Within just its first decade of statehood, Michigan made a big bet on direct state intervention in private industry. In the middle of the 19th century, the benefits of constructing canals and railroads were obvious to all: They provided faster and broader access to New England markets and cheaper goods. State governments in New York, Pennsylvania, Maryland, Ohio, Indiana and elsewhere helped finance these “internal improvements” and were reaping their rewards. Michiganders feared they were missing out on this opportunity to boost economic development.
As a result, in January 1837, a Michigan House committee on internal improvements recommended that the state build and operated its own canals and railroads in an effort to boost the rate of settlement and economic growth in Michigan. A committee report stated: “The question for Michigan to decide is whether she will by her own enterprise sieze [sic] the present opportunities to avail herself of these vast viaducts of wealth and prosperity … or whether her timidity and apathy will allow them to pass her by to swell the power and abundance of her wiser neighbors.” Two months later, the Michigan Legislature approved of the state borrowing $5 million to build and then operate three railroads and two canals.
A combination of factors doomed these projects. A national economic downturn, known as the Panic of 1837, contributed to reducing new settlement and investment. Michigan’s governor, Stevens T. Mason, sold $5 million in government bonds to banks that did not end up paying in full — they went bankrupt shortly after Mason made the sale. Construction of the railroads and canals progressed more slowly than projected and building contractors racked up expenses that exceeded their bids. Just three years after it started this grand experiment, the Legislature passed a bill to prevent the state from entering into any more contracts to build railroads or canals.
Things unraveled from there. Four out of the five projects were never completed and three were abandoned altogether. One railroad was completed but could not generate enough revenue to cover the costs of the unfinished ones. Financing of these projects proved costlier than anticipated — the state would have had to impose a 1 percent property tax just to make the interest payments on this debt. In the end, the state sold off the railroads to private investors to avoid raising taxes, but still took a significant loss.
This failed experiment in state-funded railroads and canals created a significant impression on Michigan taxpayers and voters. In the late 1830s, many Michiganders likely cheered on the grand plans for state-run internal improvements, and such projects were explicitly permitted in the state’s original constitution of 1835. It stated, “Internal improvements shall be encouraged by the government of this state; and it shall be the duty of the legislature … to provide by law … application of the funds which may be appropriated to these objects.” But just over a decade later, voters approved a new constitution that forbade the state from ever trying that again. The new 1850 constitution included this clause: “The state shall not be a part to, nor interested in, any work or internal improvement, nor engaged in carrying on any such work.”[*] Further, the new constitution also forbade the state from granting its credit “to, or in aid of, any person, association or corporation,” and the state from owning “the stock of any company, association, or corporation.” Michigan’s experiment in using state-funded internal improvements to boost economic development was short-lived.
 A few exemptions to this prohibition were allowed: wagon roads, state parks and improvements to the Grand River by the city of Grand Rapids. Mich Const 1850, Art. 14, § 9, https://perma.cc/5KAW-AGNR.