USA > Illinois > Cook County > Chicago > Historical review of Chicago and Cook county and selected biography, Volume I > Part 42
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Mr. Brown, the cashier of this institution, was a man of consid- erable wealth when he came to Chicago. The residence that he built at a cost of ten thousand dollars in 1836 was one of the elegant homes of the time, and stood as an attractive landmark at the northwest corner of Pine and Illinois streets. Twenty years later the homes of fashion had moved out of that section, and he built a residence on Michigan avenue that cost thirty thousand dollars. Mr. Brown was a member of the syndicate that bought the charter of the Galena & Chicago Union Railroad in 1846. He was at that time in nomi- nal partnership with Alfred Cowles, in the law, but he had many other interests that kept him employed until his retirement from active busi- ness life at the close of the war. His service as school agent in 1840 and as one of the school inspectors should not be forgotten. He was a Republican member of the legislature during the war. The Chicago Historical Society elected him its first president. He died in Amsterdam, June 17, 1867. It has been said of him : "Intellectually he was not great, but his talents were respectable; and though per-
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haps opinionated and stubborn, as the wont of successful men, he was esteemed for his kindness of heart."
The Scotchman, George Smith, is said to have been Chicago's first great banker. Born in Aberdeen about 1809, he grew up a GEORGE SMITH. farmer, spent two years in Aberdeen University, and came to America with the intention of owning and developing western lands. Returning to Scotland after a prospecting tour, he organized the Scottish Illinois Land In- vestment Company. This was about 1835, just at the time when land speculation in the west was at high tide. Mr. Smith became a large stockholder in the company, and Patrick Strachan and W. D. Scott came to Chicago with him to manage the affairs of the com- pany. In 1837 Mr. Smith lived in the old Lake House, and Strachan and Scott, who were known in the community as real estate agents and private bankers, had their office on the corner of Lake and Wells streets (now Fifth avenue).
Messrs. Strachan and Scott conducted their private bank here until 1840, and his association with these shrewd and educated bankers probably turned Mr. Smith to finance rather than real estate. These men, and Alexander Mitchell, another Scotchman, gave the business community that centered about Milwaukee and Chicago a paper circu- lating medium that for years passed current at its face value and was as redeemable as United States treasury notes to-day. Their bank- ing business was illegal but honest, and people preferred it to the un- certain methods and credit issues of the bank which had the legal sanc- tion of the state of Illinois.
Mr. Smith and his associates found a model for their enterprise in the charter of the old Chicago Marine and Fire Insurance Com- pany. Although the charter particularly forbade that the company should do a banking business or issue any notes or bills for use as money, the company, viewing the deranged condition of the monetary system at the time, advertised in May, 1837, that it would receive moneys on deposit and loan the same in accordance with the permis- sion granted by the charter. But the company extended this privi- lege and commenced a regular banking business. It received depos- its, loaned money, bought and sold exchange and coin, and the certi- ficates of deposit, though without the semblance of bank notes, actually circulated to some extent. The face of one of these certificates of
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deposit bore the following words: ". has deposited in the office of the Chicago Marine & Fire Insurance Co. Five Dollars which is payable to the bearer on demand in current bank bills."
In the restricted banking operations of this Chicago company, Mr. Smith and his associates found the suggestion which led to the founda- tion of one of the strongest banking institutions of the northwest. In 1839 they obtained from the Wisconsin' legislature a charter that copied almost word for word the charter of the Chicago company just described. The Wisconsin Marine and Fire Insurance Company was incorporated, with George Smith President, and Alexander Mitchell secretary. With possibly no legal rights to transact banking, yet the company received deposits and issued certificates, in various de- nominations from one to ten dollars, with about the same wording as appeared on the Chicago company's certificates. The home institu- tion was at Milwaukee, and Strachan and Scott, and later George Smith and Company, redeemed the certificates and acted as Chicago correspondents. In December, 1841, certificates to the value of $34,- 028 issued by this company were in circulation, and so rapidly did they increase in favor that in four years' time this credit circulation had reached a quarter of a million dollars, and in December, 1851, amounted to nearly a million and a half dollars. Never a dollar of this vast amount failed to be redeemed at face value, and in this respect the record of this banking concern stands out conspicuously among the unnumbered failures of like institutions during that era. The company continued to do banking business under its original charter, and in the face of constant opposition from the state banks, until 1853, when the company was reorganized, under the Wisconsin general banking law, as a legal banking institution. But the owners would not drop the old name, and for years the Wisconsin Marine and Fire Insurance Company Bank was one of the strongest and ablest conducted banks of the state.
Mr. Smith as head of the firm of George Smith and Company, private bankers, managed the Chicago branch of this company with great skill and many times successfully withstood the attacks on liis credit engineered by his rivals. Smith's bank, located first on LaSalle street and then on Clark, between Randolph and Lake, continued busi- ness until 1856-57, at which time Mr. Smith retired from his honora- ble and successful career as a Chicago banker, and with a large for-
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tune returned to Scotland, and passed his last years in London. He was among the stockholders of the old Galena and Chicago Union Railroad, and was the first elected president of the Chicago Board of Trade in 1848, though he declined to serve.
At the head of the Chicago Marine Bank was J. Young Scammon. The policy of this institution was not altogether friendly to the Smith
bank, and it was said that Mr. Scammon and others
J. YOUNG SCAMMON. endeavored to embarrass the Wisconsin Marine by collecting large amounts of its promissory paper and suddenly presenting it for redemption. The Wisconsin Marine was too strong and its proprietors too astute to be seriously injured by these attacks. One day, chancing to meet Mr. Scammon on the street, Mr. Smith asked him the amount of circulating notes that the Chicago Marine had outstanding. Scammon estimated it at $175,000. "I know where $125,000 of these notes are," remarked Smith pleasantly ; "they are in my vaults, and some day I will bring them over to you for redemption," and then walked on. To be suddenly called upon to redeem more than two-thirds of its total circulating issue might have proved embarrassing at the time, and it is said that Mr. Scammon experienced that uncomfortable feeling that has at times come to so many others. Finally they decided to settle the matter amicably and agreed to respect each other's circulation and not join in creating a run on their respective banks.
The steamboat Pennsylvania arriving at Chicago from Buffalo in September, 1835, had at least one passenger whose subsequent career is a part of Chicago's history. The boat anchored outside the long bar that extended from Water street south to Madison, and the pas- sengers were conveyed in a skiff to Dearborn street, being landed under the bridge that crossed the river at that point. From there a young man of twenty-three years walked west through the prairie grass to Market street, near Lake, where he registered at the old Sauganash Hotel as J. Young Scammon. A native of Maine, reared on a farm, on account of an injury to his left hand he had turned to the law, and had received academic and college training and been ad- mitted to the bar of his native state. Through a letter of introduction he became a deputy clerk in the Cook county circuit court, and also began practice. J. Young Scammon was one of the able members of the early Chicago bar, a lawyer by training and a scholar, and he
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edited volumes 2, 3 and 5 of the Illinois Reports. Among the part- ners with whom he practiced for varying periods of time were Buck- ner S. Morris, Norman B. Judd and Ezra B. McCagg.
A lawyer by profession and a citizen whose public service has left its mark on various institutions, Mr. Scammon was probably most prominent as a banker. He was appointed attorney for the State Bank in 1837, and the experience made him thoroughly familiar with banking methods of the time. He later became president of the Chi- cago Marine and Fire Insurance Company, which performed most of the functions of a bank until the banking law of 1851, previously re- ferred to in this article. The first bank to organize in Chicago under the terms of the banking law was the Marine Bank, becoming the first really legal bank since the old State Bank went out of existence. The Marine Bank was organized early in 1852, and issued its first circulating notes on April 17. As president of this institution, Mr. Scammon directed every effort to maintaining the integrity of his bank and at the same time consistently fought the banks that continued to do business without legal sanction. He led the movement which re- sulted in the legislature passing the act to drive the illegal banks from the state.
Mr. Scammon continued in active direction of his business affairs until 1857, when he retired to spend some of his ample fortune abroad. On returning in 1860, he found the Chicago Marine and Fire Insur- ance Company (which had been revived from the original concern) almost in a state of bankruptcy. He once more appeared one of the active figures in the financial district, and succeeded in restoring the prestige which his institution had lost.
Mr. Scammon's banking enterprises bridged over the period of history between the original State Bank and the National Banks. The banks of legal standing in Illinois during the decade before the war were banks of issue, their circulation being based on certain classes of approved securities. Many Chicago and Illinois banks held large lists of state bonds from Missouri and other southern states. The panic of 1857 sent the values of these securities to the lowest ebb, and as a result the bank notes depreciated ten. fifteen and twenty per cent of face value. It became necessary for a business man to scrutinize every bank note, and if not familiar with the standing of the issuing bank to refer to the Bank Note Reporter to enable him to fix the proper
Vol. 1-28
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rate of discount. Anyone going east with western bank notes found it necessary, before he could exchange them in New York, to go to a broker and buy New York or eastern exchange at a premium over the western notes. Great confusion existed in the issues of the vari- ous banks, and the situation, from the modern point of view, seems intolerable in a business world. Soon after the panic of 1857 came se- cession and the Civil war. The Illinois banks, with their large hold- ings of southern state bonds, lost almost the full value of these securi- ties, and depreciation continued until during the first years of the war state bank notes were worth less than half their face in gold. The National Banking Act, though a war measure, was an assumption of control of credit circulation by the nation which doubtless the con- ditions among the state banking institutions would have forced upon the country eventually under a state of peace. By taxing the issue of state banks ten per cent, the National Banking Act forced the state banks to discontinue this feature of their business, or take out char- ters as national banks. The business of some of the old state banks was continued as private institutions, without powers of issuing notes. Mr. Scammon and his associates conducted the Marine Bank through various vicissitudes during the war and up to the panic of 1873, and its affairs were finally wound up in 1874. In 1861 it was unable to liquidate its notes except at heavy discounts. In 1863 the Marine Bank was reorganized as the Marine Company, with Mr. Scammon as president, and as a private banker he brought the com- plicated finances to a close. It is said that Mr. Scammon was the first in Chicago to profess adherence to the doctrines of Swedenborg, and the original five dollar bills of the Marine Bank had engraved in vignette the bust of that distinguished philosopher and theologian. He organized the first Church of the New Jerusalem west of the lakes.
We are told that Lyman J. Gage resigned a position as night watchman in a sash and door factory to begin his career in banking as bookkeeper for the Merchants Loan and Trust Company. Both among the organizers of this institution and among the men who were trained by their association with it, were some of the remarka- ble financiers of Chicago's history. Isaac N. Arnold, one of the ven- erated names of the Chicago bar, William B. Ogden, foremost as a leader of Chicago's civic development, Walter L. Newberry and others of note were among the thirteen original trustees who organized the Merchants Loan and Trust Company in 1857.
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This bank, now the oldest in Chicago, was the result of an effort on the part of Chicago business men, whose character is well represent- ed in the above names, to apply conservative methods to the finance of the time and furnish a reliable banking and currency medium for the transaction of business. George Smith had just left Chicago, and it seemed possible, in the opinion of these men, that the wild-cat banks would be left in control and eventually bring complete disaster to the financial system. Isaac N. Arnold and John H. Dunham were elected to the legislature to secure the necessary legislation for a new bank, and in face of much opposition secured approval of a charter on Janu- ary 28, 1857. The bank was opened for business in the following May. The first location was at the northwest corner of Water and LaSalle streets, on the first floor of the old Board of Trade building, which then stood there. From the spring of 1860 until the fire it was in the Dickey building at the southwest corner of Lake and Dear- born. It is related that while the fire was rapidly advancing upon this locality, Solomon A. Smith, who was then president of the bank, and Charles Henrotin, the cashier, opened the money vault and extracted all its contents, consisting of about a million dollars in bonds and greenbacks of large denominations, and about three million dollars in securities and notes, etc. A clerk who ran by at the moment was pressed into service, and the treasure was divided into three bundles of equal weight. Then during the early hours of Monday morning, the three men, each with over a million of wealth in his arms, went out into the panic-stricken crowd that thronged the streets, and made for Michigan avenue. Men crazed by whisky and thieves and toughs ready for any opportunity to pillage, were everywhere; but in their slouch hats and old coats the treasure-bearers were unmolested, the very crowd being their safeguard. They ran down Michigan avenue to Terrace Row, where P. L. Yoe, one of the directors, lived. The treasure was dumped on the floors of his house. At ten o'clock in the morning it was removed to the residence of John Borland on Indiana avenue, and from there to the house of Mr. Smith, who lived at the corner of Harmon Court and Wabash avenue. The basement dining room of his residence was fitted up as a bank, and there, eight days after the fire, the bank opened for business. That was the bank's home until the completion of the Manierre building at Madison and Dearborn, which was occupied from the spring of 1872 until 1881,
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when the bank secured a new location in the Portland block at Wash- ington and Dearborn streets. In 1900 it was moved where it is now located, in the bank and office building at the corner of Clark and Adams streets.
Solomon A. Smith, president of the Merchants Loan and Trust Company from 1860 until his death, was a specialist in banking
SOLOMON and devoted his time and attention to that and con-
A. SMITH. cerned himself little about other interests that did not relate in some way to his life work. He was not inclined toward varied interests like J. Young Scammon, W. H. Brown and others of the earlier bankers; but during the period of his financial activity he was not excelled for ability and business capacity by any of the financiers of Chicago. He was almost as strong a figure in the financial affairs of the city from the beginning of the war until the fire, as George Smith had been during the forties and early fifties. Born in Massachusetts in 1815, he became interested with his father in the manufacture of powder, and peddled the product through the country. He came by Erie Canal and lake steamer to Chicago in 1840, where he was connected with the Laflins, powder manufac- turers, the firm being Laflin and Smith for a time. Mr. Smith was considered one of the successful manufacturers and business men in the days before the war, and being among the original promoters of the Merchants Loan and Trust Company, he was called to succeed the first president, J. H. Dunham. He assumed the position during one of the most trying periods of Illinois finance, when the country had hardly recuperated from the panic of 1857 and when the out- break of the war caused a decline and often an almost total loss of the value of the southern securities that were then held as bank resources in Illinois. Mr. Smith continued in the performance of duty to the close of his life, not allowing a lasting illness to interfere with the work to which he was devoted. He died November 25, 1879. He is remembered as being very frugal and plain in habits and dress, was reserved and quiet, and seldom allowed any distractions to interfere with his methodical habits of life at home and in his office. Most of all, his credit lies in upholding the commercial soundness of the city during times of national panic. His only living son is Byron Laflin Smith, founder and president of the Northern Trust Company, and formerly one of the officials of the Merchants Loan and Trust.
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The Civil war made enormous demands upon the national treasury, and the government within a few months after the beginning of the war was seriously embarrassed by the difficulties of providing funds from the regular sources. Permission to duly empowered organiza- tions upon certain conditions to put into circulation bills furnished them by the government, their redemption in specie to be guaranteed and regulated by the government, was the means of making the national debt an available capital for banking purposes that was pro- posed by Secretary Chase, and out of which grew the National Bank- ing Act. In order to give the national currency thus created pref- erence over other forms of credit currency, it was proposed to tax the issues of state banks to such an extent that these institutions could not profitably issue notes. Naturally the state banks opposed the measure. But the necessity of securing "one sound, uniform cir- culation of equal value throughout the country upon the foundation of national credit combined with private capital," forced Congress to act, and a bill passed the senate February 12, 1863, and the house eight days later, and the National Currency act received the signature of the president, February 25, 1863. While the practical results of the act did not realize expectations during the war, the national bank- ing system eventually remedied the great financial ills from which the country suffered under the miscellaneous and loose methods of state banking.
Although the National Bank Act was an emergency or war meas- ure, yet the law stands today practically, and particularly in important features, in its original form. The fact that the national banking sys- tem has been, since February, 1863, the central pillar of America's financial power, is an evidence of the wisdom and foresightedness of our law-makers during that critical time when they had to act in a hurry. By the national bank act, the credit of this country has not only been maintained, but gradually grown beyond that of any other country of the world. Proof of this was furnished during the panic of 1907, when bonds guaranteed by sound security and bearing five per cent, sold many points below par, yet government bonds, bearing only two per cent, were selling freely all along at four to five per cent premium or more. This resulted largely from the demands by national banks to use government bonds to secure increased circulation and gov- ernment deposits. It is estimated that three-fifths of the United States
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government bonds are carried by the national banks for these pur- poses. Much comment has been indulged in and no little criticism that the act favored the national banks, whereas, in fact, it works to the advantage of the United States government. It is argued that the banks make a profit on this circulation, which is true, but the profit is of little moment compared to the benefit derived by the gov- ernment. The profit to banks averages only about one per cent, as the following computation will show. For $100,000 of the two per cent bonds at a premium of four per cent, a bank will pay $104,000. On these it will get a maximum circulation of $100,000. The current rate of interest makes but little difference, as it operates both ways. Putting the interest at five per cent, the bank will thereby receive $2,000 interest on the bonds and $5,000 on the circulation, provided the full amount is loaned and no loss attends, making the gross re- ceipts $7,000. The following deductions must be made :
Interest on $104,000 paid for the bonds $5,200. 500.
Tax
Expense estimated 100.
Sinking fund 61.25
Total $5,861.25
leaving a possible net profit of $1,138.75; but an average of $1,000 is a fair estimate.
"The First National Bank of Chicago" was the eighth institution under the new law to receive the approval of Comptroller McCulloch to begin business. Its organization was planned while the legislation was still under discussion in Congress and, the first articles of asso- ciation were adopted May 1, 1863. The day before the formal open- ing of the bank the Tribune published the following :
"The First National Bank of Chicago goes into operation tomorrow, July Ist, E. Aiken, Esq., President, and E. E. Braisted, late of the Loan & Trust Co., Cashier. The stockholders are among the most active and substantial busi- ness men, representing our merchants, lumber, produce, and stock dealers, with a number of our leading capitalists. The bank opens with a cash capital of a quarter million dollars, and a further increase will be added as the wants of the business public shall require. The president has long been known to the business community as one of our most active
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and prudent bankers, and the stockholders and the public are fortunate in the selection of a gentleman for so impor- tant a position, who so thoroughly understands the business of the city. The bank will open at the former office of the president, No. 22 La Salle street, immediately north of Cool- baugh & Co.'s Bank, northwest corner of Lake."
As this announcement stated, it was a remarkable group of busi- ness men who founded the bank. Edmund Aiken, the first president,
EDMUND was of Scotch ancestry, a New Englander by birth,
AIKEN. and had attended Yale College as long as health per-
mitted. On coming west in 1835 he clerked for a while in a store at Mishawaka, Indiana, then returned east and became a lawyer, teacher and farmer, until, finally yielding to the fascination of Chicago in 1856. His office was on the east side of Clark street, on the alley between Lake and Randolph, and in a year he was joined by a Syracuse capitalist, John D. Norton, and the firm of Aiken and Norton was then best known as loan agents and private bankers. The office was moved to the old Board of Trade building at La Salle and South Water in 1862, where the business of the First National Bank was opened. Mr. Aiken was president of the First National Bank until his death in 1867. While a man of impressive business ability, he was more than a banker. He was one of Chicago's early lovers of music and the fine arts, and the old Academy of Science was or- ganized in his home, with Professor Agassiz as the guest of honor. The Home for the Friendless and the welfare of the Union soldiers were objects of his charitable activity. The Auditorium Annex cov- ers the site of the old Aiken home.
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