History of Chicago. From the earliest period to the present time, Part 149

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

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Office in Russell's Brick Block, corner of Lake and Clark streets.

Office hours, from 9 A M. to I P. M.

J. S. BREESE, President.

L. D. BOONE, Secretary.

In accordance with the above notice, the company immediately commenced a "banking business." It received deposits, it loaned money, it bought and sold exchange and coin, and its demand certificates of deposit in the course of business, performed the func- tions of money, although they were not in the semblance of "bank notes," and it would have been impossible to prove that they had been issued in violation of the provisions of the charter. What circulation they had was based on the confidence of the people in the solvency of the institution, rather than on any authority or power conferred on it by State legislation. It does not appear that the directors of this company designed to create a circulating medium in their certifi- cates, nor did they do so to any great extent, but, per- haps, sufficiently to suggest the feasibility of the plan to a class of men having the ability to put it in practice successfully, and to such an extent as to render it the leading monetary system, and a prominent factor in the trade and commerce of the Northwest for many years.

Among the shrewdest financiers then living in Chicago were George Smith and Messrs. Strachan & Scott, all from Scotland. Smith* first came to Chicago as a prospector in 1834. He became strongly impressed with the immense field for profitable investment of money offered by the great Northwest, then for the first time open for settlement, and returned to Scotland full of enthusiasm over the glorious business prospects which his sagacity enabled him to discern. He there organized the "Scottish Illinois Land Investment Company ;" Strachan & Scott came out with him, on his return, as managers of the affairs of the company ; George Smith was a large stockholder, and a sort of advisory director, and did his business at their office which they opened as agents of the Scotch company, real estate agents, and private bankers, immediately after their arrival (late in 1836). The three were comfortably settled and doing business in August, 1837, as appears by the following advertisement which appeared in the Demo- crat of August 16 :

"TO RENT.

"Several houses and rooms suitable for families. Apply to Strachan & Scott, corner of Lake and Wells streets, or to George Smith, Lake House."

These Scotch gentlemen, whose business in the country was to make money, watched with intense interest the developments of the new phase of banking

. George Smith was a native of Old Deer, Aberdeenshire, Scotland, where he was born about the year ISog. He was bred a farmer, spent two years at Aberdeen University and came to America and the great West, not to establish a banking business but to become a great land-holder on the vast outoccupied domain of the new country. It seems a matter of chance or accident that the business in which he engaged made him the great banker of the West instead the owner and cultivator of immense tracts of land. His connection with Str .- chan & Scott, and Alexander Mitchell, shrewd and educated bankers, had undoubtedly much to do with changing the character of his business, and turn- ing it into the unexpected channel it afterward followed.

which had its basis outside of any legislative authority. The act gave the company a corporate existence, and empowered it to hold property, to buy and sell, to sue and be sued, which seemed to them all that was necessary for their purposes. Accordingly, in 1839, the times having become propitious through the collapse of the State internal improvement scheme, and the abridged importance and prominence of the State banks, which followed, they took a transcript of the charter of the Chicago Marine & Fire Insurance Company, and without important changes obtained from the Territorial Legislature of Wisconsin, its passage as an act incorpor- ating the Wisconsin Marine & Fire Insurance Company. Another Scotchman now joined the trio. Alexander Mitchell, a young banker from Aberdeen, came out at the solicitation of his friend, George Smith, to assume the secretaryship and local management of the new company at Milwaukee. The stock of the company was $225,000, one-half of which was held in Scotland, and the other half by George Smith, Alexander Mitch- ell, and Strachan & Scott. The office was established at Milwaukee. The sign read : "Wisconsin Fire & Marine Insurance Company." The proprietors imme- diately commenced the business for which they had obtained the charter, leaving the people to judge as to . whether they were doing a banking business or not. To their customers they issued certificates of deposit, engraved like bank bills, of various denominations from one dollar to ten dollars. Below is a copy of one of the few, if not the only original certificate issued by the company, now in existence :

WISCONSIN MARINE & FIRE INSURANCE COMPANY. No. 113,897.

This is to certify that E. I. Tinkham has deposited in this institution one dollar. which will be paid on demand to bearer.

Milwaukee, W. T., 11th July, 1845. GEORGE SMITH, President.

ALEXANDER MITCHELL, Secretary.

These certificates were redeemed in Chicago at the banking house of Strachan & Scott, until their removal to New York in 1840, and subsequently by George Smith & Co., so long as they continued in circulation. The issue worked its way into circulation slowly at first, and against the opposition of the banks still doing busi- ness under State charters. From the first appearance of these bills until the State banks, under the old regime, were powerless and useless, they were subject to their bitter hostility. The people, however, favored them, as they were always promptly paid on presentation and showed in favorable contrast with the Illinois bills afloat, all of which were below par, and none of which were ever redeemed at their face value after the Wisconsin Fire & Marine Insurance Company started business. December 1, 1841, the company had out of its certifi- cates of deposit (afloat as currency) only $34,028. The issue from that time rapidly increased. In 1843 the cir- culation was $100,000 ; in November, 1845, $250,000 ; in July, 1847, $300,000 ; in November, 1847, $400,000 ; in November, 1848, $600,000; in October, 1849, over $1,000,000 ; in December, 1851 (the year before the banking law was passed in Wisconsin', $1,470,000. From that point the circulation was gradually con- tracted. Every dollar of this vast amount was paid according to its tenor, on presentation. Nearly $34,000 was never presented, that amount being probably lost by fire, shipwreck and wear. In 1853 the company was re-organized as a legal banking institution under the general banking law of Wisconsin, its name, already too long, being lengthened by the important word, Bank, to which it had an unquestionable title by an illegal but

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533

BANKS AND BANKING.

honorable career in the banking business for thirteen years. It received its legal christening under the name of " The Wisconsin Marine & Fire Insurance Company Bank," and as such is known to this day. The name was, and is, too long for practical adoption. In its early days it was more generally dubbed Smith's Bank, or Mitchell's Bank, and under the latter name, after half a century, stands with unlimited credit in all the marts of the world.

As has been stated, the issues of the bank were slow in gaining the confidence of the people. The irregular and illegal form in which the currency was put out was kept constantly in the mind of the people by those who were interested in perpetuating what they were pleased to term legal banking. Runs on Strachan & Scott and Smith, and on the bank of Milwaukee, were organized with a view to discredit the currency, and destroy the growing confidence in its stability and value. None of them succeeded further than to create temporay panic outside the bank; on the contrary, each run, either on the bank at Milwaukee or on Smith at Chicago, or on any other agents for the redemption of its bills, was promptly met, and left the bank in better standing than it was before. As its business increased, in order to enlarge the field of its circulation, it established agencies for the redemption of its bills at Galena, St. Louis, Cincinnati and Detroit. The result was that the illegal bills, issued honestly and honestly paid, drove from circulation the legal bills, dishonestly issued and afterward dishonored. A few banks stood the stern Scotch test, and kept their bills in circulation; but it is but truth to say that the illegal issue of the Wisconsin Fire & Marine Insurance Company drove the depre- ciated paper of the legally constituted State banks out of circulation.

As contrasting the two systems of banking then in vogue the Milwaukee Courier, May 9, 1842, published the following statements, with comments, as follows :

BANKING.

Statement of the Wisconsin Marine & Fire Insurance Com- pany, December 1, 18 41:

ASSETS.

Bills and notes, chiefly at or under 60 and go days'

date, not due and bearing interest .. .$ 8,439.00

Real Estate and Real Estate Securities, mostly in Milwaukee, Walworth and Racine counties, sold, and now in course of being paid for . 94,442.70 Cash in hands of correspondents at New York, De-

troit, Chicago and St. Louis-part bearing interest. 155,789.76 Cash on hand-Western funds .. 16,513.00

Gold, silver, treasury notes and Eastern bills. 5,346.95

Company's office furniture, etc ... 2,011.83

Expense account. . 177.93

Premiums of fire insurance, being loss sustained by fire, insurance after absorbing all premiums heretofore received. 828.72

Due from Territory of Wisconsin for expenses of Leg- islature, for which certificates are held, bearing 10 per cent interest. 16,873.01

Current and miscellaneous accounts 5,465 81

$299, S93.71

LIABILITIES.

Capital stock paid in. . $224,475.00 Deposits and , check account, in SI, $2, S3 and $5 evi- dences of debt outstanding (circulation) 34.028.00

Due correspondents

5,000,00

Sum of credit of individuals on current and miscella- neous accounts. 6,177.48

Unpaid dividends. 45.00 Profit and loss account

($20,000 of this sum is premium received on com- pany stock sold.).

Premiums of marine insurance, being profits on

account of marine insurance, subject to losses that may yet be ascertained. 570.59

$299,893.71

(Signed) ALEX. MITCHELL, Secretary.

Ap. hitched

STATE BANK OF ILLINOIS.

The cashier of this institution has made an authorized expose of its affairs, and it shows it to be irretrievably insolvent-from the Missouri (St. Louis) of the 25th.

The immediate liabilities of the bank are:

Circulation. .. -$2,861,288.00

Unclaimed dividends 811.00

Discount, exchange and interest 212,380.91

Due to other banks. 46,826.31

Deposits 157,448.64

Total. $3,278,754.86 To meet these liabilities which are instantaneous, he reports. Specie . $ 526,096.65 $144,476 of other bank bills which may be worth ... 75,000.00

Total. $ 601,096.65

IMMEDIATE ASSETS.

Resources of which part may be realized :

$60,236.07, bank balances .. .$ 60,000

SSII, SOI.09, real estate taken from broken debtors,

probably worth 200,000

$1,686,000, State stock, worth. 337,200

$673,975-32, loans on real estate, of which may be collected 150,000

$825,469.50, suspended debt of which it is possible there may be collected. 100,000

$1,317,954.36, bills discounted of which may be col- lected . 1,000,000 $547, 171. 17, bills of exchange on pork, worth .. 300,000

$156,492.42, due from Fund Commissioners, and $350, 165.20 due from the State, on which noth- ing can be realized for years.

$336.827 04, due from other banks-probably most of it from Cairo-may be worth.

175,000

Total resources $2.943,296,65

The last exhibit showing the condition of the State Bank of Illinois, is the work of prejudice. The estimates of the value of securities, although, in the aggregate, not far from the truth, were made at the time with a view to discrediting the bank. The reader will remember that, as has been told, the State soon after closed up the bank and robbed it of its State stock, leaving it unable to pay its other creditors. On the part of the members of the Legislature who forced the bank to close up, it was a shameless repudiation, since many of them were debtors to the bank, and it was openly charged that the ruling motive for closing it up was to thus avoid the payment of their honest debts.

The only object of the foregoing exhibit is to show the reader how the illegal system of banking honestly conducted, compared with legal banking dishonestly carried on. A State may be dishonest as well as an individual, and lacking the control coming from fear of punishment, do more mischief than the citizen who has a wholesome fear of the penalties of the law before his eyes. It is sufficient to say that in 1843 legal hank- ing ceased in Illinois, and that illegal banking had, meantime established itself. For the succeeding eight years, the banking of Chicago was carried on by pri- vate bankers or banks, using as currency the bills of

20,597.64

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534

HISTORY OF CHICAGO.

Wisconsin Marine & Fire Insurance Company, and the bills of other State banks which had managed to resume specie payment and sustain their credit against the first-named institution.

EARLY BANKS AND BANKERS-(1836 to 1851) .- The banking of Chicago was carried on prior to 1851, by the following corporations, firms and individuals :

1836-Chicago Branch of the State Bank of Illinois, corner of LaSalle and Water streets, removed to Lock- port in 1840 ; agency remained in Chicago until bank closed in 1843.

1837-Strachan & Scott ; remained in business until 1840 ; sold out private banking business to Murray & Brand. George Smith succeeded them as agents of the Wisconsin Marine & Fire Insurance Company. The Chicago Marine & Fire Insurance Company did a full

banking business with the exception of issuing bills. Its charter was amended in 1849, and it was the prede- cessor of the Marine Company of Chicago.

1838-No changes.

1840-George Smith & Co., LaSalle Street, bankers, continued in business in Chicago until 1856-57, at which time the business of the house was closed up. Mr. Smith after an honorable and successful career of twenty

Alex: Brand

years as a Western banker, retired with a very large fort- une, and returned to Scotland. He now lives in Lon- don. He has still large property interests in Chicago.

The first full and reliable business directory pub- lished in Chicago was issued by Norris in 1844. It contained the following names of persons engaged in banking and brokerage :

Murray & Brand, exchange brokers, corner of Lake and Clark streets; Noah Buckley, pawnbroker, corner of Randolph and Wells streets ; Newberry (Walter L.) & Burch (I. H.), bankers, 97 Lake Street ; Griffin & Vin- cent, brokers, corner of Dearborn and State streets ; George Smith & Co., private bankers, and exchange brokers, Bank Building, LaSalle Street ; Elijah Swift, broker, 102 Lake Street ; R. K. Swift, broker, 102 Lake Street ; H. W. Wells, agent of Farmer's and Mechanic's Bank, 112 Lake Street, upstairs.

The directory of 1845 shows no additions to the banking facilities of the city. The names and adver- tisements of banks and bankers -were as follows:

Alexander Brand & Co. (Murray & Brand), private bankers and exchange brokers, 127 Lake and Clark Street. "Collections and remittances made on all parts of the United States, Great Britain and Ireland, and the Continent of Europe. Money remitted to or from settlers or emigrants in sums as may be required. De- posit accounts kept. Interest paid on special deposits. Money and property commissions attended to." J. Coe Clarke, north of Lake Street, between Clarke and South Water streets; Newberry & Burch, 97 Lake Street ; George Smith & Co., bankers and exchange brokers, Clark Street, between Lake and Randolph ; R. K. Swift, office 102 Lake Street, upstairs; "money loaned on

real estate and other undoubted securities ;" Agency of the. Farmer's and Mechanic's Bank of Michigan, 11. W. Wells, agent, office Saloon Building, Clark Street. Agency of the Mississippi Marine & Fire Insurance Company, office 87 Lake Street, M. M. Hayden, vice- president.

The directory of 1849-50 has the following:

Money Lenders-G. P. Baker, 193 Lake Street; J. S. Dole, 181 Lake Street ; Thomas Parker, 40 Clark Street; E. G. Hall, 103 Lake Street; R. K. Swift, 111 Lake Street.

Banks, bankers, and dealers in exchange-Alexander Brand & Co., 127 Lake Street; I. H. Burch, 125 Lake Street; Chicago Savings Bank,* 125 Lake Street; Chi- cago Bank,* 125 Lake Street; Curtis & Tinkham, 40 Clark Street; D. C. Eddy, 97 Lake Street; George Smith & Co., 41 and 43 Clark Street.

In 1851 a general banking law was passed by the State Legislature and legal banks of issue incorporated under its provisions, ultimately superseded the private banking which had been carried on since 1843. Many of the private bankers organized banks, and continued their business under new corporate names. The sur- vivors of the period of illegal banking as shown in the directory of 1851 were:

Bankers-Alexander Brand & Co., 127 Lake Street, corner of Clark; I. H. Burch, 125 Lake (Chicago Bank, also Chicago Savings Bank); George Smith & Co., 41 and 43 Clark Street; Tucker, Bronson & Co., 85 Clark Street; Jones ( William) & Patrick (Milton S.) 40 Clark Street; Richard K. Swift, 45 Clark Street.

Money Lenders-John Denniston, 111 Lake Street; E. G. Hall, 103 Lake Street.

The directory also shows that, in that year, Charles B. Farwell was teller at George Smith's Bank, and that Edward I. Tinkham was secretary of the Chicago Marine & Fire Insurance Company.

The "illegal banks" and bankers that lived through the period, and continued after the passage of the Bank- ing Law, in 1851, to do business had shown a vitality not to be despised. "Smith's Bank " ( The Wisconsin Marine & Fire Insurance Company) was in constant danger, and attacks on its credit were so persistent that it may be said to have been in a constant state of siege from the time its bills first appeared in 1839, until it finally became a legal banking institution, under the banking law of Wisconsin, in 1853.

As early as 1841, before the collapse of the State Bank of Illinois, the following appeared in the Chicago American of September 28, 1841: " The present circu- lation of the Wisconsin Marine & Fire Insurance Company, whether in Illinois or elsewhere, is $29,000. In addition to the guarantee afforded by stockholders, both here and in Great Britain, we are enabled to com- municate the facts, that the parties by whom the bills of the institution are redeemed in the city have never been without the means of taking up its whole circulation at a moment's notice, either in Illinois funds or Eastern exchange, and have at this time, deposits, available for the redemption of the bills, in the Chicago Branch Bank, to an amount exceeding the entire circulation."

A statement like the above silenced the Illinois Bank men for the time being, as a run on Smith's Bank would be virtually a run on their own bank, the deposit- for the redemption of the bills being kept in that insti- tution. But when, in 1843, the State Bank was closed up, the war was carried on by all the outside banks of issue whose circulation came in competition. The most formidable attempt to ruin the bank occurred in Novem-

* Owned by I. H. Burch.

535

BANKS AND BANKING.

ber, 1839. For weeks before, the Michigan banks, with allies in Chicago, had been employing brokers to gather "Smith's bills," of which there were out at the time $1,000,000 .. On Thanksgiving day Smith closed. his bank in Chicago for the holiday as was customary. The news was immediately sent to Milwaukee that "Smith had closed his bank in Chicago," and a local panic was thus inaugurated. Simultaneously the accumulated bills began to pour in for redemption, both in Milwaukee and Chicago. Mr. Mitchell, secretary at Milwaukee, immediately sent an express to Chicago for a supply of specie, which was promptly forwarded in double the amount required, one-half by land express and the other by way of the lake. In the History of Milwaukee, pub- lished in 1881, the run on the bank and its result is thus stated : "There was much excitement and large crowds of panic-stricken depositors thronged the bank and with- drew their deposits. The more intelligent classes, how- ever, proved their stanch friendship and supreme con- fidence in Mr. Mitchell and his bank, by furnishing him all they could rake together at first, and afterward

replenishing his coffers by depositing with him such amounts as had been placed in his hands for safe- keeping. Thus the run became nearly self-supporting, and, as the supply of coin seemed inexhaustible, the local panic among small depositors had entirely subsided before the arrival of the coin from Chicago, the deposits being actually decreased at the end of the run only about $100,000."

Mr. Smith promptly redeemed the bills presented in Chicago. The plot failed and left the bank ultimately stronger in the confidence of the public than ever before.

The panic, however, was not confined to Milwaukee and Chicago, where it was short lived, but spread all through the West where the bills were current and con- stituted the greater part of the circulating medium.

Concerning the panic and the bank, the Chicago Democrat, December 1, 1849, discoursed thus: "Wis- consin Marine & Fire Insurance Company-Panic- Some considerable excitement has been created within the past few weeks with regard to this institution ; and on account of articles published in the papers of this city, many of the holders of its bills abroad have been alarmed. In St. Louis the excitement was intense and its bills were selling at five to six per cent discount. They were, however, redeemed at the company agency, at one per cent discount-the usual rate. Upon the line of the canal, also, we learn that the bills have been selling at eight per cent discount." After alluding to its hatred of banking and broken banks it continued : " We do not wonder that they the failures of the banks) should cause the people to enquire whether the owners of the institution are legally responsible for its liabilities. In this state of things, we agree with our contemporaries of the Press that it is due to the public on the part of its proprietor that the Wisconsin Marine & Fire Insurance Company should make such arrangements as will pre- vent these panics in the future. Mr. Smith is now in a position in which he can make such a disposition of the property which he possesses, or securities that he can command, as will amply secure the public, so far as a bank can be said to be secure. We should think that a regard alone of his own interest would lead to this. Such security would restore confidence, and give his institution a stability which it can never possess under its present character. Mr. Smith has been made a wealthy man by the people of this city. Why then with- hold legal responsibility which should long ago have

been given, but without which the public have been so generous as to put confidence in the institution ?"

As showing that both Mr. Smith and Mr. Mitchell were not unmindful of the demands the public had upon them in return for the confidence it had shown in their institutions, the following appeared in the Democrat of December 7, 1849.

"Wisconsin Marine & Fire Insurance Company and George Smith. We copy the following from Thompson's Bank Note Reporter of December 1, just received :

" WISCONSIN MARINE & FIRE INSURANCE COMPANY, " MILWAUKEE, November 22, 1849.

"J. THOMPSON, EsQ.,-Dear Sir: In the Bank Note Reporter of the 15th current I observe reference is made to this institution in a communication in which you append certain remarks of your own and inquire whether the public have a legal claim on me for the redemption of its notes. In answer to this question, I have to in- form you that being aware that doubt existed with respect to the extent of my liability for the issues of the company, and being desirous of satisfying what I am not prepared to call an unreason- able wish on the parts of a portion of the public, I did, in March, 1846, create a legal liability on my part for all such issues, and that in order to remove all ground of doubt on this subject, and acting under the advice of able counsel as to the most effectual manner of accomplishing the desired end. I have recently, together with Mr. Mitchell, the secretary, executed instruments creating a personal liability on the part of both of us. to trustees, for the benefit of the holders of the company's notes now outstanding, and those that may be hereafter issued; the trustees being William H. Brown at Chicago and Hans Crocker of this city.

"' Yours respectfully. GEORGE SMITH." . The following appeared in the Democrat of Decem- ber 11, 1849: "Some fifty or sixty of the merchants of the city have published a circular expressing confidence in the notes of the Wisconsin Marine & Fire Insur- ance Company."

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History of Chicago. From the earliest period to the present time, Part 149

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