History of Chicago. From the earliest period to the present time, Part 148

Author: Andreas, Alfred Theodore
Publication date: 1884
Publisher: Chicago, A. T. Andreas
Number of Pages: 1340

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lature of 1836-37, and recommended to that body a system of internal improvements, which, as stated in the resolutions, "should be commensurate with the wants of the people." The scheme was without doubt. worked up to this point, by a few shrewd designing men for purposes not entirely patriotic or unselfish, but when presented, it was most eagerly adopted by the Legis. lature. The building of the proposed railways, and the improvements of navigable streams, allayed the bitter opposition which had developed in sections of the State too remote from the Illinois & Michigan Canal to be benefited by the project, and the canal section could well afford to support the general scheme, however visionary, if thereby could be secured further appropri- ations for the continuance of the work. The banking interest could but approve of a plan that would make the banks the fiscal agents of the State in the carrying out of the scheme; the people saw in it a flood of money, sudden wealth without toil, and a continuance of good times, and Illinois, basking in the sun of pros- perity, the haven of rest to which the pauperized in- habitants of less favored States would flock for homes, in numbers sufficient to occupy the whole domain and ever after remain the richest, the most populous and the most powerful of all the States. There were conser- vatives who saw the danger, warned the people and opposed the plan as inopportune, visionary, dangerous to the credit of the State and ruinous to its people : but all their efforts to stem the popular tide of enthusiasm for the project proved futile.

On February 27, 1837, the great scheme of internal improvements was legally inaugurated in the Legis- lature, by the passage of a bill, the provision of which, if carried out, would have met the wishes and expecta- tions of the wildest enthusiast of those visionary times.

The act created a Board of Fund Commissioners. consisting of three members, who were to be "practical and experienced financiers ; " and also a Board of Com- missioners of Public Works, consisting of seven mem- bers. The members of those two executive boards were to be appointed by the General Assembly, and to hold their offices for two years. The Commissioners were authorized and required to complete, "within a reasonable time certain public works, and for which appropriations were made as follows :

For the improvement of the navigation of the

Great Wabash. $100,000

The Illinois River 100,000

The Kock River 100,000

The Kaskaskia Kiver. 50,000

The Little Wabash 50,000

Total -$400,000 For the building of railroads:

The Great Western Railroad from Vincennes to St. I.ouis $ 250,000

A railroad from the city of Cairo, at or near the confluence of the Ohio and Mississippi

rivers, via Vandalia, Shelbyville and De- catur, and Bloomington In the southern ter- mination of the Illinois & Michigan Canal. and from thence by way of Savannah to Galena . . · 3.500,000

A southern cross railroad, from Alton to Mount Carmel, via Edwardsville, Carlyle, Salem, Fairfieldl and Albion: and also a railroad

from Mton to Shawncctown .. 1,600,000

A northern esos railroad, from Quincy to Spring- field, and from thence to the Indiana State

line, in the direction of LaFayette. . .... . . 1, 850,000 A branch from the central railroad, from near Shellwville to the Indiana line in the direc- tion of Terre Haute 650,00 A railroad from Peoria, on the Illinois River. to Warsaw, on the Mississippi. . 700,000

Horny common

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529

BANKS AND BANKING.

A railroad from lower Alton to the central rail- road .. 600,000

A railroad from Belleville, via Lebanon, to intersect the railroad from Alton to Mount Carmel .... 150,000 A railroad from Bloomington, McLean County. to Mackinaw, in Tazewell County, and a branch through Tremont to Pekin 350,000

Total appropriated for railroad building. . $9,650,000

There was a further appropriation of $200,000, to counties which neither of the proposed railroads nor the canal would pass, "for the improvements of roads and bridges," the said amount to be paid to the counties designated, "from the first money that should be ob- tained under the provisions of this act." This appro- priation was little less than a legislative bribe to the few counties that otherwise, seeing themselves shut out from the distribution of benefits, might have jeopardized the passage of the bill by their opposition. The total amount appropriated was $10,250,000 ; and the total length of roads contemplated was 1,341 miles.

The fund constituted for the work proposed was to consist. 1. Of money to be borrowed. 2. All appro- priations which should be made from time to time out of the State revenues, arising from lands and taxes. 3. All moneys to be received from tolls, etc. 4. All rents, issues, and profits arising from lands to be pur- chased by the State. 5. The proceeds of all lands which might be donated by the General Government in . aid of the undertaking. 6. All grants and donations from individuals. 7. All profits and interest which may accrue from said works, together with the balance (after paying the debt due to the school, college, and seminary fund) to be received under the distribution law of Congress, which amount of said deposit, so funded, was "to be charged to the said fund of inter- nal improvements, and repaid out of the same when demanded by the General Government." 8. All net profits, to arise from bank and other stocks thereafter to be subscribed for, or owned by the State, after liquidating the interest on loans contracted by the pur- chase of such bank or other stock .* The passage of the bill of which the foregoing is a digest involved the necessity of enlarged banking facilities in the State,- indeed the bolstering up of the banks, or rather their absorption by the State was but a part of the scheme to be worked in a co-operative way to the attainment of the same end ... The banks were to receive a large amount of the bonds of the State in payment for stock to be subscribed for, and would, at the same time, be- come the fiscal agents of the State for the receipt and disbursement of the vast sums involved in the prosecu- tion of the work .. Accordingly March 4, 1837, an act was passed increasing the capital stock of the Shawnee- town Bank S1,400,000, all of which with the consent of the bank was to be subscribed by the State; also, during "the same sessiony an act increasing the capital of the State Bank $2,000,000, which increased stock was like- wise to be taken by the State. To pay for the stock subscribed for, the Fund Commissioners were author- ized to subscribe for the amount, payment for which was to be made, a part from the State's dividend of atthe surpriserevenues of the United States, and the remainder from the sale of State bonds. The total amount of the capital stock of the two Illinois banks after the increase was: Shawneetown Bank, $1.700,000; State Bank, 83.100,000. Of these amounts the stock was owned as follows: Of the Shawneetown Bank, 8:00,- ooo by private individuals and $1.500,000 by the State; . For a further history of the scheme up to the time of its utter failure and abandonment, se article on Rulnad».

of the State Bank $1,000,000 by individual stockholders, and $2,100,000 by the State. Governor Ford* gives the following account of the manner in which these banks were started in their enlarged sphere of useful- ness by the State:

"Although the State was to have the majority of stock in both banks, yet were the private stockholders to have a majority of the directors. The banks were made the fiscal agents of the canal and railroad funds; and, upon the whole, it is a mere chance that the State did not lose its entire capital thus invested. It was sup- posed that the State bonds would sell for a premium of about ten per cent, which would go to swell the interest fund; and that the dividends upon stock would not only pay the interest on the bonds, but furnish a large surplus to be carried, likewise to the interest fund. However, when these bonds were offered in market, they could not be sold even at par. The banks were accommodating, and rather than the speculation should fail, they agreed to take the bonds at par, as cash, amounting to $2,665,000. The Bank of Illinois (Shaw- neetown) sold their lot of $900,000, but the $1,765,000 in bonds disposed of to the State Bank, it is alleged, were never sold. They were, however, used as bank capital, and the bank expanded its business accord- ingly."

It will be seen by the above that in the onset the banks were obliged to come forward and sustain the credit of the State by taking its bonds at par, which was above the market value, and in the case of the State Bank, in so far as it extended its business upon the basis of the sold or unsaleable State bonds, it was doing it on dead capital and running the imminent risk of failure. It did not take long to show the fallacy of the system. In the spring of 1837 the speculative bubble burst, prices collapsed, and the banks of the whole country suspended specie payment. It became at once apparent that the State Bank must suspend with the other banks of the country or fail. It had already become crippled by many failures among its speculat- ive customers, to whom it had loaned money, and had still further weakened its position by extending its business largely on the unavailable capital of Illinois bonds. Being, as it was, one of the fiscal agents for both the canal and railroads, and indebted to both these funds to a large amount, its failure would have involved in ruin the whole system of public improve- ments. To avert the threatened calamity, a special session of the Legislature was called in July. Of this session, Governor Ford, in his history, says:

" The Governor's message made a statement of the matter, without any direct recommendation to legalize the suspension, and did recommend a repeal or modifi- cation of the internal improvement system. The Legislature did legalize the suspension of specie pay- ments, but refused to touch the subject of internal improvements. It was plain that nothing could be done to arrest the evil for nearly two years more."

The act passed, legalizing suspension, was general in its nature, and was as follows:

An Act to suspend, for a limited time, certain Laws in relation to the Banks of this State.

SECTION 1. Be it enacted by the people of the State of Illi- nois, represented in the General Assembly .- That every provision of law, requiring or authorizing proceedings against any bank in this State, with a view to forfeit its charter or wind up its concerns. or which requires said bank to suspend its operations and proceed- ings, in consequence of its refusal to pay its notes or evidences of debit in specie, is hereby suspended until the end of next general or special session of the General Assembly, unless banks shall have generally resume .! specie payment at an earlier date, in which case

" " History of Illinois, " pp. yo'yı.

530

HISTORY OF CHICAGO.

the Governor shall give notice thereof by proclamation, and the said bank shall, within twenty days thereafter, also, resume specie payments: Provided, however, That to secure the benefit of the foregoing provision, said banks shall agree to conform to, and comply with, the following conditions, restrictions and limitations, viz .:

First-That it will not, either directly or indirectly, divide or pay among its stockholders, or to any person for them, any divi- dends, interest, or profits whatever, until it shall bona fide resume the payment of its notes and evidences of debt in specie, which dividends shall be retained in bank as an additional security to the holders of its notes.

Second- That it will not, directly or indirectly, during the suspension of specie payment, sell, dispose of, or part with any of its specie, or gold or silver bullion, except for the purpose of change to the amount of five dollars, or under the sum of five dollars.

Third - That it will furnish monthly, upon the oath of its president or cashier, to the Executive of the State, a full and com- plete statement of the condition and financial operations of said bank and branches, which shall be publisbed in the newspapers of the State Printer.

Fourth-That it will not, directly or indirectly, issue or put in circulation, during the period of its suspension of specie payments, any bank bills or notes, or any evidence of debt by which the amount of its circulation shall be increased beyond the amount of capital stock paid in by the stockholders.

Fifth - That it will receive upon deposit any funds belonging to the State, which may be required to be so deposited, and pay the same out upon the order of the proper officer, or agent of the State, in kind, free from charge; and also all funds heretofore deposited by the State,

Sixth - That until the banks shall resume specie paymeot, citizens and residents of the State who are indebted to them upon notes heretofore discounted, shall be allowed to pay their debts in installments, at the rate of ten per cent, upon each and every renewal of the amount originally due, upon condition that such debtors shall execute new notes, with satisfactory security and pay the aforesaid per cent, and the interest in advance, according to the usage and custom of banking: Provided, That this section shall not apply to notes or bonds assigned or endorsed to the bank.

Seventh - That any violation of the provisions of this act, or any failure to comply with and conform to the same, shall subject the baok in default to a forfeiture of its charter.

SEC. 2. Whenever any bank shall accept the provisions of this act, and the president thereof shall furnish the Governor with a certificate of the fact of such acceptance, under their corporate seal, the Governor shall issue a proclamation, stating the fact of such acceptance; and from and after the date of such proclama- tion such bank shall be considered as being entitled to all the benefits hereby conferred, and bound by all the conditions, restric- tions and limitations herein contained.

SEC. 3. This act shall not be construed so as to impair any rights required by individuals, or to exonerate the bank from any liability to the holders of its notes, for the non-payment of the same; and the provisions of this section shall apply as well to notes heretofore issued as to notes which may hereafter be issned.

Approved 21st July, 1837.

The State Bank, under the provisions of the act, continued to do business as the fiscal agent of the State, although it never again redeemed its obligations in spe- cie. So long as the fund commissioners could dispose of the State bonds in sufficient amounts to continue the internal improvements it had a fair although somewhat soiled reputation as a monetary institution. The work was continued until near the close of 1838, when the fund commissioners had exhausted every means their ingenuity could devise for raising money on State bonds to continue the work, and were compelled to report an empty treasury, their inability to replenish it by the sale of more bonds, and the consequent necessity of sus- pending the work. An extra session of the Legislature was called, and the bubble was as legally burst as it had been legally inflated by the passage of an act in 1839 which repealed the system and provided for winding it up.

The indebtedness incurred by the State in this ill- starred enterprise amounted to $6,014.749.53, for which she had to show only one small section of railroad com-

pleted (from Springfield to Meredosia) and a network of unfinished roads spread across the State in all directions which, thus left uncompleted, soon became nearly worthless. The credit of the State had become so impaired that its bonds had no staple or quotable value, and were bandied about in the money markets of New York and London at prices varying from fifty to seventy-five per cent below par. The credit of the banks which had been so closely identified with the State improvement scheme, and whose only valid claim to solveney rested on the credit of the State, it being the owner of a great majority of the stock in both banks, sank even below the credit of the State. Their stocks were worth in the neighborhood of fifty cents on the dollar, and, at that quotation, the banks could not redeem their own bills. As banks of issue their mission was at an end in 1839. The State Bank, however, con- tinued to perform some of the functions of banking, such as dealing in exchange, and disbursing the canal fund, for a few years thereafter. The end came during the winter of 1843. The Legislature at that time had come to a realizing sense of the situation, and deter- mined to retire from the banking business by foreing into liquidation the banks it virtually owned. On January 24 an act was passed "to diminish the State.debt, and put the State Bank into liquidation," and on February 25 an act "to diminish the State debt one million dol- lars, and put the Bank of Illinois (Shawneetown) into liquidation."

The "diminishing the State debt" was to be brought about by forcing the banks to surrender up to the Gov- ernor State bonds, scrip, or other evidences of State indebtedness-the Shawneetown Bank $1,000,000, and the State Bank $2,050,000-for which a like amount of the stock held in either bank was to be surrendered hy the State. As the securities sought to be exchanged were at the time about on par, each with the other, it might be deemed that the exchange contemplated was no robbery. It was, however, an arbitrary and unjust act to thus force the banks to deliver up its securities for its stock, and leave the burden of the past losses of the bank upon the individual stockholders who had paid good money for their stock, now worthless, instead of giving their notes, still unpaid, as the State had done. The scheme worked, nevertheless; the bonds to the amount of $3,050,000 were delivered up, the State indebtedness thus reduced, and the banks finally wound up at the expense of the individual stockholders, the holders of their bills, and their other creditors, who realized but little out of the final settlement .*

Thus the Chicago Branch of the State Bank went out in 1843. Its demise was not generally regretted by the citizens. It had not proved the unmixed blessing anticipated by those who had been instrumental in its establishment seven years before. For nine years after the close of the State banks there was no attempt to establish any system of State banking in Illinois. Dur- ing that period the business was done entirely by private bankers, and on the currency of other State banks or on other issues not authorized by the laws ut the State to be used as money.

From 1836 to 1843, during which time a branch of the State Bank of Illinois was located in Chicago,t the young city nearly doubled its population. The enum-

* In justificatiun of this arbitrary procedure on part of the Legislature it was claimed that the hunds thus demanded were nut the identical lunds win h had been received by the banks; that the bund- had bren sold at par, atel fi - purchased at a great discount, and that the banks had made money by the uber- ation.

t In the nominal compliance with an act of the 1.oggi-lifure p.is Lotes ary at, 18pt, the launch was removed to Lockport, but its business, through an "igrucy," still went on in Chicago.

BANKS AND BANKING.

531

eration of 1837 gave a population of four thousand one hundred and seventy-nine; that of 1843, seven thousand five hundred and eighty. The growth was not entirely attributable to the bank; on the contrary that institution proved quite inadequate to furnish the banking facilities to meet the legitimate requirements of the fast growing town, and, after the first year was little better than a stumbling block in the way of progress. Outside its own immediate circle of friends, it could grant but little banking accommodation. Its discredited currency had driven all silver coin out of circulation, and in its place the citizens were forced to use anything that would enable them to carry on the business of the city. Canal scrip was used, payable at the "Chicago Branch," some bearing interest, some payable on demand, and issued on engraved paper in the semblance of bank notes, in denominations of $1, $2, $2.50, $3 and $5. The city corporations, having been refused a discount at the

people in the personal responsibility, ability and honesty of those who had promised to redeem it.

ILLEGAL BANKING .- The Legislature of IS36-37 chartered the Chicago Marine & Fire Insurance Com- pany. In the charter it was specifically forbidden that the company should do a banking business, or issne any notes or bills in the semblance of bank notes to be passed as money. The company organized under their charter and one of their earliest advertisements, which appeared in the American, May 16, 1837, read as follows :

. The Directors of the Chicago Marine & Fire Insurance Company, being desirous of rendering to the community, during the existing deranged condition of the monetary system of the country, every legitimate aid sanctioned by prudence which the pro- visions of the charter of the company admit, when there are so many pressing causes urging to action every power capable of affording relief, have determined to avail themselves of that por- tion of the 5th section which is contained in the clause following:

FIVE

Chicago

STATE OF

ALLINOIS.

has dificsite, in the office ofthe

CHICAGO MARINE & FIRE INSURANCE CO.

FIVE DOLLARS Which payable tothe Cemeton demandin current Bank Fill

Tow England Banl. N. tc Co.Lostou,

SECT

PREST

FAC-SIMILE OF PLATE ENGRAYED BY THE CHICAGO MARINE AND FIRE INSURANCE COMPANY, BUT NOT ISSUED IN ANY LARGE AMOUNTS.

bank and being unable to obtain a loan elsewhere, issued scrip also, in small denominations. The small trades- men issued tickets of credit for change, from five cents to 50 cents, "good for groceries," "payable in goods," "good for tobacco," "good for a drink," or good for anything else which the issuer might happen to deal in. In addition to this was county scrip, State-Anditor's scrip, St. Louis scrip, and subsequent to 1837, a flood of bills issued by Michigan banks under the Land Loan banking law of that State. Of all this variety not a bill could be found that would be taken for postage, or for lands by the General Government, and, when found necessary to convert any of them into gold or silver, it was done at a frightful discount, varying from ten to eighty per cent, according to the character of the paper offered, and the whims, avarice, or necessities of the parties to the trade. All the bank bills might be termed legal issues, as the banks were all working under franchises granted them by some State or Territory. During this period, 1837-43, besides these, there came into general use as money, an issue of certificates of indebtedness which in contrast might be distinguished as illegal money; since its issue was not authorized under the laws of any State, and its current value as money was based entirely on the confidence of the

" And also to receive moneys on deposit, and to loan the same, on bottomry, and respondentia, or otherwise, at such rates of interest as may now be done by the existing laws of the State." * * *

The condition of the company is entirely solid and beyond doubt, as there is a surplus, beyond its capital stock paid in, of a considerable amount and because it has met with no loss since its organization, and its present risks are very few and limited to small amounts.

The Articles of the By-Laws, in relation to deposits are :

( I) All deposits shall be either general or special.

(2) General deposits are those which shall be made by the depositor, subject to be drawn out at any time on his check or order.

(3) Special deposits shall be those which are made for any specific time, and for which the depositor shall receive an interest. (4) No sum of money less than ten dollars shall be received on a general deposit, nor less than five dollars on special depusit. ( 5) All money deposited specially on trust for a shorter term than one year shall be deposited for a certified number of months-not less in any case than three months from date of de- posit.

(6) The rate of interest to be allowed on such special deposits of not less than six months shall be at the rate of six jeer cent per annum ; in all other cases the rate shall be settled in special agreement between the depositor and the officer of the insti- tution at the time of depositing.

(7) When the time of deposit shall exceed a year, interest may be made parable before the principal becomes due, annuali or semi-annually, as may be agreed on : but when the deposit shall be for a shorter time than a year, no interest will be paid until the principal becomes due.

532

HISTORY OF CHICAGO.

(8) Certificates of deposit, for money deposited, whether general or special, specifying the time and amount of the deposit, and when payable, and in what fund, and whether with or without interest, shall be issued when required, and in such cases the money so received shall be payable according to the terms of the certifi- cate, on the production and surrender of such certificate.

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History of Chicago. From the earliest period to the present time, Part 148

Author: Andreas, Alfred Theodore Publication date: 1884 Publisher: Chicago, A. T. Andreas Number of Pages: 1340

Author: Andreas, Alfred Theodore
Publication date: 1884
Publisher: Chicago, A. T. Andreas
Number of Pages: 1340