On March 24, 1837, the Ohio legislature passed the Ohio Loan Law of 1837. This legislation was designed to assist the building of additional canals within the state. It allowed the Ohio government to loan businesses one-third of the total costs to complete a project. The only requirement was that the business had to have raised two-thirds of the estimated cost before the state government would authorize a loan for the other one-third.
Although the Loan Law was created to expand Ohio's canal system, in reality this legislation did more harm than good to the canals. Most of the loans granted by the Ohio legislature went to railroad companies, rather than to the canals. The Ohio Loan Law spurred railroad growth in the state. Canals now faced opposition from the railroads, and they quickly lost business to the faster railroad.
While the Ohio Loan Law helped improve the state's transportation infrastructure, it also caused a great deal of harm in another way. Critics of this legislation commonly referred to it as the "Plunder Law," because the Ohio treasury's monetary resources declined greatly as a result of the law. The Ohio legislature loaned more money than existed in the state's treasury. As a result of these loans, the Ohio government had to borrow money to pay its expenses. By 1839, Ohio had a deficit of more than one-quarter of a million dollars. Most of this debt resulted from interest the state government owed to its creditors. In 1840, the Ohio legislature repealed the Plunder Law. The Ohio Loan Law had plundered the Ohio treasury, but it also had allowed for dramatic improvements in transportation with the state's borders.