History of Saginaw County, Michigan; historical, commercial, biographical, Volume II, Part 79

Author: Mills, James Cooke
Publication date: 1918
Publisher: Saginaw, Mich., Seemann & Peters
Number of Pages: 838

USA > Michigan > Saginaw County > History of Saginaw County, Michigan; historical, commercial, biographical, Volume II > Part 79

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EASTERN MICHIGAN PIKE TO MACKINAW

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ROUTE MAP OF SAGINAW, MICHIGAN

monies were held. After short speeches by Mayor William B. Baum, Gov- ernor Aaron T. Bliss and others, the chief act of the day took place. Gov- ernor Bliss, surrounded by hundreds of enthusiastic citizens, grasped the handles of the plow and, with cheers of the assembled throng, vollies fired by the militia companies, and shrieks of whistles, turned the first furrow for about sixty feet in good roads making. This act was followed by speeches by C. K. Dodge, director of road inquiries, Department of Agriculture, Washington, D. C., and Judge Emmett L. Beach, thus concluding the inter- esting ceremonies.

In the active operations which followed this auspicious beginning. Will- iam L. Webber and William H. Wallace were deeply interested. The former, through his large interests in the Bay Port quarries, was instru- mental in providing sufficient stone properly prepared for road making : and the latter, by reason of his intimate relations with beet growers under contract with the Sebewaing sugar factory, who were greatly benefited by improvement of the roads, and his connection with the quarries, rendered valuable personal services in the cause of good roads. Archibald Robert- son for many years has persistently advocated the building of stone roads throughout the county, and deserves great credit for his efforts in crystaliz- ing public attention and interest on this subject.

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SAGINAW, MICHIGAN

737

TRANSPORTATION

The Cost of Road Improvement

During the last fifteen years nearly two million dollars have been ex- pended (including the expenditures to be made in 1917) for building and maintaining good roads in Saginaw County, which now has two hundred and fifty miles of improved highways. The funds for these improvements was raised by the City of Saginaw and the several townships, and at Feb- ruary 1, 1915, were summarized as follows :

City of Saginaw, raised by tax $ 524,160.00

Townships, raised by tax. 371,840.00

Townships, raised by bonds 361,000.00

State Awards

134,370.00

Total

$1,391.370.00

At the above date the improved roads built and maintained by this expen- diture consisted of one hundred and fifty-eight miles of Macadam, twenty- one miles of gravel, twenty miles of shale, and fourteen and one-half miles of field stone. a total of two hundred and thirteen and one-half miles.

In 1916 the expenditures for improvement of highways amounted to one hundred and eighty-seven thousand six hundred and seventy-seven dollars, of which seventy-two thousand five hundred and sixteen dollars were for repairs of roads and bridges. Twenty-two and three-fourths miles of road were graded, fifteen miles were made into stone highways, or given stone bottoms and gravel dressing and otherwise improved. The Merrill Bridge span was reconstructed, a new forty-four foot steel and concrete bridge was built on East Street, and a sixty-foot steel and concrete bridge was put up on the Spaulding and Bridgeport Townline road. Twenty-six concrete culverts from four to sixteen feet in width were put in to replace plank bridges. In addition to this work more than forty miles of Macadam road were treated with oil automatically fed from tank wagons, the labor cost of applying it being thus reduced to an almost insignificant figure. The results of this treatment of stone roads is very satisfactory.

The Value of State Awards

In aid of this work the money received from State awards for new con- struction amounted to twenty-eight thousand and sixty-three dollars, for repairs two thousand and eighty-five dollars, and from the automobile tax. for repairs, nineteen thousand three hundred and twenty-six dollars, a total of forty-nine thousand four hundred and seventy-four dollars. The total amount received from this source is nearly a quarter of a million dollars.

County Road Commissioner John W. Ederer, in his last annual report (1916), says: "AAll of the roads constructed by myself and my predecessors were good for what they were intended, namely, wagon roads. The traffic in the last five years has multiplied many times and the main travelled wagon roads today have become speedways and no material, no matter what kind it may be, will take care of the traffic unless some bituminous binder or concrete surface takes its place. The extensive repair of existing roads was made possible by the automobile tax of approximately twenty thou- sand dollars, which enabled us during the early part of the season to make the repairs which were made absolutely necessary by the unfavorable winter and spring of 1915-16. The City of Saginaw portion of this tax was used for repairs on roads commencing at the city limits and continuing away from the city. This tax has been the means of saving the roads of the county the past year, while it was not sufficient to do all that was necessary, it enabled us to come a little nearer it. I regard the repair and mainten- ance of roads as the most important of the many problems that will always confront the road commissioner."

THE SAGINAW TELEPHONE EXCHANGE OF THE MICHIGAN STATE TELEPHONE CO.

CHAPTER XXIV

BANKS AND BANKING

Lax Banking Laws - Advent of Territorial Banks - \ Period of Speculation - Organization of "Wild Cat" Banks - Saginaw City Bank - Workings of the Law - How a Bank Created Specie - Financial Ruin - Currency of the Bank of Zilwaukee - Recovery Was Slow - Beginning of Sound Banking - Merchants National Bank - Home National - The First National Bank - Second National - Savings Bank of East Saginaw - East Saginaw National Bank - American Commercial and Savings Bank - George L. Burrows & Company - First National Bank of Saginaw - \ Run on the Bank- Citizens National Bank - Saginaw County Savings Bank - The Strength of Saginaw Banks - A Comparative Statement - Banks and Financial Institu- tions in 1918.

F ROM time immemorial the laws of all countries, concerning banks and paper currency, have been notorious in attempting to create value where none existed. Paper currency, which only promised to pay money, has often been confounded with money itself and been largely treated as possessing real value. But whenever the issue of this currency exceeded the money it promised to pay, its value depreciated to the amount of actual money in the country, or even lower, and often became worthless. Early legislation in the United States showed little wisdom in regard to banking, and until our National banking system was established, authorized excessive issues of paper currency and with no reliable security for bill- holders. AAbsolute security of the circulation and government inspection of banks are safeguards established scarcely more than fifty years ago.

The first bank in what is now the commonwealth of Michigan was the Bank of Detroit, organized under an act passed by the governor and judges of Michigan Territory September 19, 1806. This act was not approved by Congress and the bank was forced to suspend business and wind up its affairs. But it mattered little to the scant population which needed only a small amount of money to carry on its business. Detroit was a mere trad- ing post on the outskirts of civilization, and the surrounding country, which was as Nature made it, was uninhabited by white men. The Indian brought in his furs and skins to be exchanged for beads, brass buttons, blankets, guns, and fire-water. No agricultural products sought a market there. Trade was done by "dicker," or barter of one kind of goods for another, and using only gold and silver as a circulating medium. There was little use for that commodity which is requisite to the successful conduct of a bank.

Advent of Territorial Banks

While Michigan was still a territory there was no general banking law. and what banks there were were incorporated by special charters which were substantially the same. The capital of each bank was nominally one hun- dred thousand dollars; and the circulation of paper currency could be three times the amount of the capital paid in, no security such as bonds, stocks, mortgages or anything else, being required. The excessive issue apparently was based, not on the ability to redeem on presentation, but the ability to pay when the notes which had been taken for the bank bills issued were collected. The territorial banks, eight in number, were: Bank of Michigan, chartered in 1817: Bank of Monroe, in 1827; Bank of River Raisin, in 1832; and the

740

HISTORY OF SAGINAW COUNTY

Bank of Pontiac, Bank of Washtenaw, Bank of Wisconsin, Bank of Erie and Kalamazoo, and the Bank of Merchants and Mechanics, chartered in 1835. All these banks failed mainly for want of a proper capital as compared with their circulation.

When the United States Bank of national fame was liquidated, its stock sold and paid into the public treasury, the banks in the several States were designated as banks of deposit, and were used for collecting, transferring and disbursing the public revenues. There was then a surplus in the United States Treasury, and after a long and exciting debate in Congress, in the session of 1835-6, it was determined to distribute this surplus among the several States in proportion to their representation in Congress, to be de- posited in the several banks for safe-keeping.

A Period of Speculation

This disposition of the public funds was followed by one of the wildest eras of speculation the country has ever seen. Money was abundant, the coffers of the government were overflowing, the country was prosperous and everybody seemed bent on making a fortune as quickly as possible. The banks of this State had abundant means on hand, and they, too, shared in the spirit of speculation. Why should not they make the most of the means at their command? They therefore loaned out the money which had been de- posited with them to the red-hot speculators who were buying government land, were laying out and building cities in the wilderness, and were con- necting them by roads and canals. These loans were given on what was supposed to be good security, such as real estate taken at its speculative value, or city lots in cities where scarcely a tree had been hewn down or a spade had turned the soil.

At the height of this period of speculation, in January, 1837, Michigan was admitted into the Union as a State. The exploitation of lands, wild and partly cultivated, continued unabated and lots in prospective villages and towns, which now are little or nothing but the recorded plats in the office of the register of deeds, to indicate their location, changed hands at exces- sive prices. This speculation was no doubt largely owing to the great amount of paper money afloat in the State. It took a great deal of the inflated currency to buy property, so real estate was called high, when it really was the money that had depreciated in value.

The reaction from this inflation came only too soon. Hard times op- pressed the country. The government had use for the public money, and called upon the banks with which it had been deposited to return it in coin. But the banks, which had loaned it out to speculators, had it not ; and the speculators were unable to realize even their investments at the faney prices at which they had been made. The security for such loans proved of so little value that the banks were sore distressed to meet their obligations to the government. In this cramped position the banks, in order to save them- selves, were compelled to proceed with the utmost caution and specie pay- ments were suspended. They redeemed their paper currency as rapidly as they could, and refused to put it out again, resulting in a scarcity of money. From a superfluity of currency a little while before, there now was not enough to supply the necessary demands of business.

From this financial condition the people were clamorous for relief ; and there was an outery against the chartered banks. They were declared to be monopolies hostile to the spirit of our free institutions. Everything else in this country was free, therefore banking should be free, they argued. The situation was critical and something bad to be done. On March 15, 1837. a general banking law was enacted, making the business free to all. By its

741

BANKS AND BANKING

provisions ten or more persons could organize themselves into a corporation for the transaction of the banking business, and were subject only to the law. The general provisions of this law were fairly drawn, except that in the two important features which most concerned the public - security to its bill-holders, and a bona fide capital to secure the depositors-there were none adequate. The capital of each bank must be not less than fifty thou- sand dollars, and not more than three hundred thousand, divided into shares of fifty dollars each ; and the issue of paper currency could be two and one- half times the capital paid in. The interest on discounts could not exceed seven per cent ; and the security for payment of the bank's obligations were to be bonds and mortgages on real estate, to be held by the bank commis- sioner-a State officer, and the specie in the vaults of the bank. Few banks had this specie, though the law required thirty per cent. of the capital to be paid in in "legal money of the United States."

Organization of the "Wild Cat" Banks

Under the banking law forty-nine banks were organized and went into operation up to April 3, 1838, when the Legislature suspended the provisions of the law as to the creation of new associations. The nominal aggregate capital was about four million dollars, which added to that of the fifteen chartered banks, namely seven millions, made the nominal aggregate capital in the State, in the Spring of 1838, about eleven million dollars. The cir- culation of paper currency must have reached at that time ten million dollars or more - a very large amount considering the small need of money for com- mercial and manufacturing enterprises.

The population of the entire State was only about one hundred thou- sand, and was of essentially an agricultural character, while the whole of the vast territory north of the old territorial road was almost an unbroken wilderness. Pioneers were hewing down its forests, breaking up its oak openings, and shaking their teeth loose with ague chills over its miasmatic marshes. They were doing well if by hard toil in Summer they raised enough produce and fodder on their lands to keep their families and their cattle comfortably through the Winter. They had little to sell and but little use for money. The amount of bank bills in circulation was at least one hundred dollars for every man, woman and child in the State, which illustrates the extremity to which the banking mania carried the people.

The Saginaw City Bank

Among the banks organized in the Summer of 1837 was the Saginaw City Bank, which was promoted by some of the leading men of the place. Its president was Norman Little, the projector of the promising settlement, and the cashier was Nelson Smith, a prominent settler who in the same year built the first sailing vessel on the Saginaw River. Though this institution was classed with those banks termed "wild cats." it was undoubtedly organ- ized in good faith, with the best intentions - to further the material inter- ests and advancement of this valley, and in all probability was honestly con- ducted. It had a brief existence, however, going down in the financial crash of 1838, an echo of its affairs being heard in the legal proceedings to require from the county the payment of a bond, in the sum of ten thousand dollars, which had been negotiated by the bank, but not all of the proceeds paid over to the county treasury. (See Chapter VII, pages 109-10.)

It is unfortunate that so little record of this primitive bank, after a lapse of eighty years, is now to be found. A careful search of the county records reveals nothing of tangible evidence concerning its career. About all the direct evidence of its existence is some of its original paper currency, bear- ing date of December 26, 1837, which apparently was circulated at that time.

742

HISTORY OF SAGINAW COUNTY

Whether it was ever redeemed by the bank, or was in the hands of un- fortunate holders at the time of its collapse, is not known. At any rate a large package of the paper money, which shows more or less handling. was laid away by somebody, and only came to light about twenty years ago.

In clearing out the storage vaults of the old Home National Bank, on January 1, 1890, when the Second National Bank of Saginaw moved into the banking office which years before had been occupied by the Merchants' National Bank, the old currency was found and was justly regarded as a real curiosity. The old Saginaw City Bank was capitalized at fifty thousand dollars, but how large an amount of bank bills was circulated is not known It may by the old law have been one hundred and twenty-five thousand dollars, and whatever the amount outstanding, the collapse of the banking system brought a heavy loss and distress upon the people. The greatly in- flated circulation, so inadequately secured by their genuine or pretended capital of specie in vaults, stores, grocery stocks, log houses or pretentious frame houses, was in the hands of people who had sold their wheat, corn and pork for it, or who had performed manual labor for it, and was all swept away by the great financial storm, never to appear again.

Working of the Law

While some of the banks organized in 1837-8 were bona fide institutions, the law was taken advantage of by dishonest men to practice the grossest frauds and swindles. The law practically permitted these frauds, and the State officials, though striving honestly to do their duty, were powerless to prevent them. The State was large, the swindlers were many, and the bank commissioners could not be everywhere and have their hands on all of them at the same time. As a consequence of the physical conditions of the country and the lax provisions of the banking law, banks were established in the smallest villages and hamlets, and even in the most inaccessible places, which it was not likely the holders of the bank bills could ever find, and hence the banks would not be asked to redeem the bills.

AA traveller once coming through the forests of Shiawassee County, on his way to Saginaw, when the country was very new, with only here and there a log cabin in a little clearing, found a trail which had never been worked and was principally indicated by "blazed" trees. Toward night he came upon a fork in the path, and was uncertain which branch to take. He had not gone far upon the one which he finally chose, before he became satisfied that it was only a path used for hauling out wood or timber. But as the day was late he had no time to retrace his steps, and pushed on in hope of reaching a human habitation in which to spend the night. He had not proceeded far when in a small clearing before him there loomed a large frame structure, across the front of which was a conspicuous sign "Bank of Shiawassee." It was one of the "wild cats" quartered in the native haunts of that animal, the depths of the forest.

The Bank of Sandstone, in Jackson County, had an extended circulation which was put out by an ingenious plan. It loaned a large sum of money - its own paper currency -on lots of some imaginary city, to a man who went through the State buying everything he could convert. He bought horses, cattle, sheep, swine, produce of all kinds and everything which could be turned into real money, at the seller's price, paying for it with the bills of the Bank of Sandstone. Very few persons knew where Barry, the seat of the bank, was, or any good reason why the bills of its bank were not as good as any other, so he had little trouble in passing them. Thus the paper cur- rency of the Bank of Sandstone had a wide circulation, but the holders might as well have had so much brown wrapping paper instead.

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744

HISTORY OF SAGINAW COUNTY

The banking law required a certain amount of specie to be kept in the vaults of the bank, but this provision was evaded by some banks in the most flagrant manner. The same specie served for exhibition for a dozen banks, at various intervals; and the bonds and mortgages which were deposited were upon "city" lots in the woods, or on real estate at fictitious values. The notes of one "wild cat" bank were often held as capital for another wild cat, and they fraudulently put out a much larger circulation than the law allowed. In many other ways they practiced outrageous swindles upon the public.

It was told of Alphens Felch, afterward governor of this State, that while he was a State bank examiner, as he was going from one bank to another he noticed a familiar look in the boxes containing the silver held by various banks. Though finding all the banks properly supplied with coin, he suddenly turned back on his course, re-examined the banks and found them without coin. The banks had by preconcerted arrangement kept the specie in boxes ahead of the commissioner, a man named Isaac Alden driv- ing the team which carried the coin from bank to bank for the commissioner to examine.

How a Bank Created Specie

Among the nefarious practices of this unstable period was the "creating" of specie by a banker named Lewis Goddard. He had a unique theory in regard to new bank bills fresh and crisp from the printers, well adapted to the times when the banks were required to redeem their bills at their own counters in specie. As the banks had little, if any, coin, he believed there must be some way of obtaining it. Ile said it was not necessary for a bank to have specie of its own ; a bank should create specie. The pioneer stock- holders and directors were bewildered and unduly influenced by his reasoning on creating specie, and permitted him to carry out his theory.

"What," said he, "is a bank good for mmless it is well enough conducted to create its own specie? In order to create specie of your own you must exchange your circulation for it, and take your bills away from home so they will be slow in returning for redemption-taking away the specie you have created. The way to obtain this specie by exchange is: first get the bills of other banks with your bills, take these bills of the other banks to their counters, get the gold on them, bring it home and put it in your own vaults. By this means you have created specie and provided your bank with the material money for redeeming your bills."

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History of Saginaw County, Michigan; historical, commercial, biographical, Volume II, Part 79

Author: Mills, James Cooke Publication date: 1918 Publisher: Saginaw, Mich., Seemann & Peters Number of Pages: 838

Author: Mills, James Cooke
Publication date: 1918
Publisher: Saginaw, Mich., Seemann & Peters
Number of Pages: 838