those banks which accepted the tax provisions of the act of March 23, 1850, should make returns to the county 112 Gov. Mess. Exec. Doc., 1857, I, 370. 113 Act of April 8, 1856. U4 Aud. rep., 1859. m By act of Feb. 26, 1857. 291] HISTORY AND TAXATION OF BANKS 291 auditor and not to the state auditor, and should be taxed in the county in which they were doing business. 116 A week later a comprehensive law was passed re-incorporat- ing the Bank of Ohio and its branches. 117 The circulation was to b 10 graduated According to the amount of capita! stock paid in (about one and one-half times the capital on the average) ; provision was made for a ten per cent, safety fund ; and a reserve equal to thirty per cent, of the circulation must be kept, of which at least half must be specie. 118 But the constitution provided that "no act of the General Assembly, authorizing associations with banking powers, shall take effect until it shall be submitted to the people, at the general election next succeeding the passage thereof, to be approved by a majority of all the electors voting at such election." Accordingly this act was sub- mitted to the people for their approval at the election on the second Tuesday in October, 1857, but failed to become law. 119 At the same time an amendment to the constitu- tion, to tax banks separately and on different principles from the property of individuals, was submitted to popular referendum. It was worded, "Bank and individual taxa- tion equal yes [or no]". This seems like a shrewd fram- ing of the question for the purpose of defeating it, and defeated it was. This same election saw the victory also of the radical anti-bank party, and in the following session they sig- nalized their return to power by the virtual re-enactment of the drastic act of March 14, 1853. The new law was entitled, "an act to tax the property of Banks and Bankers, so as to require all property employed in banking to bear a burden of taxation equal to that imposed on the property of other persons. 120 The officers of every bank were re- JW Act of April 8, 1857. 117 Act of April 14, 1857. "'On Sept. 30, one week before the election, the State Bank and its branches resumed specie payments. Exec, Doc., 1856, I, 438. 12 *Act of April 12, 1858. 292 FINANCIAL HISTORY OF OHIO [292 quired under oath to return annually to the county auditor the average amount of notes and bills discounted, and the average amount of all other moneys, effects and dues of every description (deducting, however, the cash reserve). If taxes assessed under the act of April 13, 1852, were still unpaid the county treasurer was to demand them by leaving a written notice and if they were not then paid, to- gether with a five per cent, penalty, in five days, he was authorized to seize the coin, securities, etc., of the bank; and to sell the same ten days after advertising them for sale. The other provisions of the earlier act were also re-enacted almost verbatim. This was almost the last act in the struggle between the banks and the state. The independent banks and the branches of the State Bank refused to pay taxes under this law, as they had under the law of 1853. They claimed that the section of the incorporation act of 1845, which prescribed the rule of taxation for them, was a contract, not liable to be im- paired by subsequent legislative or constitutional provi- sion; and that they were, therefore, not liable to be taxed by a different rule, however warranted by constitution or law in respect to institutions not similarly protected. This claim had been carried into the courts, and the Su- preme Court of the state denied it, but it was sustained by the Supreme Court of the United States, to which an appeal was taken. A new tangle was now given the legal situation by a decision of the State Supreme Court in December, 1857, announcing its adherence to its original position. It seemed as though the banks would escape taxation altogether. The state officers were bound by the decision of the state court and tried to enforce the collection of the taxes imposed by the law of 1857. But the banks, relying upon the decision of the Supreme Court of the United States, placed to the credit of the state, as pre- viously, the taxes required by the act of 1845, and made no return for taxation under the later laws. In some in- 293] HISTORY AND TAXATION OF BANKS 293 stances injunctions were obtained from the federal courts, restraining the state officers from the execution of the law. These injunctions and some defects in the law itself prevented any collection of taxes under it, while the law prevented the collection of the sums deposited by the banks in lieu of taxes under the act of 1845. COMPROMISE. In the face of this deadlock, the question was now definitely presented to the legislature as to whether they would have the claim of the banks to exemption contested again in the federal courts, or whether they would modify the act of 1858. 121 As the auditor wrote in 1859, 122 The door is again open for an expenditure of some thirty or forty thou- sand dollars on the part of the state, if she sees fit to undertake it, in attempting to enforce against the banks the collection of a tax which has been repeatedly adjudicated and decided by the court to be unconstitu- tional and void. The legislature, however, refused to acknowledge it- self defeated and passed the general property tax law of April 5, 1859, which again provided for the taxation of banks on the basis of their property at the general rate of state taxes. 123 Bankers, brokers, and stock jobbers must report each year to the county auditor the average amount of notes and bills discounted, and the average amount of all moneys, etc., loaned, invested, or otherwise used with a view to profit, less the amount of the specie reserve on hand. The amounts returned "shall be taxed for the same purposes and to the same extent" that other personal prop- erty was taxed. Banks organized under the "State Bank of Ohio act" should have fifty per cent, penalty added in case of their refusal to make such statement (sec. 63). It will be noticed that the basis of taxation laid down in the law of 1858 was here restated. The banks again resisted and many of them secured injunctions restraining the assessment and collection of these taxes, so that the state 121 Gov. Mess., Jan. 3, 1859. Exec. Doc., 1858, II, 99. Exec. Doc., 1859, II, 72. 123 56 O. L., 175, 60-68. 2 Swan and Critchfield, 1438. 294 FINANCIAL HISTORY OF OHIO [294 obtained no revenues from these banks. 124 Four of the banks had accepted the provisions of the act of 1850, and claimed the right to pay taxes under that act. 125 In view of the decision of the Supreme Court of the United States it seemed foolish to continue to try to club the banks into submission by penalties and threats. Ac- cordingly the legislature at length changed the basis of taxation from property to a combination of capital and profits. The act of April 4, 1861, 126 taxing banks, provided that every bank should each year give the assessor (1) the amount of capital, (2) the undivided profits, (3) the amount of term deposits (i.e. not drawn on demand). The sum of these three were to be considered the property of the bank employed in banking, and were to be taxed as other property. Banks organized under the State Bank law of February 24, 1845, should make the same returns, but might deduct real estate already taxed. These banks must notify the county auditor of the acceptance of this form of taxation in lieu of that imposed by the act of April 5, 1859, if they should accept it. Most of the banks acepted the provisions of this act, and paid their taxes under it from now on. Their back taxes they paid according to their charters, under the deci- sion of the Supreme Court of the United States. As there was now practically nothing in controversy the suits against the banks were discontinued. 127 Additional pres- sure was brought to bear upon the few banks that had not agreed to the provisions of the act of 1861, by a clause in the act authorizing the banks to suspend specie payments, denying this privilege to those banks that did not agree to be taxed under the act of 1861. 128 Here at last was an effective weapon with which to compel obedience. ""Eighteen banks brought suit in 1861, twenty-one more in 1862. In January, 1862, a perpetual injunction was granted the banks. m Aud. rep., 1860. M O. L., 1861, p. 59. This act amended that of April 5, 1859, repealing sec. 60-68. "'Rep. of Att'y General. Exec. Doc., 1861, II, 251. m Act of Jan. 16, 1862. 59 O. L. 3. 295] HISTORY AND TAXATION OF BANKS 295 In November, 1860, the number of banks in Ohio, with their capital and circulation, was as follows: 129 Capital. Circulation. State Bank and 36 branches $4,104,500 $7.403,959 Seven independent banks 632,264 575,68s Eleven free banks 1,124,600 655,243 Total $5,861,364 $8,634,887 The banking system of Ohio had now finally been clearly defined by law, and was proving to be one of the best in the Ohio valley. It had been developed out of many trying and even disastrous experiences, and the bad features had been gradually eliminated. The charters of the State Bank and of the independent banks would expire on May 1, 1866, when all the banks of the state could be brought under the free banking law, which must be regarded as the pro- posed ultimate basis of the Ohio system at this time. The charters of the free banks did not expire until 1872. But before Ohio could finally work out her own system, the establishment of the national banking system introduced a disturbing factor, and profoundly altered the banking situation, not only in Ohio but throughout the Union. The period after the outbreak of the Civil War therefore intro- duces us to a new era in the history of banking and bank taxation in Ohio. In 1858 Ohio adopted an independent treasury system. 130 Taxes were to be collected in coin or notes of those specie paying banks of Ohio which issued no notes under $5 a virtual exclusion of Ohio bank paper. 131 After July 4, 1860, no notes under $10 were to be received ; after July 4, 1865, none under $20. After 1872 nothing but 12? Gov. Mess., Jan. /, 1861. The governor noted that issues of foreign banks to an amount equal to the domestic issues circulated in Ohio, and prevented any increase of domestic circulation. Most of the foreign issues were of banks which had suspended specie payments in Pennsylvania, Maryland, Virginia, Missouri, and to a less degree of other states. ""Act of April 12, 1858. m As the notes of the banks of other states were not forbidden, a large proportion of the taxes began to be paid in the notes of these banks. Gov. Mess, in Exec. Doc., 1858, II, 96. 296 FINANCIAL HISTORY OF OHIO [296 coin was to be used by the state. 132 In adopting this system Ohio, in common with a number of other states, was but imitating, though somewhat feebly, the example of the federal government, which had established its Independent Treasury system in 1846. Before the program indicated could be even partially entered upon in Ohio, however, the outbreak of the Civil War, the "suspension of specie pay- ments by the banks, the issue of the greenbacks, and the establishment of the national banking system prevented the execution of the plan, although the law remained on the statute books, to be revived possibly at some later date. THE ORGANIZATION OF NATIONAL BANKS AND THEIR TAXATION The banks of Ohio, together with those of Indiana and Kentucky, were the only ones in the country, with some scattered exceptions, which had not suspended specie payments by January 1, 1862. 133 But by the act of January 16, 1862, the Ohio banks were authorized temporarily to suspend specie payments, and to receive and pay out United States demand notes. 134 There was quite a strug- gle in the board of control of the State Bank as to whether they should permit that bank and its branches to suspend, but it was finally carried. With the organization of the national banking sys- tem 135 the Ohio banks re-organized as national banks more promptly than those of any other state in the Union. The first annual report of the comptroller of the currency, of November 28, 1863, showed that of the 134 banks that had up to that time been organized as national banks, 38 were in Ohio, or almost double the number in any other state (20 each in Indiana and Pennsylvania were next). 136 The number of independent banks was reduced from eight at "'Bankers' Magazine, XII, 961. Quoted by Sumner, Hist, of Banking in the U. S., p. 442. ""Bankers' Mag., XVI, 650. "*O. L., 1862, p. 3. 135 By act of Congress of Feb. 25, 1863. ^Bankers' Mag., XVIII, 617. 297] HISTORY AND TAXATION OF BANKS 297 the beginning of the year 1863 to five in August, and the free banks from 13 to 10. The circulation of these two kinds declined from f 1, 800,000 in January, 1863, to $444,- 000 in November, 1865, and to |189,000 in November, 1866. 137 Thus the forms of banking which had been de- veloped in Ohio during the previous twenty years yielded to the national system. An act of March 16, 1865, pre- scribed the methods by which the "free banks" might retire their circulation and close up business. 138 The State Bank with its thirty-six branches, whose charter expired on May 1, 1866, also prepared to wind up its business. On November 25, 1865, the president sent out a circular letter asking that all notes issued by this institution be immediately presented for redemption. At the same time they began the work of destroying the cir- culating notes as rapidly as they came in. 139 By Novem- ber, 1866, the commissioner of statistics was able to report that "the banks of Ohio now consist of only two kinds, national and private banks/' There were 88 private banks in the state, situated in forty-five counties (or just half of all ) , with an aggregate capital of $2,743,664 or an average of about $31,000. 140 In October of the same year there were 135 national banks in the state, with an aggregate capital of $21,904,700, or an average of $162,000, and out- standing circulation of $18,000,000.* 41 There were also $98,410 state bank notes still outstanding. With the reorganization of the Ohio banks under federal law the question soon presented itself as to whether the state could tax these banks. The auditor, in his report for 1863, 142 expressed the belief that the situation was the 137 Treas. rep. Exec. Doc., 1865, II, 40; 1866, I, 7. 1M 62 O. L. 51. The bank items of the Bankers' Magazine during this period are full of notices of changes of state into national banks. "'Bankers' Mag., XIX, 763 ; XX, 590. The act to incorporate the State Bank of Ohio was not formally repealed until 1894. Act of May 21, 1894. 0. L., p. 396. "Rep. Com'r of Stat. Exec. Doc., 1866, I, 669. "'Bankers' Mag., XXII, 535. M Exec. Doc., 1863, I, 60. 298 FINANCIAL HISTORY OF OHIO [298 same as in the case of the branches of the Second Bank of the United States, 143 and that therefore the national banks could not be taxed by the state. Nevertheless the assessors proceeded to assess the value of shares in national banks in the hands of the owners, and to list them for taxation. Their right to do this was resisted by the shareholders on the ground that the capital of the banks was invested in United States government bonds, and as these were ex- empt from taxation the shareholders could not be taxed. Against this contention the new auditor held that the in- dividual shareholders could be taxed on their shares, though the banks as such could not be taxed. 144 The legis- lature took the latter view and passed an act providing for the taxation of shares in the hands of the individual share- holders. 145 As the banks and bankers still resisted the collection of these taxes, 146 the matter was carried up to the Supreme Court of Ohio, which held that the state had power to tax shares in the national banks located in Ohio, subject to the limitations that such tax should not exceed the rate im- posed upon other moneyed capital of individuals, nor that imposed upon shares in the state banks. 147 The way now being cleared, the legislature passed a definite act "to pro- vide for the taxation of bank shares and bankers." 148 All shares of stockholders were to be listed at their true value in money and taxed where the bank was located ; real estate was to be taxed locally and deducted from the value of the shares. Each year the president and cashier were required to make out a list under oath of the stockholders and their shares, which was to be given to the county auditor. The shares were then to be entered on the duplicate and taxed to the shareholders ; if they did not pay their taxes it was "See above, p. 260, ff. "Aud. rep., Exec. Doc., 1865, I, 339- 45 Act of April 2, 1865. "Aud. rep., Exec. Doc., 1866, I, 132. "Frazier, et al. v. Siebern, et al. 16 O. S., Rep. 614. See i Sayler, Ohio Statutes, 795, note. 14 *Act of April 16, 1867. Swan and Sayler, 763 ; O. L., 1867, p. 204. 299] HISTORY AND TAXATION OF BANKS 299 made illegal for these shares to be transferred or to have dividends paid, as long as taxes and costs remained un- paid. But the banks were permitted to pay the taxes and deduct the amount from the dividends. There had grown up, alongside the national banks, a large number of private or unincorporated banks, which up to this time had practically escaped taxation. This same act now provided for taxing them on their surplus. They were required each year to send a statement to the county auditor showing (1) the average amount of discounted notes, (2) the average amount of accounts receivable, (3) the average amount of cash, (4) the average amount of stocks, bonds, etc., (5) the average amount of real estate, (6) the average amount of deposits, (7) the average amount of accounts payable, other than deposits, (8) the average amount of government securities, (9) the amount of capital. From items 1-5 the auditor was to deduct items 6-8, and enter the remainder on the duplicate, where it would be taxed at the general rate of taxation. 149 That this was not altogether successful in subjecting the private banks to taxation seems to be indicated by the complaint of the governor a few years later that "it ought not to be possible, as it now is, for private bankers to do a very large business and yet only pay taxes on office furni- ture." 150 No further changes were made in the legislation re- garding bank taxation until 1876, when a state board of equalization of bank property was provided for, in accord- ance with a recommendation to that effect from the state "'This was amended by the act of April 17, 1881 (O. L., p. 109), which provided that item g should consist of the value of all property not otherwise enumerated, and this was to be added to the remainder obtained by the method described above for purposes of taxation. By act of April 16, looo, item 8 was defined as government securities exempt from taxation, and item g as the value of office furniture and other property not enumerated. The auditor was to substract items 6-8 from items 1-5 and add 9, and to place the value so obtained on the duplicate to be taxed at the general rate. (O. L., 1900, p. 347). "Gov. Mess. Exec. Doc., 1872, II, 570. H- tfee at flSl m ffaaa- ifr. wfcife at tr I3SL 311 Br flu* act tte start* afflknmgr gwiai wwne ctaiBtitvted T _^ __, L _ - - __ -ar_--- - * __, ..--,__ - i - . - - - :. thr O. ^- v fL s 301] HISTORY AND TAXATION OP BANKS 301 make its property bear a burden relatively fair to other property in the community, and upon this amount the local and state tax rate is applied. Real estate belonging to the bank is not included in this calculation, for it is taxed as other real estate. 158 This same practice was fol- lowed by the permanent tax commission in 1910. 159 The last revision of the statutes of Ohio show the system of bank taxation today substantially as it was fixed in 1867. 160 A student of taxation in Ohio reaches the following conclu- sion regarding the taxing of banks: 161 While Ohio has some of the worst tax laws in the Union, notably in assessing railroads, it is a great comfort to the writer to be able to boast that its law for the taxation of banks is as near perfect as can be made. '"Report of the Tax Commission of 1906, p. 12. '"First an. rep. Tax Commission of Ohio (1910), p. 6. l "The General Code of the State of Ohio (1910). 5408-5411. "*N. W. Evans, A History of Taxation in Ohio. (Cincinnati, 1906). P. 52- CHAPTER VI HISTORY AND TAXATION OF RAILROADS. 1 EARLY RAILROAD BUILDING. The early history of railroads is nowhere better illus- trated than by the experience of Ohio. Her peculiar posi- tion between the Great Lakes and the Ohio River, together with the situation of the passes through the Allegheny Mountains, have forced most of the artificial lines of com- munication between the East and the West to cross the state. From the first the people of Ohio have manifested the liveliest interest in the subject of transportation, and were prompt to see the advantage of railroads when this method of transportation was first suggested. Rich in its natural resources, Ohio was the mecca of emigrants from the states to the east. While the accessible sections on the banks of the Ohio River were first populated, the settlers soon pressed on to the interior counties of the state to territory equally rich in soil and timber. An enterprising people, eager for rapid growth and ambitious for the imme- diate development of the state's resources, they exhibited a liberal spirit towards all kinds of internal improvements. With growth of population and increased production the need of a market became continually more pressing. The route down the Ohio and Mississippi rivers to New Orleans was never wholly satisfactory, and moreover did not afford an outlet for the interior settlements. State and county roads were built, generally to afford access to a navigable waterway, and in 1825 the canal system was begun. These ran north and south and connected the cen- tral part of the state with the Great Lakes or the Ohio River; in connection with the Erie Canal they now pro- vided a through route to the Atlantic coast. Prices rose, production increased, and the population grew at a rapid rate. Their success fostered a spirit of enterprise among *I desire to record my indebtedness, in the preparation of this chapter, to Mr. H. A. Clark, of Marquette, Mich., who, while a member of my seminar at Oberlin College, wrote a paper on this subject, of which I have here made liberal use. 303] HISTORY AND TAXATION OF RAILROADS 303 the people and paved the way for the building of railroads. Railroad construction was undertaken in Ohio by private enterprise. As the state had built the canals, its assistance was not expected in the building of what might become a competitor of the public works. The legislature, however, was liberal in granting charters to private com- panies, each of which was by special act. The first act to incorporate a railroad company in Ohio was that of February 23, 1830, granting a charter to the Ohio and Steubenville Railway Company. Although this road was never built, its charter is of interest, for it was the legisla- ture's guide in drafting subsequent ones, and contained the provisions peculiar to early railroad charters. Like all of these, both in England and the United States, it provided for the use of the track by all shippers, who were expected to own their own carriages. Maximum rates of toll were prescribed for freight and passengers. The capital stock was limited to $500,000, and the stipulation made that no part of it should be used in banking. 2 The right of eminent domain was also granted to the company. The following year a second charter was granted, and in 1832 there were ten. In January of this year there was already a standing committee on "Rail-roads" in the Ohio House of Repre- sentatives, 3 and bills were beginning to come in from pros- pective companies asking for acts of incorporation. In- 2 That this provision was needed seems to be shown by the experience of the state with the Ohio Railroad Company in 1835. A provision in its charter read that "the funds of said company shall be paid out in orders drawn on the treasurer, in such manner as shall be pointed out by the by- laws of the company; and that all such orders for the payment of money so drawn shall, when presented to the treasurer, be by him paid and re- deemed." Under authority of this clause the company began issuing notes and successfully put out a large circulation. The state granted a subsidy to the railroad and with this some of the notes were redeemed, but no work of a permanent character was done on the road, and upon its suspension a few years later (1842) the state lost all of the $557,000 it had granted. Several hundred thousand dollars in worthless currency were left outstanding. Leland, "The Ohio Railroad". Mag. of West. Hist., XIII, 744. 3 Ho. J., 1822, p. 307. 304 FINANCIAL HISTORY OF OHIO [304 terest was rapidly growing; up to and including 1836 the general assembly granted fifty-six charters, but only five of these roads were actually built. These were the Mad River & Lake Erie, the Mansfield & Sandusky City, Little Miami, Columbus & Xenia, and Kalamazoo & Erie rail- roads. 4 Of these the last named was the first railroad actually built in the state, being finished in 1836, between Toledo, O., and Adrian, Mich., a distance of about 33 miles. 5 The contrast between the large number of charters granted and the few roads built indicates clearly the specu- lative and even visionary nature of many of these enter- prises. On the scale on which they were projected they were certainly premature, and local capital was lacking to carry them through. Railroad construction was found to be a far more expensive and difficult undertaking than had been anticipated. It was difficult to enlist capital in a venture which gave promise neither of immediate nor large returns. Notwithstanding the general desire to ob- tain railroads, efforts to raise by stock subscriptions suffi- cient funds to construct the roads authorized were futile. In not a single case was sufficient stock subscribed to com- plete the road as planned. Meanwhile the canals of the state had been built and opened to traffic, and were proving successful enterprises. The state had invested a large amount in their construction and did not wish to see the profits of the canals cut into by this new transportation agent. Moreover the policy of internal improvements was taken up again in 1835 on a more extravagant scale and further sums were desired for canal building. Rivalry sprang up between the canal and railroad interests of the state, which found expression especially in the charters granted to railroads. It was argued by the canal interests that it would be unwise for the state to imperil the financial success of the canals, in *O. L. L., v. 30, p. 15; v. 33, p. 387 ; v. 34, P- 4Q4- "Atwater, History of Ohio (1838), p. 279. See also R. S. Kayler, "Ohio Railroads", in Ohio Arch, and Hist. Soc. Pub., IX, 189. 305] HISTORY AND TAXATION OF RAILROADS 305 which it was itself so heavily involved, by allowing the con- struction of railroads which would become direct com- petitors and would undoubtedly make serious inroads on the income of the canals. This argument did not prevent the granting of charters, but it did secure the incorporation in some of them of a provision by which they agreed to pay to the state such amounts annually as in the opinion of the Board of Public Works would be equivalent to one-half the tolls charged by the state at the time upon like property transported by canals during the season of naviga- tion but for the existence of the railroad. This provision proved later, however, to be of little value. Since the stock subscriptions failed to secure the money needed to build railroads, the state next granted the companies, by new charters or amendments to the old ones, the right to borrow money, and to pledge their income and stock for its repayment. In most cases the amount to be borrowed was limited to the amount of stock paid in or subscribed, but often up to an amount not exceeding the authorized capitalization. Every effort was then made to increase the subscriptions and the authorized capital, so as to borrow larger amounts. There was present every in- ducement to speculation, the overstraining of credit, and even wilful misrepresentation and fraud. 6 Later charters or amendments gave the railroads power to pledge the in- come and property of the company, and in some cases the franchise, as security for money borrowed. STATE AND LOCAL AID. The railroads, however, were still unable to command sufficient means to build their lines, and what progress they were making was abruptly checked by the panic of 1837. But the people were interested and clamored im- patiently for their construction. They wished a means of transportation that would not only afford an outlet for the products of the interior sections of the state, which were not readied by the canals, but which would also cheapen Rep. of RR. Coinm'r, 1875; cf. ibid., 1868. 306 FINANCIAL HISTORY OF OHIO [306 transportation and reduce the time required to get pro- duce to the market. As stock subscriptions and loans had not been successful in providing the necessary capital, state aid seemed the only other solution. Accordingly, in 1837, an act was passed providing for a loan of credit by the state to railroad companies, and a subscription to the stock of turnpike, canal and slackwater navigation companies. 7 In one form or another similar aid had been extended to rail- road companies in other states, especially in the South. 8 The Ohio act provided that the state should loan its credit to railroads in 6 per cent, transferable stock, redeemable in twenty years, to the amount of one-third of the capital stock, provided that the other two-thirds had been actually paid in. In order to insure the state against any loss through mismanagement of the companies or through fraud the act imposed certain restrictions and prescribed certain condi- tions which had to be complied with before the Fund Com- missioners could issue the certificate of stock in their be- half, thus creating a state liability. First, it was required that the Board of Public Works should have approved of the plan and estimated most of the road and have determined that the road would be of public utility, and further that within two years after its comple- tion, it would in their opinion yield a net profit of at least two per cent., on the money invested in its construction and rolling stock. Second, it was required that the Fund Commissioners be satisfied by the oaths of the officers of the company that subscriptions had been made to their capital stock, equal to two-thirds of the sum necessary to complete the road and fixtures, and that the company had vested and expended a sufficient amount of their capital to make the state secure in the sums to be advanced under the authority of the act. Third, it was required that the Fund Commissioners 'Act of March 24, 1837. *See Cleveland and Powell, Railroad Promotion and Capitalisation (N. Y., 1909), chap. XV. The Ohio law is incorrectly stated (p. 217). 307] HISTORY AND TAXATION OF RAILROADS 307 be also satisfied by the oaths of the officers of the company that it had actually expended in its construction and in the purchase of land for the same one-third of the capital stock subscribed. Fourth, it was required that the Fund Commissioners be satisfied (by what kind of proof was not specified) that the stock subscriptions should be subscribed by responsible individuals or corporations. Fifth, there was required a written pledge, duly exe- cuted under the authority of the president and directors of such company of the capital stock, estate, tolls, and profits of the company, to secure the re-payment of the sums ad- vanced by the state. Sixth, it was also required that the last mentioned pledge should be accompanied with such security as the Fund Commissioners might approve, for the faithful expen- diture of the principal and the punctual payment of the interest. In addition to these six prerequisites to a loan of credit under the law, the provision was also made requiring addi- tional security if the security of the road and works be deemed inadequate by the Commissioners of the Canal Fund. Under the provisions of this law the following aggre- gate sums were loaned to railroad companies in state scrip or stock : The Painesville and Fairport Railroad Company (in one issue) $ 6,182 The Mansfield and Sandusky City R. R. Company (in three issues) 33,333 The Mad River & Lake Erie Railroad Company (in four issues) 270,000 The Little Miami Railroad Company (in three issues) 115,000 The Ohio Railroad Company (in four issues) 249,000 The Ashland & Vermillion Railroad Company (in two issues) 44,000 Total 1717,515 308 FINANCIAL HISTORY OP OHIO [308 The records of the canal fund commissioners show non-compliance with the law to have been the rule rather than the exception. In every case where a loan of credit was made at least one of the requirements stated above was violated. In some cases transfers of real estate were entered at fabulous prices, on the basis of which "paid-in subscriptions" the state loaned its credit ; in some cases the board of public works did not pass upon the public utility of the road or its certainty of success ; in some cases there was no adequate proof that a sufficient amount of capital had already been expended to secure the state in its loan. Railroad companies seeking state aid evaded the provisions of the law, and this evasion was possible because of the negligence of the canal fund commissioners. A few years later a commission appointed to investigate these transac- tions reported that the liabilities assumed by the state in aid of railroads were created by reason of there not being bestowed upon those transactions the close attention to the law, and that degree of regard to economy and the public interest which were demanded by the importance of these transac- tions and the heavy amounts they involved. 8 The burdens involved in this addition to the state debt, coming as they did in the midst of a period of industrial depression, together with the extravagance and fraud in- volved in these loans, led to the repeal of the loan law after an experience of three years. 10 Of the loans made by the state to railroads during this period three-fifths was lost. The Ohio Railroad was a gigantic fraud and utterly collapsed ; the road was never built and the entire amount loaned and given to the road was wasted. 11 The Paines- *Rep. of Spec. Com. to investigate Canal Fund Com'rs, Dec. 24, 1845. "Act of March 21, 1840. Those roads which would have been entitled to loans of credit upon the faith of subscriptions to their stock prior to Dec. i, 1839, were granted such loans after the repeal of the law. By virtue of this provision $209,000 was loaned after this date. ""When the Board of Public Works was authorized to sell the personal property of the Ohio Railroad Company in 1844 in order to realize something from the state's loan, subscription of stock, gift of 309] HISTORY AND TAXATION OF RAILROADS 309 ville & Fairport railroad and the Ashland railroad were failures, the roads being abandoned, and the whole amount of state loans was sunk. In 1862 the state disposed of its holdings in the Little Miami railroad at par, and in 1866 it sold the stock of the other roads for a total of f 36,658. That is, in return for loans of $717,505 the state got back a total of $292,658. The law of 1837 had provided for the prompt payment of the interest on the state's loans of credit, but the rail- roads had failed to meet these obligations. Consequently an act was passed in 1843 providing that certificates of stock should be issued by each company for the amount for which the state had become liable, together with the interest then due and unpaid. 12 By this time three of the railroads had failed, while the Mansfield road had met all its payments, and continued to do so. Of the other two railroads the Little Miami company issued additional stock at the time for unpaid interest to the amount of about |7000 ; subsequent issues of stock and bonds in payment of dividends brought the total holdings of the state up to $200,000 of stock and $56,000 of dividend bonds on Decem- ber 15, 1862, when they were sold for par. This was the onl\ road which rep-aid the state for its original invest- ment. The interest in (.he other two roads was held until I860, when $33,333 of stock in the Sandusky City Company was sold for $583; the common stock of the Mad Kiver Company, amounting now to $395,000, was closed out for $33,841, and preferred stock to the amount of $4,588 for $2,234. 13 In addition to the state aid just described the rail- land and labor, which as a total amounted to $557,756, it was reported that this property had disappeared at the dissolution sale in 1842, and they were able to find only one set of car wheels, one locomotive and one saw mill." W. F. Gephart, Transportation and Industrial Development in the Middle West (N.Y., 1909). P. 166, n. "Act of March II, 1843. "The holdings of the state were sold by the Sinking Fund Commis- sioners to Rush R. Sloane, of Sandusky, by order of the general assembly in June, 1866. 310 FINANCIAL HISTORY OF OHIO [310 roads received assistance in stock subscriptions and loans of credit from counties, townships, cities, and towns as well. The total authorized subscriptions down to 1851 granted by laws in which the sums were specified are given in the following table. Some laws were passed in which the amount of the subscription was not specified. 37 counties subscribed $4,173,000 55 townships subscribed 1,005,100 16 cities and towns subscribed 1,672,000 Total subscriptions $6,850,100 i county loaned credit of 92,500 i city loaned credit of 600,000 Total local aid $7,542,600" After the breakdown of the policy of state aid and the return of prosperity in 1846 the legislature granted freely to the local governments the power of subscribing to the stock of local railroads. Such subscriptions were usually made upon vote of the people. The early railroads were short local affairs, and it came to be regarded as a local question whether aid should be granted, and if so to what extent. The constitution of 1851 prohibited the state or any of the local divisions from loaning their credit or sub- scribing to the stock of works of internal improvement. While the grant nf local aid was made in response to a pressing demand f >r better railroad facilities, the policy on the whole must be regarded as unwise. The stock sub- scriptions were generally made without due regard to busi- ness principles, and the funds thus secured were carelessly used. Practically all of the money thus loaned was lost, while on the other hand, many of the counties were still paying thirty years afterwards the principal and interest of bonds for roads that in some cases were not built or operated. But grave as were the abuses, it taught the "Dr. W. F. Gepha t, in his Transportation and Industrial Development in the Middl" iV'st. n. 167, estimates that the total amount of subscrip- tions by the state and local governments in Ohio was not less than $40,000,- ooo. To the nresent writer one-fourth of that sum seems a safer estimate. 311] HISTORY AND TAXATION OF RAILROADS 311 people of Ohio some valuable lessons in railroad finance at a period when the roads were yet young and the ex- perience consequently less costly than it might have been later. And the policy did have the good effect of facilitat- ing the development of a much needed improvement. TAXATION OF RAILROADS TO 1851. The early policy of the state was to develop the rail- roads rather than to overburden them with taxation. How- ever, provision had been made for the taxation of the rail- roads already built by charter stipulation that these rail- roads would be subject to taxation on their dividends Avhen they exceeded 6 per cent, per annum. Of the four roads in operation in the state on December 15, 1851, but one the Little Miami had declared a dividend exceeding 6 per cent., and provision had been made for taxing it by listing its stock and dividends. 15 It was to be assessed on these to such an extent as would equal a tax levied on other trans- portation companies by the general property tax law. No general act taxing property had been passed since the be- ginning of railroad construction until the so-called "Kelley law" of 1846. 10 Tli is required railroads to list for taxation the full amount of their capital stock paid in by individual shareholders at its true value in money. Stock held by counties and cities was exempt from taxation. They were also required to list for taxation all personal property, money, and credits, but were allowed to deduct their actual debts. It was the duty of the county auditor to assess the capital stock and other personal property of the rail- roads, and such taxes were to be collected, accounted for, and paid over, as were other taxes levied for state pur- poses. The early railroads whose charters contained pro- visions for their individual taxation were, of course, not affected by this act. In 1848 was passed "an act regulating railroads", which provided for the organization under a general Char- ge! of March 23, 1849. "Act of March 2, 1846. 312 FINANCIAL HISTORY OF OHIO [312 ter of all railroad companies. 17 The early idea that any per- son might use the road on condition of paying toll, was now given up, and the modern conception of the railroad as an essential monopoly was adopted. Provision was also made for borrowing money by the railroads. But any good road which availed itself of the privileges conferred by this act subjected itself to a change in method of taxation, and might hereafter be taxed according to the act of 1846 in- stead of its charter provisions. Any company thus taxed was required to make an annual report to the auditor of state, showing the amount of its capital stock, the gross amount of its tolls or receipts during the previous year, the cost of repairs and incidental expenses, the net amount of profits and dividends, with such other facts as might be necessary to a full statement of the affairs and condition of the road. 18 Few of the roads having charter provisions governing taxation availed themselves of this act of 1848. The Mad River and Lake Erie Railroad was the only one that had paid a tax on its dividends, the majority of the roads fail- ing not merely to pay any taxes but even to send in reports. State officials were lax and little effort was made to enforce the law. Accordingly in 1851 a somewhat more definite attempt was made to reach the railroads which were escap- ing taxation. 19 Railroads were divided into two classes: those having special charters providing for their taxation when dividends exceeded 6 per cent. ; those whose charters made no provision for taxation. Railroads in the second class were required to list their paid-in capital stock, on which they were taxed as provided in the law of 1846. Those in the first class were required to report their dividends to the state auditor within ten days after the dividend was declared ; if they declared more than the maximum allowed without being taxed the auditor was instructed to draw "Act of Feb. ii, **An abstract copy of these reports may be found in the annual reports of the auditor during this period. "Act of March 25, 1851. 313] HISTORY AND TAXATION OF RAILROADS 313 upon them for 6 per cent, of the dividends of the previous year. The personal and real property used exclusively for corporate purposes was exempted from taxation. This legislation was short-lived, for it was soon changed by the adoption of the constitution of 1851. In 1850 only four or five roads were completed and opened to traffic, with a length of less than 300 miles, though work was proceeding on eleven others. 20 After the first outburst of activity new enterprises were not projected on so lavish a scale. In the four-year period 1837-40, dur- ing the operation of the loan law, 20 charters were granted. The effect of the industrial and financial depression is clearly seen in the period 1841-45, when only 13 roads were chartered, but with the succeeding revival the number in- creased to 61 in 1846-50. In 1851 the constitutional con- vention met, and it became evident that strict provisions would be framed concerning railroads, banks, and other corporations. There was consequently a rush for new charters or amendments to old ones. The legislature in their single session passed 21 acts to incorporate railroads, 29 acts amending previous incorporation acts, and 36 acts authorizing counties, cities, towns, or townships to sub- scribe to stock. All the charters and amendments to char- ters contained authority to borrow money. The doors were thrown open as wide as possible to enable the railways to borrow money and procure stock subscriptions. An act was also passed permitting the consolidation of continuous lines. 21 The adoption of the constitution this same year put an end to legislative activity of this sort and rendered many of these acts obsolete. It prohibited local governments from subscribing, raising money for, and loaning their credit to any joint stock company, and forbade the general assembly from passing any special act conferring corporate "'Rep. Com'r of Railroads and Telegraphs. Exec. Doc., 1868, II, 2 75-3 2 4- This report gives a brief history of railroads in Ohio, chiefly on the side of their physical development and legislative treatment. "Act of March 3, 1851. 314 FINANCIAL HISTORY OF OHIO [314 powers. 22 This latter section was made effective the fol- lowing year by the passage of a general incorporation act for all kinds of companies, corporations, and societies. 23 The good effects of such a law is evidenced in the fact that during the session of 1852 only twenty-four local acts were passed, mostly concerned with county and township affairs. The taxation of railroads, as of all other corporate prop- erty, was regulated by two sections in the new constitution, which required the taxation of all property in accordance with a uniform rate at its true cash value, and that cor- porate property should be forever taxed like the property of individuals. 24 Appropriate legislation was soon passed to enforce those provisions. 25 It was provided that every canal, turnpike, insurance, bridge, telegraph, and other company "shall list for taxation at its actual value, its real and personal property, moneys, and credits within this state." Property was to be returned to the auditor of the counties in which it was situated, and moveable property appor- tioned pro rata according to the value of the fixed property. All property so listed should pay all local and state taxes. tThe auditor now proceeded energetically to enforce the law and to collect taxes from the railroads. 26 He notified the county auditors to assess the railroad property upon their own estimate if the officials failed to file a statement. Kailroad officials challenged the legality of the tax law, asserting that their charters guaranteed them "reasonable" taxes. But they soon acquiesced in the determination of the legislature and the state officials to tax their property in the same manner as that of individuals and never opposed the tax laws the way the banks did. 27 In the two years 1852-3 the assessed valuation of railroad property in "Art. VIII, sec. 6, and Art. XIII, sec. i. "Act of May 3, 1852. *Art. XII, sec. 2, and Art. XIII, sec. 4. "Act of April 13, 1852. "The auditor was John Woods. "See ch. V, p. 283. 315] HISTORY AND TAXATION OF RAILROADS 315 the state was increased from $8,945,571 to $17,591,894, an increase of 96 per cent. ; large as this increase was, the auditor asserted that the assessment did "not yet place it upon the duplicate at its full cash value." 28 REGULATION AND TAXATION, 1850-1866. During the decade 1850-60 railway building in Ohio progressed more rapidly than in any other state in the Union. Chicago and the Mississippi and Missouri rivers were reached during this period, and through connections established between the Atlantic seaboard and the grain states of the Middle West. As Ohio was the gateway through which all these lines were compelled to pass, every increase of harvest in the West or of trade and manu- factures in the East increased the traffic on the Ohio lines. As early as 1854 Ohio had more miles of railroad than any other state in the Union, namely 2367 ; by 1857 the mileage had grown to 2844, built at an estimated cost of $90,000,- OOO. 29 They now reached every county of the state except eleven, 30 and there were already three or four roads whose main business was the carriage of coal and iron. 31 At the beginning of the decade they began to compete actively for traffic with the canals, which they overtook about the middle, and completely outdistanced by the end of the period. As an evidence of the growing importance and extent of the railway system may be cited the fact that an act of 1856 authorized the consolidation of railroad companies in Ohio with railroad companies of states adjoining. 32 The consolidations that created the great trunk lines out of a series of unconnected links had now commenced. With consolidation went rate wars and discrimination on the part of rival roads. These occurred not merely be- "Aud. rep., Feb. 12, 1853. "Gov. Mess. Exec. Doc., 1857, I, 35 1- "Aud. rep., 1853. "Rep. Com'r of Stat. Exec. Doc., 1860, II, 458. "Act of April 10, 1856. 316 FINANCIAL HISTORY OF OHIO [316 tween competing railroads, but also between the railroads and the canals. The legislature passed several futile acts against the latter, and in 1861 endeavored to regulate the former by the passage of the "equalization act." 33 This required every trunk railroad that connected with two or more railroads at or near the same place to carry all pas- sengers and freight from such roads and to charge no more to one railroad than to another. Another section imposed a penalty of three times the amount of the freight charges if a railroad diverted freight from the road over which it had been ordered to be conveyed by the shipper. Evidently modern railroad practices had an early origin. Comparatively little of the capital invested in rail- ways was furnished by citizens of Ohio. In 1859 the com- missioner of statistics referred to the common idea that most of the railroad bonds were held in Europe, which he considered a mistake. 34 Of the bonds issued by fifteen railroads in Ohio he calculated that flO,000,000, or one- third, were held in Europe, and $23,000,000 in the United States, which was probably typical of all the railroads. But the bonds held in Europe were the best ones, chiefly first and second mortgage, while those owned in this country were largely third mortgage and income bonds, which were consequently not so well secured. An interesting state- ment, in view of subsequent assertions as to stock water- ing and overcapitalization, was the following: "probably not over two-thirds of the nominal cost of our roads is represented by money." 35 Tax evasion was as characteristic of the railroads dur- ing this period as was discrimination, and only meager tax reports were made to the auditor. In 1859 a general tax law was passed, of which one section dealt with rail- ^Act of April ii, 1861. O. L., 1861, p. 74. For an account of the dis- crimination practiced by the railways against the canals, see a forthcoming monograph on Internal Improvements in Ohio. "Exec. Doc., 1859, I, 791. "Ibid., p. 793. 317] HISTORY AND TAXATION OF RAILROADS 317 road taxation. 36 By this act the officers of any railroads, canal, bridge, insurance, telegraph, or other joint stock company except banking, were required to list all the per- sonal property of their company at its actual value with the auditor of the counties in which the property was sit- uated. The value of the rolling stock and movable prop- erty was prorated to the various townships and cities according to the value of the real estate in them. All prop- erty so listed was to pay the same taxes as other property. If the county auditors believed that the reports contained false or incorrect valuations they were required to make a correct appraisal and to substitute the same for that filed by the railroad companies. Under this act each railroad was valued and listed by its own officers according to their own rules or opinions, and, even with the sincerest purpose to act fairly, great inequality prevailed in the amounts returned by the dif- ferent roads. 37 And there was no adequate power in any public officer or board to correct this, in spite of the authority given the county auditor, for he was quite unable to deal with a large corporation. This led to a recommen- dation from the governor that a board of assessors be created for the purpose of assessing each railroad for taxa- tion, to consist of the several county auditors of the counties through which the roads passed. 38 The following year the legislature passed an act embodying this sugges- tion. 31 * The act of 1862 was an important one and with slight modifications governed the appraisal of railroad property in Ohio until 1910. It constituted the county auditors of the counties through which a railroad ran a board of appraisers and assessors for such railroad. They were to ascertain "Act of April 5, 1859, 16. 2. Swan and Critchfield, 1438. Personal property was defined to include "roadbed, water and wood stations, and such other realty as is necessary to the daily running operations of the road, moneys and credits of such company or corporation." "Aud. rep. Exec. Doc., 1861, II, 26. "Gov. Mess. E.VCC. Doc.. 1861, I, 484. "Act of May i, 1862. O. L., 1862, p. 88; Swan and Sayler 766. 318 FINANCIAL HISTORY OF OHIO [318 the value of the personal property of the road (defined as in the previous act), and apportion it among the counties according to the value of the real estate. 40 They might require from the officers of any road a statement under oath as to the property, business, etc., of such road; and officers of roads refusing to appear before the board of appraisers, or to submit books, etc., should be judged guilty of a misdemeanor and might be punished by imprisonment up to thirty days and fine up to $500. The procedure of the board was also carefully defined. The auditor of a county in which a railroad had its principal office, or (in case the principal office was in some other state) the auditor of the county having the largest city upon the road, w r as president of the board. It was his duty to arrange the time and place of meeting, and to notify the other members of the board at least five days before the time appointed for the meeting. Provision was made for carrying on the business of the board in case of the absence or disability of the president. One of the members was to be appointed secretary and a full record of the minutes of the proceedings must be kept. 41 If the <0 By act of April 14, 1863, the term "personal property" was enlarged so as to include also the undivided profits, reserved or contingent funds, in whatsoever way they might be invested. A subsequent act further included under this head locomotives and cars not belonging to the com- pany, but hired for its use or run under its control by a sleeping car or other company. For the convenience of railroads this property might be listed and valued separately from its own property by the board of appraisers, but it was required that this valuation should be included in the aggregate valuation. "These provisions as enacted in 1862 still govern the procedure in the board, but in the last respect they have been made more specific by the act of April 30, 1891. This act enumerated what the minutes of the county auditors' board should contain that they should consist of a full and complete record of the votes of each member of the board ; that the valuation of the property should be made only on motion offered and duly seconded, and that on all such motions the yeas and nays should be called and each member's vote should be recorded by the secretary; that immediately after the board's adjournment the secretary should make a complete record of all the transactions of the proceedings of the board, 319] HISTORY AND TAXATION OF RAILROADS 319 president of the board failed to call a meeting before the second Tuesday in May, the several county auditors were empowered to meet on that day in the proper place and proceed to ascertain all the personal property of the rail- road under consideration. The boards of railroad appraisers and assessors were soon supplemented by a state board of equalization for railroads, composed of the state auditor, treasurer, and attorney general. 42 At an annual meeting to be held the last Wednesday in July at the office of the auditor, com- plaints were to be heard and the property of railroads equalized. The law empowered the board to increase or reduce the valuations placed on individual railroads, but not to reduce the aggregate valuation below that returned by the county boards of appraisers. 43 There was evidently more fear of evasion of taxes than of injustice to the rail- roads. In practice the state board has changed the valua- tions made by the county boards but slightly. The follow- ing table shows the results of the board's work for five year intervals since its creation, and may be taken as typical (000 omitted) : and set forth therein the names and official capacity of the officials of the railroad present at the meeting just held; and that a certified copy of the proceedings, signed by the president and secretary, should be for- warded at once to the county auditor of each county constituting the board, and the same should be recorded in a book kept in the county auditor's office, subject to the inspection of any person during office hours. The tax commission act of 1910 changed this system. See below. "Act of April u, 1865. O. L., 1865, p. no. "This original law has been but slightly modified. The date of the annual meeting has been changed to the first Wednesday after the tenth day of June (Act of April 2, 1866): The boards of county appraisers were required to send immediately after their adjournment to the board of equalization all the reports of the various railroad officers and such other information as the state board might require (Act of March 16, 1867). The office of commissioner of railroads and telegraphs was created the same year, and this official was made a member of the board of equalization (Act of April 5, 1867). 320 FINANCIAL HISTORY OF OHIO [320 Year. 1866 Value as fixed by Co. boards. $ 48,817 Addi- tions. $886 Deduc- > tions. $679 /alue as fixec by state b'ds $ 49,024 I Changes. 2 add. 3 ded. 1871 64,545 785 453 64,877 7 add. 2 ded. 1876 83,917 397 184 84,129 3 add. 3 ded. 1881 83,597 828 661 83,764 6 add. 3 ded. 1886 89,273 215 172 89,316 4 add. 3 ded. 1891 104,954 398 457 104,896 7 add. 7 ded. 1806.. 104,984 67 35 105,015 3 add. 2 ded. IOOI . . 116,891 379 376 1 16,894 6 add. 4 ded. 1006. . 148,066 6 148,060 o add. i ded. 1907 152,403 152,403 o add. o ded. 1908.. 156,096 156,096 o add. o ded. IOOQ. . isfofe i $6.783 o add. o ded. This method of assessing railroads did not long go unchallenged, and the criticisms made at the beginning have been constantly reiterated down to the present time. auditor in 1864 objected that the county auditors "are wholly unacquainted with the value of this species of prop- erty; they are more or less subject to local influence ..... The result is, some roads are appraised too high, and some too low." 44 And two years later he again criticized the work of the county boards, "who know little, if anything, of the value of that species of property. We should have direct returns under oath to the state board of equaliza- tion." 45 Fuller criticism of this plan may, however, be reserved till later. CONSTRUCTION AND TAXATION AFTER THE CIVIL WAR. After the phenomenally rapid railroad building that took place in Ohio during the fifties, the growth of the railway net proceeded more slowly. On July 1, 1867, the total mileage in the state was 3,877. Consolidations were also taking place and the railway service for through traffic was being greatly improved. 46 Competition of the trunk "Exec. Doc., 1864, I, 225. "Exec. Doc., 1866, I, 134. "First an. rep. Com'r of Railroads and Telegraphs. Exec. Doc., 1867, I, 357- 321] HISTORY AND TAXATION OF RAILROADS 321 lines was but intensified by these changes, and discrimina- tion in rates was generally practised. An effort was made to end this by the passage of a "long and short haul" act in 1871, which forbade railroads "to charge or receive for transportation of freight for any distance in this state, a larger sum than is charged by the same railroad for the transportation of freight of the same class or kind, for an equal or greater distance." 47 The penalty for infraction of this law was the forfeiture to the aggrieved party of double the amount of the overcharge, with a minimum of $ 25. The act was primarily designed to prevent excessive charges for local freight, which seemed out of all propor- tion when compared with the long-distance charges, which competition was rapidly bringing down. Between the years 1869 and 1881 the number of tons moved one mile in Ohio grew from 739 to 3682 million, while the ton-mile rate decreased from 2.446 to .915 cents. 48 It was estimated that there was saved to the shippers over $337,000,000, being the difference between the actual rates and those of 1869 ; for the same period the total taxes of Ohio amounted to $316,000,000. Unfortunately for the implied argument, the savings on through transportation charges did not go into the pockets of Ohio tax-payers, or but to a slight extent. The law of 1871, moreover, did not affect its purpose of reducing local freight charges and of preventing dis- crimination. The commissioner of railroads and telegraphs directed attention to a large number of "clear and palpable violations of the law" by railroad companies. In relation to rates prescribed by law for the transportation of persons and property he said, there is not a railroad operated in the state, either under special charter or the general law, upon which the law regulating rates is not in some way violated nearly every time a regular passenger, or freight, or mixed train passes over it. 49 "Act of April 26, 1871. O. L., 1871, p. 78. This awkwardly worded act was re-enacted two years later in much improved phraseology. Act of March n, 1872. O. L., 1872, p. 27. 48 Ringwalt, Transportation Systems in the U. S., p. 245. "Quoted in Gov, Mess. Exec. Doc., 1871, II, 165. 322 FINANCIAL HISTORY OP OHIO [322 In subsequent reports the commissioner turned apologist for the railroads. During the eight years 1868-75 the taxes paid by the railroads of Ohio amounted to 2.988 per cent, of their gross earnings in the state. The commissioner pointed out that in those states where railroads were taxed on the basis of their annual incomes, the rule was to take 3 per cent, of the gross income as the value of the road for taxation; he concluded therefore that the Ohio railroads bore their fair share of taxation. 50 In 1872 the legislature passed an extraordinary law, known as the "Boesel law", which authorized "counties, cities, incorporated villages, and townships to build rail- roads, and to lease and operate the same." 51 There was an immediate rush on the part of these local units of gov- ernment to avail themselves of the right to build railroads, and within seven months bonds to the amount of $2,685,050 had been deposited with the treasurer of state for this purpose; 52 by December 23 the local indebtedness under the Boesel law was $3,177,000. 53 The following year the state supreme court held the act unconstitutional, as it contravened section 6 of Article VIII, but before that the bonds deposited had amounted to over $6,000,000. 54 This activity certainly evidenced the existence of a widespread demand, particularly on the part of the smaller towns and villages, to secure better railroad facilities. While the method outlined by the Boesel law was extremely ill- advised, it yet met with an immediate popular response. Today the need then made apparent has been met success- fully by the building of electric interurban lines, which afford the needed facilities to towns neglected by the steam roads. 55 ""Reports. Exec. Doc., 1874, I, 791 ; 1875, I, 894. "Act of April 23, 1872. K Aud. rep. Exec. Doc., 1872, II, 325. M Gov. Mess., Jan., 1873. Exec. Doc., 1872, II, 557. "Rep. Com'r of RR. and Telegr. Exec. Doc., 1873, I, 782. M See my article on "Interurban Railways in Ohio", in the Journal of Political Economy, May, 1907. 323] HISTORY AND TAXATION OF RAILROADS 323 Meantime the methods of appraising and taxing rail- road property laid down by the laws of 1862 and 1865 had remained unchanged in spite of criticisms. The system of local assessment by boards of county auditors resulted in an undervaluation of railroad as compared with other prop- erty, as well as unequal treatment of different railroads. Between 1878 and 1892 the changes in the taxable valuation and the gross receipts of three of the most important Ohio railroads was as follows : 56 Railroad. Lake Shore and Mich. So. Cleveland and Pittsburg. Gross Year. Valuation. Receipts. 1878 $12,996,609 $13,505,159 1892 12,457,745 22,415,382 1878 5,731,000 2,272,166 1892 4,495,000 3,429,278 1878 10,732,001 7,830,000 1892 10,525,948 11,659,142 Pittsburg, Fort Wayne and Chicago. EXCISE TAXATION, 1893-1911. In 1893 a tax commission was authorized by the legis- lature 57 and appointed by the governor, "to thoroughly investigate the whole subject of taxation in the state", among which the taxation of railways came in for its due share of attention. The commission concluded that the true value of the railroads in the state could most justly be estimated by capitalizing the net earnings at 6 per cent. Upon this basis they found the true value in Ohio of the two first roads named above to be, respectively, $32,598,273, and $16,031,438. 58 From these and other facts they con- cluded that the railways of the state paid taxes upon a valuation of from 25 to 30 per cent, of their real value, while other property paid on a valuation of about 50 to 60 per cent. The total assessed value of railways was only 1105,000,000, while that of horses alone was $47,000,000, or almost half as much. It was evident that, from whatever "Rep. Tax Commission, 1893, p. 52. "Jt. Res. Gen. Ass., June 19, 1895. "Rep., p. 55- 324 FINANCIAL HISTORY OF OHIO [324 point of view the subject was studied, the railways were paying less than their fair share of taxes to the state. To remedy this, it was suggested that a franchise tax be levied, in addition to existing taxes, based upon the gross earnings within the state. Acting upon this advice the general assembly the fol- lowing year imposed an excise tax of one per cent, on the capital of sleeping car companies, estimating the capital in Ohio according to the proportion in the state of the total lines over which the cars ran. 59 In 1895 a similar excise tax of one-half of one per cent, was exacted of all railroads in the state, based upon that proportion of the gross earn- ings which the mileage within the state bears to the total mileage. This tax was increased in 1901 to one per cent. The interurban electric railways, which had developed very rapidly in the previous half decade, were by an act of 1904 to be assessed in the same manner as steam railways, that is by the auditors of the counties through which they passed acting as a board of appraisers and assessors. 60 A vigorous protest was made in 1901 before the state board of equalization under the leadership of Tom L. John- son, mayor of Cleveland, against the inequalities in rail- road taxation. A carefully prepared brief was presented showing that the railroads of Ohio were appraised for valuation at only 21.9 per cent, of their market value, and that even with the excise tax of one-half of one per cent, the rate of taxation per $1000 was only $2.36 for the rail- roads in comparison with an average rate of $2.45 on all other property. 61 A strong effort was then made to secure an increase by the board of equalization in the aggregate valuation of railroads. Attorney General Shields main- tained, however, that the board had no legal right to in- crease the total appraisement made by the county boards "Act of May 21, 1894. O. L., 1894, p. 408; Laning's Rev. Stat. (1906), sec. 4126. "Act of April 25, 1904. O. L., 1904, p. 572. "Report of Prof. Edward W. Bemis on the True Value of Ohio Rail- roads for the Purpose of Taxation. Privately printed (Cleveland, O.). P. I. 325] HISTORY AND TAXATION OF RAILROADS 325 of appraisers. The railroads also filed a reply in which they asserted that the state board of equalization was appointed merely to equalize the appraisals made by the county boards, and that if they increased the aggregate valuation they ceased to be a board of equalization and became one of original appraisement. The right of the state board of equalization to alter the aggregate valuation has, as a matter of fact, never been established by any decision. 62 Although this effort failed, the excise tax was doubled this year by the general assembly, thus compen- sating for the low local assessments. 63 As a result of the agitation and publicity moreover several of the county auditors refused, under political necessity, to receive passes from the railroads which they were sworn to assess at their "true value in money." The methods and conditions under which the work of assessment were usually carried on are so well described in the following typical account that it is quoted at length : 64 The Cleveland end of the county auditors' annual entertainment by the steam railroads is over until another year. Yesterday another board of county auditors paused long enough in the round of pleasure occasioned by their Cleveland trip to appraise the Lake Shore Railroad. When this was done, the transaction requiring only a little more than an hour to accomplish, the last board of railway assessors to meet in Cleveland this spring adjourned. When the auditors composing the board met about a half hour after their adjournment yesterday it was not on business that they were bent. * 2 The dictum of the attorney general and the caveat of the railroads both seem to the writer unwarranted in law, for the act creating the state board of equalization provided only that they should not reduce the aggregate valuation originally made by the county boards, thereby giving them authority, by implication, to raise the aggregate valuation. ""In spite of the low local assessments, the taxes per mile of line in Ohio were exceeded in 1900 by those of only nine other states, of which seven were in the East, the other two being Indiana and Illinois. Pro- fessor Bemis, in his Report, based his contention of the undervaluation of the Ohio railroads upon a comparison with the two neighboring states. The taxes were $304 per mile in Ohio, $374 in Illinois, and $403 in Indiana. Cf. Interstate Commerce Commission Report, 1900, p. 97; Seligman, Essays in Taxation, p. 142. "Cleveland Plain Dealer, May 21, 1904. 326 FINANCIAL HISTORY OF OHIO [326 It was to do full justice to an ample banquet tendered by a grateful rail- road to its late judges. It took longer to dispose of this part of the day's business than to appraise a railroad worth, according to its own tax return, $14,500,000 and, according to Prof. E. W. Berais, between $60,000,000 and $90,000,000. Bemis was denied a hearing, however. One of the brightest spots in the life of the average auditor is when he rides to Cleveland or some other city, on transportation abun- dantly provided by a generous and expectant railroad company, to fix by his vote the amount of taxes which that railroad will pay during the ensuing year. "What can we do?" asked a rural auditor yesterday. "The minute we strike town the railroad has a man on hand to meet us and show us around. And does a railroad know how to show a man a good time? Well, I guess so. They're princes, that's what they are. Everything the very finest, too. I don't think I'll be able to eat anything now for a week." The meeting at which this auditor assisted in valuing the company whose powers of entertaining he praised so highly, was held this week. The auditor arrived in Cleveland on the evening of the day before the meet ; ng. That night he, accompanied by a number of fellow visiting auditors, was taken in tow by the agent of the railroad to assess which was the common errand of them all. The agent was a good fellow. So were the auditors. Dinner, the theater and an evening of pleasant enter- tainment, such was the study and preparation given by the auditors to the work expected of them as public officials the next day. "What do we know of the value of different styles of locomotives, or the depreciation which rolling stock suffers by a year of usage?" quoth the auditor, who happened to be a most competent and intelligent public official and one whose word on the value of farming implements or the respective merits and demerits of different breeds of cattle is worth its weight in gold in his own community. "The railroad gets us all here ; we are up against a problem with which we are utterly incapable of wrestling. What do we do? Why, what can we do? The railroad com- pany says a certain thing is so and so, and, unless we happen to know otherwise which is a very rare occurrence we take their word for it. All we know when we sit down there to appraise a railroad is what the company's agent has been pouring in our ears. He has shown himself to be straightforward and generous in his dealing with us and his word is all we have. Generally it goes." At the close of the meetings, to appraise the road, and the meetings never last over two hours, after Auditor Wright has hurled a few fare- well shots at his colleagues, the auditors hasten to a hotel, where there is a 'steen course dinner. In the evening this is repeated and there are smokers galore. In the case of one railroad assessed this week, the evening's entertainment was furnished by the company at one of its private cars which was side tracked conveniently in the down town yards. n 327] HISTORY AND TAXATION OF RAILROADS 327 The series of meetings just closed has been marked by one distinctive feature. This is the fearlessness which several auditors showed in voting for large increases. In not a few instances substantial boosts to railroad's valuation have been almost carried, a very small majority alone defeating them. In one or two cases a tie vote has defeated a motion to increase the company's return. Several auditors have consistently voted at all the meetings they attended for every proposition to increase which came before the board. In many cases petty differences between various auditors have prevented additions which various auditors wanted to go through for the benefit of their particular counties. But anyway, the auditors, with the exception of a few like Auditor Wright of this county, who objected to being made the recipients of small gratuities by the railroads, have all had a real good time, a pleasure outing, and a round of enjoyable experiences. The increased agitation and interest in the subject of taxation led in 1906 to the appointment of a second tax commission to investigate the existing system and recom- mend changes. 65 Among the recommendations made was a simpler and more modern method of taxing public service corporations, such as by gross receipts or other special charge, in lieu of all other taxes, which will more effectively and uniformily reach franchise values and be substituted for the complex, diverse and inadequate methods now prevail- ing in Ohio. 6 * This was secured in 1910 by the creation of a permanent tax commission, to which was given the duty of assessing the public service and other corporations in the state. Their most important function, for the present at least, is to consist in the assessment of railroads, express, tele- graph, and telephone companies, sleeping car, freight line, and equipment companies, and other public utilities, which had previously been assessed by a number of special boards. For instance, railroads had been assessed by the county auditors, and the others by state boards ; the taxes on public service corporations had been collected by the auditor, the excise tax on other corporations had been collected by the secretary of state, and other taxes had been paid to the state treasurer. All the machinery for the assessment of these various taxes is now concentrated in the hands of "The commission was appointed on Sept. 21, 1006, and made their report on Jan. 10, 1908. "Report, p. 45. 328 FINANCIAL HISTORY OF OHIO [328 the tax commission, while all taxes are to be paid directly to the state treasurer. After the value of the property of public service cor- porations is assessed by the commission, the valuations are apportioned to the local taxing districts in which they are situated. In the case of express, telegraph, and telephone companies, the value of their property is to be determined by the value of their capital stock in accordance with cer- tain rules ; from the value so determined is to be deducted the value of real estate already taxed. In the case of other public utilities "all the personal property thereof, which shall include all real estate necessary to the daily opera- tions of the public utility and money and credits within the state" is to be assessed by the commission, and in addition detailed statement of the various kinds of tangible property must be made by the corporations. At the same time that the machinery of assessment was simplified and unified, the principle of differentiation was introduced in the taxation of corporations. Previously all the public service utilities had paid the same excise tax of one per cent, of their gross receipts earned within the state; this large class was now broken up into smaller groups, upon each of which was laid a different rate. 67 Railroad and pipe line companies are taxed four per cent, of their intra-state gross receipts; express and telegraph companies, two per cent; and street, surburban and inter- urban railroad companies, electric light, gas, natural gas, water works, telephone, messenger or signal, union depot, heating or cooling, and water transportation companies, 1.2 per cent, of such gross earnings or receipts. The com- panies in the last two groups are also subject to the assess- ment and taxation of their property in the usual manner. Sleeping car, freight line and equivalent companies are also taxed 1.2 per cent, on the proportion of their capital "Owing to the constitutional requirement of uniform treatment of all forms of property, corporate and individual, corporation taxes as such may not be imposed in Ohio, but excise taxes for the privilege of carrying on their business within the state are exacted of public utilities. 329] HISTORY AND TAXATION OF RAILROADS 329 stock adjudged by the commission to represent the capital and property of each company owned and used in Ohio, after deducting the value of all real estate taxed locally in Ohio. The differentiation in rates thus introduced was fully justified on the ground of difference in character, and the increase in rate was defended on the ground that it now applied strictly to intra-state business only, which was more carefully defined. Moreover, some new utilities, like union depot companies, were now for the first time sub- jected to taxation. The act of May 10, 1910, had changed the basis for determining the amount of the excise taxes payable by railroads, substituting a tax of 4 per cent, on the gross earnings from intra-state business for the old tax of 1 per cent, on that proportion of their total gross earnings repre- sented by their mileage in Ohio. As many of the railroads could not state their intra-state earnings, owing to the short time since the passage of the act, the commission accepted from such companies an estimate of their intra- state earnings, based upon the mileage principle. Even under this arrangement the assessed basis of taxation for railroads was increased some $20,000,000, or about 100 per cent. The increase in the taxable basis of all other public utilities amounted to $634,000, or 8.4 per cent. As a re- sult of the greater care and thoroughness exercised by the commission the state revenues from these sources and from the franchise taxes upon foreign corporations were in- creased over $550,000. Owing to the fact that the taxable values of railroads have been distributed among the local taxing districts for purposes of taxation, no statistics exist in Ohio which show for each year the aggregate taxes on railroads. Hereafter, we may expect to have these. CHAPTER VII BUSINESS AND MISCELLANEOUS TAXATION. LOTTERIES. Lotteries were not infrequently resorted to in the days of early state finance 1 to raise funds for special purposes, and Ohio was no exception to the general rule. During the session of 1806-7 the legislature passed an act authorizing a lottery to raise money to build a bridge across the mouth of the Muskingum River, 2 but it did not succeed. 3 At the same time private lotteries were forbidden. 4 Six years later it was provided that all lottery tickets heretofore issued by the authority of the state should be negotiable. 5 Practically all the lotteries authorized by the state were for educational or public purposes ; in 1817 the legislature authorized one for the benefit of the Ohio University. 6 In 1824 the sale of unauthorized lottery tickets was forbidden, and in 1830 an act was passed to prevent lotteries. Ap- parently, however, this did not mark their end, for another and final act was passed in 1851 prohibiting lotteries. 7 They do not appear again in the legislative records, as the constitution of 1851 absolutely prohibited them. 8 BANKS. Banks were the first corporations to be subjected to taxation by the Ohio legislature, the first act taxing them *Cf. Ely, Taxation in American States and Cities, p. 113; McMaster, History of the People of the U. S., I, Index. "Ho. /., 1806-7, p. 172. 3 T. Flint : Western States, II, 391. 4 Act of Jan. 30, 1807. "Act of Jan. 8, 1813. Chase, in his Statutes of Ohio, says Ohio resorted to lotteries only once, but this subsequent legislation seems to disprove this statement. 'Act of Dec. 29, 1817. Ho. J '., 1817-18, p. 149. 'Acts of Feb. 10, 1824; Feb. 22, 1830; March 8 and 24, 1851. '"Lotteries, and the sale of lottery tickets, for any purpose whatever, shall forever be prohibited in this state." Art. XV, sec. 6. 331] BUSINESS AND MISCELLANEOUS TAXES 331 being passed in 1815. 9 As the history of bank taxation is so important it has been treated more fully in another place. 10 AUCTIONEERS AND SALES AT AUCTION. Another source of revenue was tapped in 1818, by an act which levied a tax of three per cent, on the net amount of sales at auction; 11 it was limited, however, to goods and merchandize, the growth, product or manufacture of any foreign country. Sales of insolvent estates, of executors or administrators, or on execution, were exempt. One- third of the receipts from the tax were to go to the county in which the auction was held, and the remainder to the state. The court of common pleas was to appoint auc- tioneers, who should give bonds, and pay a license tax of $20 a year. An amendment of February 18, 1824, made all goods sold at auction subject to the law, and gave the whole amount of the tax to the state ; the proceeds were set aside as a literary fund, except that in Hamilton county one-half was to go to the Commercial Hospital and Lunatic Asylum of Ohio. In 1829 stock and fanning utilities and manu- factured goods made by individuals in their homes or by societies were exempted from the operation of this tax. 12 In 1831 the legislature again revised the law on this sub- ject. 13 The former exemptions were removed, and all prop- erty sold at auction was divided into three classes: the first paid one per cent. ; the second, one and one-half per cent. ; and the third, two per cent. The license tax on auctioneers was to be fixed by the court, not to exceed $500 a year, but the disposition of the proceeds of the tax remained the same. By further amendments of 1834 and 1835 a fourth class was introduced on which the tax should be three- quarters of one per cent. 14 The existing legislation was 'Act of February 8, 1815. Ho. ]., 1814, p. 142. "See Ch. V, History of Banks and Bank Taxation. "Act of January 30, 1818; in effect May I. "Act of January 19, 1829. "Act of March 14, 1831. Chase, Ohio Statutes, III, 1822. "Acts of January 2, 1834, and March 4, 1835. 332 FINANCIAL HISTORY OF OHIO [332 codified in 1840, but no changes made in the law except to exempt judicial sales. 15 No further legislation was passed on this subject until 1875, when the appointment of auctioneers and the determination of the rate of the license tax were left to the court of common pleas. 16 Since that date no change has been made. 17 The law therefore stands today substantially as it was first enacted in 1818, the only important amendment having been that of 1831. For the year ending November 15, 1909, the receipts to the state were |85.67 from this source. INCOME TAX ON LAWYERS AND PHYSICIANS. In 1825 the first and only income tax ever imposed by the state of Ohio was laid on attorneys and counsellors at law and physicians and surgeons who had been practising over two years. The court of common pleas was to list them annually on the tax duplicates at from $5 to $50 and they were to be taxed on these amounts. 18 In 1830 the tax was made directly upon incomes, and called for an annual tax of not over $5 upon the incomes of lawyers and physi- cians. 19 The assessors of the counties were to make a list of the lawyers and physicians and report them to the county commissioners, who were to rate them for taxation. The law remained in force until the adoption of the new constitution, when it was repealed. 20 It was of little sig- nificance as a revenue producer, but served to secure the registration of the lawyers and physicians in the state. The state received only a very meager revenue from this source, the largest amount being $7301 in 1851. 21 "Act of March 16, 1840. "Act of March 20, 1875-72. 0. L., p. 66. "Rev. Stat., 4222-4238. "Act of Feb. 7, 1825; in effect March i, 1826. "Act of Feb. 22, 1830. "Act of March 18, 1852. "For complete receipts see Ch. II, appendix, Table II. 333] BUSINESS AND MISCELLANEOUS TAXES 333 TAX ON BROKERS. The act of February 3, 1825, which initiated in a very partial manner the general property tax in place of the old tax on lands, also imposed taxes upon merchants and ex- change brokers. The latter were divided into three classes for purposes of taxation, and their capital arbitrarily listed at the amounts assigned to these classes: those with a capital of $60,000; those with a capital of $30,000; and those with a capital of $15,000. The associate judges of each county were to list and class exchange brokers by June 1 of each year and deliver the list to the assessor, 22 who were then to assess them on this basis at the rate of the general property tax. The attempt to classify exchange brokers was given up in the act of March 14, 1831, which directed that they were to be taxed according to the value of the stock in trade used. This was further amended by the act of March 21, 1840, which provided for taxing the capital of exchange brokers and stock jobbers; their cap- ital was to be placed on the grand list for taxation for state and local purposes. Money brokers were taxed, by the act of March 12, 1845, one-eighth of one per cent, annually on all money bought and sold ; they were required to take out an annual license. By an act passed the following day they were permitted to set off their debts against their credits. The following year money brokers were again required to take out a license and were taxed according to the amount of their business. 23 The broker was required to take an oath as to the amount of money lie believed he would employ during the year next ensuing. Under such a naive law a great many pessimists as to their business outlook must have developed in Ohio. The classification and grading of "The amendment of Jan. 17, 1826, gave the duty of listing and classing to the assessor, who must file the list with the clerk of the court of common pleas. B Act of March 2, 1846. By act of March 19, 1849, this law was extended to stock brokers. 334 FINANCIAL HISTORY OF OHIO [334 the tax was also very clumsy and inequitable; it was as follows : Amount of Annual Business. Tax. Under $10,000 $60 $10,000 20,000 120 20,000 30,000 180 30,000 40,000 240 40,000 50,000 , 300 Over $50,000, $6.00 on each additional $1000 plus the previous tax. It will be noticed that the tax amounted to f 6.00 on each f 1000 for the highest members of the class, but was regres- sive within the class, being much heavier on the lowest members of the group, since the tax was a fixed sum for every one within the group. Fortunately this law was repealed after three years, 24 and money brokers were taxed like other individuals under the general property tax. By the act of April 13, 1852, exchange brokers and stock jobbers were grouped with bankers and were taxed on the average value of all moneys, stocks, etc., during the past year, at the same rate as the property of individuals ; property so listed to be subject to all taxes for state and local purposes. No change was made by the act of April 5, 1859, but after that date the specific mention of brokers as subjects of taxation disappeared from the laws. TAX ON MERCHANTS AND MANUFACTURERS. In casting about for additional sources of revenue to meet the proposed expenditures for internal improvements the governor suggested the capital employed in mercantile business. 25 This he estimated at $3,000,000, yielding an annual profit of about $375,000, which he thought could bear a tax of four per cent., and thus produce to the state the sum of f 15,000 annually. The act of February 3, 1825, accordingly levied a tax on the capital of all merchants "Act of March 20, 1849. *Gov. Mess., Ho. J '., 1821-22, p. 44. 335] BUSINESS AND MISCELLANEOUS TAXES 335 employed within the state. Merchants were divided into eight classes and were taxed on the amount of capital assigned to the class in which they were placed. The classes and the amounts of capital assigned to each were as follows: Class I $50,000 capital Class 2 40,000 capital Class 3 30,000 capital Class 4 20,000 capital Class 5 15,000 capital Class 6 10,000 capital Class 7 5,ooo capital Class 8 2,500 capital The associate judges of each county were given the duty of listing and classing the merchants and of delivering the lists to the assessor. 26 Aggrieved merchants were given the right of appeal to the board of equalization, who might order a change of class. Two years later all merchants dealing exclusively in goods or merchandize of the growth or manufacture of Ohio, and employing less than $200 stock in trade, were exempted from taxation. 27 This was quite in line with the general tax policy of the state during this period, when the tax machinery was used as a means of granting favors, of encouraging particular industries, and of retaliation and suppression. The attempt to classify merchants was given up in the act of March 14, 1831, which simply taxed "according to the value of the stock in trade used"; but the same exemption given by the act of 1827 to small merchants, trading in Ohio products, was con- tinued. With the introduction of the general property tax "An amendment of Jan. 17, 1826, assigned the duty of listing and classifying to the assessor, who must file his list with the clerk of the court of common pleas. "Act of Jan. 31, 1827, 9. "Where payment of the tax on merchants was resisted on the ground that the merchandize taxed was the growth or manufacture of foreign countries and other states, and was not there- fore constitutionally subject to taxation by state authority, the court over- ruled the objection and sustained the constitutionality of the law." Raguet v. Wade, 4 Ohio Rep., 107, cited by Chase, Ohio Statutes, II, 1478 n. 336 FINANCIAL HISTORY OF OHIO [336 in 1846, merchants and manufacturers were taxed on the value of their property like individuals, and this principle has since been continued. 28 Manufacturers were not subjected to taxation until 1831, the general policy of favoring these enterprises not permitting the imposition of any tax burdens upon them before this time. By the act of March 14, 1831, a number of industries, hitherto exempt, were enumerated as being specifically subject to taxation; these were: "all grist, oil, and saw mills; all manufactories of iron, glass, paper, clocks, and nails ; all distilleries, breweries and tanneries ; all iron, brass and copper founderies; ... all stocks or capital invested in steamboats . . ." These were taxed at the ordinary rate of taxation. In the subsequent acts of 1846, 1852, 1859, and 1878, manufacturers were grouped with merchants and were taxed on the average value of all their property during the previous year. The law is substantially the same today, merchants and manu- facturers listing their stocks as personal property, to be taxed for general state and local purposes under the gen- eral property tax rate. 29 It shall be listed in the township, city or village in which it is situated. All other personal property is listed at the residence of the owner. 30 INSURANCE COMPANIES. The first law laying a tax on insurance companies in Ohio seems to have been that of February 22, 1830. By this act domestic insurance companies were required to pay four per cent, of, their dividends; foreign insurance companies paid an annual license fee of $50 for each agency and also four per cent, of the profits of such agencies; if, however, the tax on the profits exceeded $50, then the amount of the license was to be subtracted. This act was repealed the following year and the "act to tax bank, in- surance, and bridge companies" levied a tax of five per cent. "Acts of March 2, 1846; April 13, 1852; April 5, 1859. "R. S. 2740-2742. a>n> o g O--JE K. O. 8 2/35. 337] BUSINESS AND MISCELLANEOUS TAXES 337 on the dividends. Foreign insurance companies were re- quired to pay six per cent, of the profit on premiums re- ceived in the state. 31 The revenues from the taxes on in- surance companies is shown in the table of receipts at the end of chapter II. 32 No further legislation occurred until 1846, when the tax on domestic insurance companies was raised to six per cent, on their gross profits. 33 This would seem to indicate that the business was prospering in Ohio. By the constitu- tion of 1851 it was provided 34 that corporate property should be taxed like the property of individuals. Accord- ingly the law of April 13, 1852, ordered all insurance com- panies, as well as canals, railroad, bridge, telegraph, and other joint stock companies, to list all their property at its actual value; all property so listed to pay the same tax as other property in the state. 33 No distinction was here made between domestic and foreign insurance companies, and as a result the latter escaped taxation in Ohio since they had no property in the state. During the period of the Civil War the business of insurance attained an enor- mous development in Ohio, and was steadily on the in- crease; 36 the auditor urged the taxation of foreign in- surance companies in his report for 1865. It was not until 1876, 37 however, that foreign in- surance companies were again specifically taxed. An act of that year provided that foreign insurance companies doing business in Ohio should return annually to the auditor of the county in which an agency was kept the amount of the gross premium receipts of such company, which should be entered upon the tax list and taxed at the same rate as all other personal property. 38 Similar legisla- "Act of March 12, 1831. "Figures for 1831 to 1844 are given in spec. rep. of aud., Dec. 23, 1844. "March 2, 1846. "Art XIII, sec. 4. '"This was repeated in the act of April 5, 1859. "Aud. rep. Exec. Doc., 1865, I, 334. "73 O. L. 139, 16. "This was re-enacted by the act of April 11, 1888. O. L., p. 183. 338 FINANCIAL HISTORY OF OHIO [338 tion in other states directed against Ohio companies finally called forth the retaliatory act of April 12, 1889. 39 This provided that the superintendent of insurance should col- lect from foreign insurance companies such sums as would, added to county taxes, produce 2y 2 per cent, on the gross premium receipts of such companies ; provided that if Ohio companies were charged more than 2y 2 per cent, in other states or countries, a like tax should be imposed upon companies from those states. If any company refused to pay these taxes, its license to do business in the state should be revoked. The proceeds of this tax were to be paid into the state treasury for the general uses of the state. In 1893 a slight change was made in the tax. Foreign insurance companies were taxed on their gross premium and assessment receipts; but if the policy holders partici- pated in the earnings, such distribution of earnings was first to be subtracted. 40 The retaliatory feature remained unchanged. In 1902 another change was made in the basis of the tax. An excise tax of 2~y 2 per cent, was levied on the gross premiums, less the return premiums and con- siderations for reinsurance, but no alteration was made in the retaliatory feature. 41 No change was made in the law respecting domestic insurance companies, and they are taxed on their property like other corporations. 42 In 1900 a tax of 1/2 P er cent, was imposed on the gross premium receipts of all insurance companies, in addition to existing taxes, to defray the expenses of a state fire marsh all and his department. 43 For the year ending November 15, 1909, the receipts from the insurance department were $1,049,277. m O. L., 1889, p. 274. "Act of April 19, 1893. Amended by act of March 27, 1894. O. L., 1893, p. 201. "Act of April 29, 1902. O. L., p. 290. Amended by act of April 25, 1904. "R. S. 2745, 2745d. "Act of April 16, 1900. O. L., p. 389. 339] BUSINESS AND MISCELLANEOUS TAXES 339 TRANSPORTATION COMPANIES. The first of the various companies engaged in the work of improving the means of transportation in Ohio to be subjected to taxation for state purposes were the bridge companies. An act of March 12, 1831, levied a tax of five per cent, on the dividends of bridge companies, as well a on those of bank and insurance companies. That the bridge companies were included in a trio with the other two busi- nesses shows that they must have been profitable. In the same year 44 all stocks or capital invested in steamboats, and all pleasure carriages with two or four wheels, were taxed in the hands of their owners according to their value in money. The general property tax law of March 2, 1846, provided for the taxation of railroad, canal, and slack water navigation companies according to their true value in money. By the act of April 13, 1852, every canal, railroad, turnpike, insurance, bridge, telegraph and other company was required to list for taxation, at its actual value, its real and personal property, within the state. Property was to be returned to the auditor of the county where it was situated and moveable property to be appor- tioned pro rata according to the value of the fixed property. Property so listed was to pay all state and local taxes. No change in principle was made by the law of April 5, 1859. After this date a wide differentiation took place in the value and tax bearing ability of these different corporations. Railroads grew in magnitude and importance and called for peculiar and separate treatment; the history of their taxation is discussed elsewhere. 45 Private canals fell into disuse and were abandoned, while the state canals were never, of course, objects of taxation. Turnpikes and bridges were constructed by governmental rather than by private aid, and the property of the early private com- panies was taken over by the counties or townships. Other corporate property was taxed under the general property "Act of March 14, 1831. "See chapter VI, on the History and Taxation of Railroads. 340 FINANCIAL HISTORY OF OHIO [340 tax, though after 1860 special boards or other tax ma- chinery began to be used in assessing taxes on these trans- portation agencies. With the development of special com- panies for the transmission of news attention began to be directed to their taxation, and to these we may now turn. THE TAXATION OF TELEGRAPH, TELEPHONE, AND EXPRESS COMPANIES. The first mention of any of these companies for pur- poses of taxation occurred in the act of April 13, 1852, which provided that telegraph companies, among others, should list their real and personal property for taxation under the general property tax rate. Foreign companies managed to escape under this general act, so in 1862 a law was passed 46 taxing foreign telegraph and express com- panies on their net receipts within the state. Express com- panies were permitted to deduct the amount required to be paid out for transportation expenses, and telegraph agents might deduct the necessary expenses of their offices. Severe penalties were provided for non-compliance and the agents were made personally liable. If the returns were not made by the agent, the auditor was to enter them upon the tax duplicate with a penalty of 50 per cent. If the taxes were not paid the agent was made personally liable and his personal property was subject to sale, while if the taxes were unpaid in thirty days it was made unlawful for any one to act as agent, and the company could not do business. After a three years' trial of this law it was amended by the act of April 13, 1865. 47 Telegraph companies were no longer allowed to deduct the "necessary expenses" of their office, but were taxed on their gross receipts. 48 Evi- dently these expenses had swollen to undue proportions. In the case of express companies the right to deduct the cost of transportation from gross receipts was continued, but the law stipulated that the amount deducted be not "Act of May i, 1862. 59 O. L., gi. Swan and Sayler, p. 769. "62 O. L. 174. "This had been urged by the auditor. Exec. Doc., 1864, I, 225. 341] BUSINESS AND MISCELLANEOUS TAXES 341 the amount required to be paid, but the amount actually paid for transportation charges. The principal agent of the company, moreover, was permitted to make the returns to the county auditor, instead of the local agents. For a period of twenty-eight years following this law there was no further legislation on this subject, but the telegraph companies must have prospered, if any inference can be drawn from the following rates: 49 Rates for 10 words Western Union Atlantic & Pacific in cents. 1868 1869 1868 1869 For 50 miles 45 30 25 30 For loo miles 60 40 30 30 For 200 miles 75 70 40 40 For 300 miles 90 90 40 70 For 400 miles 105 no 50 For 500 miles 120 130 50 The rise in the long distance rates of the Western Union company in 1869, after the competition of the At- lantic & Pacific company ceased, is significant, as well as the fall in the short distance rates. On April 27, 1893, the general assembly passed the Nichols law, thereby changing entirely the method of assessment. 50 In place of the annual statements filed w r ith the county auditors and forwarded by them to the auditor of state, a board of appraisers and assessors was provided for, composed of the state treasurer, attorney general, and auditor, who should assess the value of the property of express, telegraph, and telephone companies doing business in the state. Every such company must file annually with the auditor of state a sworn statement comprising the fol- lowing items: (1) the amount of capital stock, (2) place of business, (3) the par and market value of its shares (if there be no market value then the actual value), (4) the value of the entire real and personal property. In addition to these items the telegraph and telephone companies were required to state (5) the length of their lines within the **Rep. Com'r of Railroads and Telegraphs. Exec. Doc., 1869, II, 659. "90 O. L. 330. 342 FINANCIAL HISTORY OF OHIO [342 state, and (6) the length of their lines without the state. The express companies were also to return the gross re- ceipts for the year, for each office in Ohio. In determining the value of the property within the state for assessment the board was to be guided by the value of the capital stock ; the taxes were to be apportioned to the counties in which the companies did business, and real estate taxed locally was to be deducted. The following year 51 provision was made for severe penalties in case of non-compliance with the law: failure to file the statement when due subjected the negligent company to a fine of |500, followed by an additional penalty of f 100 per day until filed. This act was called forth by the resistance of the telegraph com- panies to the increased taxes imposed upon them by the law of 1893; they contested the constitutionality of the Nichols law, but it was declared valid by the Supreme Court. During the same session the express companies were singled out for special and heavy taxation, by the imposi- tion of an excise tax of 2 per cent, on their gross receipts. 52 The gross receipts were to be ascertained by deducting the amounts actually paid to railroads for transportation from the entire receipts for business done in the state. This was to be fixed by the state board of appraisers and assess- ors before described, who were to apportion the taxes among the counties in which the business was done. Heavy penalties were provided in case of failure to pay this tax, but they were not thereby exempted from the general tax on their tangible property. This tax remained in operation for eight years, 53 until it was superseded by the Cole law tax on all public service corporations in 1902. TAX ON PUBLIC SERVICE CORPORATIONS. In 1902 the Cole law levied an excise tax of 1 per cent, on the gross receipts earned in the state, of public service corporations, for the privilege of operating in Ohio. 54 The "Act of May 10, 1894. Laning's Rev. Stat., 1906, I, 865, 4119. "Act of May 14, 1894, 91 O. L. 237. "Repealed by act of May 9, 1902. 99 O. L. 440. "Act of April 15, 1902; amended April 25, 1904. 343] BUSINESS AND MISCELLANEOUS TAXES 343 businesses enumerated by this act are all domestic and foreign corporations engaged in steam, street, surburban or interurban railroad, express, telegraph, telephone, elec- tric light, gas, natural gas, pipe line, waterworks, messen- ger or signal, union depot, heating, cooling, and wate* 1 transportation companies. These companies report their earnings and other information to the state board of ap- praisers and assessors, which consists of the auditor, treasurer, secretary of state, and attorney general, and the 1 per cent, tax is imposed by this board, and collected through the office of the auditor of state. The express companies must file their entire receipts ; the telegraph arid telephone companies their gross receipts; the railroads, their gross earnings; the street and interurban railways, their gross earnings; and other corporations, their gross receipts. The tax is used exclusively for state purposes 55 In addition to this excise or privilege tax, the real and personal property of these corporations is subject to the same taxation as other property in the state, for state and local purposes. In 1910 the principal of differentiation was introduced in the taxation of these corporations.* Previously all the public service utilities had paid the same excise tax of one per cent, of their gross receipts supposedly earned within the state; this large class was now broken up into smaller groups, upon each of which is laid a different rate. Rail- road and pipe line companies are taxed 4 per cent, of their intrastate gross receipts; express and telegraph companies, 2 per cent. ; and street, suburban and interurban railroad companies, electric light, gas, natural gas, waterworks, tele- phone, messenger or signal, union depot, heating or cooling, and water transportation companies, 1.2 per cent, of such gross earnings or receipts. The companies in the last two groups are also subject to the assessment and taxation of their property in the usual manner. "Rer. Stat., 2780-17 to 2780-23. *Act of May 10, 1910. 101 O. L. 399. 344 FINANCIAL HISTORY OF OHIO [344 TAX UPON FOREIGN AND DOMESTIC CORPORATIONS. As the constitution of 1851 called for the uniform taxa- tion of all property, whether in the hands of individuals or corporations, it became necessary to devise some method that would not conflict with this provision, when the heavier taxation of corporations was decided upon. Con- sequently the various corporation taxes are known not as taxes, but as fees or excise or privilege charges. 50 In 1902 the Willis law imposed a general corporation tax upon all foreign and domestic corporations (except those conduct- ing a public service, which were otherwise taxed). Do- mestic corporations, operating for profit, are required to file a report containing the amount of the authorized capital and its par value, and the amount subscribed, issued, and paid up; upon the subscribed or outstanding capital stock they are to pay annually Vio f 1 P er cent., but not less than f 10. Foreign corporations operating for profit, are required to pay 1 / 10 of 1 per cent, upon the proportion of their authorized capital stock represented by property owned and used and business transacted in Ohio but not less than $10. Domestic corporations, not operated for profit, have to pay $1 annually. This tax is collected by the secretary of state and the proceeds used exclusively for state purposes. In 1904 an act "to relieve owners of stock from double taxation" excepted certain companies which were otherwise taxed, as foreign insur- ance, banking, savings and loan, or building and loan, and transportation and transmission companies engaged in Ohio in interstate commerce. 57 The individual was not taxed on the shares of corporations already taxed. 58 In 1910 the rate of taxation was slightly raised.* Each "The title of the corporation tax law of April n, 1902, was, "An act to require corporations to file annual reports with the Secretary of State and pay annual fees therefore." 99 O. L. 124. M Act of April 25, 1904. 101 O. L. 496. "Cf. Rev. Stat., 2780-24 to 2780-31 ; or Laning's Rev. Stat., 1906, 4150 ff. *Act of May 10, 1910. 101 O. L. 399. 345] BUSINESS AND MISCELLANEOUS TAXES 345 corporation for profit organized under the laws of Ohio is now required to make an annual report, and is subject to a fee of three-twentieths of one per cent, upon its subscribed or issued and outstanding capital stock. Each foreign cor- poration for profit doing business in Ohio must make similar reports annually ; and is subject to a tax of one- tenth of one per cent, for 1910, and three-twentieths of one per cent, for each year thereafter, upon the proportion of the authorized capital stock represented by property and business in the state. Public utility, insurance, and build- ing and loan companies required to make other reports and pay other taxes are not subject to these provisions. LIQUOR TAXES. The taxation of the sale of liquors in Ohio is an inter- esting subject, because, so far as a layman can see, the whole business is illegal. The constitution of 1851 (Art. XV, sec. 9) provided that "no license to traffic in intoxicat- ing liquors shall hereafter be granted in this state; but the general assembly may, by law, provide against the evils resulting therefrom." The vote on this clause was close, being 113,237 to 104,255. The framers of the constitution intended to prohibit the license of the liquor traffic and a majority of the voters supported them. As the constitution has never been amended in this regard, the existence of the traffic in liquors in Ohio would seem to be illegal. But while the constitution has not been changed, it has been evaded; under the clause giving the general assembly the right to regulate the evils arising therefrom, it is regularly fined or penalized each year by the collection of a tax. The history of the liquor taxes in this state is therefore very largely a history of judicial interpretation. It was not long after the adoption of the constitution before the first legislation on the subject was passed. 59 The act of May 1, 1854, provided against the evils resulting from the use of intoxicating liquors, by punishing the sale "52 O. L. 153. No state laws had been passed in the period prior to 1851 taxing or regulating the liquor traffic, but this had been done locally. 346 FINANCIAL HISTORY OF OHIO [346 of intoxicating liquors to be drunk in or about the building where they were sold. A penalty of a fine of from $20 to $50 and imprisonment of from 10 to 30 days in the peni- tentiary was provided. Apparently no limitation was placed upon the sale of liquor for home consumption; only the saloon was forbidden. Not until 1882 were saloons legalized and the business put upon a legal basis. 60 Under the Pond Law a system of taxation was provided, graded in amount according to the location of the business, with the requirement of a bond for the performance of all the conditions of the act, and providing penalties of fine or imprisonment, or both. At the January term, 1882, of the Supreme Court, this act was declared unconstitutional, on the ground that, as it was unlawful to sell intoxicating liquors to be drunk upon the premises, and the Pond law gave the privilege of freely trafficking in intoxicating liquors to dealers who execute bonds and pay into the treasury, in advance, annual sums of money, and as it is impossible for dealers who fail to comply with the statute, to sell intoxicating liquors of any sort without committing a crime, the tax, as levied, is, in effect, a license. 61 The following year the general assembly tried to meet these criticisms and to pass a law authorizing the liquor traffic that would stand the constitutional test. The Scott law was accordingly passed on April 17, 1883, 62 providing for a tax of $200, and omitting the bond and penalty fea- tures of the Pond Law, but making the assessment a lien upon the real estate on or in which the business was con- ducted. At the January term, 1883, the Supreme Court decided this act "a valid and constitutional amendment." 63 In Butzman v. Whitlock 64 it was held that the Scott law, so far as it provided for a lien on real estate, was, in "79 O. L. 66. "State v. Hipp, 38 O. S. 199. This, and subsequent digests of decisions are taken from Bates's Annotated Ohio Statutes, II, 2417 01-2418. "80 O. L. 164. "State v . Frame, Benner v. Bauder, 39 O. S. 399. 42 O. S. 223. 347] BUSINESS AND MISCELLANEOUS TAXES 347 effect, a license law, and therefore unconstitutional. The Supreme Court similarly held, 65 that, so far as the law provided for a lien in the manner set forth therein, it was, in effect, a license law, and therefore unconstitutional. The general assembly was becoming wiser, and was now able, after the rocks had been pointed out on which a liquor law might suffer shipwreck, to pass a seaworthy act. The Dow law, with the praiseworthy and constitutional title of "an act providing against the evils resulting from the traffic in intoxicating liquors", was passed on May 14, 1886, 66 providing, among other things, for a yearly tax of $200 on the traffic in intoxicating liquors, and one of $100 on the traffic in malt or vinous liquors. Of the proceeds, three-fourths were to go into the county treasury and one- fourth into the poor fund. In Adler v. Whitbeck and An- derson v. Brewster, 67 the constitutionality of this statute was upheld. The syllabus of the former case was as fol- lows: "It is competent for the general assembly of the state to impose a tax on the business of trafficking in in- toxicating liquors as a means of providing against the evils resulting therefrom". Neither the tax so imposed, nor a provision that the same shall attach as a lien on the prop- erty in which it is conducted, constitutes a license within the meaning of the constitution. Up to this time the liquor tax had gone into the local treasuries, but insufficient state revenues led the governor in 1886 to suggest that the state be given twenty-five per cent of the proceeds of the liquor traffic tax. 68 The sug- gestion was followed, in part at least, in the act of March 26, 1888, 69 which raised the amount of the tax to $250, swept away the distinction between the different kinds of liquors, and gave the state one-fifth of the proceeds. Suc- cessive amendments have raised the tax still further and "State v . Sinks, 42 O. S. 345. -83 O. L. 157. "44 O. S. 539, 576. "Gov. Mess., 1886, p. 744. "O. L., 1889, p. 116. 348 FINANCIAL HISTORY OF OHIO [348 have increased the share of the state in the receipts, but have not altered the law. The various changes in the Dow law are shown in the following table: Date of law. Amount of tax. Share of state. May 14, 1886 $200 and $100 o March 26, 1888 $250 2 A. Feb. 20, 1896 350 Vio March 28, 1906 1000 Vio The revenues to the state from this source have been important and have steadily increased, amounting, for the year ending November 15, 1909, to f 2,045,138. A pro- vision for local option was contained in the Dow law, by which a special election could be held when one-quarter of the voters in a township petitioned for it, to decide the question of legalizing the liquor traffic; the issue is de- cided by a majority vote. On January 1, 1911, there were 62 "dry" counties in the state out of a total of 88. TAX ON CIGARETS. Similar to the liquor tax law is that levying a tax upon the business of trafficking in cigarets. The first tax of this sort was imposed by the act of April 24, 1893, 70 "to tax the business of trafficking in cigarets or cigaret wrappers", which exacted an annual payment of |300 on the wholesale and of $100 on the retail business. One-half of the proceeds were to go to the state and the other half into the county treasury. This law was amended the fol- lowing year 71 by reducing the tax to $30 and $15 on the wholesale and retail business respectively; the distribu- tion of the tax remained the same. This act bore a title similar to that of the Dow law, "to provide against the evils resulting from the traffic in cigarets", which suggests a relationship between the two. For the year ending No- vember 15, 1909, the tax yielded $23,000. INHERITANCE TAXES. In the search for new sources of income for the state treasury the inheritance tax w r as also hit upon, as being "90 O. L. 235. "Act of May 18, 1894. 91 O. L. 311. 349] BUSINESS AND MISCELLANEOUS TAXES 349 both equitable and productive. 72 The first action was taken by the legislature in the session of 1892, when the House passed a collateral inheritance tax bill on April 5, by a vote of 60 to 18. 73 As the legislature adjourned within two weeks from this date no action was taken by the Senate, but early in the following session they passed the bill, 74 and it became law on January 27, 1893. This act was primarily experimental in its character, and was copied in large part from the Connecticut statute on the subject. 75 It imposed a tax of 3!/o per cent on all collateral inheritances above the sum of $10,000. The list of persons considered as direct heirs and therefore not subject to the tax, was a very long one, and included the following : father, mother, husband, wife, brother, sister, niece, nephew, lineal de- scendants, and adopted child, the lineal descendant of any adopted child, the wife or widow of a son, or the husband of a daughter. 76 The same session of the legislature which passed the first collateral inheritance law, provided for the appoint- ment of a tax commission, "to thoroughly investigate the whole subject of taxation in the State," and to make rec- ommendations for a revision of the tax laws. Among the recommendations submitted by them were two which bore upon this subject a privilege tax on transfers of property by deed, mortgage or will, and upon appeals, writs of error, etc. ; and an extension of the collateral inheritance tax to classes exempted by the present law, and an increase of the tax. 77 Two laws were accordingly passed in 1894, de- signed to carry out these suggestions, of which one was a direct inheritance tax and the other amended the existing ""The tax upon inheritances is another means of reaching personal property which otherwise escapes. It is to be approved because it is an effective substitute for the tax upon intangible property." Rep. Ohio Tax Commission, 1893, p. 62. n Ho. ]., 1892, p. 150. "Sen. J., 1893. p. 36. "Max West, "The Inheritance Tax." Col. Univ. Studies, 1893-4, p. 89-91. "90 O. L. 14. r Rep., p. 70. 350 FINANCIAL HISTORY OF OHIO [350 collateral inheritance tax law. By the latter act the rate was increased to 5 per cent and the exemption reduced to $200. Of the proceeds from the tax 75 per cent was to go to the state and 25 per cent to the county in which the tax was collected. No change was made in the list of per- sons who were considered direct heirs, but bequests to the state and local government, public institutions of learn- ing, public charity, or any other exclusively public use were exempt from the operation of the law. 78 The direct inheritance tax law was designed to com- plement the collateral inheritance tax, and was passed the same day. 79 Estates over $20,000, passing to any of the persons enumerated as direct heirs in the earlier act of January 27, 1893, were subjected to a progressive tax, graduated from 1 per cent on the smallest estates to ^ per cent on those over $1,000,000. The same distribution of the proceeds was provided for as in the twin collateral inheritance tax, namely 75 per cent to the state and 25 per cent to the county in which the tax was collected. It may be noted that at the time of its enactment this was the only progressive direct inheritance tax in the United States. 80 The following table shows the various rates and the scale of progression : 81 OHIO DIRECT INHERITANCE TAX, 1894. Estate. Tax. Under $20,000 o $ 20,000 $ 50,000 i% 50,000 100,000 i l / 2 100,000 200,000 2 200,000 300,000 3 300,000 500,000 3^ 500,000 1,000,000 4 1,000,000 and over 5 "Act of April 20, 1894. 91 O. L. 169. The act was declared constitu- tional in Hagerty v. State, 55 O. S. 613. "Act of April 20, 1894. 91 O. L. 166. "Actually, the tax is degressive instead of progressive. "Seligman, Essays in Taxation, p. 134. 351] BUSINESS AND MISCELLANEOUS TAXES 351 This act was a short-lived one, for on June 27, 1895, it was declared unconstitutional by the Supreme Court of Ohio, 82 after having been held invalid by the circuit court. Both courts agreed that the tax was not on prop- erty, but on the right or privilege of succession, and hence was not inconsistent with the clause of the constitution requiring uniform taxation of all property. 83 But both the exemption of $20,000 and the progressive scale were held to be in conflict with that section of the Bill of Rights which stated that "government is instituted for their [the people's] equal protection and benefit." The principle of a direct inheritance tax was thus sustained, though the application of it in this particular act was declared im- proper. As a result of this decision the collections ceased and the state and county auditors were directed to refund the payments already made. 84 But upon June 8, 1897, this act was in turn declared unconstitutional because it failed to receive the concurrent vote of two-thirds of the members of the general assembly. Consequently another act had to be passed to remedy this defect and to legalize the repay- ments already made. 85 For several years after this no further changes were made in the direction of extending the inheritance tax legislation. But in 1904, in response to an urgent appeal from Governor Herrick that the revenues of the state be increased, a bill was rushed through both houses of the general assembly under suspension of the rules on the last day of the session. 86 This act provided that a tax of 2 per cent should be imposed on all estates in excess of $3000 passing to direct heirs, these being defined as in the pre- vious law of 1894. This time the entire proceeds of the tax were to flow into the state treasury. In a test case the "State v. Ferris, 53 O. S. 314. "Art. XII, sec. 2. "Act of April 27, 1896. 92 O. L. 374. "Act of April 8, 1808. O. L., 1808, p. 96. "Act of April 25, 1904. 97 O. L., 398. The vote was 66 to 23 in the House, and 27 to 7 in the Senate. 352 FINANCIAL HISTORY OF OHIO [352 law was declared constitutional, 87 but it was nevertheless repealed the following session. The governor declared in his annual message his belief that it was "the wish of the great majority of the people of the state that the inherit- ance tax law be repealed," 88 and this was accordingly done by the act of April 2, 1906. 89 The collateral inheritance tax still remains in force, 90 though the returns therefrom are very small, amounting, for the year ending November 15, 1909, to only f 45,139. MISCELLANEOUS BUSINESS TAXES AND LICENSES. In addition to those described above, the state levies an annual license tax on peddlers, $12 if they go on foot, f 20 if with one horse, $28 if with two horses, $60 if on boat or train. A license tax is also levied on itinerant vendors of $25 per annum. A license tax is imposed on the manu- facturer, importer, or agents of any commercial fertilizer of $20 on each train. This last is paid directly to the Ohio state board of agriculture. CONCLUSION. In the early history of taxation in Ohio a number of special taxes were made use of which were swept away when the general property tax was put into universal application. As new businesses or lucrative pursuits at- tracted legislative attention they were subjected to taxa- tion by means of special acts. The state derived its main revenues from the tax on land, but in addition to that, it obtained some income from taxes on sales at auction, on lawyers and physicians, merchants and exchange brokers, bankers, brokers and stock jobbers, canal, railroad, turn- pike, bridge, insurance, and other companies. With the introduction of the general property tax in 1846, and "State v. Guilbert, 70 6. S. 229. Hostetter v . StafeT 5 U. C~n. s., 337 ; 16 C. D. 702. "Gov. Mess., 1906, p. 13. "98 O. L. 229. "Rev. Stat., sec. 2731-1 to 2731-17. 353] BUSINESS AND MISCELLANEOUS TAXES 353 especially after the requirement by the constitution of 1851 of the uniform taxation of all property, these separate taxes were swept away, or were coalesced under the general / property tax. This all embracing tax or rather complex of taxes, took the place of the various special taxes. Grad- ually, however, with the development of the industrial life of the state and of new corporate interests, the general property tax was seen to be quite inadequate. Then began the third phase in the history of taxation in Ohio, the splitting off of certain industries or forms of property from the general property tax and taxing them at a dif- ferent rate, or on a different basis than property, or by special machinery. This last period has seen the growth of a number of very interesting and important taxes, which have had a peculiar development in Ohio because of the inhibition placed upon legislative freedom by constitu- tional prohibitions. But not merely have special corporation and inherit- ance taxes been developed, from which the state derives an increasing revenue, but there has been achieved in Ohio the practically complete separation of state and local sources of revenue. The general property tax has thus been left to the local governments. The administration of this tax has, however, been centralized in the hands of the state tax commission, which is given power to order reassess- ments. Serious study has been given to the subject of taxa- tion in Ohio of recent years, and the establishment of a permanent tax commission may be said to have ushered in a fourth stage in the history of taxation in that state. Much progress has already been made, but much remains to be done. Most important is the change in the uniformity clause in the state constitution ; but it is fairly certain that the constitutional convention now sitting (March, 1912) will modify this rule. Substantial improvements have been made in the administration of the tax on realty, but more scientific and precise methods of valuation should be gen- erally introduced. The next important step in the direc- tion of further reform will be the finding of a satisfactory 354 FINANCIAL HISTORY OF OHIO [354 J substitute for the discredited tax on intangible personalty, but it is difficult at this time to suggest what this may be. Perhaps the addition of a direct inheritance and a mortgage tax to the already existing corporation taxes would yield substantial justice. Or, if the uniformity clause in the con- stitution is amended, personal property may be classified and taxed at a lower rate than realty. Whatever the future may hold in store, the student of taxation in Ohio cannot conclude this historical survey without having his conviction of the inequity of the general property tax system deepened. But progress, though slow, has been made. Experiments had to be made, and change has sometimes been difficult, even though it was evident that the existing system was unjust and undesirable. At last, however, the general property tax has begun to dis- integrate, and we may confidently expect to see developed in Ohio an improved system, probably along the lines already marked out by her sister states further to the east. INDEX Accounts, 160, 165; canal accounts, 148-153. Agriculture, in territory, 16; products in 1805, 22; in 1822, 32; societies, 35; exports, 41; state board of, 44; development, 1840-60, 52; during Civil War, 60 ; wheat production, 64 ; experiment station, 109. Appropriations, 68, 70, 82, 84, 86, 97, 103, no, 179; conclusions as to, 112- 117; tables showing, 1800-1908, 118-121. Assessor, 203, 211, 217, 225. Atwater, Caleb, 30. Auction sales and auctioneers, 331. Auditor, territorial, 13; state, 145, 159, 166, 172-174, 175; county, 225, 230. Bank of the United States, 28 ; attempt to tax, 260-269, 273. Bank-notes, 28, 39, 258, 261, 284, 287; struggle over note-issues, 269-276; unauthorized notes, 274. Bank taxation, in 1815, 189, 257; in 1816, 259; in 1831, 281; in 1846, 281; in 1850, 282 ; struggle over, 283-286, 289-293 ; compromise with banks, 293 ; taxation of national banks, 297-301 ; taxation of banks and bank- ers, 216, 217, 222, 225, 238, 244, 330. Banks, 23, 43, 260, 277; of Chillicothe, 71; corruption, 163; Franklin Bank, 168, 266; Western Reserve Bank, 168; history and taxation of, 1803- 1819, 257-260; regulation of, 1839-1850, 276-280; commissioners appoint- ed, 276; State Bank, 278, 297; free banking act of 1851, 283; condition of, in 1857, 289 ; in 1860, 295 ; national banks, 296. Benevolent institutions, 79, 86, 98, 106. Bliss, A. A., 156. Breslin, J. G., 88, 156, 161, 164. Brokers, tax on, 36, 203, 206, 216, 225, 333. Brough, J., 94. Budget, a study of the, 68-144; budgetary legislation, 174-178; present practice, 178-180. Canals, 33, 37, 43, 50, 78, 80, 303; canal accounts, 148-153; taxation of, 339. Carriages, taxation of, 203, 206, 207, 216, 227. Cattle, taxation of, 203, 204, 216, 227. Chase, Salmon P., 57, 89, 169, 200, 227, 231, 288. Cigaret tax, 245, 348. Collection of taxes, 186, 188, 192, 203, 239; of delinquent taxes, 192, 195- 200, 212-214, 231, 235, 254. Comptroller, 165, 171. Constitution of 1802, 145, 174; of 1851, 47, 158, 176, 221; amendment of, 243, 248; constitutional convention, 47, 250, 353. Corporations, taxation of, 217, 223, 245, 246, 248, 251, 339, 344. Credits, taxation of, 208, 217, 219, 222, 224, 229, 232. Curry, H. M., 74, 266. 356 FINANCIAL HISTORY OF OHIO [356 Defalcation of 1820, 745 of 1857, 83, 88, 154, 161. Deficit, 15, 69, 70, 74, 84, 85, 88, 90, 95, 105, 109, 180. Deposits, interest on, of state funds, 156, 159, 255. Direct tax of federal government, 71-73, 106, 189, 234. Economic conditions to 1803, 16-18; in 1805, 22; in 1822, 31. Equalization, boards of, 204, 211, 217, 226, 230, 238, 245. Excise taxes, 245, 246, 248. Exemptions from taxation, 194, 203, 207, 214-217, 220, 222, 224, 248. Expenditures, 1803-1824, 68-76; 79, 82, 94; local, 96; reduction of, 99; enlarged, 106-108, 112; conclusions as to, 112-117; tables showing, 1800-1908, 118,121; 1822-1908, 134-144. Express companies, taxation of, 228, 245, 246, 251, 342. Fees, 10, n, 17, 18, 245. Financial organization, 1792-1802, 10-16; administration, 1803-1910, 145-174. Foraker, J. B., 243. Funds, 100-102. General assembly, pay of, 19, 75, 95. General property tax, law of 1825, 36, 76, 202-214; of 1831, 207; of 1846, 46, 84, 214-221; of 1852, 223-227; of 1859, 229-231; of 1878, 237-240; abolition of, for state purposes, 246-248; conclusions as to, 352. Gibson, W. H., 88, 156, 161, 164. Governor, 9, 14, 19, 180. Harmon, J., 256. Harrison, W. H., 71 Herrick, M. T., 351. Immigration, 12, 16, 29, 34, 53; commissioner of, 60. Independent treasury, 165-172, 295. Inheritance tax, 245, 246, 348-352. Inquisitor system, 219, 239-242, 244. Insurance companies, taxation of, 237, 245, 246, 335-338. Interest, rate of, 62; on state deposits, 156, 159, 255. Labor, in 1800, 18; in 1838, 38; in 1860, 59. Land tax, territorial, n; state, 21, 36, 181-201; classification of lands, 184; non-resident lands, 185-192; assessment and collection of taxes, 192- 194; sale and redemption of land, 195-200; criticism of, 200-202. Lawyers and physicians, income tax on, 332. License tax, 352. Liquor traffic, taxation of, 207, 211, 245, 345-348. Lister, n, 183, 185, 187. Loans, 71, 31; loan law of 1837, 80, 88, 89, 93, 104, in. Lottery, 14, 330. Lucas, R. 31. McKinley, W., 245. Manufactures in 1811, 23; in 1834, 35; legislation regulating, 45; in 1856, 53; growth, 1850-1905, 65-67, 221. Manufacturers, taxation of, 207, 211, 217, 225, 335. 357] INDEX 357 Merchants, taxation of, II, 36, 203, 206, 208, 216, 217, 225, 334. Miami Exporting Company, 71, 257. Money, scarcity of, 14, 16, 70, 146; disorder in 1819, 27; taxation of, 207, 208, 216, 217, 222, 224, 236. Nash, G. K., 247. Ohio, settlement of, 9; territorial government, 12; pioneer state, 19. Ohio Life Insurance and Trust Co., 88, 287. Osborn, R., 149, 266. Panic of 1819, 27; of 1837, 39; of 1857, 51, 286; of 1873, 64, 100; of 1884, 104; of 1893, 108. Personal property, 189, 205, 206, 209, 211, 215, 216, 219, 227, 228, 230, 233, 237, 241, 243, 244, 252, 354. Population, 29, 32. Public service corporations, taxation of, 248, 251, 252, 342. Railroad taxation, 238, 244, 251, 255; to 1851, 311-314; 1850-1866, 316-320; act of 1862, 317; board of assessors for, 318-320; excise taxation, 1893- 1911, 324-329; in hands of tax commission, 327, 339. Railroads, 54; early building, 302-305; state and local aid, 305, 310; loan act of 1837, 306-309; regulation of, 1850-1866, 315; construction after Civil War, 320; Boesel law, 322. Real estate, 203, 205, 206, 207, 209, 211, 216, 219, 220, 223, 227, 229, 233, 236, 237, 247, 250, 252. Revenues, territorial, 15; state, 68, 71, 76, 79, 81, 103, 106; tables showing, 1800-1908, 118-133. Roads, 20, 339. St.Clair, Arthur, 9, 14. Schools, tax for, 30. Separation of state and local sources of revenue, 246, 249, 353. Slavery, attitude on, in 1820, 29; in 1860, 56. Sleeping car companies, taxation of, 245, 246, 251, 344. Steamboats, 24; taxation of, 207, 339. Tax commission of 1893, 242, 323; of 1906, 248; permanent, in 1910, 251; report of, 252. Taxation, territorial, 10; state, 181-354; rates of, 182, 206, 229, 239; act of 1804, 185; act of 1810, 187; act of 1820, 191; act of 1825, 202; act of 1831, 207; act of 1846, 216; act of 1851, 220; act of 1852, 223; act of 1859, 229; act of 1878, 237; of banks, 257-301; of railroads, 302- 329; miscellaneous, 330-354. Taxes, assessment of, II, 183, 185, 187, 192, 203, 211, 217, 224, 252; delin- quencies in, 192, 195, 231, 235,, 254; redemption of delinquent land, 195, 212; sale of land for non-payment of, 197-200, 212; state and local, 228, 233; assessment of railroads, 317, 327. Telegraph companies, taxation of, 238, 251, 340. Telephone companies, taxation of, 251, 341. Tod, J., 93. 358 FINANCIAL HISTORY OF OHIO [358 Treasury bills, 15, 23, 27, 69, 145; administration and accountability, 145- 174; department, present organization of, 172-174, Treasurer, territorial, 13; state, 145. Trimble, A., 30. Uniformity rule of taxation, 222, 249, 353. Valuation of property, in 1810, 188; in 1815, 29; in 1825 and subsequently, 205; table, 206; in 1834, 209; in 1840, 211; in 1847, 219; in 1854, 227; in 1859, 229; during Civil War, 233; in 1870, 236; in 1901, 247; quad- rennial, 251, 253. War of 1812, 25, 71 ; of Rebellion, 57 ; finances of Civil War, 91-95, 232- 235; with Spain, in. Whitehill, J., 156. Wolf scalps, bounties for, 77. Worthington, T., 15. - _ ^ 30112084204442