The first period of statehood began and ended with the general treasury in financial difficulties, and but for the opportune receipt of the $5,000,000 of United States bonds and the assumption of the payment of the revenue debt of the republic by the United States the treasury would probably have been in dire straits throughout the entire period. As it was, however, the receipt of the bonds enabled the state during eight years out of the fourteen of the period to pay a large and harassing debt, to endow the school fund generously, to construct public buildings, to meet the ordinary expenses of the government, to aid in the construction of railroads, and to administer the vast public domain not with a view to revenue but so as to encourage the growth of population and the material development of the state. The indemnity bonds were the key to the expenditure and revenue policies of the period, and their influence was felt in later periods. Inasmuch as the general treasury was greatly assisted prior to the receipt of the bonds by the revenue accruing under the laws of the Republic of Texas, the state government was supported throughout the first period of statehood not from taxation but from extraneous sources, - from windfalls. The result was that the people of the state did not become accustomed to taxation as a method of supporting the government, and a habit of depending upon other sources was thereby fostered. The beginnings of this habit had really been made during the period of the republic, because the republic lived on credit.

The purely agricultural character of the population and the frontier condition existing throughout the state were reflected not only in the general attitude towards education but also in the expenditure, revenue and debt policies. There was a tendency to confine expenditures to the support of the narrow protective functions of government; poll and occupation taxes which would fall on those engaged in business were popular, and the scaling of the debt was a widely approved policy.