The history of Detroit and Michigan; or, The metropolis illustrated; a chronological cyclopedia of the past and present, Vol I, Part 133

Author: Farmer, Silas, 1839-1902
Publication date: 1889
Publisher: Detroit, S. Farmer & co
Number of Pages: 1096

USA > Michigan > Wayne County > Detroit > The history of Detroit and Michigan; or, The metropolis illustrated; a chronological cyclopedia of the past and present, Vol I > Part 133

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BANKS AND CURRENCY.

851

should receive their notes on deposit, and circum- stances compelled them to do so.

Three of these banks were located in Wayne County. The Bank of Gibraltar, at Gibraltar, was in existence as early as September 29, 1837. The directors chosen on Jan- uary 1, 1838, were: Joshua Howard, Enoch Jones, Benjamin Porter, Alan- son Sheley, Theodore Romeyn, H. B. Lathrop, N. T. Ludden, Eldridge Morse, and Griffith H. Jones. Joshua Howard was president and J. C. Ring- walt cashier. The nominal capital was $100,000. An Act of February 19, 1838, authorized the bank to open an office in Detroit for sixty days for the transaction of business.

The following advertisement con- tains particulars concerning the Detroit City Bank, the only bank which claimed Detroit as its home :

The Detroit City Bank will commence its oper- ations on Tuesday, 26th inst. (December, 1837). Discount days on Tuesdays and Fridays. All paper intended for discount must be presented by ten o'clock A. M. on discount days. Hours of business from nine to twelve o'clock A. M. and from 1.30 to 3 P. M.

By order of the Board. F. H. HARRIS, Cashier.

The directors, in February, 1838, were: H. M. Campbell, president ; Charles Bissell, H. Hallock, John Truax, Cullen Brown, Julius Eldred, A. T. McReynolds, and E. Brooks. The nominal capital was $200,000, and notes to the amount of $200,000 were printed; only $29,675, apparently, was ever in circulation. The bank sus- pended on February 23, 1839, only $15,423 of its notes being then out. H. Hallock, J. Eldred, and Cullen Brown were appointed receivers.

The Wayne County Bank, located at Plymouth, issued $45,000, with no money paid in. A specie certificate was the basis of their operations. A two-dollar bill of this bank, dated December 3, 1837, is preserved at Lansing. J. D. Davis was president and B. F. Hall cashier. The directors were: Cullen Brown, C. L. Bristol, C. Ten Eyck, T. Lyon, H. A. Noyes, C. Harrington, A. Y. Murray, E. Wood- ruff, and J. D. Davis. In winding up its affairs A. W. Buel was appointed

receiver. The bank commissioners were appointed for two years. Following is a list of their names and the date of their appointment : Robert McClel- land, March 28, 1836; Edward M. Bridges, March

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Rawdon. Wright & He ch New-York.

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FAC-SIMILE OF BANK-NOTE.

852

BANKS AND CURRENCY.

17, 1837; Thomas Fitzgerald, January 22, 1838; Alpheus Felch, February 2, 1838; Kintzing Pritchette, February 7, 1838; Digby V. Bell, April 22, 1839.

In one of their official reports the following state- ments appear :

The singular spectacle was presented of the officers of the State seeking for banks in situations the most inaccessible and remote from trade, and finding at every step an increase of labor by the discovery of new and unknown organizations. Before they could be arrested the mischief was done. Large issues were in circula- tion, and there was no adequate remedy for the evil. Gold and silver flew about the country with the celerity of magic; its sound was heard in the depths of the forest, yet like the wind one knew not whence it came or wither it was going. Quantities of paper were drawn out by individuals who had not a cent in bank, with no security beyond the verbal understanding that notes of other banks should be returned at some future time.

Trade was immediately stimulated by the pleni- tude of the so-called money; the merchants took the notes eagerly, but sold them day by day, or deposited them with the older banks. When the latter sought to have them redeemed, various pre- tences were used to postpone a settlement; some- times time drafts on the East were given, which were dishonored at maturity. In order to make some use of the bills, the old banks were compelled to loan, and did loan, the bills of the new banks to persons whose credit could not command real money. At length the Supreme Court decided that the Banking Act was unconstitutional. Of course all obligations under it were therefore void, and, like the gourd of Jonah, the whole system withered in a night, and there was wailing and distress all over the land.

To check these evil results the Legislature pro- vided for the organization of new banks, and the suspension of specie payments was legalized for a year. This legislation was repeated from time to time until 1841, but the millions of "wildcat notes" were dead beyond the hope of redemption, and were gathered and used as linings to packing cases; the children had them by the peck to play with; in some houses, room after room was papered with sheets of bills that had never been cut apart or signed. So sudden was the collapse that Mr. Hatch, a New York engraver, who came to Michigan to collect his money, lost $20,000 in uncollected bills. One of the " wild cat " banks, the Bank of Sandstone, was located in Jackson County, where a quarry of sandstone had been opened, the incipient quarry being the sole business interest except the bank there established. The bank soon failed, and when its bills were presented for redemption, for every ten dollar bill a millstone was offered, for every five dollar note a grindstone, and for every dollar note a whetstone. On October 9, 1839, the United States Bank suspended payment. It resumed on January

15, 1840, and in less than a month, on February 4, it again suspended.

So pressing was the need for currency that the State followed in the wake of city and county, and completed the chain of government money by issu- ing State scrip. An act of April 13, 1841, author- ized the auditor-general to provide treasury notes or State scrip in denominations of $1.00, $2.00, $5.00, and $10, to the amount of $335,910. These notes were paid out in anticipation of the half- million loan which was then being negotiated. By November 30, 1841, $208,702 of this State scrip had been issued, and some of the notes continued in circulation for more than fifteen years.

The following paragraph appeared in May, 1841, in a Detroit daily :

OUR CURRENCY .- No change for the better. Bank of Michigan sells at fifty cents on the dollar for specie, and is received by many of our merchants at from five to six shillings on the dollar. Farmers and Mechanics' and Michigan Insurance notes are in great demand, but very little is circulated. State scrip will prob- ably be issued next week.

Such were the exigencies of the time that it was difficult to obtain money that would be accepted for taxes, and the corporation officers were so often tempted to retain for their own use the best funds they collected that by ordinance of January 15, 1842, they were required to pay to the treasurer of the city the same money collected by them, except- ing such amount thereof as was due them for salary.

On February 8, 1842, the council

Resolved, that the superintendent of Hydraulic Works be and is hereby instructed not to receive the notes of any of the banks in the States of Ohio, Indiana, or Illinois, in payment of water tax.

The city was finally compelled to receive for taxes funds that could not be used in other States, and on May 17, 1842, the council

Resolved, that the Committee on Ways and Means inquire and report to this Board how eight hundred and sixty dollars in good funds can be procured to pay for one thousand feet of hose now contracted for.

This resolution was alternately before the council and the Committee on Ways and Means for nearly six months before the city of Detroit was able to obtain the sum of $860 in actual money to purchase apparatus almost essential to its existence. That the practical financial lesson of the day was not lost upon the councilmen of that period is evident from the discrimination made between funds and money in the following extract from the proceedings of June 28:

Resolved, that the Director of the Poor be authorized to dispose of such funds as he may have on hand for money, and appropriate the same for the poor,

853

BANKS AND CURRENCY.

During 1843 and 1844 the "wildcats " entirely dis- appeared, the older banks resumed specie payment, and the notes of various banks in the Western States began to circulate in Detroit; but there was a constant scarcity of currency, and on February 16, 1857, the Legislature passed a general Banking Law. Under this law a few banks of issue were organized outside of Detroit. None of them, how- ever, proved either durable or desirable.

We now reach the panic of 1857. The beginning may be traced to the failure, on August 24, of the Ohio Life and Trust Company, followed on October 14 by the suspension of the New York banks. Sim- ultaneously with the failure of the Trust Company the New York banks refused to discount, and began to call in loans, and as a result thousands of busi- ness men all over the land were ruined. The New York banks resumed within two months, but the evil of their suspension was past remedy. By the spring of 1858 money was comparatively easy, but the demand for it was greatly checked, and before business was fairly re-established, a new trouble had arisen. In 1 860 the political and national crisis foreshadowed for many years was clearly near at hand. At the same time there was manifested very general distrust of Illinois and Wisconsin banks, many of which were known to be but little better than the banks of 1837. During the summer and fall of 1860 this distrust increased, and finally the discount on western money reached an average of from forty to sixty per cent. Meetings of business men were held from time to time to decide whether " stump-tail " currency, as it was called, should be received, but no definite rate of discount could be agreed upon, and the trouble increased apace. Even the Government could not command bills to meet its obligations, and on December 17, 1860, the first issue of $10,000,000 in treasury notes was authorized, in bills of fifty dollars each. Fifty million more were authorized to be issued by Act of July 17, 1861.

After the attack on Fort Sumter on April 4, 1861, forty-two Wisconsin banks suspended. By this time it had become evident that a long and serious war was before us. The coin of the country, which had a certain and absolute value, began to be gath- ered and hoarded. Ere long the silver disappeared, and the noise of dropping coin was no longer heard on the counter or in the contribution-box. Single pieces were soon exhibited as a curiosity. In De- cember, 1861, all the banks suspended, and before the close of the year thousands of dollars worth of postage stamps had been bought, and were circu- lating as change. Sometimes they were enclosed in a round brass case with mica covering, and pack- ages in small envelopes, with the value marked, passed uncounted and unexamined. So great was the demand for these sticky substitutes that enough

could not be procured. In the fall of 1862 many business firms revived the custom of fifty years before, issuing little pasteboard cards and bills of various denominations, from five to fifty cents. Some of these were handsomely engraved. One citizen issued $24,000 in scrip or checks. Silver half-dollars, when they were in circulation at all, passed for sixty cents, quarters for thirty cents, and ten-cent pieces for twelve cents. It looked at one time as though the old plan of corporation shin- plasters would have to be revived, and on October 22, 1862, F. Buhl & Company and thirty-eight others petitioned the Common Council to take immediate action to relieve the inconvenience resulting from the scarcity of small change.

Meanwhile the Government was preparing the " postal currency." It was so called because issued to take the place of postage stamps as change, and contained fac-similes of postal stamps of various kinds. On October 30 the first instalment was received at Detroit. At the hour designated for the distribution the office of the depository was literally besieged. The office, hall, doorway, and even the walk in front, were densely packed with business men, merchants and clerks, each man wildly brandishing fifteen dollars in treasury notes, that being the largest amount that one person was allowed to obtain. It was almost at the risk of life that the happy spot where change was dispensed was reached. The doors were closed, and guarded by police. Other amounts were received soon after, and there was no further excuse for the issues of private firms. On January 6, 1863, the Board of Trade resolved not to receive or pay out such issues, and after February I the Government made pro- vision for the redemption of soiled postage stamps, and thousands of dollars worth were redeemed at the post-office. The trouble, however, was not over. No postal currency less than five cents in amount had yet been provided, and the lowest issue was never less than three cents. The copper cents had disappeared as thoroughly as the silver coins, and thousands of business men all over the country, including scores of Detroit firms, soon issued in copper, brass, and vulcanized rubber, "Business Cards " or "Tokens." They were about the size and thickness of the newer copper coins, and circulated freely as change from April, 1863, for fully a year, and were then, in most instances, honestly redeemed.

The necessity of a currency to take the place of the bills of the broken and worthless western banks, the money needed by the Government to defray the large expense which the war with the South involved, and the pressing necessity of a medium of exchange, of some sort, led Congress, by the several Acts of 1861, 1862, and 1863, to provide for the issuing of

854

BANKS AND CURRENCY.

over a thousand million dollars of legal-tender notes, receivable for all debts due the Government except custom dues. These notes were called greenbacks, because the backs were printed in green ink. As the war progressed and prices advanced, the actual purchasing power of these notes declined ; the un- certainty of the result caused gold and silver to be more and more sought after, and coin was hoarded, and bought and sold on speculation, till at length, on June 11, 1864, gold reached the enormous premium of 285 per cent, and its purchasing power was more than three times that of a government note. Indeed, it was a common occurrence for a person with $1,000 in gold to obtain, in Canada, a $3,000 United States bond, drawing interest at six per cent.

Next in order came the Act of February 25, 1863, which provided for the organization of na- tional banks, the capital stock of each to be not less than $100,000 in cities of over 100,000 persons, thirty per cent of the capital to be paid on com- mencing business, and United States bonds to the amount of $100,000 to be deposited with the United States as security for $90,000 in notes prepared by the Government and issued to the bank, the banks to be subject to taxation upon their circulation and deposits. The security these banks have afforded and the saving on the former system of irrespon- sible banks almost, if not entirely, equals the money cost of the war which brought the system into being.

The successful termination of the war reduced the premium on coin and brought gold and silver into circulation, and at the same time doubled the value of the government notes, and these, with the issues of the national banks, provided such an abundance of actual and representative money that prices of every kind were kept higher than was warranted by the demand. The large profits made by railroads, even after their original stock had been several times watered, and the abundance of cur- rency at the command of capitalists, caused excess- ive expenditures for new railroads, and in the enthusiasm of the times both city and country voted large bonuses to aid in building new roads. The firm of Jay Cooke & Company, widely known through their success as agents for the large gov- ernment loans, caught the railroad fever and began the Northern Pacific Road. Meantime there sprung up all over the country an organization called the "Grangers," composed almost entirely of farmers. The local societies met from time to time to discuss matters of interest to them as the producers of the country. Naturally, they discussed the rates of transportation on their grain as affecting the prices they received, and when they began to pay the taxes on bonds voted in aid of the railroads, there arose

a spirit of opposition to the roads. These discus- sions were magnified by the press, and the papers all over the land seemed to vie with each other in the sensational character of their "head-lines " con- cerning the grangers and the railroads. All this awakened fear as to the value of railroad securities, and this fear bred a panic. The bonds of the Northern Pacific did not sell fast enough to meet the current expenses of construction and operation. Jay Cooke & Company were compelled to suspend; the storm-cloud burst, and the panic of 1873 came. There was no suspension of specie payments, for none of the banks had been receiving or paying specie, and the money in circulation was almost universally good. It was not loss of money, but loss of confidence, that begat and fostered the dis- asters that followed.

To relieve really unfortunate debtors, Congress passed a Bankrupt Law, which was taken advan- tage of, not only by the class it was intended to relieve, but by thousands of dishonest persons who evaded the payment of just debts that they were able to pay. During the panic the Greenback Party was born. It was partially based on the theory that the national banks had caused the existing trouble because they charged too much for the use of their notes, and were obtaining too much interest on the bonds deposited as security for their bills. The aim of the party seemed to be to compel the Government to do away with the national banks and provide a currency for the nation by issuing its own notes. However, under the stimulus of large crops at home, heavy demands for export, the de- crease of imports, the development of American manufactures, and increasing faith in the ability and willingness of the Government to meet its obliga- tions, the panic gradually passed away, and on December 17, 1878, for the first time in many years, gold, greenbacks, and national bank-notes were of equal purchasing power.

The Detroit Bank.

This bank, the first in Detroit, was established in 1806. On March 27 of that year a petition was presented to the Governor and Judges, signed by Russell Sturgis and five other Boston capitalists, praying for the passage of an Act to permit them to establish a bank with a capital of $400,000. On May 27, exactly two months afterward, a bond in the sum of $15,000 was given by William Flanagan, also from Boston, for the proper performance by him of the duties of cashier of the bank, "if the bank is organized." A bill for the incorporation of the bank was introduced by, and referred to, Governor Hull, and on September 19 an Act was passed incorporating the bank. The charter was to con- tinue for one hundred and one years, and the capital,

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BANKS AND CURRENCY.

which was not to exceed $1,000,000, was divided into ten thousand shares. The governor was authorized to subscribe to the stock, but, in the original Act, no limit was placed to the amount that he might subscribe. The stock was to be offered to sub- scribers on Saturday, September 20, the next day after the bank was incorporated, and subscriptions were to close in four days, "that is to say, at sunset on Wednesday, the twenty-fourth day of September."

On October 2 a lot was bought of the Governor and Judges on the northwest corner of Jefferson Avenue and Randolph Street, for $250, payable in thirty instalments, and by exchange an adjoining lot was obtained for $225. On these lots a bank building was erected by Benjamin Woodworth. In size and strength the building must have been a marvel to the habitans. It was of brick, one story high and about thirty feet square. In one corner was a safety vault, with walls of stone, lining of oak, and door of iron. The door, composed of wide, flat iron bars, held together by cross-pieces firmly bolted, was as rude as a country blacksmith could make it. The lock corresponded with the door in appearance ; it was sixteen inches long and three inches thick, with a key a foot long, and weighing a pound. There was also a large inside bolt moved by a secret spring.

The following history of the bank was written at the time by John Gentle :

In 1805, a few days after Governor Hull and Judge Woodward arrived, the writer accidentally stepped into the Legislative Board while the honorable members were deliberating on the situation and circumstances of the Territory, and the measures necessary for its future elevation. Judge Woodward said, "For my part, I have always considered these territorial establishments, at best, a most wretched system of government. And the measures hitherto pursued by former territorial governments have all proved exceedingly defective. We will therefore adopt a system for the government of this new territory that shall be entirely novel." Governor Hull and Judge Bates gave their assent by a gentle decline of the head, and the audience stood amazed at the wisdom of their words and the majesty of their demeanor. Gov- ernor Hull then observed, " Before I left Boston I had but a very imperfect idea of this country ; but since I arrived I am quite delighted with it. Gentlemen, this is the finest, the richest country in the world. But from its remoteness, it is subject to many inconveniences which it behooves us to remove as speedily as possible. And the first object which merits the special atten- tion of this honorable Board is the establishment of a bank. Yes, gentlemen, a bank of discount and deposit will be a fine thing for this new territory. Before I left Boston I spoke to several of my friends on this subject, and they were quite taken with it, and even made me promise to allow them to be connected with it." A bank ! said I to myself,-a bank of discount and deposit in Detroit ! To discount what ? Cabbages and turnips? To de- posit what ? Pumpkins and potatoes? Thinks I to myself, These folks must either be very wise men, very great fools, or very great rogues. A bank in Detroit, where the trade is all traffic and the bills all payable in produce! A bank in the bosom of the deserts of Michigan! That will be a novelty indeed.

The following fall Governor Hull and Judge Woodward went down to Congress, and during the winter and spring

they settled the necessary preliminaries with their Boston friends for the establishment of the Detroit bank. Early in the summer of 1806 Governor Hull returned, and about six weeks afterwards Mrs. Hull and the rest of the family arrived, escorted by Mr. Flanagan, cashier of the proposed Detroit bank. He brought along some strong iron doors, and several tons of bar iron to strengthen the vaults.

Materials were soon collected, the Governor stopped his works, and all his workmen were employed to expedite the erection of the bank.

Nothing was done that summer, and nothing thought of, but the bank. Early in September Judge Woodward and Messrs. Parker and Broadstreet, both proprietors in the proposed bank, arrived, with $19,000 in bright guineas of Britain's Isle to pay the first installment of Boston shares in the Detroit bank ; and they also brought an immense cargo of bank bills, not filled up. The real capital of the Detroit bank is $20,000, $8,000 of which has been expended in building the bank, and in other contingent expenses. The nominal capital is $1,000,000, divided into ten thousand shares of $100 each, eight thousand of which were already en- grossed by the people of Boston. Towards the last of September, while the principal inhabitants of the territory were in town at- tending the Supreme Court, a subscription of the remaining two thousand shares was opened for a few hours only at Smyth's Hotel, by Parker and Broadstreet, who informed us that it was not yet decided what the amount of the first installment would be; but at the same time assured us that it would not be less than twenty-five dollars nor more than fifty dollars per share. Being uninformed of its object, only ten or twelve shares were taken up at this time. We saw no more of the subscription until about three weeks afterward. In the interim the Legislature met and framed a charter for the bank ; also a law making it lawful for Michigan Territory to hold shares in the bank ; and empowering Governor Hull to purchase ten shares for the Territory of Michi- gan with money from the territorial treasury, and also making the Detroit bank notes a lawful tender in all payments wherein the Territory was concerned.

The bank being nearly completed, the subscription was again offered, not publicly, as before, but only to a few gentlemen of spirit and enterprise ; but the first installment which, only three weeks before, was not less than twenty-five dollars nor more than fifty dollars, was now reduced to two dollars per share ; and instead of giving every person an opportunity of subscribing, Messrs. Parker and Broadstreet, at one dash, swept off for them- selves and friends in Boston the fifteen hundred shares which remained after satisfying their new converts in Detroit. When Parker and Broadstreet opened the subscription at Smyth's Hotel they asserted that they did not know what the amount of the first installment would be, but assured us that it would not be less than twenty-five dollars nor more than fifty dollars. They knew then that they asserted a falsehood ; for they brought just money enough with them to pay for the Boston installments at the rate of two dollars per share. At the same time they were deceiving the public with fifty-dollar installments to prevent a general con- nection. Meanwhile they were busily engaged in sounding the moral characters of certain individuals whose opposition they dreaded, whose support was indispensably necessary, and whose virtue, alas ! was too flexible to resist the golden allurements of the Detroit mint.

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The history of Detroit and Michigan; or, The metropolis illustrated; a chronological cyclopedia of the past and present, Vol I, Part 133

Author: Farmer, Silas, 1839-1902 Publication date: 1889 Publisher: Detroit, S. Farmer & co Number of Pages: 1096

Author: Farmer, Silas, 1839-1902
Publication date: 1889
Publisher: Detroit, S. Farmer & co
Number of Pages: 1096