the state had taxed dividends declared
by banks and financial institutions at 5%,
but raised the rate to 20% by March of
1836. Moreover, the state’s continued fis-
cal woes prodded the legislature in 1851 to
adopt a law stipulating that “the property
of corporations…shall be subject to taxa-
tion, the same as the property of private
individuals.” Financial journalists opined
that in the wake of such burdensome taxa-
tion, Ohio Life might have to shut down
its operations.
Nevertheless, the company weathered
the storm even as the regulatory bur-
dens made Ohio Life’s business that much
more difficult. For instance, citing the
irregularity of dividend payments because
of underperforming assets as an issue, the
state finance committee suggested in 1852
that Ohio Life: (1) amend its charter for
the creation of additional stock used for
the purpose of bank capital and (2) submit
five percent of its profits for income tax
purposes. Such external shocks of taxes
and regulations, coupled with internal
mismanagement by the trustees, would
push Ohio Life to its financial precipice;
embezzlement would propel it into an
economic abyss.
In all fairness, Ludlow often acted upon
the instruction of Ohio Life’s trustees.
Recognizing that headquarters frequently
ran into liquidity problems while the New
York branches generally remained solvent,
New York’s personnel were constantly
pressured into funneling cash to Cincin-
nati. Ludlow’s first experience with one
of seemingly numerous cash short falls
caused by headquarters occurred almost
immediately after his promotion in 1855.
At the time, $200,000 of a loan amount
totaling $600,000, borrowed when Ohio
Life commenced operations, came due
on March 1; Ludlow, with funds drawn
from New York, had to cover the cur-
rent liability. Further still, the home office
issued excessive drafts New York covered,
and during the first four months of 1856,
its debt obligations held by the New York
offices exceeded the previous year’s aver-
age. In May of 1856 it was estimated that
Ohio Life had only $346,925.92 in call-
able assets for immediate collection. This
amounted to only 23% of the amount of
their obligations subject to call.
Another problem facing the company
was the composition of its asset portfolio
which, due to a significant number of rail-
road debt instruments, exposed the firm
$10 bank note proof from the Ohio Life Insurance & Trust Company.
to considerable default risk. For example,
by 1857, Ohio Life had already lent $5 mil-
lion to railroad construction firms and
held a substantial amount of railroad equi-
ties. Not that the firm acted alone, how-
ever, for, in keeping with the demand for
railroad expansion, creditors lent millions
to railroads during this era. As posited
by historian Kenneth Stampp, railroads
contributed greatly to the advancement of
the domestic economy during the 1850s.
Stampp cites the construction of track
and consolidation within the industry as
primary contributors to growth.
By one estimate, 24,476 miles of track
had been completed in July of 1857 with
several thousand still under construction
at the time. Westward migration, too,
of both immigrants and those leaving
the eastern seaboard would only further
spur investment in this industry; railroad
investment grew from $37 million in 1849
to $111 million by 1854. By 1854, however,
earnings of many of the older western
lines diminished because of the ferocity of
competition among competitors looking
to establish permanency out west. Newer
railroads establishing themselves in the
West provided speculative opportunities
for investors.
Hunt’s Merchant Magazine, a US com-
mercial review periodical of the mid-19th
century, remarked that same year how a
borrowing frenzy had gripped railroad
developers, but lenders would eventu-
ally curb their enthusiasm. The Hunt’s
commentator opined “…borrowers…are
pressing their bonds upon the public”;
yet the writer further noted those rail-
roads not completed “will be obliged to
24 FINANCIAL HISTORY | Summer 2018 | www.MoAF.org
postpone their operations to a period
when the money market will be more
compliant.” Still, a “railroad fever” would
continue fascinating the nation, much of
it attributable to the growing interest in
Kansas settlements by those interested in
expanding slavery or making it a free state.
However, railroad failures would com-
pound the economic crisis of 1857, pri-
marily because of their excessive use of
debt financing for westward expansion.
By 1858, many of these lines, though still
operational, found themselves either in
bankruptcy or with their debt trading well
below par on Wall Street.
In a judgement by the US Circuit Court,
Southern District of Ohio for the purpose
of reimbursing Ohio Life’s creditors sub-
sequent to its default on August 24, the
court determined substantial amounts of
money were loaned to both individuals
and railroads lacking sufficient collateral.
The court chastised Ohio Life’s trustees
(and Ludlow) for also making railroad
security purchases which declined in value
during the Panic. In fact, Ludlow, in early
1857, acting to boost the value of railroad
assets held by the New York offices, paid
off a loan made by the Cleveland and
Pittsburgh Railroad and failed to disclose
the transaction in his report to the trustees.
The Cleveland and Pittsburgh affair not
only demonstrated Ludlow’s willingness to
compromise his fiduciary responsibilities,
but further conveyed a lack of sophistica-
tion for risk assessment. The railroad’s stock
dropped from $39.50 in July of 1857 to $20
per share that August. Its bonds tumbled
from $93 in September to $50 by November
of 1858. Of course, Ludlow (or the trustees)