Early Illinois I aper Money by R. Edward Davis R. Edward Davis Early Illinois Paper Money By R. Edward Davis Reprint from the Numismatic Scrapbook Magazine with the addition of an alphabetical check list of paper currency issued in Illinois. Published By HEWITT BROTHERS CHICAGO The First Banks of Illinois A JOURNEY to the Illinois coun- ^ try, in the far west, in 1818, was usually made down the Ohio river. The river followed a gener- ally westward direction along the southern border of Ohio and In- diana until it reached Illinois. Here it turned abruptly south to pass around the Ozark uplift in southern Illinois. At the point where it turn- ed south, was situated the village of Shawneetown, which was the prin- ciple port of entry to Illinois. Here emigrants left the slowly moving flat-boats to cross over to the settle- ments in western Illinois and Miss- ouri. Roads also lead northward to the newly established settlements in English Prairie fostered by Morris Eirkbeck and George Flower. A traveller of that time says the town "consisted of about thirty log houses. The chief occupation of the people is the salt-trade. There is a United States Land-office, and a log bank is just established. The chief cashier of this establishment was engaged in cutting logs at the moment of my arrival." This was the metropolis of Illinois in 1818, and the home of the first bank in Illinois. The founder of the first bank in Illinois was John Marshall, who came to Shawneetown in 1804. He became a prosperous merchant. He took deposits, loaned money and is- sued bills of credit. In 1816 he, in company with a few others, applied to the Territorial Legislature for a bank charter. The law establishing the Bank of Illinois at Shawneetown was approved on December 26, 1816. The capital stock was fixed at $300,000, divided into $100 shares, but one third of this capital was to be reserved for the Territory (or subsequently the state) of Illinois, should the legislature wish to buy the stock. The subscribers were re- quired to pay $10 per share in gold or silver at the time of subscription, and the balance in current paper money, when called for by the di- rectors. The directors could not call for more than twenty-five per cent of the whole amount at any one time, and then only after sixty days notice. Since ready money was so scarce in the new country, the charter pro- vided that the bank might begin business as soon as $50,000 had been subscribed and $10,000 paid in. Twelve directors were to be elect- ed, all of whom must be residents of Illinois. The bank was empowered to acquire property to the extent of $500,000, but such property should not include real estate in excess of what was needed to do business, except that which it had acquired through forfeiture of loans or on mortgages. The charter also provid- ed that in the event that the bank refused to redeem its notes in coin, the holder could collect 12% interest. The life of the charter was to be twenty-five years. The mininum capital of $10,000 was soon paid in and the bank open- ed for business on January 1, 1817. The fact that for some time there was no mention made of it in the legislature, and little in the news- papers of the time, seems to indi- cate that it carried on a conserva- tive and successful business as mea- sured by the standards of the time. Banking standards in those days were quite different from banking principles of today. To understand the early history of banking in Illi- nois these facts must be kept in mind. James in "The Growth of Chicago Banking" explains this dif- ference quite clearly, "Banks were organized not because there was capital seeking investment; not be- cause the places where they were 2003076 established had commerce or manu- factures which needed their foster- ing aid; but because men without active capital wanted the means of obtaining loans, which their stand- ing in the community would not com- mand from banks or individuals having real capital and established credit. In frontier communities like Illinois banks were regarded agents for the painless provision of capital. In a pioneer community capital of all kinds was scarce, because there was seldom much surplus product; of moneyed capital, there was very little, and banks were looked upon as a mechanism for increasing the supply, without any painful saving on the part of the community. "Checks were almost unknown, outside of the large eastern cities, and few people except the wealthier merchants were familiar with bank accounts. If banks were to supply the community with either currency or capital funds, it had to be in the form of bank notes, and if banks were to exercise any influence upon the general level of prices, it would have to be through the policies that they adopted in regard to the issue and retirement of such notes." The success of the Bank of Illinois at Shawneetown, inspired citizens in the settlements near the Mississippi to become bank conscious. A group of people of Edwardsville headed by Ninian Edwards and Benjamin Step- henson succeeded in obtaining a charter for the Bank of Edwards- ville from the legislature on Janu- ary 9, 1818. The provisions of the charter were similar to those for the Bank of Illinois, except that the shares were for $50 instead of $100. The first installment of the capital amounting to $30,000 was quickly paid in. Of this $22,625 came from Kentucky, $1,800 from St. Louis and only $5,475 from Illinois. No resi- dent of Illinois paid in more than $50. Ninian Edwards was a powerful political figure, and his name carried considerable weight, in spite of the fact that he was deeply involved in land speculations, and that among his associates in the bank were sev- eral whose financial stability and honesty were somewhat questionable. The bank at Edwardsville began business at once. Within a few months a serious financial crisis developed which spread through the south and the west. Both Illinois banks, after some anxious days, weathered the storm and came through the depression in good order. Early in 1818, through the political manuverings of Ninian Edwards, both banks were made federal de- positories for money received from the sale of public land. Up to this time the Bank of Missouri at St. Louis had been the federal deposi- tary for Illinois. The removal of these deposits from the Bank of Missouri to the Illinois banks start- ed a long and bitter feud between the St. Louis banks and the two Illinois banks. On one occasion a representative of the Bank of Miss- ouri appeared in Shawneetown with $12,000 in notes of the Bank of Illi- nois and demanded payment in specie. Representatives of the Bank of Missouri in Kaskaskia refused to accept Illinois notes in payment for land, and in all possible ways made trouble for the Illinois banks. At first the two Illinois banks competed with each other as fiercely as they both competed with the Bank of Missouri. Finally they joined forces against their more powerful rival, and agreed that neither bank would present the notes of the other for redemption, if it could possibly be avoided, and in addition agreed to send notes of the other bank as far from the point of issue as pos- sible, in order to make their redemp- tion more difficult. The financial depression of 1819 had called attention of eastern bankers of the loose and perilous conditions in eastern banks. This lead to a curtailing of the bank note issues. In four years the bank note circulation in the United States de- clined nearly fifty percent. This con- traction as it swept west caused bank failure after bank failure. All lines of business were crippled. Through all of this depression the Bank of Illinois continued to operate efficiently and profitably. In 1823 the business of the bank declined so rapidly that the directors decided to suspend operations, and they suc- ceeded in doing this without sur- rendering their charter. The Bank of Edwardsville was not so efficiently managed and was soon in trouble. Early in 1819, Ninian Edwards, became dissatisfied with the way things were going and quietly resigned from its Board of Directors. Although he was a Sena- tor in Washington at the time, he left it to Stephenson, the president of the bank, to inform the Secretary of the Treasury of his resignation and to ask that no more federal money be deposited, until the con- dition of the bank be investigated. Stephenson was well aware of the value of the prestige of the Ed- wards name, and also of the condi- $20 Bank of Illinois of the second type; lower illustration $10 of the Bank of Cairo issued at Kaskaskia. 7 tion of the bank, so he did nothing. Early in the fall of 1821 the failure of the Bank of Missouri caused a panic at Edwardsville. There was a run on the bank, and after a few days it closed its doors, owing near- ly $60,000, of which about $55,000 was owed to the federal government, the proceeds of the sale of public lands. The same legislature which issued the charter for the Bank of Ed- wardsville issued charters for two other banks, the Bank of Kaskaskia, and the Bank of Cairo. The promot- ers of the Bank of Kaskaskia were not very energetic. By the time the stock subscriptions were opened there were not enough people with from the government about eighteen hundred acres of land on the narrow point of land between the Ohio and Mississippi rivers. This land deeded to a company of which Comegys was the leading spirit, and plans were drawn up for a town, a bank and an ambitious scheme of public improve- ments. The act of incorporation pro- vided for two thousand lots which were to be sold for $150 each. One third of this was to be spent for public improvements, one third was to go to Comegys and his associates, and the other third was to be bank capital. Comegys died suddenly in the spring of 1819 and the whole scheme collapsed. When the first state Constitution The rare $10 Bank of Edwardsville note. It is said that there is only one complete set of the notes of this bank in collectors hands. ten dollars in gold or silver in Kas- kaskia to raise the required capital so the bank never opened. The most interesting of all the banking schemes was the organiza- tion of "The City and Bank of Cairo." The act authorizing this scheme was also passed on January 9, 1818. Five months earlier John Comegys of Baltimore had bought was adopted on August 26, 1819, the Bank of Illinois at Shawneetown was the only bank in the state in good standing. The new Constitution provided that there should be no other banks or moneyed institutions in Illinois except those already pro- vided by law, and a state bank with its branches to be established by the legislature. The account of the ex- periences of the State in the banking business is another story and will be told later. In 1835 during a wild period of land speculation, advantage was taken of the provision in the Consti- tution, allowing all banks in exist- ance to continue, to extend the charter of the Bank of Illinois at Shawneetown. The same men who had managed it in its early days were again in charge. Although the Bank of Cairo had never opened for business its charter, too. was re- newed. The old charter had been sold to a group of Englishmen who open- ed the bank at Kaskaskia. This bank was operated soundly and incon- spicously, and for several years fur- nished about 70% of all the small notes used in southern Illinois. In about 1841 the bank's officers used a considerable portion of the bank's funds to finance a canal company. As a result of the collapse of this scheme the bank was forced into bankruptcy in February of 1842. Following the disasterous collapse of the Second State Bank, the Bank of Illinois at Shawneetown again found itself to be the only bank in the state. Meanwhile, brought to the front by the activities of Andrew Jackson, there had developed a feel- ing that all banks were evil. The Bank of Illinois had been forced to buy great quantities of Illinois Public Improvement bonds, and had been obliged to sell to the state, some bank stock. The legislature wanted to clear up the Public Im- provement bonds and the bank offer- ed to exchange them for its stock. The state administration wanted to close the bank, which had a right under its extended charter to con- tinue operation for fifteen years. Finally the legislature repealed the charter and placed the assets in the hands of three Commissioners, ap- pointed by the Governor, who were required to close up the bank as soon as possible. A second act allowed the bank to go into voluntary liquidation under its own officers, provided the bank turned over to the state its state bonds in return for the bank stock held by the state. This second act was accepted by the bank. Though the bank closed its doors in 1842, its notes continued to circulate for many years, so great was the faith of the people in John Marshall and the other officers of the bank. The notes of these early Illinois banks are scarce, especially those of Edwardsville, and the early notes of the Bank of Illinois. The notes of the Bank of Cairo at Kaskaskia are much oftener found. A list of the notes of these banks follows: Bank of Edwardsville 25 cents, 50 cents, $1.00, $2.00, $3.00. $5.00, $10.00, and a "Post Note" where the value is written in, usually $20.00. These notes are nicely engraved by Tanner, Kearney and Tiebout. Bank of Illinois at Shawneetown early issue $1.00, $2.00, $3.00 and $5.00. On these notes the name is spelled "Shawance Town". Later issues $1., $2., $3., $20., $50., and $100. The $20. notes of the later issues occur in two types, one of which was issued in 1838 and the other in 1839. The plates for the notes of the last issue were engrav- ed by Wm. Dane & Co. The scarcity of the early notes of the Bank of Illinois is probably due to the fact that when the bank sus- pended operations in 1823. it re- deemed and destroyed all notes pre- sented for payment. The Bank of Cairo at Kaskaskia $1.00 (two types), $2.00, $3.00 (two types), $5.00 (two types), and $10.00. The plates for these notes were en- graved by Underwood, Bold, Spencer and Huffy. The State Banks of Illinois and the Era of Internal Improvements TLLINOIS was admitted to the 1 Union in 1818. The Constitution of the new state provided that "there shall be no other banks or monied institutions in this state than those already provided by law, ex- cept a State bank and its branches, which may be established and regu- lated by the general assembly of the state as they may think proper." Two banks were in existance in Illi- nois at this time, the Bank of Illi- nois at Shawneetown, and the Bank of Edwardsville. There were two other charters which had been granted by the legislature, those for the Bank of Cairo, and the Bank of Kaskaskia, but which had not, at this time, been used. At this time there was very little gold or silver in circulation in the state. The circulation was mainly in bank notes of other states. These passed at all kinds of discounts, and at constantly varying discounts. A few came from specie paying banks, some from banks that were really solvent, some from banks that had failed, some from banks that had never existed, and some were coun- terfeits of the issues of existing banks. The notes of the Illinois banks made up but a small part of the circulation, and notes of the Bank of the United States were very rare. This mass of paper came mainly from banks in Ohio and the South, though some notes from banks in Western New York, Penn- sylvania and the District of Colum- bia, with a few from the New Eng- land states were also circulating. This was a period of wide spread financial depression. Every one was in debt. During the boom times, everyone had speculated in land and usually on credit. People were land- crazy. Land could be bought from the government by paying only a small part of its cost as a first in- stallment, and many, expecting a rapid rise in land values, took out land when they only possessed enough money to pay the first in- stallment. The wild speculation re- sulting from such sales aroused the apprehension of the National Gov- ernment, and to curb such excesses and Act was passed in 1820, reduc- ing' the price of public lands from $2.00 to $1.25 an acre and requiring full payment in all future sales. The effect of this act was to bring the depression to the West. In the East attempts had been made to control and regulate banks of issue in some states. This had led to a rapid con- traction in the volume of bank notes and from this a depression had started. In this time of financial stringency the United States Land Offices were more careful what kind of money they accepted in payment of public lands. Money of any kind was not plentiful and when the Land Offices refused to accept about two thirds of that in circulation, a real depression hit the state. As a measure of relief the first state legislature passed an act to establish a state bank. It was to have a capital of $4,000,000, half of which was to be subscribed by the state and half by private persons. The charter provided that the bank might start business when it had received "in gold or silver or notes of banks in the Western country paying specie" an initial payment of $15,000. Even with the most liberal interpretation of the last clause, it was not possible to find enough people who were able or willing to subscribe enough cash so this bank 10 never came into existance as a busi- ness institution. At the next session of the legis- lature in 1821, a new bill was intro- duced creating a bank based entirely on the faith and credit of the state. This bank would not have to worry about stock subscriptions. Opposi- tion to the act was strong. It was pointed out that the bank would have no specie with which to redeem its notes, also that the act was a bare-faced attempt to violate the prohibition in the national constitu- tion of bills of credit, and that such an institution would encourage wild speculation instead of tending to curb it. The bill was passed in both houses by a small majority. The bill came before the council of revision, consisting of the Gover- nor and the Justices of the Supreme Court, which under the state consti- tution, possessed the veto power. This council gave it a unanimous veto. The bill went back to the legis- lature and after a long debate it was passed with a few votes to spare. The act as it was passed provided for The State Bank of Illinois, with its principal office in Vandalia, and with branches at Shawneetown, Edwardsville, Brownsville and Pal- myra. The capital was finally fixed at $300,000, all subscribed by the state. The management was to be in the hands of a president, a cashier, and six directors, with five local di- rectors at each of the branches. All of these officers were to be appoint- ted by the legislature every two years. The directors of the branch banks were to select their own presidents and cashiers. The presi- dent of the Vandalia Bank was given a salary of $800 a year and the cashiers were to receive salaries not to exceed this amount. The other officials received no salaries but were given the right to borrow amounts up to $1,000 at two percent interest. After the organization was com- pleted the Vandalia Bank was au- thorized to have printed $300,000 in notes in denominations of from $1 to $20 and to give them out to the branch banks in proportion to the population in the various districts. These notes, guaranteed by the State of Illinois, bore two percent interest a year and were to be retired in ten years. They were to be receivable for all taxes and dues to the state, and one tenth of the entire issue was to be retired each year. The officers of the various branch banks were to lend this money at six percent, the loans to be secured by real estate of at least twice the value of the loan. For small loans of less than $100, upon the consent of the board of directors, personal property could be pledged as secur- ity. No one could borrow more than $1,000. No loan was for more than one year, but if the debtor would re- duce the loan ten percent he could get a renewal for another year. It is quite evident that the aim of the bank was to distribute the money among as many borrowers as pos- sible. The bank was also to act as a depositary and as a business agent for the state. It was also authorized to receive deposits and do a general banking business, but it was pro- hibited from charging depositors for its services, and its exchanges were to be made at par. In the hope of its preponents such was to be the first State Bank of Illinois, which its capital had been put at $800,000 no such sum was ever turned over to the bank. It did receive from the legislature $2,000 in cash to pay for the engraving of the plates from which the notes were to be printed. To insure the widest circulation of these notes in the states, the legislature passed additional acts to prevent the issu- 11 Notes of the Second State Bank. Upper One dollar on Illinois & Michigan Canal Fund; Middle and Lower $10 and $5 with "Branch Bank" imprint. 12 ance of any form of paper currency by any one but chartered bankers. As soon as the bank was opened about every man who had any un- encumbered real estate had borrow- ed all he could get, and every man who could get an endorser had bor- rowed his hundred dollars. In about a week the whole $300,000 had been loaned. Those who came too late to get a loan complained bitterly of political favoritism shown by the directors. Since most of the direct- ors were politicians with no banking experience, very little attention was paid to the probable ability of the borrowers to repay the loan. Many of the borrowers accepted the loan as a gift from a benificent common- wealth and never expected to have to repay. Briefly, the state enjoyed a mild boom, but it was of a short life. The Eastern banks had put their houses in order, and business conditions were improving. This improvement did not reach Illinois. Here a paper currency with no specie backing, drove gold and silver and the notes of specie paying Eastern banks out of circulation. The State Bank notes which were intended to circulate at par with gold and silver were down to 75 in a little over a month and in less than two years were worth only thirty cents on the dollar. Even small change disappeared and to make change it was necessary to tear these notes in pieces the size of which roughly indicated their value. While the act creating the bank had provided that one tenth of the notes issued should be retired each year, the legislature made no pro- vision to supply any specie to do it. In fact specie was so scarce that when one of the branch banks re- ceived two silver dollars, they con- sidered them so rare they put them on display as a curiosity. So many complaints came in con- cerning the management of the branches that in 1824 the legislature appointed a committee to examine these branches. It was found that the books were in such a condiiton that it was impossible to find out what the true state of affairs really was. It was found that loans had been made illegally, and several large sums could not be accounted for in any way. At once steps were taken to close up the banks. In Jan- uary, 1825, an act was passed order- ing the cashier to burn all notes in his possession in a bonfire in the public square at Vandalia in the presence of the Governor and the members of the Supreme Court. In this fire, notes with a face value of $75,000 were destroyed. Other fires were held in June and December of the same year, where about $50,000 more were burned. The bank still had a large volume of loans outstanding and attempts were made to collect them. Some small parts were paid, but finally the Su- preme Court following a precedent in a similar case in the United States Supreme Court, declared these notes to be bills of credit and therefore illegal, and that notes issued for them could not be collected by law. This decision did not relieve the state of the necessity of redeeming the notes in full in 1831. There were still $150,000 of these in circulation and the state had only $30,000 in cash. To repay these notes, the Gov- ernor was authorized to borrow $100,000. A contract was made with Samuel Wiggins of Cincinnati for this amount, he taking state stock, bearing six percent interest to be re- deemed whenever the State Treasur- er had any surplus funds on hand. In a year nearly $290,000 had been redeemed or destroyed, and by 1835 only $6,554.00 of the notes were still outstanding, representing probably the losses and destruction during the ten years of the life of the bank. This experiment in banking cost the 13 state over $300,000 in cash and the losses sustained by the people and business in general cannot be esti- mated. With the closing of this bank the state was left without a bank in its borders, and this condition existed for several years. Business conditions all over the country improved greatly in the early '30's and it was not long be- fore the boom reached the West. With this improved business con- dition it was not long before there came demands for financial institu- tions, able to provide exchange with the East and with New Orleans. The charters of the Bank of Illinois at Shawneetown, and the Bank of Cairo were revived, and a movement was set afoot to establish another state bank. The Bank of the United States had been refused a renewal of its charter by Jackson's adminis- tration, and to take its place various state banking systems had been es- tablished. Some were carefully managed, and some were very care- lessly managed. Floods of this new paper money poured into the state. Under such conditions it was not hard to convince the legislature that a new bank was needed to protect the business interests of the state. The bill for the new bank was passed by the legislature and ap- proved by the Committee of Revision February 12, 1835. It provided that the bank should run until I860, its head office was to be at Springfield, and eight branches were to be estab- lished where, in the opinion of the directors, they were needed. The capital was to be $1,500,000, all to be subscribed by the general public, though the state reserved the right to take $100,000, if the legislature so desired. The bank could begin business when $250,000 in specie had been received. The state made no guarantee of the notes, and the value of the notes issued was not at anytime to exceed two and a half times the paid-in capital. The notes were to be re- deemed in specie at anytime, and a failure to redeem any of them in ten days time was to cause the charter to be forfeited, and the bank to go out of business. Within a few weeks after the sub- scription lists were opened $8,000,000 was subscribed, and the task of cut- ting down the subscription started. Meanwhile, Samuel Wiggins of Cin- cinnati, with a group of followers, succeeded in gaining possession of many of the subscription rights, and when the stock was allotted, Wig- gins controlled nearly 3500 shares. In July, 1835, the bank opened for business. Branches were established in Alton, Belleville, Chicago, Dan- ville, Galena, Jacksonville, Mount Carmel, Quincy and Vandalia. On the whole the operations of the bank the first years seemed to be more than satisfactory. The notes circu- lated about at par with specie and the bank made money on its regular banking business. In 1836 there began a period of the wildest speculation ever seen in America. Townsites were laid out everywhere and a sudden enthusiasm for railroads began. Lines were planned to criss-cross the state in all directions, with little regard to any possible business they might get. The move to build the Illinois and Michigan canal, really got un- der way. Business was so good that the state legislature decided to sub- scribe $100,000 in state bank stock as provided in the bank's charter. The bank agreed to assume the old Wiggins loan left over from the first State Bank, as a consideration for the privilege of opening some new branches. The legislature also took advantage of a provision in the old charter of the Shawneetown Bank and took $100,000 stock in that bank also. The people of the state became so 14 wild about public improvements that when the legislature met in 1836 it passed a most amazing act, known as the "Public Improvement Bill". It included all of the pet schemes of the wildest promoters. It provided for the construction of seven rail- roads across the state from east to west and for the central railroad running from Galena to Cairo. The old National Highway from Vincen- nes to St. Louis was to be improved. The state was to borrow $8,000,000 at once and begin work upon all of these projects, starting from every important town on the proposed rights of way. A Board of Fund Commissioners consisting of three "experienced financiers" was ap- pointed to make the loan and to ad- minister the distribution of it to the various projects. Eastern capitalists did not seem very anxious to make this loan, even though it was made an unconditional obligation of the state. A provision of the act prohibited the sale of the securities at less than par. The state could not wait, so finally the State Bank and the Shawneetown Bank t ^/ '- /A^Jjyj|*- . \t"fYf\5 " :%s ltt/) ST'ATB BANK AT t DoUnvo, .//.<*,.*. /'' .' .'''" -/'- /V, The $100 note of the Second State Bank, which is of larger size than other issues. The $2 Chicago branch note was printed from type. 15 were asked to make the loan. Both were making money and at the time the future looked rosy. Nearly three million dollars of these bonds were unloaded on these two banks. The Shawneetown Bank sold part of their share at once at a fair profit, but the State Banks held theirs as capital, against which more notes were issued. The State Bank stock was earning nearly eight percent and times seemed so good that the legislature increased the capitalization of the State Bank to $4,500,000 and of the Shawneetown Bank to $1,700,000, of which $1,000,000 was to be taken by the state. These two institutions were to finance the new public im- provements throughout the state. Sectional jealousies would not al- low the Board of Fund Commission- ers to concentrate their energies on any one project. It decided to start all seven railroads and the Illinois and Michigan canal at once. From each direction from any town to be touched by any railroad work was to be started, with local contractors doing the work as far as possible. Counties not touched by railroads were given $200,000 each for high- way improvements. Things were going well in the West, when, in the early summer of 1837, without warning, a sudden crash came in the East. Prices de- clined, banks failed, and business firms failed on every hand. Local financiers thought things in Illinois were on too stable a basis to be affected by this eastern flurry, and did little to prepare for the future. The panic spread and in 1838 the legislature voted to stop work on the internal improvement system. The state had incurred a debt of $6 000,000 and none of the railroads had been completed. The Illinois and Michigan canal had its own board of trustees and they decided even in the face of the impending panic to continue work on the canal. The banks became invloved in the panic and at a special session of the legislature an act was passed to legalize the suspension of specie payments. The activities of the banks were greatly curtailed by this act. The Anti-Bank Democrats began a determined fight on the two insti- tutions. In 1839 the State Bank ceased to be a bank of issue and ceased to do business except to dis- burse the Canal Fund, and to deal with some eastern exchange. In 1843 it was forced into liquidation. Its notes were nearly all redeemed and very few of them have come down to us. The Chicago Branch of the State Bank opened December 1, 1835 in a building at the corner of Clark and Water streets. John Kinzie was its president and its board of directors included most of the leading mer- chants of the city. The bank did a good business from the start. In 1840 due to some trouble with some of the city's leaders, the bank was re- moved to Lockport, as a punishment to the city. As the bank continued to do business through an agent in the city, the punishment lost most of its force. From 1839 to 1843 when it finally closed it did little except handle Illinois and Michigan Canal Funds, and issue a flood of paper money based upon them. The Fund Commissioners had no banking authority but they issued paper that was widely circulated as money. These were really promis- sory notes of small value, but they circulated freely with the other paper. While the public improve- ment bubble burst in 1838, some of these notes circulated well along into the sixties. They were finally cancelled and most of them des- troyed in 1867. Very few notes of this period have come down to us. The First State Bank issued notes in denominations 16 of $1, $2, $3, $5, $10 and $20 but very few can be found in collections. All but about $6,000 of these issues were destroyed in the bonfires, or- dered by the state legislature. Notes of the Second State Bank are also scarce. As they were redeemed they were destroyed. Notes drawn on the Illinois and Michigan Canal Fund thru Chicago Branch are more com- mon. The first issue of May 1, 1839, were type set notes in denomina- tions of $1, $2, $5, $10 and $100. Similar issues were made in March of 1840, while the bank was in Lock- port. In the fall of 1840 some beau- tiful engraved notes in denomina- tions of 1, 2V 2 , 5, 10, 20, 50 and 100 dollars were issued. In 1842, some of this last issue were cut down in size and printed on the reverse with a statement that they represented an indebtedness of the Canal Com- missioners. The indebtedness was the same as the face value of the muti- lated note. The notes issued by the Board of Fund Commissioners are in denomi- nations of $2, $3, $5, $10 and $100. The lower values are quite scarce. The greater part of these notes were $100 note of the "Fund Commissioner of the State of Illinois" and a $5 note of the "Internal Improvement Office." 17 destroyed at various times up to it not been loaded up with the fan- the year 1867. tastic internal improvement scheme, The experiences of Illinois in and with too much legislative tinker- state banking were very costly to ing; with the closing of this bank the state. The first bank was on too the state was left without any bank nebulous a base to have any chance in its borders, and there were no of success. The second bank might legal banks in Illinois for several have had some chance of success had years afterward. 18 Illegal and Free Banking TN 1836 the legislature of the state of Illinois had chartered the Chicago Marine and Fire In- surance Company. The charter specifically stated that the company was not to do a banking business or issue any notes or bills to be passed as money or "in the semblance of bank notes". However, as early as May 1837, the company published an advertisement in a Chicago news- paper saying that, in consideration of the great need of the community, advantage would be taken of the section in their charter which per- mited them to "receive moneys on deposit, and to loan the same, on bottomry, and respondentia, o r otherwise, at such rates of interest as may now be done by the existing laws of the State." The company went into the banking business and in time its demand certificates of deposit took the place of money. However, the company complied with their charter and did not issue their certificates in the "semblance of bank notes." It was not long be- fore these certificates became an inportant factor in commerce of the northwest. George Smith Bills George Smith, a Scotch farmer, came to Illinois in 1834 and becom- ing impressed by the possible fields for investment profit, returned to Scotland and organized the Scottish Illinois Land Investment Company. In 1836 Messrs. Strachan and Scott returned with Smith to Illinois to act as managers. They took a trans- script of the Chicago Marine and Fire Insurance Company and with a few changes obtained a charter from the Territorial Legislature of Wisconsin for the Wisconsin Marine and Fire Insurance Company. The trio was joined by Alexander Mit- chell, a young banker from Aber- deen, Scotland. The company's stock of $225,000 was held half in Scot- land and half by these four men. The new company issued certificates of deposit engraved like bank notes in denomination from one to ten dollars. The new issue worked its way into circulation despite of stiff opposition from Illinois chartered banks. Be- fore long the new notes came to be known as reliable, as, in contrast to other bills, they were always paid promptly on demand. Soon Illinois and other bank notes were being ex- changed at les& than face value and the "illegal" currency of the Wis- consin Marine and Fire Insurance Company was required in larger and larger amounts. By December, 1841, some $35,000 of these bills were outstanding. The amount increased to $100,000 in 1843, $300,000 in 1847 and steadily increased to a peak cir- culation of $1,470,000 in 1851. After that the circulation was gradually contracted, every dollar of the en- tire outstanding amount was redeem- ed, except $34,000 which were never presented these latter notes hav- ing, no doubt, been lost, burned or worn out. Legal banks and others who were interested in stopping the progress the institution was making, exerted great efforts to discredit its paper. Runs were instituted on the agencies, and banks would hoard large quan- tities of the illegal notes so that they might be presented all at one time and thus drain the specie sup- ply of the company. Nothing, how- ever, seemed to avail. According to one story, Mr. Scammon, president of the Marine Bank of Chicago, had 19 been enjoying the pastime of pre- senting large amounts of "Smith's bills" for redemption. One day he met Mr. Smith who asked him what amount of the notes of his (Scam- mon's) bank were outstanding. When Mr. Scammon replied that there were just $175,000. Mr. Smith quickly informed him that his own vaults contained $125,000 of that amount, and that he would "bring them over for redemption one of these days." That remark kept Mr. Scammon in a state of worry for some time before an agreement was reached between the two rivals whereby each was pledged not to attempt anything to the detriment of the business of the other. Since "Smith's bills" could not be driven out and gained such popularity that soon agencies for their redemption were established at Galena (111.), St. Louis, Cincinnati, and Detroit. George Smith, operating under the title of George Smith and Com- pany, continued in business in Chi- cago on LaSalle street until 1857, when the house was closed. Shortly thereafter he retired, having acquir- ed large sections of valuable prop- erty in Chicago and elsewhere, to- gether with a sizable fortune in se- curities. Smith spent most of his re- maining days in Scotland. Smith's success encouraged others to undertake similar illegal note is- sues and a number of unincorporated companies were organized to issue money which circulated at variable discounts. The Merchants' and Me- chanics' Bank of Chicago was one of the more successful in this business of issuing illegal currency. Free Banking After a bitter fight between "free banking" and "anti-banking" groups which started in the year 1846, at a special election the Free Banking Act of 1851 was adopted by a vote of 37,626 to 31,405. One of the re- quirements of the act was that any person who desired to engage in the issue of notes be required to deposit with the State Auditor bonds issued by the United States, the state of lillinos, or any state which paid full six percent interest. The deposit of the first two classes of bonds en- titled the owner to circulate notes to the full market value of the onds, but not more than half their par value. When first passed, this new, so- called "free" banking law of 1851, could be and was so construed that two kinds of banks were established, each under the supervision of the state auditor, but one issuing notes secured by deposited bonds and the other simply issuing unsecured notes. This act was responsilbe for the creation of many varieties of early paper money for which the collector of today may seek. Newspapers of the period tell of the establishment and the circulation of notes of many banks that no specimens have come down to us. Banks were slow to be organized under the new law. In 1852 the Senate decided to repeal the act and there was a great rush to incorpo- rate banks before the law was re- pealed and within a few days twen- ty-seven applications were made. Later, when the law was not repeal- ed, the number of banks again fell off, until in 1854 the banking com- missioners reported that there were only twenty-nine banks operating under the law, ten in Chicago, two each in Springfield and Naperville, and not more than one in any other city. The issues of these banks con- stituted but a small amount of the circulation, while illegal issues and those of foreign banks continued to bourish. For a period a bank war waged, but little could come of all the agi- tation because of the intricate situ- ation which existed. Legally estab- 20 The Bank of Chicago /^ I