OF THE 
 U NIVERS ITY 
 Of ILLI NOIS 
 
 Dye> 
 
The Development of Banking 
 'in Illinois, 1817-1863 
 
 BY 
 
 GEORGE WILLIAM DOWRIE 
 
 A. B. Lake Forest College, 1901 
 A. M. The University of Chicago, 1907 
 
 Thesis Submitted in partial fulfilment of the requirements 
 for the degree of Doctor of Philosophy in Economics 
 in the Graduate School of the University 
 of Illinois, 1913 
 
Copyright, 191 3 
 By the University of Illinois 
 
 1, 
 
CONTENTS 
 
 CHAPTER I 
 
 PAGE 
 
 The Monetary Situation in Illinois Previous to the Establish- 
 ment of Banks 6 
 
 Few white settlers in Illinois before 1817 — Scarcity of money — 
 Animal skins formed principal medium of exchange. 
 
 CHAPTER II 
 
 The Territorial Banks '. 9 
 
 Four banks chartered — Provisions of the charter of the Bank 
 of Illinois — History of its operations — Provisions of the charter 
 of the Bank of Edwardsville — Its history — The Edwards-Crawford 
 controversy — Provisions peculiar to the charters of the Banks of 
 Cairo and Kaskaskia — Their failure to operate — Review of con- 
 ditions during the period — Analysis of the banks' statements. 
 
 CHAPTER III 
 
 Banking a State Monopoly 22 
 
 Provisions of the Constitution of 1818 concerning banks — 
 First state bank chartered — Failure to operate — Second state bank 
 chartered — Opposition to the project — Provisions of the charter — 
 State bank notes issued to needy inhabitants of the state — Rapid 
 depreciation of the notes — -The Coles investigation — Remedial and 
 relief legislation — The Edwards investigation — Further remedial 
 and relief laws adopted — Measures for the final settlement of the 
 bank's affairs — The Wiggins loan — The Duncan affair — Further 
 relief legislation — Analysis of the bank's statements — Extent of 
 the state's loss. 
 
 CHAPTER IV 
 
 Banking and Internal Improvements 59 
 
 No local banks of issue from 1831-35 — Demand for new state 
 bank — New state bank chartered — Provisions of the charter — Old 
 Bank of Illinois revived — Bank of Cairo opened — Contest for 
 
 control of state bank Early operations of the bank — Effort to 
 
 obtain government deposits — Internal Improvement mania seizes 
 Illinois — State becomes majority stockholder in state bank and in 
 Bank of Illinois — Legislative investigation — Panic of 1837 — Banks 
 suspend — Suspension legalized—Crisis of 1839 — Banks again sus- 
 
pend — Investigation of state bank reveals excessive loans to 
 speculators — Banks and state in desperate situation — State bank 
 forced to resume — Suspension again authorized — Bank manage- 
 ment becomes reckless — Banks close their doors — Analysis of their 
 balance sheets — State bank placed in liquidation — Progress of the 
 settlement — Terms of the Bank of Illinois liquidation bill — Pro- 
 gress of the settlement of its affairs — History of the Bank of 
 Cairo — Illegal banking in Chicago. 
 
 he Free Bank System of Illinois 
 
 No banks of issue from 1843-51 — New constitution provides 
 for general banking law — Free bank system adopted — Provisions — 
 Few banks established at first — Amendments of 1853 put an end 
 to illegal issues — Bank commissioners' recommendations — Panic 
 of 1854 — Auditor's report and recommendations, 1855 — Large 
 amount of foreign paper in Illinois — Amendments of 1857 — Panic 
 of 1857 — Rapid increase in number of banks — Secession of South 
 causes collapse of the Illinois banking system — Comparative study 
 of different types of Illinois banks — Legislature reconstructs bank- 
 ing system — Constitution of 1862 providing for abolition of incor- 
 porated banks, rejected — Effect of national banking act and ten per 
 cent tax law — Legislature abolishes banks of issue. 
 
 CHAPTER V 
 
 UNJC 
 
PREFACE 
 
 Early Illinois banking passed through four distinct 
 cycles. The first originated and reached its climax be- 
 tween the years 1814 and 1819. The second began in 1821 
 and reached a culmination in 1824-25. The mania for 
 internal improvements in the thirties caused the develop- 
 ment of a third movement which came to a climax in 1837. 
 The adoption of the stock bank system in 1851 began the 
 fourth cycle which attained its highest point in 1860. 
 
 The results of this study show that in each of these 
 movements events follow a regular sequence: (1) An 
 urgent demand on the part of a needy community for a 
 plentiful medium of exchange; (2) The passage of a law 
 providing for a generous issue of poorly safeguarded 
 paper; (3) A brief period of fictitious prosperity largely 
 due to speculation; (4) A crisis which at first results in 
 the suspension of redemption and later in the collapse 
 of the bank of issue; (5) Hard times; (6) The develop- 
 ment of a strong anti-bank sentiment ; ( 7 ) The beginning 
 of the next cycle after a surprisingly brief interval. 
 
 The method of treatment followed has been to outline 
 the laws passed by the legislature and to show two things : 
 ( 1 ) The causes which led to the enactment of the measures ; 
 and (2) The effect which the legislation produced upon the 
 community. 
 
 The material has been gathered from legislative 
 records, newspapers, banking journals, county and state 
 histories, and the letters and biographies of prominent 
 men. Special mention is due the invaluable treatise of 
 Governor Thomas Ford Avho was present at practically 
 every session of the legislature before 1846. The general 
 works of Knox and Sumner and the monograph on "State 
 Banks of Issue in Illinois" by Garnett have proved useful 
 in checking up conclusions drawn from common sources. 
 
 The thanks of the writer are especially due to 
 Professor E. L. Bogart and Doctor C. M. Thompson who 
 have read the manuscript of this study and made many 
 valuable suggestions. He is also indebted to the other 
 members of the department of economics at the University 
 of Illinois for numerous helpful suggestions. 
 
 5 
 
CHAPTEIi I 
 
 The Monetary Situation in Illinois Previous to the 
 Establishment of Banks. 
 
 The first white settlements in Illinois were colonies 
 founded by French traders and missionary priests along 
 the Mississippi Kiver. For local purposes these colonies 
 made use of Indian currency and pelts of wild animals 
 or of the certificates of deposit issued by the royal ware- 
 houses in payment for furs. 1 The few commodities received 
 from the outside world were paid for by shipments of corn, 
 pork and skins "down the river". Little had been done 
 toward developing the resources of the territory when 
 France gave way to England in 1763. 2 
 
 The coming of the English soldiers in 1765 caused 
 some of the two thousand French settlers to cross over 
 to the western bank of the Mississippi, but on the whole 
 conditions remained unchanged during the brief period of 
 British rule. 3 
 
 After 1778 when George Kogers Clark took possession 
 of Illinois, the best element of the French population 
 migrated across the river and French influence upon Illi- 
 nois history was soon effaced. Moreover, American set- 
 tlers for a time came very slowly and it was not until 
 1800 that the population of Illinois again approximated 
 2500, the point it had reached fifty years before under the 
 French. During the next decade a somewhat larger tide 
 of immigration set in but it was not until the close of the 
 war of 1812 that there was a serious demand for banks. 4 
 The people with the exception of a few small merchants 
 
 1 Thompson, The Monetary Situation in Nouvclle France, Journal of 
 the Illinois State Historical Society, iv, 146. 
 -Thwaites, Jesuit Relations, lxix, 143 ff. 
 3 Alvord, Illinois: The Origins, 9 ff. 
 Hbid. 
 
 6 
 
365] SITUATION PRIOR TO BANKS 7 
 
 were engaged in agriculture and the few needs of the 
 family were supplied at home. The flax field and the 
 flock of sheep provided the raw material for the house- 
 wife's spinning wheel and loom, while the house and its 
 furniture were constructed of the crude materials at 
 hand. 5 In 1802 it was estimated that not one pioneer in 
 ten possessed a single dollar in specie. In fact, long after 
 the state was admitted to the Union, the receipt of a letter 
 involved a considerable search on the part of the recipient 
 for the twenty-five cents in specie which was the usual 
 postage on letters from the East. 7 As far as the few local 
 transactions were concerned, the pelts of the heaver, the 
 raccoon, the wolf, and the deer were universally acceptable 
 and for a long time continued to serve as money in the 
 more backward portions of the state. 8 "Wolf scalps were 
 as good as county orders and with bear, deer and 'coon 
 skins were exchangeable for tax receipts." 9 When the 
 publisher of one of the early Illinois newspapers found it 
 impossible to meet his bill for paper in any other way, he 
 shipped to his eastern creditor nine and a half dozen deer 
 skins valued at six dollars apiece. 10 The occasional pieces 
 of money which found their way into the West were eagerly 
 seized upon by the merchants and used in making remit- 
 tances to the East. In like manner the few notes of the 
 United States Bank which reached the West were even 
 more eagerly sought after on account of the smaller risk 
 attached to sending them. 11 In 1810, according to the 
 census of that year, there were only 12,284 persons in 
 Illinois, and what little immigration there was was checked 
 
 Perkins and Peck, Annals of the West, 714; Ford, History of Illinois, 
 41 ; Smith, St. Clair Papers, ii, 438, 439. Boggess, The Settlement of 
 Illinois, 1778- 1830, 21-2 
 
 6 Michaux, Travels, 226. 
 
 7 Heylin, History of Fulton County, 702. 
 
 8 Ford, History of Illinois, 43; Clarke, pub., History of Pike County, 
 104; Goodspeed, pub., History of Gallatin, Saline, Hamilton, Franklin and 
 Williamson Counties, 113. 
 
 9 Goodspeed, pub., History of Gallatin, etc., Counties, 236. 
 
 10 Ibid., 113. 
 
 11 Michaux, Travels, 127. 
 
8 THE DEVELOPMENT OF BANKING IN ILLINOIS [366 
 
 by the outrages of the Indians before and during the 
 War of 1812. 12 
 
 The close of the war marks a distinct transition in 
 the economic life of the people of Illinois. In the first 
 place there was a large influx of settlers who brought some 
 money with them and thus created a demand for a better 
 medium of exchange than animal pelts. Secondly, better 
 agricultural methods were introduced. The new settlers 
 instead of spending a large part of their time in hunting 
 and fishing, improved their land and built substantial 
 buildings upon it. 13 ' Steamboats now plied between St. 
 Louis and the ports on the Ohio and Mississippi with the 
 result that Illinois produce could be marketed at a profit 
 and pieces of money became less of a curiosity to the 
 Illinois farmer. 
 
 Lastly, the passage of a liberal land law had stimulated 
 the purchase of Illinois farms to such an extent that 
 two land offices were established in the territory and by 
 1816 over half a million acres were sold. 14 The whole 
 period from 1814 to 1819, in fact, is characterized by the 
 rage for speculating in farms and town lots, accompanied 
 by a persistent clamor for a plentiful supply of currency. 
 For this reason, the chief function of a western bank 
 seems to have been to manufacture paper money and issue 
 it on easy terms to the ambitious but impecunious in- 
 habitants. 
 
 12 Greene, Government of Illinois, 119. 
 
 13 Reynolds, My Own Times, 176; Boggess, The Settlement of Illi- 
 nois, 1778- 1830, 118 ff. 
 
 14 Ford, History of Illinois, 43. 
 
CHAPTER II 
 
 The Territorial Banks. 
 
 The members of the territorial legislature were sub- 
 jected to constant pressure by their constituents to follow 
 the example of Ohio and Kentucky in each of which states 
 there had been established a number of private banks. 1 
 They at length yielded to this demand and at their ses- 
 sions of 1816-17 and 1817-18 granted charters to the fol- 
 lowing institutions: the Bank of Illinois, the Bank of 
 Edwardsville, the Bank of Kaskaskia and the City and 
 Bank of Cairo. 
 
 The Bank of Illinois was located at Shawneetown, 
 a thriving settlement on the Ohio River just below the 
 mouth of the Wabash. The United States saline works 
 which produced about three hundred thousand bushels of 
 salt a year were only a few miles away, while a large 
 part of the tide of immigration made this point its first 
 stopping place in Illinois. At the time the bank opened 
 there were five hundred inhabitants, a number of stores and 
 taverns, a newspaper office, a United States land office 
 and a private bank, established in 1813. 2 The business 
 of the last named enterprise, however, passed into the 
 control of the Bank of Illinois. 3 
 
 The charter granted to "the President and Directors 
 of the Bank of Illinois" contained the following provisions : 
 The capital stock of three hundred thousand dollars was 
 divided into shares of one hundred dollars each; one 
 third of them to be reserved for the territory or the pros- 
 pective state of Illinois, if the legislature cared to purchase 
 them. Business was to begin when fifty thousand dollars 
 had been subscribed and ten thousand paid in. 4 No limit 
 
 1 Ford, History of Illinois, 43. 
 
 2 Woods, English Prairie, 129, 130; Report of the Comptroller of 
 Currency, 1876, p. 29; Moses, Illinois Historical and Statistical, i, 263. 
 3 Knox, History of Banking in the United States, 712. 
 4 Laws of Illinois, 1816-17, p. 11 ff., Section 1. 
 
 9 
 
10 THE DEVELOPMENT OF BANKING IN ILLINOIS [368 
 
 was placed upon the shares one person could own, but 
 during the first ten days of subscription no one could 
 subscribe for more than ten shares per day. Owing to 
 the scarcity of specie the payment of only ten dollars 
 down in gold or silver was required, the rest to be paid 
 in notes of other banks at the discretion of the directors 
 so long as not more than twenty-five per cent of the whole 
 was asked for at any time and that after sixty days' 
 notice. 5 
 
 The corporation was to continue for twenty years, 
 and during its life could acquire property to the extent 
 of five hundred thousand dollars. 6 Its twelve directors 
 must be resident citizens of Illinois chosen by a plurality 
 vote of the stockholders. Holders of one to two shares 
 had one vote; two to ten shares, one vote for every two 
 shares; ten to thirty shares, one vote every four shares; 
 and so on, the proportionate influence of the larger stock- 
 holders lessening as the size of their holdings increased. 7 
 Fifteen or more shareholders owning not less than fifty 
 shares could hold a meeting and appoint three of their 
 number to examine the books and papers of the bank. 8 
 
 The corporation could hold no lands except such as 
 were necessary for the accommodation of its business and 
 those mortgaged as security for loans or bought at judg- 
 ment executions in the bank's favor. Its debts were not 
 to exceed twice the capital actually paid in, money on 
 deposit not being taken into consideration. If the directors 
 violated this provision they were personally liable for 
 the excess ; but if a director could prove that he was not 
 present or that he voted against the violation of the charter 
 he was exonerated. 9 
 
 In its dealings the corporation was limited to bills 
 of exchange, gold and silver, goods pledged and not re- 
 deemed and goods produced on the bank's lands. The 
 
 5 Laws of Illinois, 1816-17, p. 11 ff., Section 2. 
 
 ®Ibid., Section 3. 
 
 ^Ibid., Section 7. 
 
 s Ibid., Section 7, Clause 1. 
 
 *Ibid., Clause 7. 
 
369] 
 
 THE TERRITORIAL BANKS 
 
 11 
 
 rate of discount was never to exceed six per cent. If at 
 any time the bank suspended specie payment the holder 
 of the obligation upon which the payment in specie was 
 refused could collect twelve per cent interest until he re- 
 ceived his money. 10 
 
 The committee appointed to receive subscriptions hav- 
 ing secured the necessary ten thousand dollars in specie, 
 the bank opened for business January 1, 1817. Shortly 
 afterwards, Secretary Crawford of the United States 
 treasury asked the United States Bank to designate certain 
 banks as additional depositaries of government funds, but 
 the arrangement was so unsatisfactory that it was termi- 
 nated the next year. Mr. Crawford himself thereupon 
 designated certain banks as "agents of the treasury", 
 among them the Bank of Illinois. 11 Under the agreement 
 which went into effect February 1, 1819, the bank received 
 and deposited to the credit of the treasury all current notes 
 of such banks as maintained cash payments, but it had 
 the power to refuse to receive the notes of any bank upon 
 giving the receiver reasonable notice. All drafts upon it 
 by the United States treasurer were to be paid at sight 
 and all amounts above the fixed sum of fifty thousand 
 dollars allotted to the bank as a permanent deposit must 
 be sent to a branch of the United States Bank. 12 If the 
 treasurer desired to pay a sum of money in the neighbor- 
 hood of Shawneetown he could do so even if the bank 
 were left with less than fifty thousand dollars. The Bank 
 of Illinois was required to make monthly reports of its 
 own condition and of its account with the federal govern- 
 ment. Every quarter it was required to add to the regular 
 monthly report a list of its debtors and the amount of 
 their obligations. The privilege of retaining within the 
 community a large share of the money collected by the 
 
 10 Laws of Illinois, 1816-17, p. 11, Section 7, Clause 9. 
 
 ^Niles' National Register, xxvi, 290; U. S., H. of R., 18 Cong., 1 
 Sess., Doc. no. 128, p. 4. 
 
 12 A messenger from the bank carried the money in person to New 
 Orleans or Louisville, often undergoing great danger and hardships. 
 U. S., 18 Cong., 1 Sess., Report of the Secy, of Treas., 444, 525, 545, 
 55i, 565. 
 
12 THE DEVELOPMENT OF BANKING IN ILLINOIS [370 
 
 local land office meant much to the people of Shawneetown 
 as well as to the bank, for the strict supervision by the 
 federal government prevented any serious deviation from 
 the course of legitimate banking. 
 
 Although the bank was required to meet its obligations 
 in specie, the legislature during the same session at which 
 the charter was granted, passed a law providing that all 
 executions should be subject to a stay of one year unless 
 the party bringing judgment should agree in writing to 
 accept in payment of the execution the notes of the Bank 
 of Illinois and several other western banks. 13 Since the 
 legislature was not permitted under the federal constitu- 
 tion to make the notes legal tender 14 recourse to such 
 devices as the above was necessary in order to protect 
 the debtor class which formed a large part of the popula- 
 tion of the territory. The members of the legislature 
 justified the act by the assertion that it would have been 
 utterly impossible for payment to be made in specie with- 
 out great sacrifice of property. 15 This act, while it worked 
 injury to the bank as a creditor, was beneficial in so far 
 as it stimulated the circulation of its notes. 
 
 In spite of the fact that the Bank of Illinois enjoyed 
 an unusually good reputation for conservative manage- 
 ment, 16 its progress was impeded by the attacks of its 
 enemies. A feeling of jealousy existed between the towns 
 of Kaskaskia and Shawneetown and between the Bank 
 of Missouri at St. Louis and the Bank of Illinois. Accord- 
 ing to President Marshall of the latter bank, the receiver 
 of public moneys at Kaskaskia pursued the policy of 
 shaking the public confidence in the Shawneetown bank 
 by one day accepting its bills in payment of dues to the 
 
 13 The list included the banks of Cincinnati and Chillicothe in Ohio, 
 any bank in Tennessee or Kentucky and the banks of Vincennes and 
 Missouri. Laws of Illinois, 1816-17, p. 20, Section 1. 
 
 14 Article 1, Section 10. 
 
 15 Laws of Illinois, 181 6- 17, p. 20. 
 
 16 The Edwardsville Spectator, August 28, 1821 ; Gouge, The Curse 
 of Paper Money and Banking, 91, n. ; Niles Register, xviii, 78; Moses, 
 Illinois Historical and Statistical, i, 263; Andreas, History of Chicago, 
 i, 526. 
 
371] 
 
 THE TERRITORIAL BANKS 
 
 13 
 
 government and the next day refusing them. 17 The Bank 
 of Missouri went a step farther in its hostility toward its 
 weaker rivals. It would refuse to accept their notes for 
 a time and then, in order to present a large amount for 
 redemption, would accept them freely. On one occasion 
 a representative of the Missouri bank appeared at the 
 counter of the Bank of Illinois and obtained twelve thous- 
 and dollars of its small supply of specie in exchange for 
 Bank of Illinois notes. 18 The Bank of Missouri seems to 
 have been an especial favorite at Washington for it re- 
 ceived an unusual share of the government deposits. It 
 was thus able to exercise a poAverful control over its weaker 
 competitors. "Between powerful neighbors and domestic 
 enemies/' 19 the organization and successful conduct of a 
 pioneer bank must have required a considerable degree 
 of ability and courage. 
 
 In spite of a severe financial stringency extending 
 over two years, the Bank of Illinois continued to carry 
 on its business and succeeded in maintaining specie pay- 
 ment until long after the banks of older states had sus- 
 pended. 20 A few days before suspension was voted, the 
 directors had declared a dividend of eight per cent. The 
 editor of the Edwardsville Spectator attributed this to 
 the government funds on deposit, but the Shawneetown 
 Gazette replied that the bank enjoyed a good healthy busi- 
 ness irrespective of federal deposits and had never refused 
 to redeem a note on demand. 21 
 
 The continued struggle in the face of conditions which 
 seemed to have no prospect of improvement at last ( 1823 ) 
 forced the bank to suspend operations. By a succession 
 of compromises with its debtors and creditors it managed 
 to redeem all of its outstanding notes so far as they were 
 
 17 Letter of Marshall to Edwards, in Edwards* Papers. 155. 
 
 18 Ibid. 
 
 ™Ibid. 
 
 20 Gouge, The Curse of Paper Money and Banking, 91, n. ; Bankers' 
 Magazine, ix, u; U. S., 18 Cong., i Sess., Report of Secy, of Treas., 
 426, 570. 
 
 21 Shawneetown Gazette, quoted in Edwardsville Spectator, August 
 28, 1821. 
 
14 THE DEVELOPMENT OF BANKING IN ILLINOIS [372 
 
 presented; but other liabilities, among them a balance of 
 |28,367.85 belonging to the federal government, could not 
 be met. 22 When, however, after a lapse of fourteen years 
 the bank was reopened under circumstances which will 
 be discussed later, a settlement was made with the United 
 States, and several hundred dollars worth of the original 
 note issue was redeemed. 23 
 
 The next bank to be established in Illinois was the 
 Bank of Edwardsville, which received its charter in 1818. 
 Edwardsville, though but a few miles from St. Louis, was 
 a town of considerable importance and a rival of Kaskaskia 
 and Shawneetown for the honor of being the leading com- 
 mercial center of the territory. The provisions of the 
 charter of the Bank of Edwardsville differed from those 
 of the Bank of Illinois in the following minor details: 
 (1) The bank could begin business when five dollars in 
 specie or bills of specie paying banks had been paid down 
 on each share; 24 (2) There was no restriction as to the 
 number of shares to be subscribed for by one person; 25 
 (3) The bank was not confined to a six per cent discount 
 as the Bank of Illinois had been, but could charge the 
 "legal rate;" 26 (4) Instead of the cumulative plan of vot- 
 ing, the "one share one vote" plan was provided. 27 
 
 The stock was placed on sale by a committee of promi- 
 • nent business men of Edwardsville and when, late in the 
 year 1818, the requisite ten thousand dollars in specie, 
 or its equivalent, had been received the bank began busi- 
 ness. 28 In the year or more that had elapsed since the 
 
 22 U. S., H. of R., Letter of Secy, of Treas., 1838, Doc. no. 79, 780; 
 Andreas, History of Chicago, i, 526; Knox, History of Banking in the 
 United States, 714. 
 
 23 U. S., H. of R., Letter of Secy, of Treas., 1838, Doc. no. 79, 780; 
 U. S. Reports on the Finances, 1829-36, p. 605. 
 
 24 Laws of Illinois, 1817-18, p. 65, Section 2. The charter of the Bank 
 of Illinois required the payment of ten dollars in specie. 
 
 25 Ibid. Under the Bank of Illinois charter no one person could 
 subscribe for more than ten shares per day during the first ten days. 
 
 26 Ibid., 69, Section 7, Clause 7. 
 
 27 Ibid., 68, Section 7, Clause 1. 
 
 28 Knox, History of Banking in United States, 713; U. S., H. of R., 
 18 Cong., 1 Sess., Doc. no. 133. 
 
373] 
 
 THE TERRITORIAL BANKS 
 
 15 
 
 organization of the Bank of Illinois, conditions had become 
 less favorable for further banking enterprises; hence the 
 Bank of Edwardsville had an even more trying situation 
 to face than did the former institution. 29 
 
 A few months after the bank began its operations the 
 directors called for the payment of the second instalment 
 on the shares of stock, but the financial situation through- 
 out the country was such that more than five thousand 
 shares had to be declared forfeited for non-payment. 30 
 Among the letters of Ninian Edwards, one of the directors 
 of the bank, is one from Eichard M. Johnson, afterwards 
 vice-president of the United States, protesting against 
 such action in the case of General Payne. Johnson inti- 
 mates that those who had been credited with making a 
 second payment probably were accorded the questionable 
 privilege of borrowing the money from the bank and using 
 their shares as collateral security. 31 
 
 Through the offices of Edwards, who was then a sena- 
 tor from Illinois, the secretary of the treasury designated 
 the Bank of Edwardsville as well as the Bank of Illinois 
 a depositary of government funds. The conditions noted 
 in the case of the latter bank applied also to the former 
 save that the permanent deposit of the Edwardsville bank 
 was but forty thousand dollars instead of fifty thousand. 32 
 Although Edwards did not approve of Crawford's system 
 of letting out among a large number of banks funds which 
 should have been cared for by the Bank of the United 
 States, he preferred that the western Illinois collections 
 should be placed in his bank rather than that they should 
 be sent to the Bank of Missouri. 33 Shortly after securing 
 
 29 Letter of Marshall to Edwards, in Edwards Papers, 155. 
 30 Niles' Register, xvii, 186. 
 
 31 Edwards Papers, 162; see U. S., H. of R., 18 Cong., 1 Sess., Doc. 
 no. 133, pp. 44, 109. General Payne was the brother in law of Johnson. 
 The members of the Johnson family are said to have held a controlling 
 interest in the Bank of Edwardsville and to have used their political pres- 
 tige to influence Secretary Crawford's dealings with the bank. 
 
 32 Niles' Register, xxvi, 291. U. S., H. of R., 18 Cong., 1 Sess., Doc. 
 nos. 128, 133. 
 
 ^Wiles' Register, xxvi, 141. 
 
16 THE DEVELOPMENT OF BANKING IN ILLINOIS [371 
 
 this favor for the two Illinois banks, Senator Edwards 
 returned to Illinois only to find that, the Edwardsville 
 bank was having a hard time with the adverse business 
 conditions which then prevailed. 34 It seemed to have even 
 greater difficulty than the Bank of Illinois in withstanding 
 the severity of the commercial depression and the on- 
 slaught of their common enemies, the Bank of Missouri 
 and the receiver of the public moneys at Kaskaskia. 35 
 The directors of the Shawneetown bank, mindful of the 
 struggle that attended the launching of their project, were 
 on the whole friendly in their attitude toward the Bank 
 of Edwardsville, although in the spring of 1819 they 
 found it necessary to forbid their cashier to receive its 
 notes. 36 This action was rescinded soon, however, for the 
 officers of both banks realized that they could ill afford 
 to exercise any but the most liberal policy toward each 
 other's paper. In fact, John Caldwell, an officer of the 
 Bank of Illinois suggested to Senator Edwards that at 
 certain times each bank should inform the other as to the 
 amount of the other's notes held by it and should make a 
 practice of sending these notes as far as possible from 
 the bank which issued them. He urged that neither bank 
 present the notes of the other for redemption unless "dire 
 ^ necessity compels the unpleasant measure." 37 
 
 As business conditions were daily growing less favor- 
 able to the bank's success, Senator Edwards decided that 
 he could no longer shoulder the responsibility for the 
 safety of the United States deposits which he had procured 
 for the bank. Consequently, he decided to sever his con- 
 nection with the bank's management, and asked President 
 Stephenson to notify Secretary Crawford of his action. 
 Since Mr. Stephenson was also receiver of public moneys 
 at Edwardsville, Mr. Edwards urged him to withhold from 
 the bank all government funds in his possession until Mr. 
 Crawford had had an opportunity to take whatever action 
 
 lies' Register, xxvi, 142. 
 35 U. S., 18 Cong., 1 Sess., Report of Secy, of Treas., 495. 
 38 Edwards Papers, 156. 
 
 37 Letter of Caldwell to Edwards, in ibid., 158. 
 
375] 
 
 THE TERRITORIAL BANKS 
 
 17 
 
 was deemed advisable. A few weeks later, Edwards made 
 an announcement of his resignation through the news- 
 paper columns, but assured the public that the Bank of 
 Edwardsville was in good condition and under careful 
 management. As proof of the bank's soundness, he stated 
 that the amount of specie on hand was more than twice 
 the amount of outstanding circulation, that none of the 
 directors had borrowed heavily, some of them not at all, 
 and that General Payne, the largest individual stockholder 
 had never asked for accommodation and had always urged 
 that the bank's affairs be conducted with the greatest 
 caution. 38 
 
 The financial situation, however, was rapidly becom- 
 ing more serious. As a result of the failure of the Bank 
 of Missouri in September, 1821, a run was made upon the 
 Edwardsville bank by note holders from St. Louis and St. 
 Charles. The directors were warned the night before of 
 their coming and opened the doors of the bank at seven 
 the next morning, keeping them open until several hours 
 after closing time in the evening. This policy was con- 
 tinued for several days in the hope of restoring confidence 
 but the bank was soon compelled to suspend specie pay- 
 ments. 39 President Stephenson immediately apprized Sec- 
 retary Crawford of the action and assured him that the 
 United States funds were amply secured. 40 Secretary 
 Crawford designated Edward Coles, afterwards governor 
 of Illinois, to adjust the claim of the United States, but no 
 settlement was reached aside from the transfer in trust of 
 a large part of the bank's assets as security for the govern- 
 ment deposits. 41 
 
 Little is known of the final settlement of the bank's 
 affairs save that the assets dwindled away and the United 
 States never recovered any part of the f 46,800 on deposit 
 
 38 U. S., H. of R., 18 Cong., i Sess., Doc. no. 133, pp. 85, 105, no. 
 128, p. 8. 
 
 39 U. S., H. of R., 18 Cong., 1 Sess., Doc. no. 128, p. 9; Edwardsville 
 Spectator, August 21, 1821, September 11, 1821. 
 
 40 U. S., H. of R., 18 Cong., 1 Sess., Report of Secy, of Treas., 560. 
 "Ibid., 566. 
 
18 THE DEVELOPMENT OF BANKING IN ILLINOIS [376 
 
 at the time the bank closed. 42 Senator Edwards stated 
 that the assets which were set aside as security for the 
 deposit were at the time more than ample to reimburse 
 the government, but that Secretary Crawford, out of defer- 
 ence to the Johnsons and General Payne had delayed set- 
 tlement until the securities in trust had become worth- 
 less. 43 
 
 In 1823 when a committee of the House of Repre- 
 sentatives at Washington was investigating the question 
 of public deposits, Edwards was summoned to appear be- 
 fore it. In the course of his examination, he repeated his 
 charge against Crawford, adding that he himself had 
 warned Crawford long before the bank failed. The next 
 year he accepted the post of minister to Mexico and was 
 about to leave for that country when Secretary Crawford 
 sent to the House a stinging reply to the charge. He 
 denied that Edwards had given him any intimation as to 
 the bank's condition. Edwards immediately resigned his 
 appointment and preferred formal charges against Craw- 
 ford. A committee of the House made a thorough investi- 
 gation of the whole affair ; its conclusion was that "nothing 
 has been proved to impeach the integrity of the Secretary 
 or to bring into doubt the general correctness and ability 
 of his administration of the finances." 44 They found that 
 the evidence sustained Edwards in his statement that he 
 had published in the newspapers his intention of with- 
 drawing from the bank, but there was no evidence that 
 either he or the receiver of public moneys ever informed 
 Secretary Crawford about the bank's condition. In fact, 
 since Mr. Stephenson, the receiver, was also the president 
 of the bank, the committee thought it but natural that he 
 should fail to warn Mr. Crawford that the bank was not in 
 first rate condition. The committee urged, however, that 
 the practice of appointing the presidents of depositary 
 banks to be receivers of public moneys be discontinued. 
 
 42 U. S. Reports on Finances, 1829-36, p. 605. 
 
 ^Niles' Register, xxvi, 140 ff., 274, 290; Edwards, Life and Times of 
 Edwards, 135 ff. 
 
 * 4 U. S., H. of R., 18 Cong., 1 Sess., Doc. nos. 128, 133; Miles' Regis- 
 ter, xxvi., 174. 
 
377] 
 
 THE TERRITORIAL BANKS 
 
 19 
 
 A charter almost identical with the one granted to the 
 Bank of Illinois was issued to the president, directors and 
 company of the Bank of Kaskaskia in 1818. 45 Had the 
 bank been started earlier there is little question but that it 
 would have succeeded. As it was, even the ability and 
 integrity of its officers and its location in the principal 
 settlement and capital of the territory were not able to 
 neutralize the effect of the provision requiring that sub- 
 scriptions be paid in gold and silver coin. This require- 
 ment had been met a little over a year before by the stock- 
 holders of the Bank of Illinois, but the territory was now 
 on the eve of hard times so the Bank of Kaskaskia never 
 transacted business. As Justice Shelton puts it in his de- 
 cision in the case of the People vs. Lowenthal : "It issued 
 no paper money and it cannot be said to have defrauded 
 any man." 46 
 
 The incorporators of the City and Bank of Cairo 
 undertook to launch a most pretentious enterprise on the 
 site of the present city of that name. With the idea of 
 founding a great metropolis they had become the owners 
 of eighteen hundred acres of land at the junction of the 
 Ohio and Mississippi rivers. 47 They were required by the 
 charter to lay off the site into city lots which were to be 
 sold at one hundred and fifty dollars each. Fifty dollars 
 of this amount was to be devoted to building dikes and 
 levees and constructing public buildings, while the remain- 
 ing one hundred dollars was to be used as capital for a 
 bank. 48 For this sum two fifty-dollar shares were to be 
 issued, one to belong to the purchaser of the lot and the 
 other to the company. When five hundred lots had been 
 sold, a stockholders' meeting was to be held and thirteen 
 resident citizens chosen as directors. 49 The bank was to 
 begin the issue of notes as soon as the money for the lots 
 
 **Laws of Illinois, 1817-1818, p. 82. 
 
 46 93 Illinois, 191. This same statement appears in Brown, History 
 of Illinois, 428, 429. 
 
 * 7 Laws of Illinois, 1817-18, pp. 72, 73. 
 <9 Ibid., 75, Sectioft^. 
 
 49 Laws of Illinois, 181 7-1 8, p. 76-7, Section 7. 
 
20 THE DEVELOPMENT OF BANKING IN ILLINOIS [378 
 
 was turned over to its officers. Since the patronage of the 
 bank would be too small to justify its location in the new 
 city for some time, it was provided that a banking business 
 could be transacted at Kaskaskia until the legislature saw 
 fit to "compel all business to be done in Cairo." 50 The 
 bank charter proper was modeled after those granted to 
 the banks at Shawneetown and Edwardsville. 
 
 The bank, according to Governor Ford, never accepted 
 its charter; hence no subscriptions were received nor any 
 organization perfected. 51 Nineteen years later (1837) 
 during the internal improvement excitement the old char- 
 ter was adopted by a new company of the same name. 52 
 Its history will be taken up in connection with the banking 
 operations of that period. As for the project of founding 
 a city, the whole scheme vanished into thin air and Cairo 
 was settled some years later much as other settlements 
 are established. 
 
 But one statement of the condition of the Illinois 
 banks is available, namely, a composite balance sheet 
 issued by the secretary of the treasury in 1819, when both 
 institutions were in their prime. The statement shows 
 that only $140,910 had ever been paid in by the share hold- 
 ers. The remaining liabilities consisted of an outstand- 
 ing circulation of $52,021, government deposits to the 
 amount of $119,036.92, individual deposits amounting to 
 $32,568.60 and undivided profits to the extent of $2,994.49. 
 On the other hand, the loans and discounts amounted to 
 $206,694.32, almost as much as the capital stock, circula- 
 tion and private deposits combined. This indicates to 
 how small an extent deposit banking was practiced. The 
 deposit by the government of the proceeds from the sale 
 of public land provided the banks with an unusually large 
 supply of specie ($74,715.51), large amounts of which had 
 to be conveyed on short notice to the Louisville and New 
 Orleans branches of the United States Bank. The 
 $59,332.18 due from other banks was probably largely 
 
 50 Laws of Illinois, 1817-18, 76, 81, Section 22. 
 
 51 Greene and Thompson, Governors' Letter-Bookd, ii, 6a. 
 
 5 °-Ibid. 
 
379] 
 
 THE TERRITORIAL BANKS 
 
 21 
 
 made up of the notes of these banks deposited by the re- 
 ceivers of public moneys. The remaining assets consisted 
 of $6,614 invested in securities and $175 in real estate. 
 The presence of such relatively large amounts of gov- 
 ernment funds produced a somewhat abnormal condition 
 and prevents one from ascertaining the real character 
 of Illinois banking at this period. 53 
 
 A review of the conditions which prevailed in Illinois 
 during the existence of the two banks may serve the two 
 fold purpose of accounting more fully for the brevity of 
 their existence and the subsequent unpopularity of all 
 moneyed institutions. The commerce of the community 
 was still practically undeveloped on account of the self- 
 sufficient character of the life and the lack of means of 
 communication with the outside world. A bank, there- ^ 
 fore, was looked upon as a mill for grinding out paper 
 money on easy terms for speculators. The public lands 
 were sold at two dollars an acre, eighty dollars to be paid 
 down on each quarter section and the remainder spread over 
 a period of four years. 54 According to Governor Ford, 
 everyone who could borrow eighty dollars worth of the 
 banks' paper invested it in land with the hope that he 
 could sell it at a handsome profit to a "tenderfoot" before 
 the obligation to the bank fell due. 55 Consequently when 
 the depression of 1819-20 spread over the West, it left 
 disaster in its wake. The failure of the banks in Ohio, 
 Kentucky and Missouri left the people of Illinois with a 
 quantity of worthless paper on their hands. Nearly every- 
 one was hopelessly in debt and his lands liable to seizure 
 by the federal government. 56 The Illinois banks in order 
 to protect themselves at first merely resorted to suspen- 
 sion of specie payment but finally were compelled to close 
 their doors. In view of such a situation, therefore, it is 
 surprising that they made so creditable a showing as 
 they did. 
 
 53 U. S., H. of R., 16 Cong., i Sess., Doc. no. 86, facing p. 40. 
 54 Laws of the U. S., 6 Cong., 1 Sess., Ch. 55, Sec. 5. 
 55 Ford, History of Illinois, 43; Wildraan, Money inflation in the 
 United States, 68. 
 
 56 Ford, History of Illinois, 44. 
 
CHAPTER III 
 
 Banking a State Monopoly. 
 
 J When Illinois was admitted to the Union in 1818 
 the following provision was incorporated in her constitu- 
 tion: "There shall be no other banks or money institu- 
 tions but those already provided by law, except 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." 1 The principal influences underlying the 
 insertion of this provision probably were: (1) The state 
 of Indiana had adopted a similar course just two years 
 before; 2 (2) Experience with the paper of irresponsible 
 private banks had already engendered considerable feeling 
 against a further resort to that means of supplying the 
 people with a circulating medium. The conviction that 
 note issue could be entrusted only to the state prevailed 
 in spite of the disastrous results that have attended similar 
 experiments in the past. 3 
 
 It will be noted that the constitution permitted the 
 banks chartered by the territorial legislature to continue, 
 but as has been seen they soon went out of existence and 
 left the field clear for the experiment of state banking. 
 
 Much of the future banking policy of the state de- 
 pended upon the interpretation to be given to the term 
 "state bank." When the question arose in 1834, the editor 
 of one of the leading newspapers made an unsuccessful 
 search for the records of the constitutional convention 
 of 1818 in order to ascertain the ideas of the members as 
 to what really constituted a "state bank." He was able, 
 however, to interview several survivors of the convention, 
 all of whom were of the opinion that the constitution was 
 
 1 Article viii, Section ax. 
 
 2 Constitution of Indiana, 1816, Article x, Section I. 
 3 Davidson and Stuve, History of Illinois, 305. 
 
 22 
 
381] 
 
 BANKING A STATE MONOPOLY 
 
 23 
 
 intended to delegate to the general assembly the power 
 to establish an institution under state control but not 
 necessarily owned by the state. They merely desired to 
 stop the chartering of any more banks that would not 
 be responsible to the state for their good conduct. 4 
 
 This was evidently the interpretation put upon the 
 banking clause of the constitution by the first state legis- 
 lature, for they chartered a state bank half of whose stock 
 was to be sold to private individuals. Notwithstanding 
 the fact that the bank could begin business when it had 
 received fifteen thousand dollars in specie, 5 this amount 
 was not subscribed and two years later the legislature 
 repealed the charter. 6 As we have already seen, the year 
 1819 was a very unpropitious time for attempting to 
 launch any enterprise which required specie payments. 
 However, a brief review of the provisions of the 
 act may be of value in throwing light upon the ideas of 
 our early lawmakers as to the kind of bank that would 
 best meet the conditions that confronted them. 
 
 The parent bank was to be established at the seat of 
 government and removed whenever it was removed. 7 Two 
 million dollars worth of shares was open to individual 
 subscription and a like amount was available for the state 
 whenever the legislature felt justified in making the neces- 
 sary appropriations. The liabilities of the institution 
 other than capital were never to exceed two million dollars. 
 The senate and house of representatives by joint ballot 
 were to choose six of the twelve directors. No judge or 
 member of the legislature could serve as director. 8 Ten 
 per cent of the stock was to be paid for in specie or its 
 equivalent. 9 If the bank refused to redeem its obligations 
 in specie on demand, a penalty of twelve per cent interest 
 was added to the amount of the obligation. 10 
 
 A Sangamo Journal, January 25, 1834. 
 
 5 Laws of Illinois, 1819, p. 151 ff., Section 5. 
 
 *Ibid., 1 82 1, p. 93. 
 
 7 Ibid., 1819, p. 151, ff., Section 1. 
 
 s Ibid., Section 3. 
 
 9 Ibid., Section 4. 
 
 ™Ibid., Section 5. 
 
24 THE DEVELOPMENT OF BANKING IN ILLINOIS [382 
 
 The legislature evidently soon recognized the hope- 
 lessness of expecting the bank to accumulate the required 
 amount of specie so it supplemented the charter during 
 the same session at which it was passed by providing that 
 in paying for bank stock, the state auditor's warrant 
 should be considered as good as specie. 11 But even this 
 inducement failed to effect the desired result. In the mean- 
 time there set in the general collapse of banks and other 
 business enterprises, described in connection with the dis- 
 cussion of the territorial banks. So utterly hopeless was 
 the condition of the people that a clamor for government 
 aid arose. 
 
 Notwithstanding the vigorous message of Governor 
 Bond in which he pointed out the folly of establishing a 
 bank for the sole purpose of relieving individual distress, 
 a bill was introduced in the next legislature for the estab- 
 lishment of a bank based wholly on the credit of the state. 
 One would suppose that the mere suggestion of being able 
 to borrow from the state upon easy terms sufficient cur- 
 rency to tide over the hard times would meet the un- 
 qualified approval of a community hopelessly in debt. 
 But the opposition to the scheme was not solely on the 
 part of the group of enlightened and disinterested legis- 
 lators who contested the measure every step of the way. 
 Mass meetings were held to protest against the adoption 
 of the project. 12 At a meeting of the citizens of Bond 
 County it was resolved that "the legitimate object of bank- 
 ing institutions is to afford a safe and convenient medium 
 for the emission of loans founded on solid capital and not 
 a project of needy individuals for the creation of funds; 
 that whenever the emission of paper by any banking 
 institution does not depend upon the ability to redeem it 
 promptly in specie the community can have no assurance 
 that it will not be extravagant, and no reasonable hope 
 
 xl Laws of Illinois, 1819, p. 299. 
 
 12 Edwardsville Spectator, February 13, 1821. The action taken by the 
 citizens of Crawford, Randolph and Gallatin counties was embodied 
 in resolutions and forwarded to the legislature. House Journal, 1820-21, 
 p. 227. 
 
383] 
 
 BANKING A STATE MONOPOLY 
 
 25 
 
 that it may ever be redeemed." It was further urged that 
 such an act would be unconstitutional in that it would 
 impair the obligation of contracts. 13 On the other hand, 
 the passage of the measure was urged on the ground that 
 it is the duty of the state in time of great pecuniary em- 
 barrassment to afford such measure of relief to prevent 
 the "unnecessary and wanton sacrifices of the property 
 and possessions of the citizens of the state." 14 
 
 The bill, however, passed both houses by a very close 
 vote after its discussion had consumed a fourth of the 
 time of the session. 15 Governor Ford cites the election of 
 its sponsor, Richard M. Young, to the United States senate 
 as one of the many examples in the history of the state 
 of the forgiving nature of the people in the case of men 
 who have been active in the passage of harmful legis- 
 lation. 16 
 
 The constitution of 1818 required that all bills receive 
 the approval of the council of revision which was com- 
 posed of the governor and the judges of the supreme court. 
 When the act in question came before the council it re- 
 ceived a unanimous veto and was sent back to the House 
 for further consideration. 17 The note accompanying the 
 rejected measure gave as the reason for the unfavorable 
 action that the State of Illinois had no right to establish 
 a loan office scheme in the face of the prohibition in the 
 federal constitution against the emission of bills of credit. 18 
 It had been decided that a bill payable on demand out 
 of a specified fund was not a bill of credit, but the council 
 held that bills of a state payable at some future time were 
 clearly not included in the meaning of that decision and 
 therefore came under the ban of the United States con- 
 stitution. They further justified their veto with the pre- 
 
 ls House Journal, 1820-21, p. 227. 
 
 14 Mass meeting of the citizens of Madison County. Edwardsville 
 Spectator, March 20, 1821. 
 ^Niles' Register, xx, 48. 
 16 Ford, History of Illinois, 46. 
 17 Ibid. 
 
 18 Article I, Section x. 
 
26 THE DEVELOPMENT OF BANKING IN ILLINOIS [384 
 
 diction that a train of evils would follow the adoption of 
 the bank measure. They urged that some other means 
 be found to relieve the popular distress than the issue of 
 notes which would not circulate in interstate commerce 
 and would not provide a satisfactory medium of exchange 
 even at home. 19 
 
 In the house of representatives the bill and objections 
 were referred to a committee which recommended the 
 passage of the bill over the council's veto. Their reply to 
 the objections of the council was : (1) A bank note issued 
 by a state bank was not a bill of credit because the state 
 did not propose to make the notes legal tender; (2) The 
 council signed the bill creating a state bank in 1819; 
 (3) Congress when it admitted Illinois to the Union ap- 
 proved her constitution even though it reserved banking 
 privileges to the state; (4) If other states did refuse to 
 receive Illinois paper the citizens of Illinois would have 
 more for their own use. 20 When the motion to repass the 
 bill came before the House, Mr. McLean, the speaker, a 
 bitter opponent of the whole scheme, resigned the chair 
 in order to fight the bill because the rules forbade the 
 speaker to address the House and the friends of the bank 
 measure refused to go into a committee of the whole. He 
 was promptly re-elected, however, and the House went into 
 a committee of the whole in order to give him an oppor- 
 tunity to express his views. Notwithstanding the high 
 regard of the members for Mr. McLean and his eloquent 
 arguments in support of the council's position, the House 
 repassed the bill by a vote of seventeen to ten. 21 Four of 
 the ten who opposed the measure framed a formal protest 
 against the action of the House and succeeded in having 
 it spread upon the records. The significant feature of 
 
 19 House Journal, 1820-21, p. 236. Edwardsville Spectator, February 
 13, 1821. 
 
 20 House Journal, 1820-21, p. 261 ff. 
 
 21 Ford's account of this incident (History of Illinois, 46) does not 
 tally in every respect with the record of the proceedings of the legisla- 
 ture for February 6, 1821. House Journal, 1820-21, pp. 271 ff. ; Edwards- 
 ■ville Spectator, February 13, 1821. 
 
385] 
 
 BANKING A STATE MONOPOLY 
 
 27 
 
 the document i# its declaration that all banks are detri- 
 mental to the morals of the people and a menace to popular 
 liberty even when they are established upon a specie basis. 
 They laid the then-existing crisis in the United States at 
 the door of banks and predicted that the State Bank of 
 Illinois would becoine the tool of the political demagog 
 &nd the artful politician. 22 
 
 On the same day the bill was forwarded to the senate 
 where it received just enough votes to pass it over the 
 council's veto. 23 One of the eight men who gave their 
 votes for the measure immediately received the appoint- 
 ment of cashier of one of the branches of the bank, 24 a 
 direct violation of the state constitution. 25 
 
 The bill in its final form provided for the establish- 
 ment of the State Bank of Illinois at Vandalia, the new 
 state capital. The capital stock was not to exceed five 
 hundred thousand dollars and was to be owned entirely 
 by the state. 26 The bank was to do business for ten years 
 and was permitted to hold property up to double the 
 amount of its capital stock. 27 In order that no partiality 
 be shown to any section, branch banks were provided for 
 the towns of Edwardsville, Shawneetown, Palmyra, 28 and 
 Brownsville. 29 The state was then districted in such a 
 22 House Journal, 1820-21, pp. 22y-2g. 
 
 23 The Illinois constitution of 1818 (Article iii, Section 19) provided 
 that if after consideration the bill was approved in both houses by a 
 majority of all members elected, it became a law without the consent of 
 the council of revision. 
 
 24 Alton Spectator, January 25, 1834. 
 
 25 Article ii, Section 19. 
 
 2fi Laws of Illinois, 1821, pp. 80 ff., Section 1. 
 
 27 Ibid., Section 2. 
 
 28 This village, now deserted, was the first county seat of Edwards 
 County when the boundaries of the county extended to Canada. For 
 some years it was a thriving market town, but the location was so 
 unhealthful that it was finally abandoned. McDonough, History of 
 Edzvards, Lawrence and Wabash Counties, 238. 
 
 29 At this time Brownsville was the county seat of Jackson County 
 and contained a population of over five hundred, ranking next to 
 Shawneetown and Kaskaskia. However, the collapse of the state bank 
 and several other misfortunes caused the town to be abandoned. Illinois 
 State Historical Society, Transactions, 1905, p. 372. 
 
28 THE DEVELOPMENT OF BANKING IN ILLINOIS [386 
 
 manner that every county was assigned to the principal 
 bank or one of the branches. 30 
 
 The president and the six directors of the parent 
 bank and five directors for each of the branches were to 
 be chosen biennially by joint ballot of the two houses of 
 the legislature. In choosing the branch directors, how- 
 ever, proper geographical distribution must be made. 31 
 The selection of all other officers was left to the respective 
 boards of directors. Although the state was the sole owner 
 and beneficiary of the enterprise, its total appropriation 
 for getting the institution under way was the two thous- 
 and dollars provided for the purchase of bank note plates. 32 
 For the time being only three hundred thousand dollars 
 was to be printed and issued, the issue of the remaining 
 two hundred thousand being left to the will of the next 
 legislature. 33 
 
 The denominations provided for were ones, twos, 
 threes, fives, tens and twenties. It was required that 
 every note should read : "The President and Directors of 
 
 the State Bank of Illinois promise to pay to or 
 
 bearer the sum of Dollars, agreeably to the 
 
 provision of the charter of this institution, with interest 
 thereon at the rate of two per cent per annum. Receiv- 
 able at all times for debts due the State or the Bank." 34 
 
 As soon as the notes were ready they were distributed 
 to the bank and branches according to the population of 
 their respective districts. The banks were required to 
 deal with all persons alike. 35 A borrower must apply 
 only to the bank in his own district and no one person 
 was to receive a loan of more than a thousand dollars. If 
 the amount of the loan exceeded a hundred dollars, pay- 
 ment must be secured by a mortgage on unincumbered 
 
 Z0 Laws of Illinois, 1821, pp. 80 ff., Section 4. 
 31 Ibid., Section 5. 
 »*/&&., Section 8. 
 33 Ibid., Section 9. 
 
 S4 Ibid., All unauthorized issues of paper currency within the state 
 were forbidden under a penalty of $10,000. 
 35 Ibid., Section 12. 
 
387] 
 
 BANKING A STATE MONOPOLY 
 
 29 
 
 real estate worth at least twice the amount of the mort- 
 gage. Loans of a hundred dollars or less could be made 
 upon personal security approved by a two-thirds vote of 
 the directors present at the meeting at which the loan 
 was under consideration. 36 A uniform interest rate of six 
 per cent was established for all loans. 
 
 The bank was made the sole depositary of the state's 
 funds and in so far as these funds consisted of specie or 
 its equivalent the bank could make them the basis of a 
 further note issue up to twice their amount. This issue, 
 however, must be redeemed in gold or silver on demand 37 
 while the state allowed itself ten years to redeem the 
 regular issue, one tenth to be redeemed and retired an- 
 nually. 38 The issue based upon state funds was forbidden 
 by an act of 1823, but the state in other ways continued 
 for ten years to misuse the funds granted to the common 
 schools by the United States. 39 The bank was required 
 to show great leniency to its debtors. Their loans must 
 be considered standing accommodations renewable from 
 year to year if necessary, upon payment of ten per cent 
 of the principal. 40 
 
 In order to safeguard the interests of the state the 
 branch banks were required to report semi-annually to 
 the principal bank and these reports were incorporated 
 in the biennial report of the bank to the legislature. Com- 
 mittees of the legislature were to be permitted to examine 
 the bank at any time. 41 
 
 The original act provided that the president of the 
 parent bank should receive in lieu of a salary the right 
 to borrow two thousand dollars more than he could other- 
 wise have borrowed. 42 But at the same session it was 
 provided that he should receive a cash salary of eight 
 
 3 *Laws of Illinois, 1821, pp. 80 ff., Section 12. 
 37 Ibid., Section 36. 
 38 Ibid., Sections 23, 29. 
 
 39 Sumner, History of Banking in All Nations, i, 157. 
 A0 Laws of Illinois, 1821, pp. 86 ff., Section 14. 
 41 1 bid., Section 17. 
 * 2 Ibid., Section 18. 
 
30 
 
 THE DEVELOPMENT OF BANKING IN ILLINOIS [388 
 
 hundred dollars instead of tlie extra accommodation at 
 the bank. 43 However, branch presidents and directors 
 were granted additional loans of a thousand dollars and 
 seven hundred fifty dollars respectively. 44 Cashiers were 
 to be paid a salary of not more than eight hundred 
 dollars. 45 
 
 As was the case with the territorial banks the legis- 
 lature was forbidden by the federal constitution to- make 
 the notes legal tender, but it sought to accomplish the 
 same end by the usual indirect methods, namely, making 
 the notes legal tender for all public dues within the state 46 
 and providing that the execution of judgments should be 
 suspended for three years ^if the plaintiff were unwilling 
 to accept the state bankj>dtes. 
 
 The legislature proceeded to elect the president and 
 directors of the bank and, in accordance with a supple- 
 mentary act of 1823, the cashier of the parent bank. The 
 bank began making loans in July, 1821, and everj^one who 
 could offer the necessary security obtained his share of 
 the three hundred thousand dollars. 47 According to Ford, 
 a large number of the bank's officers were members of the 
 legislature 48 and all of them professional politicians who 
 were then, or expected to be, candidates for office so they 
 were unwilling to risk their popularity by a too close 
 scrutiny of the kind of security offered. Moreover, they 
 were merely the agents of a state lending her credit to 
 her indigent citizens and felt no keen sense of personal 
 responsibility. 49 
 
 43 Laws of Illinois, 1821, 144. 
 "Ibid., Section 18. 
 4a Ibid., Section 19. 
 46 Ibid., Section 9. 
 
 47 Edwardsville Spectator, July 3, 1821. In the same newspaper in its 
 issue of August 14, 1821, is an account of the meeting of the directors of 
 the Edwardsville Branch at which the entire share of the district, more 
 than $80,000, was loaned upon personal security in sums of $100 or less. 
 
 48 The names of the president and directors of the bank are given in 
 the House Journal (2 Sess., 1 G. A.) 68. None of the persons mentioned 
 in this list was a member of the general assembly. 
 
 49 Ford, History of Illinois, 47. Article on Illinois by W. H. Brown, 
 in Chicago American, December 25, 1840. 
 
389] 
 
 BANKING A STATE MONOPOLY 
 
 31 
 
 As far as the larger transactions were concerned, the 
 neAv bills for a time supplied the demand for a circulating 
 medium, but there was still no provision for small change. 
 Minor coins were as scarce as those of larger denomina- 
 tion; hence the practice arose of tearing the bank notes 
 into halves, quarters, etc., in order to make change. 50 This 
 practice received the official sanction of the bank in 1823 
 when its directors authorized the tearing of all notes of 
 five dollars or less denomination and offered to receive 
 portions of notes in payment of all obligations to it. 51 
 
 The members of the general assembly believed that 
 the bills of the bank would be on a par with gold and 
 went so far in this belief as to pass resolutions calling 
 upon the treasury department at Washington to accept the 
 Illinois bank notes as the equivalent of specie. 52 Accord- 
 ing to Ford's oft-quoted account, when the matter came 
 to a vote in the state senate, Lieutenant-Governor Menard, 
 a shrewd old French pioneer, put the motion as follows: 
 "Gentlemen of de Senate, it is moved and seconded dat de 
 notes of dis bank be made land office money. All in favor 
 of dat motion say 'aye.' All against it say 'no.' It is 
 decided in de affirmative. And now gentlemen, I bet you 
 one hundred dollars he never be made land office money." 53 
 
 It was not long until the dire prediction of those who 
 had opposed the establishment of the bank began to be 
 fulfilled. The notes which never were accepted on a par 
 with gold soon began to depreciate still further and in a 
 few weeks after the bank opened were quoted at seventy- 
 five cents on the dollar. 54 A month later they had reached 
 sixty-tw r o and one-half cents 55 and kept on sinking until 
 1823 when they remained at about thirty cents until 1825. 56 
 
 ^Illinois Intelligencer, March 15, 1823; Ford, History of Illinois, 47. 
 ^Illinois Intelligencer, March 15, 1823. 
 52 Ford, History of Illinois, 45. 
 ™Ibid. 
 
 54 W. F. Baker, in Bankers Magazine, ix, 12. 
 
 s "'Advertisements in the Edwardsville Spectator, October 16, 1821. 
 56 Article by W. H. Brown, in Chicago American, December 25. 1840. 
 The editor of Niles' Register (xxiv, 342) reports having received a sub- 
 
32 THE DEVELOPMENT OF BANKING IN ILLINOIS [390 
 
 After that year there was a rise in value due to the adop- 
 tion by the state of measures which will be considered at 
 a later stage. 
 
 Several causes contributed to this utter failure of the 
 notes to maintain their standing in the eastern money 
 market. In the first place, no provision was made for the 
 redemption of the notes in specie on demand. The parent 
 bank received some specie for a time, most of it as the 
 depositary of state funds received from the federal gov- 
 ernment. But aside from this limited amount not a dollar 
 in specie was paid into the treasury. 57 When upon one 
 occasion one of the branches received two dollars in specie 
 from a customer they were placed upon exhibition as 
 curiosities. 58 The loss of its building and fixtures in 
 January, 1823, 59 by fire compelled the parent bank to keep 
 its specie in a box fastened with a padlock. In March of 
 the same year, robbers broke into the temporary quarters 
 of the bank and carried off $4,200, "a large part of its 
 specie." 60 From these bits of evidence it can readily be 
 seen that the bank was in no position to maintain its notes 
 at a parity with gold. 
 
 In the next place, the bank's debtors failed to take the 
 right attitude towards their obligations. The Edwardsville 
 Spectator soon after the first loans were made in that dis- 
 trict complained that the greater part of the borrowers 
 instead of paying their honest debts squandered the money 
 for "purposes worse than useless." 61 They looked upon the 
 issue as a gift from the state which could be paid back or 
 not as they saw fit. 62 Other borrowers of the bank's notes 
 eased their consciences with the assurance that the notes 
 were bills of credit and therefore the whole scheme was 
 
 scription from an Illinois gentleman who complained that it cost him 
 twelve dollars in Illinois currency to obtain the five dollars in United 
 States money inclosed. 
 
 57 Edwards, Life and Times of Edwards, 207. 
 
 58 Baker, in Bankers Magazine, ix, 12 ; Brown, History of Illinois, 433. 
 
 59 Illinois Intelligencer, February I, 1823. 
 
 60 Ibid., March 29, 1823. 
 
 61 December 11, 1821. 
 
 62 Ford, History of Illinois, 47. 
 
391] 
 
 BANKING A STATE MONOPOLY 
 
 33 
 
 unconstitutional. 03 The question was taken into the courts 
 and a decision was rendered by the supreme court of Illi- 
 nois in 1826. It was decided that the borrower of a bank's 
 paper cannot be released from his obligation by raising the 
 contention that the bank's charter is unconstitutional. 64 
 The court ignored the real issue of the constitutionality of 
 the bank's paper until 1833, two years after the expiration 
 of its charter. It was then held that a promissory note 
 given in consideration of such bills is void and cannot be 
 collected by law. 65 If this latter decision had come some 
 eight or ten years earlier it would probably have placed the 
 state in an even more embarrassing position than the one 
 it was forced to occupy until it had settled the bank's 
 affairs. 
 
 In the third place, the series of ultra-liberal measures 
 granting relief to debtors complicated the financial situa- 
 tion in the state. We have already noted the provision in 
 the bank's charter granting a stay of execution where the 
 plaintiff refused to accept bank notes from the debtor. At 
 the same session, the legislature added the provision that 
 even if the plaintiff did signify his willingness to accept 
 state currency, the defendant could have a replevin of sixty 
 days. The execution of all contracts calling for gold and 
 silver was stayed from one to five months according to the 
 amount of the debt. All judgments of justices of the peace 
 could also be stayed for thirty days. These measures, 
 while on their face either of no significance to the bank or 
 else actually showing favor to its notes, still did a great 
 deal to engender a spirit of disregard of the sacredness of 
 one's obligations. The bank undoubtedly lost far more 
 from the prevalence of this spirit than it gained from the 
 favor shown its notes. The great depreciation of the 
 bank's notes ought in itself to have afforded sufficient 
 relief to debtors but the legislature in 1825 granted further 
 aid to that class by making the warrants of the state audi- 
 
 63 Edwards, Life and Times of Edwards, 175. 
 
 64 Snyder vs. President and Directors of the State Bank, Breese, 161. 
 65 Linn vs. President and Directors of the State Bank, 1 Scammon 87. 
 
34 THE DEVELOPMENT OF BANKING IN ILLINOIS [392 
 
 tor receivable at the bank. 66 With the appreciation of the 
 bank's notes referred to above, began another series of re- 
 lief laws which will be dealt with in another connection. 
 
 Lastly, when we consider that the bank had twenty- 
 six directors, each of whom was entitled to a loan of seven 
 hundred fifty dollars in addition to his individual borrow- 
 ings, and four branch presidents, each entitled to addi- 
 tional loans of a thousand dollars, we can readily agree 
 with Governor Edwards' view of the situation. In his 
 inaugural message of 1826, Governor Edwards pointed out 
 to the legislature that the bank's officers had borrowed 
 "to the full limit of the law and thus became more in- 
 terested than any other class in the community in im- 
 pairing the credit of the institution and depreciating its 
 notes, as the means of facilitating the discharge of the 
 j debts they had contracted with it." They felt that there 
 was no need of paying obligations which could eventually 
 be shifted upon the whole community in the form of state 
 taxes. 67 By borrowing to the full limit allowed individuals 
 in addition to their accommodation as directors, these 
 men were enabled to divert $53,500, or more than one 
 sixth of the total issue of notes, to their own selfish ends. 
 In some cases they transferred their right to borrow to 
 their friends, thereby enabling them to exceed the lawful 
 loan limit. 68 
 
 It is little to be wondered at, therefore, that the whole 
 venture was doomed to failure from its very birth and 
 that but two years after its inception, state bank notes 
 were quoted at but thirty cents on the dollar. 
 
 The effect of the depreciated notes was now so keenly 
 felt that both friends and foes of the original project 
 united in asking the next legislature, to which had been 
 left the option of issuing an additional two hundred thous- 
 and dollars, not to exercise this privilege. The bill which 
 sought to provide such an issue was accordingly defeated 
 
 6G Laws of Illinois, 1824-25, p. 84. 
 
 67 Message of Governor Edwards, Senate Journal, 1826-27, p. 54. 
 «*Ibid. 
 
393] 
 
 BANKING A STATE MONOPOLY 
 
 35 
 
 in the lower house by a vote of nine to twenty-four. 69 The 
 few friends of the measure then attempted to secure the 
 adoption of a resolution providing for the submission of 
 the question to the people at a special election; but this 
 project met a like fate. 70 A number of measures calcu- 
 lated to remedy the whole situation were introduced, but 
 no action of consequence was taken. In accordance with 
 a joint resolution of the two houses, a committee was ap- 
 pointed to investigate the affairs of the bank and re- 
 ported: (1) that they had examined the papers and 
 cash of the principal bank and found that they tallied 
 with the annual report of December 11, 1822; (2) that 
 little satisfaction could be had in examining the books 
 of the branches on account of their poor bookkeeping and 
 failure to make reports; (3) that the different branches 
 should be required to obey the law in the matter of trans- 
 mitting regularly to the parent bank their share of the 
 one-tenth of the notes that was to be destroyed each year. 
 They recommended the creation of a responsible com- 
 mittee whose members would see to it that the retired 
 issue was actually destroyed. They expressed the opinion 
 that such a measure would restore public confidence in 
 the remaining notes. 71 The legislature took little notice 
 of the report of the committee aside from the passage of 
 an act requiring the cashiers of the branches "to make 
 out and transmit to the cashier of the principal bank by 
 the first of January of each year a complete abstract of 
 their discount books for the year past." They reduced the 
 salary of the president of the principal bank to two him- y 
 dred dollars and increased the salary of the cashier to a 
 thousand dollars. 72 
 
 When the next legislature met in December, 1824, the 
 necessity for action was so great that it could no longer 
 be ignored. Governor Coles in his message censured the 
 
 "Illinois Intelligencer, January 4, 1823. 
 70 Alton Spectator, February 11, 1834. 
 
 71 House Journal, 1822-23, p. 108; Illinois Intelligencer, January 11, 
 1823. 
 
 12 Laws of Illinois, 1822-23, p. 181. 
 
36 THE DEVELOPMENT OF BANKING IN ILLINOIS [394 
 
 legislature of 1820-21 for its hasty action in interpreting 
 as the pressure of the times a condition which was largely 
 the result of excessive issues of paper. But now that 
 the evil had been done, he recommended the strictest 
 publicity of all the bank's accounts and the passage of 
 such measures as would expedite the speedy dissolution 
 of the bank upon the expiration of its charter without loss 
 to the state. 73 Accordingly a law was enacted providing 
 for the appointment of three commissioners to make a 
 thorough examination of the Shawneetown branch bank, 
 whose officers seem to have been under suspicion. 74 
 
 The act further instructed the cashier of this branch 
 to deliver to the cashier of the main bank the whole amount 
 of the ten per cent fund which was supposed to be retired 
 and destroyed every year. A penalty of $1000.00 was 
 provided if the cashier or other officers hindered the work 
 of the commissioners. 75 A joint committee appointed to 
 ascertain the condition of the whole institution revealed 
 the fact that thus far the expenses of the principal bank 
 had exceeded its discounts by $2,403.90. The Browns- 
 ville branch had also been run at a loss, but the Edwards- 
 ville and Palmyra branches each had a small balance. 
 The Shawneetown branch had been conducted in so loose 
 a manner that it was impossible to ascertain its true condi- 
 tion. The cashier had made a loan of $3750 without 
 security and was unable to account for $4800 additional. 76 
 The legislature took no immediate action against the 
 Shawneetown officers but three months later by joint 
 resolution it authorized Governor Coles to appoint a 
 competent accountant to make a thorough examination of 
 the books. 77 This appointment was made and the affairs 
 of the bank carefully investigated, but the books were in 
 
 73 Governor's message, 1824. 
 
 7 4 Laws of Illinois, 1824-25, p. 16, Section 1. 
 
 75 Ibid., Section 2. 
 
 76 Knox, History of Banking in the United States, 716; House Journal, 
 1824-25, p. 203 ; Senate Journal, 1824-25, p. 217. 
 77 Lazvs of Illinois, 1824-25, p. 185. 
 
395] 
 
 BANKING A STATE MONOPOLY 
 
 37 
 
 such unintelligible shape as to throw little light upon the 
 bank's real condition. 78 
 
 So involved were the members of the legislature and 
 their friends in the affairs of the bank that no action re- 
 sulted directly from either investigation. 79 In the mean- 
 time, however, a reform act was passed supplementary to 
 the act establishing the bank. It provided that the cashier 
 of the principal bank should collect all notes as soon as 
 possible and all those not yet signed and proceed to burn 
 them in the public square at Vandalia in the presence of 
 the governor and judges of the supreme court. 80 There- 
 after when the treasurer of the state paid out a bank note 
 it was to bear the stamp "re-issued" and no interest could 
 be collected by the holder. 81 Cashiers of the branches were 
 required to forward semi-annually for retirement and 
 burning all notes repaid by borrowers except a small sum 
 for current expenses. 82 The offices of president and di- 
 rectors were abolished in the case of all the branches and 
 
 78 The following report of the examiner, taken from the Illinois 
 Intelligencer of June 17, 1825, is of interest in showing upon what a costly 
 
 enterprise the state had ventured : 
 
 Liabilities : 
 
 Original note issue $ 84,685.00 
 
 Discounts earned and loans repaid 15,547.68 
 
 $100,232.68 
 
 Assets : 
 
 Unpaid loans 
 
 renewed $ 40,321.07 
 
 bad debts 31,969.60 
 
 Expenses of branches 5,497.90 
 
 Notes returned to principal bank 19,947.00 
 
 Two per cent interest to note holders 903.61 
 
 $ 98,638.18 
 
 Upon being questioned by the examiner as to the failure of his state- 
 ment to balance the cashier explained that he would be able to show 
 auditor's warrants and bank notes to cover the deficiency. 
 
 79 Ford, History of Illinois, 65; Reynolds, My Own Times, 173. 
 
 60 Laws of Illinois, 1824-25, p. 82, Section 1. 
 
 81 Ibid., Section 2. 
 
 S2 Ibid., Section 3. 
 
38 THE DEVELOPMENT OF BANKING IN ILLINOIS [39G 
 
 only the cashier was left to collect the debts and renew 
 loans. The cashier of the principal bank was placed under 
 a fifty thousand dollar bond and the cashiers of the 
 branches under a thirty thousand dollar bond in order 
 to protect the state from further loss on account of their 
 careless bookkeeping or embezzlement of funds. S3 There- 
 after a cashier could be removed by the governor at 
 pleasure and satisfactory evidence had to be given before 
 May 1, 1825, that all five of the cashiers were not de- 
 faulters and that they had faithfully discharged the duties 
 of their respective offices. 84 To facilitate the destruction 
 of notes, auditor's warrants were made legal tender at the 
 bank which exchanged them for notes held by the state 
 treasurer. 85 Five days after the act was signed the bank's 
 officers in the presence of the governor and the supreme 
 court destroyed $75,000 worth of notes, one fourth of the 
 entire issue. 86 
 
 Governor Coles was keenly alive to the necessity of 
 improving the bank's condition and his letter book bears 
 testimony to his vigilance in enforcing the bank laws. 87 In 
 a letter to the cashier at the Shawneetown branch he states 
 that the well being of the bank demands a most rigid 
 enforcement of the letter of the law. He warns the official 
 in question that if any further violation of the law occurs, 
 "a very few days will be permitted to pass" before he will 
 exercise the authority vested in the governor by dismissing 
 the offender from office. In the examination of the 
 Shawneetown branch referred to above, the accountant 
 found that the cashier credited himself with a generous 
 fee whenever he protested a note. Governor Coles demanded 
 that reparation be made to the principal bank and that 
 all the bank notes that had accumulated during the six 
 months period be forwarded promptly to the principal 
 bank for retirement. 88 
 
 83 Laws of Illinois, 1824-25, p. 82, Section 4. 
 8 *Ibid., Section 1. 
 85 Ibid., Section 7. 
 
 ^Illinois Intelligencer, January 21, 1825. 
 
 87 Greene and Alvord, Governors' Letter Books, i, 76-82, 89. 
 
 88 Ibid., 89. 
 
397] 
 
 BANKING A STATE MONOPOLY 
 
 39 
 
 On June twenty-third after the branches had sent in 
 their notes, a second "purification by fire" 89 of the notes of 
 the bank occurred in which eleven thousand dollars worth 
 was destroyed. Within two weeks the specie value of the 
 outstanding notes increased about five cents on the 
 dollar. 90 By December twentieth when the next semi-an- 
 nual destruction of notes occurred the total amount out- 
 standing had been reduced to less than two hundred thous- 
 and dollars. 91 From this time the appreciation of the 
 notes continued with the progress of their retirement. 92 
 At the close of Governor Coles' administration a year 
 later, they were rated at seventy-five cents on the dollar. 
 
 Governor (Doles continued his unrelenting vigilance 
 over the bank up to the very close of his administration. 
 Just before the opening of the next general assembly in 
 December 1826, he sent a lengthy questionnaire to the 
 cashiers of the bank and branches with a view to obtaining 
 data for the use of the legislators, 93 but the result was a 
 great disappointment. The cashier of the principal bank 
 answered the questions in a very unsatisfactory manner. 
 The Shawneetown cashier had recently died and his admin- 
 istrator had refused to turn over the property of the 
 branch to the new appointee. The other branches fur- 
 nished sufficient information in addition to that received 
 from the principal bank to give a general idea of the condi- 
 tion of affairs. The four districts in question had loaned 
 |215,000. Of this amount, $109,615 had been repaid, while 
 the remainder might be repaid within the allotted five years 
 or might have to be abandoned as uncollectible. The 
 expenditures for operation had consumed $43,820, an ex- 
 cess of $11,000 over interest earned. 94 
 
 In his farewell message, Governor Coles gave some 
 very sound advice which the legislature would have done 
 
 89 Niles' Register, xxix, 326. 
 90 Illinois Intelligencer, June 24, 1825. 
 ^Niles* Register, xxix, 326, 369. 
 92 Chicago American, December 25, 1840. 
 93 Greene and Alvord, Governors' Letter Books, i, 107. 
 Senate Journal, 1 Sess., 1826-27, p. 22. 
 
40 
 
 THE DEVELOPMENT OF BANKING IN ILLINOIS [398 
 
 well to heed, but which, as we shall see, was soon for- 
 gotten. He urged them not to increase the already great 
 embarrassment of the state's finances by the enactment 
 of measures for the further relief of the already pampered 
 debtor. He advocated a policy of non-interference with 
 the bank, aside from providing for a simple effective system 
 for the settlement of its affairs. Finally, he pointed out 
 the fact that a speedy termination of the whole enterprise 
 was the only protection against a total loss to the state 
 from the deterioration of the bank's assets. 95 
 
 From the very beginning the state bank proved to be 
 a serious burden to the state's finances. The state's annual 
 revenue amounted to about $25,000 and was derived almost 
 wholly from the land held by non-residents in the region 
 still known as the military tract, lying north and west of 
 the Illinois Kiver. The residents of the state paid their 
 taxes to the counties every year, while the state collected 
 from the non-residents only every other year. 96 As early 
 as 1822 the state auditor had pointed out that some 
 measure should be adopted for the relief of public officers 
 who were receiving their salaries in bank paper at par 
 and paying for goods at a discount of more than fifty per 
 cent. He contended that the non-resident taxpayer met 
 but half of his real obligation to the state by paying in 
 bank notes and furthermore he escaped all the attendant 
 currency ills which a resident was compelled to suffer. 97 
 Thus it can be seen that the depreciation of state paper, 
 while it decreased the real revenue on one hand, caused 
 an increasing clamor for a greater expenditure on the 
 other. As this was a matter that concerned the members 
 of the general assembly in a personal way, prompt action 
 was taken upon the auditor's suggestion. Six weeks later, 
 an act had been passed and approved appropriating nine 
 dollars a day each to the speakers of the two houses in 
 place of the usual per diem of five dollars. 98 Each senator 
 
 95 Senate Journal, i Sess., 1826-27, p. 22. 
 
 96 Ford, History of Illinois, 47. This was regarded as a great injustice 
 to the residents of the state. 
 
 97 Laws of Illinois, 1822-23, p. 227. 
 9 *Ibid., 164, Section 2. 
 
399] 
 
 BANKING A STATE MONOPOLY 
 
 41 
 
 and representative was required to write on a slip of paper 
 the sum lie was willing to accept provided it did not exceed 
 seven dollars per day. The previous compensation had 
 been three dollars and a half. As for other state officers, 
 the auditor was instructed to allow them fifty per cent 
 more than the constitution specified." 
 
 Since the available fund of bank notes in the treasury 
 was not sufficient to meet more than half of the state's 
 current obligations the auditor was authorized to issue 
 his warrant bearing six per cent interest for the rest. 100 
 The notes and warrants circulated side by side, both de- 
 preciating until in 1825 the legislature was compelled to 
 make further provision for public officers. Accordingly 
 the appropriation bill of 1825 provided that a committee 
 consisting of the treasurer, the secretary of state and the 
 cashier of the principal bank should determine at the be- 
 ginning of each month the rate at which the treasurer 
 should pay out warrants and notes during the ensuing 
 month. For the time being the auditor was instructed 
 to rate the notes of the bank at three dollars for one in 
 specie. 101 In other words, the state was borrowing money 
 at the rate of two hundred per cent interest. The result / 
 was that the ordinary expenses of about $30,000 were in- 
 creased threefold without any increase in income. 102 The 
 gap that was made by the destruction of bank notes was 
 soon more than filled by warrants. In a way it would 
 have been better to have retained the notes, for they cir- 
 culated more freely and their expense to the state was 
 less. Furthermore, the issue of $107,000 in warrants in 
 a single year served to keep down the value of the notes. 
 The warrants as well as the bank notes were eagerly seized 
 upon by non-residents and speculators for the purpose of 
 paying their state taxes. 103 Notwithstanding this handi- 
 
 ™Lazvs of Illinois, 1822-23, 166, Section 6. 
 
 100 Ibid., Section 7. 
 
 101 Laws of Illinois, 1824-25, p. 182. 
 
 102 Ford, History of Illinois, 48 ; Edwards, Life and Times of Edwards, 
 
 203. 
 
 103 Ibid., 213-15. 
 
42 THE DEVELOPMENT OF BANKING IN ILLINOIS [400 
 
 cap, however, the attendant increase in the value of the 
 bank's paper following the retirement of the $100,000 
 indicated that the destruction of the notes had engendered 
 a feeling of confidence in the state's integrity. The legis- 
 lature demonstrated its optimism by the passage of an act 
 which provided that the rate at which state paper should 
 be paid out after February 17, 1827, was to be determined 
 by the same committee that had been performing this 
 service, but that they should hold only quarterly meetings. 
 They were instructed to continue this duty until March, 
 1830. At each meeting they were to decrease the treasury 
 discount on the notes by at least two and one-half per 
 cent. At this rate, by March, 1830, the notes would be paid 
 out of the treasury on a par with gold. 104 
 
 The Illinois courts had been given to an arbitrary 
 scaling down of the debts of individuals against whom 
 the bank had obtained judgment. This practice was 
 ordered discontinued. Thereafter, in cases where judg- 
 ment was rendered, the defendant could elect to pay 
 specie or bank notes. If he chose the former his debt was 
 reduced to the actual specie value of state bank notes; 
 otherwise he must pay the whole amount of the face of the 
 judgment. The same option was granted to persons who 
 purchased property sold by the bank to satisfy a judg- 
 ment. 105 
 
 The resignation of Senator Edwards to accept the 
 position of minister to Mexico had left a vacancy for 
 the next legislature to fill, but before it assembled Edwards 
 had resigned his post and engaged in the controversy de- 
 scribed in connection with the Bank of Edwardsville. 
 Upon the convening of the general assembly he announced 
 his candidacy for his former seat in the United States 
 senate. But his hostility to banks had aroused the opposi- 
 tion of a number of influential men in addition to his old 
 political enemies and he was defeated. Shortly after- 
 wards he announced his candidacy for governor on an 
 anti-bank platform. With a comparatively unknown 
 
 104 Lazvs of Illinois, 1826-27, p. 82. 
 105 Revised Code, 1829, p. 164. 
 
401] 
 
 BANKING A STATE MONOPOLY 
 
 43 
 
 opponent and a long record of public service Edwards had 
 the advantage from the start. He traversed the state from 
 end to end, attacking the bank and everyone connected 
 with it. He accused its officers of mismanaging its affairs 
 and of employing methods of business that were a menace 
 to the public welfare. The record of the legislature in the 
 field of bank legislation was subjected to a storm of criti- 
 cism and baleful consequences of the whole undertaking 
 were pictured to his audiences of backwoodsmen. Edwards 
 was elected by a plurality of five hundred votes, but the 
 legislature continued to be dominated by his enemies. 106 
 
 In his inaugural address 107 to the legislature Governor 
 Edwards gave a lengthy review of the history of the state 
 bank and the effect of its paper upon the community. But 
 he considered the note issue itself of minor importance as 
 a cause of the deplorable conditions that prevailed. It 
 was his belief that the constant interference by the legis- 
 lature between debtor and creditor, as well as the lavish 
 increases in salary voted in the face of an empty treasury 
 were responsible for most of the difficulty. He admitted, 
 however, that the existing state of affairs was not entirely 
 due to unwise legislation, and recognized the natural 
 scarcity of sound currency in pioneer communities and 
 the heavy purchase of public land as contributory causes. 
 On the whole, the address gives an adequate and fairly 
 accurate picture of the conditions that confronted the 
 new administration. But Edwards was not content to 
 stop at this point. He proceeded to berate the officers 
 of the bank for "gross fraud and imposition, aggravated 
 by the clearest moral perjury." He considered past in- 
 vestigations as generous applications of white wash and 
 urged the legislature to exercise its right of impeachment 
 and trial of the delinquent officers. 
 
 The more or less general charges contained in the 
 governor's message were followed by specific indictments 
 contained in several special messages. The purport of 
 
 i° 6 Ford, History of Illinois, 64; Edwards, Life and Times of Edwards, 
 209-12. 
 
 107 Senate Journal, 1826-27, pp. 46 ff. 
 
44 THE DEVELOPMENT OF BANKING IN ILLINOIS [402 
 
 these messages was that the late president, directors and 
 cashier of the branch bank at Edwardsville had been 
 guilty of a violation of the state bank act of 1821. William 
 Kinney, a prominent political opponent of Edwards, was 
 accused of mismanaging the affairs of this branch while 
 on the board of directors. The principal charge against 
 him was that he was involved in the loan of $2000 made 
 upon a piece of real estate which upon execution was 
 J valued at $737 and disposed of for $500. It will be remem- 
 bered that the law of 1821 provided that no loan on real 
 estate should be made unless the property was worth 
 double the amount of the loan. The loan, according to 
 Edwards, was made for the purpose of buying a printing 
 press with which to conduct the fight for the adoption of a 
 pro-slavery amendment to the state constitution. 108 
 
 Other charges were brought by Edwards against 
 Judge Smith, the cashier of the branch. Smith was ac- 
 cused by the governor of having violated every provision 
 of the bank's charter dealing with the lending of the notes, 
 and of showing the grossest partiality and carelessness 
 in handling the payment of loans. Judge Smith was a 
 politician of considerable ability and succeeded in uniting 
 the opponents of Edwards so effectively that the committee 
 appointed to investigate the charges were favorable to 
 the accused officials from the start. The evidence shows 
 that the branch had been run in a very reckless manner, 
 , to say the least. Its officers had so many political alliances 
 that they were forced to show partiality in their handling 
 of the bank's business. After the committee had made a 
 lengthy examination of witnesses and papers and reported 
 favorably to the accused, the House resolved that no 
 evidence had been presented against the accused officials 
 which would "justify the belief that they acted corruptly 
 and with bad faith in the management of said bank." 109 
 
 During the same session the governor attacked the 
 cashier of the principal bank in a message which contained 
 nine specific instances of violation of the state law. In 
 
 108 House Journal, 1826-27, pp. 409-11, 418, 459-61, 504 ff. 
 109 Ibid., p. 595- 
 
403] 
 
 BANKING A STATE MONOPOLY 
 
 45 
 
 this message, lie made the further charge against Judge 
 Smith that he still had in his possession unlawfully a 
 large part of the bank's cash. These charges were like- 
 wise referred to a committee which took action similar to 
 that in the Edwardsville case. 110 In the meantime, a joint 
 committee appointed to examine the state bank, count 
 its money and find out if the "retirement clause'' was be- 
 ing fulfilled reported that the affairs of the bank were 
 being "properly and correctly managed." 111 
 
 Edwards afterwards retracted some of the statements 
 he had made about prominent bank officials, but continued 
 his hostility to banks during the rest of his term. 1 12 
 
 His letter book during this period is largely filled with 
 demands for information as to illegal acts done accompa- 
 nied by threats of removal from oflice. These letters were 
 regarded as the attacks of a personal enemy rather than 
 the official acts of a chief executive. 1 13 Edwards was 
 especially anxious to obtain any information that could 
 be used against his enemies in the legislature and in one 
 letter requests the auditor to prepare for him a list of the 
 members of the general assembly who have failed to meet 
 their debts to the bank together with the respective 
 amounts. 1 14 
 
 Notwithstanding the hostility of the legislature to the 
 Edwards policies and the relationship that existed between 
 its members and the bank, some progress was made toward 
 protecting the state's interests in the settlement of the 
 bank's affairs. The salaries of the cashiers of the principal 
 bank and branches were reduced to five hundred and four 
 -hundred state paper dollars respectively. Thereafter the 
 questionable practice on the part of bank officers of ap- 
 propriating large sums for current expenses was forbidden. 
 For all such expenditures a specific appropriation from the 
 legislature was now required. 115 The president of the 
 
 110 House Journal, 1826-27, 415, 416. 
 111 Senate Journal, 1826-7, 242-3. 
 112 Knox, History of Banking, 718. 
 
 113 Greene and Alvord, Governors' Letter Books, i, 116-24, 133. 
 ^Ibid., 120. 
 
 ll7 >Laws of Illinois, 1826-27, p. 377, Sections I, 2. 
 
46 THE DEVELOPMENT OF BANKING IN ILLINOIS [404 
 
 state bank was no longer to receive compensation for 
 bis services. 116 Tbe casbier was ordered to place all out- 
 standing promissory notes of less tban one hundred dollars 
 in tbe hands of a justice of tbe peace. 117 The small amount 
 of individual deposits was to be returned to the depositors 
 and thereafter none but state and school funds were to be 
 received. In order to protect the state's interest the 
 cashier of the principal bank was empowered to bid in 
 property sold by the bank for judgment if the other bids 
 were too low. 118 
 
 On the other hand the appreciation of the state paper 
 to sixty or seventy cents led to a demand for further relief 
 to bank debtors. In spite of the fact that unreasonable 
 leniency had already been shown to this class and that any 
 further indulgence would delay the linal settlement of the 
 bank's business and thus place a greater burden upon the 
 already embarrassed state treasury, a law for the relief 
 of debtors was passed. It provided that any debtor to the 
 J bank who was in default of payment, even if judgment 
 had already been rendered, should be forgiven for his 
 past delinquency and allowed to renew his note or mort- 
 gage. However, he must agree to pay the back instalments 
 and interest and any court costs that may have been in- 
 curred. 119 All courts were forbidden to issue executions 
 against bank debtors for three months after the passage 
 of the act. 120 In case the proceedings against a bank 
 debtor had gone so far that the sheriff was about to seize 
 the property of the debtor upon an execution, the debtor 
 could by arranging with the bank for the renewal of the 
 obligation, compel the sheriff to return the writ, marked : 
 "Satisfied by the renewal of the debt to the bank by the 
 defendant." 121 It was natural that such a trifling policy 
 on the part of the state should lead to an attitude of con- 
 
 ll6 Laws of Illinois, 1826-27, p. 377, Section 3. 
 117 Ibid., Section 4. 
 118 Ibid., Section 5. 
 il9 Ibid., Section 1. 
 
 12Q Lazvs of Illinois, 1826-27, p. 376, Section 2. 
 * 21 Ibid., Section 3. 
 
405] 
 
 BANKING A STATE MONOPOLY 
 
 47 
 
 tempt on the part of the debtor. Accordingly, in spite of 
 a most earnest protest on the part of Governor Edwards, 122 
 additional inducements were demanded and granted on 
 the ground that former measures had not been effective. 
 ,This time provision was made for the remission of all 
 interest if a debtor would sign, by September 1, 1829, 
 three new notes by which he agreed to pay his obligation 
 to the bank in three annual instalments, on the first of 
 May, 1830, 1831, and 1832, respectively. If instead of 
 signing the notes he chose to settle in full by September 1, 
 1829, he was to receive a discount of ten per cent and was 
 absolved from all interest. If he paid by July 1, 1830, 
 his interest was deducted but no further rebate was 
 given. 123 The act also provided that as a step toward the 
 final settlement of the bank's business the office of cashier 
 of the principal bank be abolished and the state treasurer 
 made ex officio cashier. The work of collection was turned 
 over to the attorney general and the various states at- 
 torneys who received two and a half per cent on all col- 
 lections made. 124 
 
 When the first of September arrived and it was seen 
 that the bank debtors were not taking advantage of the in- 
 dulgence granted them, Governor Edwards issued a procla- 
 mation announcing his intention to show no further mercy 
 in his prosecution of the state's claims. 125 
 
 The same year (1829) Governor Edwards became in- 
 volved in another controversy with the treasury depart- 
 ment at Washington. The state was entitled to draw as a 
 school fund from the federal treasury three per cent of 
 the proceeds from the sale of public land in Illinois. The 
 secretary of the treasury became convinced that this money 
 was not being put to its intended use and ordered the an- 
 nual payment for 1829 to be withheld. Governor Edwards 
 was a strong believer in state's rights and resented any 
 interference on the part of a federal officer. Consequently 
 
 122 Governor's message, 1828. 
 
 12 *Laws of Illinois, 1828-29, pp.* 167-69. 
 
 12 *Ibid. 
 
 125 Greene and Alvord, Governors' Letter Books, i, 148, 149. 
 
48 
 
 THE DEVELOPMENT OF BANKING IN ILLINOIS [406 
 
 be demanded the immediate payment of the money; hut 
 it was withheld until the secretary's protest was heeded. 
 The whole difficulty arose over the validity of the practice 
 of the school fund commissioners in investing the funds 
 in state bank notes. These notes were then exchanged at 
 the auditor's office for certificates of indebtedness and the 
 state thereby came into possession of more currency with 
 which to meet its heavy obligations. Edwards justified 
 this diversion of the school money from its proper chan- 
 nels with the assertion that as soon as the state could ar- 
 range its disordered finances it would deal liberally with 
 its common schools. 126 
 
 The year 1830 witnessed another struggle for the 
 governorship, with the bank as the leading issue. Lieuten- 
 ant-Governor Kinney, who it will be remembered had been 
 under suspicion during the investigation of the Edwards- 
 ville branch, was a candidate against John Reynolds, 
 formerly a judge of the supreme court of Illinois. It was 
 but natural that the whole Edwardsville scandal should 
 be unearthed and freely aired during the campaign. Kin- 
 ney took the position that he should be rewarded for the 
 years of labor and sacrifice spent in trying "to bolster 
 up the state bank." He stated that over twenty thousand 
 dollars in specie was due him at the time the bank opened. 
 He accepted bank notes at par as a matter of patriotic 
 duty to the state and subsequently paid most of them out 
 at thirty to. thirty-five cents on the dollar. He cited the 
 favorable showing of the Edwardsville branch as well as 
 his exoneration by the legislature as the best evidence of 
 his ability and honesty in an office of trust. 127 
 
 The opponents of the bank had an able candidate in 
 Judge Eeynolds. In his speeches during the campaign 
 he insisted that he had always opposed the bank, that he 
 voted against its establishment, and that the people would 
 have to bear a heavy burden of taxation on account of the 
 sins of bank officials, like his opponent. The friends of 
 
 126 Edwards, Life and Times of Edwards, 548, 549; Illinois Intelli- 
 gencer, February 5, 183 1. 
 
 127 Illinois Intelligencer, April io, 1830. 
 
407] 
 
 BANKING A STATE MONOPOLY 
 
 49 
 
 the bank, on the other hand, pointed out that Judge Rey- 
 nolds was a borrower from the bank and as a member of 
 the legislature could always be counted upon to support 
 the various relief measures with which his party appealed 
 to the bank debtors for support at the polls. In spite of 
 these accusations, however, Judge Reynolds was elected. 
 
 Upon the legislature which met in December, 1830, 
 there devolved the difficult task of providing for the 
 liquidation of the state bank, whose charter was to expire 
 during the next year. The legislature of 1821 had pledged 
 all of the state's resources present and future to the re- 
 demption of the bank's notes, with the expectation that 
 the profits of the business would be more than ample to 
 provide for a final settlement of all liabilities. But the 
 nearer the day of reckoning approached, the less able was 
 the state to meet its obligations. The bank's resources 
 had been allowed to dwindle away ; while the condition of 
 the state's finances was daily becoming more precarious. 
 
 In his report of January 1, 1831, the state treasurer 
 stated that the amount still due the bank was $98,639.52. 
 Of the three hundred thousand dollars issued in 1821, $147,- 
 742 had been redeemed (mostly by a balancing of debits 
 against credits) and destroyed. There remained, there- 
 fore, $152,258 which the state must be prepared to redeem 
 before July 1. To meet this obligation there was to the 
 bank's credit $14,899.96 in cash, while the state had to its 
 credit about $20,000 more. The buildings of the bank 
 and branches were estimated to be worth $5,800.42. The 
 accrual of the state's ordinary revenue and the collection 
 of some of the bank's debts would help swell the total 
 available resources. 128 At the same time, however, a large 
 amount of auditor's warrants was outstanding and the 
 ordinary expenses of the state government had to be met. 
 
 In his inaugural message 129 Governor Reynolds advo- 
 cated the winding up of the bank's business as rapidly as 
 consideration for the welfare of the state and the debtors 
 would permit. He urged the legislature to uphold the 
 
 12S Senate Journal, 1830-31, pp. 181-83. 
 129 House Journal, 1830-31, p. 63. 
 
50 
 
 THE DEVELOPMENT OF BANKING IN ILLINOIS [408 
 
 credit and character of the state by providing for the 
 prompt payment of its obligations. It required courage 
 and a high sense of public duty to disregard the wide- 
 spread sentiment in favor of repudiation. 1 30 Nevertheless 
 a bill was passed by both houses authorizing the governor 
 to borrow a hundred thousand dollars at six per cent for 
 the purpose of aiding in the redemption of bank paper 
 and auditor's warrants, and replacing the money wrong- 
 fully taken from the school funds. The loan was to be 
 payable after 1850 in specie or notes of the United States 
 Bank. 131 Governor Reynolds promptly entered into a 
 I contract with Samuel Wiggins of Cincinnati for the loan 
 of the entire amount but the state treasurer was not per- 
 mitted to draw upon Mr. Wiggins for more than thirty 
 thousand dollars before October 1. Governor Reynolds 
 very wisely based his calls for the various payments upon 
 accurate data as to the immediate needs of the treasury 
 and in this way reduced the interest payments to the 
 smallest possible amount. 132 The following account taken 
 from Governor Ford's History of Illinois gives a vivid 
 picture of the effect of the loan upon the people : 
 
 "The money was obtained, and the notes of the 
 bank redeemed, the honor of the state was saved but the 
 legislature was damned for all time to come. The mem- 
 bers who voted for the law were struck with consternation 
 and fear at the first sign of public indignation. Instead 
 of boldly defending their act and denouncing the unprinci- 
 pled demagogues who were inflaming the minds of the 
 people these members when they returned to their con- 
 stituents went meanly sneaking about like guilty things 
 making the most humble excuses and apologies. A bolder 
 course of enlightening the public mind might have pre- 
 served the standing of the legislature and wrought a whole- 
 some revolution in public opinion then much needed. But 
 as it was the destruction of great men was noticeable for a 
 number of years. The Wiggins loan was long a bye word 
 
 130 Ford, History of Illinois, 106. 
 131 Laws of Illinois, 130-31. 
 
 132 Greene and Alvord, Governors' Letter Books, i, 162. 
 
409] 
 
 BANKING A STATE MONOPOLY 
 
 51 
 
 in the mouths of the people. Many affected to believe 
 that Wiggins had purchased the whole state, that the 
 inhabitants for generations to come had been made over 
 to him like cattle; and but few found favor in their sight 
 who had anything to do with the loan." 133 
 
 Several other laws relating to the bank were passed 
 at the same session. One of them created a commission 
 for the purpose of counting and destroying bank notes. It 
 was to meet every three months to burn all the notes re- 
 deemed during that time, until all the original issue had 
 been destroyed. The membership of the commission con- 
 sisted of the governor, the secretary of state and the state 
 treasurer. 134 
 
 An act for the further relief of bank debtors provided 
 that all who had not availed themselves of the relief act 
 of 1829 should be permitted to substitute for their regular 
 interest bearing obligation a non-interest, bearing note 
 payable on or before May 1, 1832. If this note was paid 
 before December 1, 1831, a six per cent rebate was to be 
 deducted from the principal. In order to dispense with 
 the regular machinery of the bank as soon as possible, it 
 was provided that after July, 1832, the work of collecting 
 notes and mortgages due the branches should be assigned 
 to the attorney general and the states attorneys. All 
 bank property was to be turned over to the state treasurer 
 as had been done in the case of the principal bank. Each 
 branch cashier was allowed two hundred and fifty dollars 
 for his services in closing up his work, his office to expire 
 on the first Monday in December 1832. After that date all 
 bank property was to be sold by the attorney general and 
 the states attorneys. 135 
 
 Even with the instalments of the Wiggins loan be- 
 coming available at frequent intervals there was danger 
 of a shortage of specie for the redemption of notes. Ac- 
 cordingly it was provided that whenever a note was pre- 
 sented at the treasury and the money for its redemption 
 
 133 Ford, History of Illinois, 107. 
 134 Laws of Illinois, 1830-31, p. 190. 
 133 Ibid., p. 182. 
 
52 
 
 THE DEVELOPMENT OF BANKING IN ILLINOIS [410 
 
 was not available, a state bond bearing six per cent in- 
 terest should be issued, redeemable at tlie state's pleasure, 
 provided the holder received two months' notice. These 
 bonds were receivable for all dues to the state. The treas- 
 urer was instructed to devote all specie not needed for cur- 
 rent expenses to the redemption of bank notes. 136 
 
 In the meantime the president and directors of the 
 principal bank as well as the various state officers were 
 experiencing considerable difficulty in inducing James 
 M. Duncan, the late cashier of the bank, to surrender the 
 property of the bank to the state treasurer. The act of 
 January, 1829, required that he make the transfer by March 
 1 of that year, but he left Vandalia on account of ill health 
 and failed to comply with the law. On November 29 
 of that year the board of directors, having learned of his 
 delinquency, demanded that he surrender the bank's prop- 
 erty at once. He promised to do so immediately but did 
 not keep his word. In April, 1830, the circuit attorney at 
 the request of the board entered suit against Duncan and 
 his bondsmen for one hundred thousand dollars dam- 
 ages. 137 In an interview with the editor of the Illinois 
 Intelligencer, Duncan stated that he considered the law 
 abolishing his office as defective in not providing for a 
 thorough checking up of the transfer and therefore was 
 not willing to assume the responsibility. 138 The members 
 of the legislature determined upon getting possession of 
 the money and accounts of the bank without waiting for 
 the slow process of court procedure, sent a joint com- 
 mittee to Duncan's house and instructed them to bring 
 the property in question back with them. Duncan was 
 not at home and his wife declined to give it up on the 
 grounds that suits were in progress against her husband 
 and he needed the vouchers in the preparation of his 
 case. 139 Two weeks later Duncan notified a committee 
 of the senate that he would leave the books of the bank 
 
 136 Laws of Illinois, 1830-31, 181. 
 137 Senate Journal, 1830-31, pp. 172 ff. 
 138 Illinois Intelligencer, July 17, 1830. 
 139 Senate Journal, 1830-31, p. 189. 
 
411] 
 
 BANKING A STATE MONOPOLY 
 
 53 
 
 where they could get them but would not deliver them in 
 person. 140 Later at a meeting held by the committee 
 Duncan was present and a compromise was reached by 
 which the legislature was to pass a law providing for 
 three referees to examine the books and agree upon a set- 
 tlement. Accordingly the act of February 1 was passed 
 providing for this method of settling the controversy. It 
 was specified that the final settlement must be ratified by 
 the general assembly and that Duncan was to be allowed 
 no salary for services since March 1, 1829. However, 
 Duncan was compelled to agree in writing that he would 
 abide by the decision of the referees and transfer all the 
 bank's property to the state treasurer. 141 Before a settle- 
 ment was reached the legislature by a joint resolution de- 
 manded that Duncan turn over the money of the bank at 
 once, but he refused on the ground that referees had been 
 provided to settle his accounts and that he would await 
 their decision. 142 When the legislature met in December, 
 1832, the treasurer reported that the books of the princi- 
 pal bank were still in the hands of the three auditors. The 
 cashiers of the branches had been allowed from July 4 to 
 the first Monday in December to post their books and hand 
 them over to the treasurer, but only two had done so. 143 
 Such incidents as these, while unimportant in themselves, 
 are valuable for the light they throw upon the petty and 
 trifling methods that characterized the management of the 
 state bank. 
 
 With the help of the Wiggins loan the work of re- 
 deeming the outstanding notes was carried on so ex- 
 peditiously that by January 5, 1832, f 289,000 of the issue 
 of three hundred thousand had been redeemed and 
 destroyed. 144 Three years later the treasurer reported that 
 $6554.50 worth of the notes had not yet been presented. 
 Considering the comparatively large per cent of notes 
 
 140 Senate Journal, 1830-31, p. 273. 
 141 Laws of Illinois, 1830-31, pp. 178-179. 
 142 Senate Journal, 1830-31, p. 359. 
 143 Ibid., 1832-33, pp. 72, 73. 
 14 *Ibid., 1832-33, p. 240. 
 
54 
 
 THE DEVELOPMENT OF BANKING IN ILLINOIS [412 
 
 that were liable to be destroyed or mislaid, this is not a 
 surprising proportion of the whole issue. 145 
 
 The legislature, either for political reasons or on ac- 
 count of the bank's debt, passed another relief law for 
 debtors to the bank. It was provided that in case any 
 debtor settled his account with the bank before January 
 1, 1834, all of the interest and ten per cent of the principal 
 should be deducted provided the total rebate did not exceed 
 twenty-five per cent. The law further provided that if in 
 the judgment of the court the settlement of a decedent's 
 obligations with the bank would distress a widow and 
 orphans the court could declare the debt cancelled. 146 As 
 a climax to the long series of acts granting relief to debtors 
 the supreme court, the following December (1833), in 
 the case of Linn vs. State Bank to which reference has 
 already been made, decided that the act authorizing the 
 bank was unconstitutional. 
 
 The effect of this release of debtors from all obligation 
 to the bank was to increase the already great burden of the 
 state by the amount that ultimately would have been col- 
 lected from these persons. 147 Notwithstanding the effect 
 of the above decision, the legislature (1834-35) passed the 
 benefit act of February 14, 1835 in the evident hope of 
 half coercing, half coaxing the debtors to settle and ease 
 their consciences. The act provided that all persons still 
 indebted to the bank should be allowed to pay their debts 
 in three annual instalments, and that all past interest and 
 twenty-five per cent of the original principal should be 
 remitted at the time of granting the new accommodation. 
 However, if a person took advantage of this offer, all right 
 to the use of a plea of unconstitutionality was to be for- 
 feited. 148 
 
 In the preparation of his annual report 149 for 1834 
 the treasurer of the state made a thorough examination of 
 the books and papers of the bank and branches with a 
 
 ^ 5 Ibid., 1834-35, P. 295. 
 14Q Laws of Illinois, 1832-33, p. 584. 
 147 Alton Spectator, December 21, 1833. 
 li8 Laws of Illinois, 1834-35, P- 67. 
 
 149 The report of the treasurer upon which the contents of this para- 
 graph are based is found in Senate Journal, 1834-35, P' 295. 
 
413] 
 
 BANKING A STATE MONOPOLY 
 
 55 
 
 view to furnishing the legislature with a complete resume 
 of their affairs; but in every case careless bookkeeping 
 prevented his obtaining reliable data. The branch of 
 Shawneetown had been operated during the entire six 
 year term of its first cashier without any account being 
 kept against debtors, or any other reliable record of its 
 operations made. The second cashier had tried to supply 
 this deficiency but found the task a hopeless one. The 
 cashier at Brownsville had but recently been appointed to 
 the position and was unable to be of assistance to the 
 treasurer. The officers of the principal bank upon re- 
 linquishing their duties in December, 1832, had rendered an 
 account to the state but the treasurer found it to be in- 
 complete and unreliable. However an analysis of its 
 various items is of some value in so far as it reveals the 
 character of the whole undertaking and its great cost to 
 the state. The statement rendered by the bank is as 
 
 follows : 
 
 Debit 
 
 To capital $299,910.38 
 
 To balance 18,550.39 
 
 To amount of discounts received 59,059.21 
 
 $377,520.48 
 
 Credit 
 
 Amount of notes received from principal bank $183,424.99 
 
 Expenses of bank and branches 57,302.26 
 
 Notes, etc., due the bank 79,510.34 
 
 Allowed for two per cent interest 5,403.23 
 
 Discounts under act of 1829 1,380.04 
 
 Allowed for prompt payment 2,140.00 
 
 Due by late cashier 27,439.21 
 
 Real estate unsold and suspended interest 5,129.26 
 
 Loss on sale of real estate 4,689.50 
 
 Appropriations paid at Shawneetown 832.50 
 
 Profit and loss, Brownsville 3,764.96 
 
 Banking house (cost) 6,305.62 
 
 Cash received previous to December 3, 1832 138.57 
 
 $377,520.48 
 
 The first item charged to the .bank, "capital," repre- 
 sents the total issue of notes. These had been turned over 
 
56 THE DEVELOPMENT OF BANKING IN ILLINOIS [414 
 
 by the state to the bank and branches and they had loaned 
 them out at six per cent interest which amounted to 
 |59,059.21, the third item in the liability column. The re- 
 maining item, "balance," seems to have been merely a book- 
 keeping device to make the two columns balance. On 
 the asset side of the statement the bank is credited with 
 having returned to the state $183,424.99 of the total note 
 issue but the books of the state treasurer showed that only 
 $ 162,326.63 had been repaid by the bank. At the time the 
 enterprise was projected it was expected that its earnings 
 would exceed the total cost to the state and so far as 
 the current expense account of the bank is concerned, the 
 statement shows it to have been almost $2,000 less than 
 the total earnings; but Mr. Dement, the state treasurer, 
 pointed out that a large part of the discounts earned was 
 uncollectible and that the $5,403.23 allowed in interest to 
 note holders, $1,380.04 and $2,140.00 granted as rebates 
 for prompt payment of loans, should be added to the cur* 
 rent expense account. The bank had already lost $3,764.96 
 from bad debts and bad management at Brownsville and 
 $4,689.50 on real estate bid in at judgment sales under 
 its own mortgages and later sold at a sacrifice. The bank- 
 ing house at Vandalia is listed at its original cost but Mr. 
 Dement estimated that this item as well as "real estate un- 
 sold'' and "notes, etc., due" would suffer a great shrinkage. 
 In January, 1835, in fact, the book assets of the bank were 
 listed at $109,127 but on account of the death or insolvency 
 of a number of debtors as well as the decision that the bank 
 act was unconstitutional the treasurer estimated that their 
 real value was between seven and eight thousand dollars. 
 An examination of the treasurer's reports for a number 
 of years after this date shows that the estimate was not 
 far wrong. 150 At the time the above statement was made 
 ( December, 1832 ) , $27,439.21 in money and other valuables 
 was still in the hands of the late cashier, Mr. Duncan, 
 
 150 Received from bank's assets November 30, 1834, to November 30, 
 1835, $2,502.18; from November 30, 1835, to November 30, 1836, $1,053.94; 
 from July 1, 1837, to November 30, 1838, $169.00; from November 30, 1838, 
 to November 30, 1839, $385-54- 
 
415] 
 
 BANKING A STATE MONOPOLY 
 
 57 
 
 pending an examination of his accounts, but as has been 
 noted in another connection this amount was soon paid 
 into the state treasury. 
 
 From data obtained from numbers of the Illinois 
 Advocate, Vandalia, and from the report of the treasurer, 
 the writer has compiled a table showing the general condi- 
 tion of each of the four branches at the expiration of the 
 bank's charter: 151 
 
 There is no accurate record of the total loss entailed 
 by the state from the operations of the bank. Such a 
 record would include the loss of revenue from depreciated 
 currency, increased appropriations necessary in order to 
 meet the state's obligations with paper money, the loss 
 from loans which were never repaid and the interest on 
 indebtedness incurred because of the lack of dependable 
 funds in the treasury. The last named item would in- 
 clude the interest paid on auditor's warrants, fund bonds, 
 and on the Wiggins loan. 
 
 Ford estimates that the state lost more than f 150,000 
 by accepting bank notes at the treasury and that its 
 expenditures were increased }150,000 more by meeting its 
 obligations with this paper. He also estimates the amount 
 of loans never repaid at f 100,000. 15 2 The Alton Spectator 
 in 1834 estimated that because of the bank the state debt 
 up to that time had been increased by |460,000. 153 As 
 
 151 Illinois Advocate, October 14, 28, November 11, 1831, January 20, 
 1832; Treasurer's Report in Senate Journal, 1834-35, P- 295. The starred 
 items are taken from the treasurer's report. 
 
 Edwards- Browns- Pal- Shawnee- 
 
 ville ville myra town 
 
 Bank notes originally received..$83,5i6.oo $48,834.00 $47,265.00 $84,685.00 
 
 Expenses 11,501.31 9,315-88 7,588.41 21,576.31 
 
 Probable loss 10,000.00 unknown 2,924.51 unknown 
 
 Amount of loans repaid 78,064.38 unknown 36,467.18 unknown 
 
 Amount still due 21,982.07 unknown 4,410.17 44,140.85 
 
 Bank notes retired 66,253.00 26,989.94 42,563.36 44,460.57 
 
 Debts in collector's hands 20,764.19 *7,686.57 not given *35,992.98 
 
 Paid by debtor under relief act 966.82 628.00 335.25 *667.3i 
 
 152 Ford, History of Illinois, 48. 
 
 163 January 25, 1834. 
 
58 THE DEVELOPMENT OF BANKING IN ILLINOIS [416 
 
 Knox points out, estimates^ of jthe loss to the state treas- 
 ury do not afford an accurate view of the total damage 
 inflicted by the state bank. The losses to individuals, the 
 injury inflicted upon the economic activities of a pioneer 
 community and the impairment of the state's credit can- 
 not even be estimated. 154 According to a writer of the 
 period, the industry and thrift that characterized the three 
 years following the dissolution of the bank brought more 
 genuine relief to debtors "than could ten such banks." 155 
 
 154 Knox, History of Banking in the United States, 716. 
 155 W. H. Brown, in Chicago American, December 25, 1840. 
 
CHAPTER IV 
 
 BANKING AND INTERNAL IMPROVEMENTS. 
 
 With the winding up of the affairs of the old state bank 
 in 1831 came a brief period of relief so far as the existence 
 of local banks of issue was concerned. The legislature not 
 only defeated all banking projects that were presented to it 
 at its sessions in 1830-31 and 1832-33, but acts of incorpora- 
 tion of all sorts contained clauses prohibiting the exer- 
 cise of banking powers. In the senate, however, there was 
 a strong sentiment in favor of establishing a bank on a 
 specie basis ; in fact, in 1833 a project of this character was 
 lost by a single vote. 1 Failing in this effort the friends of 
 the proposed measure sought to prevail upon Governor 
 Reynolds to call the legislature in special session, but he re- 
 fused to act on the ground that conditions were not yet 
 ripe for such an institution. 2 
 
 In the gubernatorial campaign of 1834 General Dun- 
 can, the successful candidate, although a partisan of the 
 United States bank refused to make that institution a local 
 issue and thus avoided the alienation of the Jackson men. 3 
 Governor Reynolds resigned a short time before the in- 
 auguration of Governor Duncan, the office being filled for 
 the time being by Acting Lieutenant-Governor Ewing, a 
 friend of state banking. In his message to the legislature 
 which assembled in December, 1834, Mr. Ewing urged the 
 immediate establishment of a state bank "upon a solid 
 gold and silver reality." 4 The next day Governor Duncan 
 delivered his inaugural address in which he asked the leg- 
 islature to deal with the banking question with the great- 
 est caution. He granted that "banks may be made useful 
 in society" but he insisted that a system of banking which 
 would successfully meet the peculiar conditions prevailing 
 in Illinois had not yet been worked out. 5 
 
 1 Sangamo Journal, March g, 1833. 
 2 Alton American, November 22, 1833. 
 3 Short, History of Morgan County, 691. 
 ^Senate Journal, 1834-35, P- 12. 
 5 Ibid., 13. 
 
 59 
 
60 
 
 THE DEVELOPMENT OF BANKING IN ILLINOIS [418 
 
 Meanwhile the state had begun to recover from the 
 follies of the fiat paper days in spite of the fact that occa- 
 sional foreign bank notes found their way into the channels 
 of local trade. The treasury was now able to meet its obli- 
 gations with cash and the general prosperity of the com- 
 munity was equally encouraging. 6 As this situation con- 
 tinued, the need of more currency and adequate banking 
 facilities became recognized. After the burning of the 
 notes of the old state bank and the failure of so many of 
 the "paper money mills'' of the Middle West and South, 
 there was little available currency for the handling of the 
 increasing volume of trade. Aside from a few notes of the 
 Bank of the United States and still fewer United States 
 silver coins, Spanish, French and Mexican pieces consti- 
 tuted the only generally acceptable medium of exchange. 7 
 
 In addition to the scarcity of money, a number of 
 other circumstances seemed to point the legislature to 
 establishment of a second state bank. In the first place, 
 it was predicted that the closing of the United States Bank 
 would cause widespread distress unless the states took 
 immediate steps to fill the gap left by it. 8 The other states 
 were anticipating an era of great prosperity by authorizing 
 the establishment of banks of issue, and it was argued 
 that their notes would flood Illinois unless a local bank 
 were established as a measure of self-protection. 9 Lastly 
 
 6 Ford, History of Illinois, 170. 
 
 7 Lorenzo Bull, in Illinois Bankers' Association Reports, 1901, p. 20. 
 8 Sangamo Journal, November 24, 1832, September 29, 1833, and Sep- 
 tember 22, 1832. 
 
 9 Illinois Advocate, Vandalia, March 16, 1833. Sangamo Journal, Feb- 
 ruary 9, 1833. The following table taken from Dewey, Financial History 
 of the United States, 255, shows the rapid expansion of banking at this 
 
 period : 
 
 
 
 
 
 
 Number of 
 
 Capital 
 
 Circulation 
 
 Loans 
 
 Year 
 
 banks 
 
 (millions) 
 
 (millions) 
 
 (millions) 
 
 1829 
 
 329 
 
 1 10.2 
 
 48.2 
 
 137.0 
 
 1834 
 
 506 
 
 200.0 
 
 94.8 
 
 324.1 
 
 i835 
 
 704 
 
 231.2 
 
 103.7 
 
 365.2 
 
 1836 
 
 713 
 
 251.9 
 
 140.3 
 
 457-5 
 
 1837 
 
 788 
 
 290.8 
 
 149.2 
 
 525.1 
 
419] BANKING AND INTERNAL IMPROVEMENTS 
 
 61 
 
 this same wave of speculative prosperity which had gradu- 
 ally been moving westward was beginning to be felt in 
 Illinois. 10 Continued peace among the nations, together 
 with the rapid expansion of the United States, had stimu- 
 lated the sale of public lands to an enormous degree. This 
 in turn led to the formulation of elaborate systems of in- 
 ternal improvement in order that a substantial increase 
 in land values might result. 11 By 1835 the Illinois specu- 
 lator had just reached the point where he was demanding 
 the "accommodation" which could not be had without 
 access to a bank plentifully supplied with notes. 12 
 
 The Democrats in the Illinois legislature which met 
 in 1834-35 were supposedly hostile to all banks, while the 
 Whigs were committed to a federal as opposed to a state 
 bank. By a combination, however, of the Whig forces 
 with those Democrats who interpreted President Jack- 
 son's hostility to the Bank of the United States as an in- 
 dorsement of the state institutions, a bill for the creation 
 of a new state bank was passed by both houses. Ford con- 
 tends that the necessary majority of one vote in the lower 
 house was obtained by trading a states attorneyship for 
 it and that similar inducements were held out to sena- 
 tors. 13 In the council of revision Governor Duncan oppos- 
 ed the measure, but the rest of the members gave it their 
 sanction and it became a law on February 12, 1835. 14 
 
 The main provisions of the charter of the new state 
 bank were as follows : Of the authorized capital of one 
 and one-half million dollars, all but one hundred thousand 
 dollars was to be sold to individuals. The remaining 
 shares were to be issued to the State of Illinois whenever 
 the legislature saw fit to provide the money. 15 A further 
 stock issue to individuals of a million dollars might be 
 made when conditions warranted it. 16 The charter was 
 
 10 Ford, History of Illinois, 170. 
 
 11 Dewey, Financial History of United States, 224, 225. 
 
 12 Ford, History of Illinois, 170. 
 
 ™Ibid. 
 
 14 Sangamo Journal, May 13, 1842. 
 15 Laws of Illinois, 1834-35, p. 7, Section 1. 
 16 Ibid., Section 2. 
 
62 THE DEVELOPMENT OF BANKING IN ILLINOIS [420 
 
 to expire January 1, I860. 17 Until then the bank had full 
 power to discount bills and notes, receive desposits, buy 
 and sell bullion and bills of exchange and issue bank 
 notes. 18 The ownership of real estate, aside from the land 
 upon which the bank buildings might be built, was pro- 
 hibited. 19 In view of the freedom with which the bank's 
 funds were used in speculation, it is important to note 
 that the directors were specifically forbidden to deal direct- 
 ly or indirectly in the purchase or sale of any goods or 
 wares whatever. 20 The movement of population northward 
 led the legislature to locate the principal bank at Spring- 
 field instead of Vandalia, which continued, however, to be 
 the capital until 1839. In order to appease the people of 
 Vandalia, the bank was required to maintain a branch in 
 that place. 21 If subscriptions for more than the authorized 
 one million four hundred thousand dollars worth of stock 
 were received, it was provided that the excess should be 
 deducted: first, from the amounts subscribed by non- 
 residents; second, from subscriptions by corporations; 
 third, from subscriptions for more than one thousand dol- 
 lars worth of stock ; fourth, from other subscriptions. 
 
 Each subscriber was required to make a first payment 
 of ten dollars in specie, or its equivalent, for each share of 
 stock purchased. 22 The nine directors were each required 
 to own at least ten shares of stock and must be citizens of 
 Illinois. In voting, the method already described in con- 
 nection with the territorial Bank of Illinois, of giving to 
 the small stockholder more than a proportional voice, was 
 adopted. 23 The selection of officers for the bank was left 
 to its board of directors. In order to augment its avail- 
 able capital the bank was empowered to receive on deposit 
 or to borrow any sum not exceeding one million dollars 
 
 17 Laws of Illinois, 1834-35, p. 7, Section 3. 
 
 18 Ibid., Section 4. 
 
 19 Ibid., Section 5. 
 
 20 Ibid., Section 6. 
 
 21 Ibid., Section 8. 
 
 22 Ibid. } Section 10. 
 
 23 Ibid., Section II. 
 
421] BANKING AND INTERNAL IMPROVEMENTS 63 
 
 and to re-loan it at not more than ten per cent upon 
 Illinois real estate. The restriction was made, however, 
 that no loan should exceed half the value of the pledged 
 property and that no borrower should be granted a loan 
 from this fund for a longer period than five years. 24 When 
 the bank had accumulated two hundred fifty thousand 
 dollars in specie, the directors were to notify the governor 
 who in turn should send persons to count the money and 
 to receive the oaths of the bank's officers to the effect that 
 the money was the bona fide property of the bank. As 
 soon as the governor was satisfied that the bank had com- 
 plied with the terms of its charter he was to proclaim 
 through at least four Illinois newspapers that the bank 
 was ready for business. 25 The payment of the remaining 
 instalments on the bank's shares was left to the discre- 
 tion of the directors who were empowered to declare shares 
 forfeited if the owner failed to respond to a call. 28 The 
 lawful rate of interest for loans of sixty days and less 
 was fixed at six per cent. Other loans were to bear a rate 
 of eight per cent. 
 
 The legislature made an effort to safeguard the in- 
 terest of the holders of the bank's notes by providing: 
 
 (1) The outstanding issue of notes should never exceed 
 two and one-half times the amount of paid up capital; 
 
 (2) The amount of loans and discounts should never 
 exceed three times the paid up capital ; ( 3 ) Each director 
 was personally liable for the violation of these provisions 
 unless he had caused a written protest to be incorporated 
 in the minutes; 27 (4) If any note holder, within ten days 
 after making the demand, failed to receive specie to the 
 full face value of a state bank note, the bank was required 
 to go into liquidation ; ( 5 ) Furthermore, a penalty of ten 
 per cent per annum must be paid to all such note holders 
 until their notes were redeemed; 28 (6) Finally, no note of 
 
 24 Laws of Illinois, 1834-35, P- 7, Section 18. 
 25 Ibid., Section 19. 
 26 Ibid., Section 20. 
 27 Ibid., Section 24. 
 28 Ibid., Section 26. 
 
64 THE DEVELOPMENT OF BANKING IN ILLINOIS [422 
 
 a less denomination than five dollars might be issued. 29 
 The legislature is further to be commended for providing 
 that there should hot be a repetition of the disgraceful 
 relief laws which had characterized the history of the 
 old state bank. 30 
 
 The constitution of 1818, as has already been noted, 
 specified that there should be no other banks in the state 
 save a state bank and the two territorial banks which were 
 then in existence. The charters of the old territorial 
 Bank of Illinois at Shawneetown and the City and Bank 
 of Cairo corporation had never been declared void although 
 the former concern had gone out of business in 1823 
 and the latter had never accepted its charter. Conse- 
 quently it was assumed that their charters were forfeited 
 by non-use. 31 Nevertheless in their eagerness to share in 
 the coming tide of prosperity and internal development, 
 as Lyman J. Gage puts it, 32 the Bank of Cairo "was 
 galvanized into a sickly life" at Kaskaskia, and the Bank 
 of Illinois corporation was reorganized and began business 
 late in 1834. 
 
 The twenty year charter of the Bank of Illinois 33 
 would have expired on January 1, 1837, had not the legis- 
 lature by an act approved February 12, 1835, 34 extended 
 its lease of life until 1857. The old charter was amended 
 in several important respects. In the first place, the 
 owners of the territorial bank who held stock in the new 
 institution were exempted from the forfeiture of their 
 stock and all previous payments upon it, if they were 
 unable to meet the calls of the directors for instalments. 
 On the contrary, they were entitled to the payment of all 
 past instalments, less interest and dividends. Secondly, 
 the governor was required to subscribe for the one hun- 
 dred thousand dollars worth of stock reserved for the 
 
 29 Laws of Illinois, 1834-35, P- 7> Section 34. 
 30 Ibid., Section 31. 
 
 31 Greene and Thompson, Governors' Letter Books, ii, 60, 61. 
 
 32 World's Congress of Bankers and Financiers, 428. 
 
 33 This bank should not be confused with the new state bank of Illinois. 
 
 34 Laws of Illinois, 1834-35, p. 21. 
 
423] BANKING AND INTERNAL IMPROVEMENTS 
 
 65 
 
 state in the old charter. 35 This he was to sell at auction 
 at the highest premium, the profit to go to the state. 
 
 There were many more or less disinterested persons 
 who were opposed to allowing the Bank of Illinois to 
 resume business in the face of a constitutional prohibi- 
 tion of all non-state banks. 36 The question was at length 
 taken into the courts where, first, the validity of the 
 original charter was attacked on the ground that Con- 
 gress bad never given to the Territory of Illinois the 
 power to establish banks; secondly, the act of 1825 was 
 held to charter a private institution in contravention of 
 the Illinois constitution. The question was finally dis- 
 posed of by the supreme court of the state in People 
 vs. Marshall, 37 when it was decided that the legislature 
 of the territory had acted within its rights in chartering 
 banks and that the charter then granted had never passed 
 out of existence. 
 
 The books for subscriptions to the stock of the state 
 bank were opened on April 10, 1835 38 and in less than 
 three weeks the one million four hundred thousand dol- 
 lars worth of stock was several times over-subscribed, 39 
 the total applications for stock amounting to $8,007,500. 4 ° 
 In accordance with Section 10 of the charter, the sub- 
 scribers were divided into four classes, (1) non-residents, 
 (2) corporations, (3) those resident citizens who sub- 
 scribed for more than a thousand dollars worth of stock, 
 (4) other persons. Beginning with class four and pro- 
 ceeding in reverse order to the other classes the shares 
 were to be given out as long as they lasted. John Till- 
 son of Hillsboro, Thomas Mather of Kaskaskia, Godfrey, 
 Oilman and company of Alton, Judge Smith 41 of the 
 
 35 Laws of Illinois, 1816-17, p. II. 
 
 3G Greene and Thompson, Governors' Letter Books, ii, 59, 60. 
 37 1 Gilm., 672. 
 
 S8 Sangamo Journal, April 11, 1835. 
 S9 Ibid., May 2, 1835. 
 
 40 Ibid., May 23, 1835. Chicago Democrat, May 20, 1835. 
 41 One of the persons attacked by Governor Edwards for the mis- 
 management of the Edwardsville branch of the old state bank. 
 
66 THE DEVELOPMENT OF BANKING IN ILLINOIS [424 
 
 state supreme bench, and Samuel Wiggins of Cincinnati 42, 
 had contracted in the East for large amounts to be in- 
 vested in state bank stock. The charter of the bank 
 sought to avoid this very thing by giving the preference 
 to the small resident subscribers. Hence, in order to 
 be included in this favored class, these men, according 
 to Ford, empowered thousands of persons within the 
 state to act as their agents in subscribing for the stock 
 and thus secured a controlling interest. When the com- 
 missioners in charge of the subscription lists undertook 
 the work of apportionment of shares, a struggle for the 
 control of the bank was precipitated between Judge Smith 
 on the one side and the other persons just named on the 
 other. The first clash came when a commissioner moved 
 that shares bought by residents on their own account be 
 separated from those bought by them as agents for others. 
 Judge Smith favored the motion and expressed his will- 
 ingness to take oath to the effect that he owned and had 
 paid for with his own money every share of stock sub- 
 scribed for by him. Through the preponderating influence 
 of the other heavy investors, the motion was lost and the 
 bank was thereafter controlled by the Tillson, Mather, 
 Godfrey-Gilman interests. Mather was made president 
 of the bank and a directorate was chosen which even 
 Ford admits was as capable as could be found in the 
 state. 43 The bank during its entire existence continued 
 to be dominated by non-resident shareholders. 44 
 
 Having satisfied the governor that it had in its 
 vaults the requisite two hundred and fifty thousand dol- 
 
 42 The capitalist who loaned $100,000 to the state in 183 1. 
 
 43 This account of the struggle for the control of the state bank is 
 taken from Ford, History of Illinois, 174, and from the article on the state 
 bank in the Illinois Annual Register and Business Directory (Chicago, 
 1847). 
 
 44 0f the 14,000 shares of $100 each, five persons owned 7539, as fol- 
 lows : Samuel Wiggins, 1642 ; M. J. Williams, 577 ; Griggs and Company, 
 1202 ; W. S. Gilman, 2567. Four of the five lived in Cincinnati, Mr. Gilman 
 being the only resident of Illinois. Eleven others controlled 3948 shares, 
 making a total of 11,487 shares in the hands of but sixteen persons. 
 Sangamo lournal, March 5, 1836. 
 
425] BANKING AND INTERNAL IMPROVEMENTS 
 
 67 
 
 lars in specie, the principal bank was opened for business 
 in July, 1835. 45 Before the end of the year branches had 
 been established at Galena, Jacksonville, Alton, and 
 Chicago in addition to the branch located at Vandalia 
 by the legislature. 40 Galena and Alton were probably 
 chosen because of the great interest that centered in their 
 development and because, as will be seen, the leading in- 
 vestors in bank stock were heavily involved in the projects 
 that were being carried on at these points. The legis- 
 lature having by the act of January 16, 1836, authorized 
 three additional branches 47 establishments were eventu- 
 ally opened at Danville, Quincy, Belleville, and Mt. Car- 
 mel. 48 Mr. N. H. Ridgely, who had secured his training 
 as chief clerk of the branch of the United States Bank 
 at St. Louis, 49 was elected cashier of the principal bank 
 at a salary of three thousand dollars. He was allowed 
 one teller at a thousand dollars and two clerks at eight 
 hundred dollars each. In addition, President Mather 
 was voted twenty-five hundred dollars per annum for 
 his services. By the time the nine branches were put 
 into operation the list of officers had been increased to 
 thirty-five and the annual salary list to $30,600. 5 ° 
 
 Even with the widely distributed system of branches, 
 it was impossible for a person offering real estate as se- 
 curity to deal with the bank directly, hence the plan was 
 adopted of designating persons in different localities 
 as inspectors for the bank. These persons investigated, 
 at the borrower's expense, the character of the property 
 offered as security and made an examination of the 
 title. 51 In accordance with the charter, the amount 
 
 45 Illinois Advocate, July 8, 1835. 
 
 * Q Ibid., February 17, 1836; Bross, History of Chicago, 41. 
 47 Laws of Illinois, 1835-36, pp. 237, 238. 
 ^Reports of Session, 1839-40, p. 285. 
 
 49 U. S., H. of R., Comm. Reports, 1836-37, Doc. no. 193, p. 607. 
 ^Reports of Session, 1839-40, pp. 285, 286. 
 
 51 Sangamo Journal, August 15, 1835. A fee of from three to ten 
 dollars was paid. Special Report of Invest. Comm., Illinois General As- 
 sembly, 1836-37, p. 36. 
 
68 THE DEVELOPMENT OF BANKING IN ILLINOIS [426 
 
 loaned upon real estate could not exceed fifty per cent 
 of the valuation put upon it by the bank's representa- 
 tives. No loans upon town property were allowed 52 and 
 loans upon personal security were confined to the dis- 
 counting of business paper, for the reason that the bank 
 was not a government depositary, hence was constantly 
 subject to a loss of its specie on account of the heavy land 
 sales. 53 The depositary at St. Louis 54 accepted the 
 notes of the state bank as far as private business was con- 
 cerned, but when it was preparing to forward government 
 deposits it was accustomed to send local bank notes home 
 for redemption, a practice which compelled the Illinois 
 bank to curtail its loans. All discounts were passed 
 upon at the daily meeting of the exchange committee of 
 the board of directors and were then submitted to the full 
 board at its biweekly meeting. The exchange committee 
 consisted of the president, the cashier and two directors 
 chosen monthly and derived its name from the fact that 
 its original function was to pass upon the purchase of bills 
 of exchange. This branch of the bank's business received 
 special attention and encouragement for the reason that 
 bills of exchange were considered "safer" and "more man- 
 ageable" than the ordinary accommodation paper even 
 if the profits were not so large. Moreover, bills of ex- 
 change on eastern cities were readily convertible into 
 specie if an emergency demanded it, while local accom- 
 modations could be called in only with the greatest diffi- 
 culty. For this reason it was contended that eastern bills 
 purchased by the bank could be used as the basis of a still 
 larger volume of domestic loans. 55 The directors were de- 
 
 52 Special Report, Invest. Comm., Illinois General Assembly, 1836-37, 
 p. 36. 
 
 53 Sangamo lournal, March 5, 1836. 
 
 r > 4 Ibid., May 21, 1836. After the disastrous failure of the Bank of 
 Missouri, that state was left without any banking institution save the 
 branch of the United States Bank which was soon to go out of existence. 
 The legislature refused to charter any more banks, so the large federal 
 deposits were given to the St. Louis "agency" of the Commercial Bank 
 of Cincinnati. U. S., H. of R., Comm. Reports, 1836-37. No. 193, p. 598. 
 
 ^Special Report, Invest. Comm., Illinois General Assembly, 1836-37, 
 p. 40. 
 
427] 
 
 BANKING AND INTERNAL IMPROVEMENTS 
 
 69 
 
 termined to prevent a depreciation of the bank's notes 
 and yet desired to accomplish this aim with a minimum 
 payment of specie for their redemption. This policy of 
 trying to avoid both "Scylla and Charybdis" at times com- 
 pelled the adoption of some extraordinary measures. For 
 instance, while the negotiations were in progress with 
 the St. Louis depositary which led to its agreeing to accept 
 state bank paper under the conditions noted above, a 
 large amount of the Illinois notes accumulated at St. 
 Louis. Since the depositary had not yet decided to accept 
 them at par, merchants sold them to brokers at a discount 
 of two or three per cent rather than go to the trouble 
 of sending them back for redemption. This caused great 
 anxiety on the part of the state bank officials, and funds 
 to the amount of nineteen thousand five hundred dollars 
 were promptly forwarded to an agent of the state bank at 
 St. Louis with the instruction that he should buy all the 
 Illinois paper offered, at one per cent discount. He had 
 bought very little of the paper when the depositary agreed 
 to accept Illinois paper and the notes went to par. The 
 directors of the bank were then accused of making a profit 
 by speculating in their own paper, but testified before 
 a committee of the legislature that the small profit made 
 was more than offset by the expenses incurred. 56 On 
 another occasion, President Mather purchased sixteen hun- 
 dred dollars worth of the bank's paper from a New York 
 broker at a discount of one and three-fourths per cent, 
 his excuse being that it was liable to fall into the hands 
 of westward bound immigrants who would present it for 
 redemption. 57 . 
 
 The bank had, however, a most effective means of pro- 
 tecting its small supply of specie. Instead of having a 
 common form of bank note, redeemable at the parent 
 bank or any of its branches separate issues were provided 
 for each branch. Consequently, notes bearing the name 
 of one branch were sent to another and distant branch 
 
 ^Special Report, Invest. Comm., Illinois General Assembly, 1836-37,, 
 p. 40. 
 
 "Ibid. 
 
70 THE DEVELOPMENT OF BANKING IN ILLINOIS [428 
 
 to be loaned, but were redeemable only at the place named 
 on the face of the note. In this way, the whole of the 
 note issue was kept in circulation without many demands 
 being made upon the specie reserve. 5 s 
 
 On December 7, 1835, the governor convened the legis- 
 lature in special session to consider, among other things, 
 the advisability of increasing the capital stock of the 
 state bank. It will be recalled that one hundred thousand 
 dollars of the original issue was reserved for the state 
 but that the amount owned by private individuals could 
 be increased by one million dollars. The charter did not 
 specify whether the state or the bank could control this 
 additional issue of stock, hence Governor Duncan urged 
 the legislature to exercise the privilege of issuing and 
 selling these shares before the bank had a chance to act. 
 At the time the governor's call was issued, state bank 
 shares were quoted at 113 and the prospect of an addition 
 of one hundred and thirty thousand dollars in premiums 
 to the state's revenues appealed to the governor as a wise 
 stroke of policy. By the time the legislature assembled, 
 however, the stock had fallen in price, but Governor Dun- 
 can predicted that it would soon rise to 120 or even 130. 
 He therefore urged the immediate passage of an act desig- 
 nating the state as an agent to sell one million dollars 
 worth of state bank stock at not less than one hundred 
 ten dollars per share, the premium to go to the state 
 treasury. 59 
 
 The bank's friends in the legislature were too numer- 
 ous and influential to submit to such a plan, and secured 
 in its stead the passage of the act of January 16, 1836, 
 to which reference has already been made. In addition to 
 the section providing for three additional branches, the 
 act specifically reserved to the directors of the bank the 
 right to sell additional issues of stock. Furthermore, it 
 was definitely stated that the profits accruing from the 
 
 &8 Chicago American, March 12, 1836; Ford, History of Illinois, 179; 
 Special Report, Invest. Comm., Illinois General Assembly, 1836-37, p. 36. 
 59 Governor's message, Senate Journal, 1835-36, p. 9. 
 
429] BANKING AND INTERNAL IMPROVEMENTS 
 
 71 
 
 sale of shares should belong to the bank. 00 Section 25 of 
 the charter had provided that the bank should be 
 granted ten days in which to redeem its notes. The time y 
 was now extended to sixty days. 01 As a compensation to 
 the state for the privileges above granted, the bank was 
 required to relieve the state of the payment of the principal 
 and interest of the loan of one hundred thousand dollars , 
 secured from Samuel Wiggins in 1831.° 2 The bank ac- 
 cepted this condition June 9, 1836, and paid the interest 
 on the loan until 1841, when it was relieved of further 
 responsibility in the matter by surrendering one hundred 
 thousand dollars in state bonds. 03 Meanwhile the directors 
 issued for sale at public auction the additional one million 
 dollars worth of stock and made an arrangement with Mr. 
 Wiggins whereby a syndicate organized by him was to 
 purchase at 110 all the shares left unsold. When the 
 auction was over it was found that only 1335 of the shares / 
 ahad been sold, so Mr. Wiggins and his partners were com- 
 pelled to take the remaining 8665. 04 
 
 The legislature at the special session to which refer- 
 ence has just been made provided that the bills of the 
 state bank and branches should be receivable for state 
 and county taxes and in payment of the principal and in- 
 terest of the debts due the college, school and seminary 
 funds. A proviso was made, however, that the state bank 
 was not to construe the act as preventing the state from 
 conferring a like favor upon the bills of the other Illinois 
 banks. In spite of the auspicious beginning made by the 
 state bank, the legislature had learned that it was best 
 to be forearmed when dealing with paper money. Accord- 
 ingly the proviso was inserted in the bill that if the gov- 
 ernor, auditor and treasurer should decide that the state 
 was likely to suffer any loss by accepting state bank notes, 
 they should at once cause a notice to be inserted in every 
 
 60 Laws of Illinois, 1835-36, p. 237, Section 1. 
 
 61 Ibid., Section 3. 
 
 92 Ibid., 238, Section 4. 
 
 Q3 Re ports of Session (H. R.), 185 1, p. 485. 
 
 ^Reports of Session {Senate), 1840-41, p. 336. 
 
72 THE DEVELOPMENT OF BANKING IN ILLINOIS [430 
 
 newspaper of the state to the effect that these notes were 
 no longer receivable in payment of public dues. 65 
 
 It will be recalled that one of the influences which 
 aided in securing the passage of the bank bill was the 
 prospect of securing a share of the federal deposits. The 
 very day 66 on which the charter of the bank was approved, 
 Mr. Mather took the matter up with the Washington gov- 
 ernment through Senator Kane. 67 A few weeks later 
 Theophilus W. Smith, who had not yet crossed swords 
 with his opponents for the control of the bank, urged 
 Secretary of the Treasury Woodbury to take favorable 
 action at once in order to facilitate the sale of the stock. 68 
 To these letters as well as similar communications from 
 other Illinois bank promoters, Secretary Woodbury made 
 the same reply, that he did not feel justified in making a 
 depositary of a bank which as yet existed only on paper. 69 
 As soon as the bank was ready for business, a formal ap- 
 plication was made but Mr. Woodbury pleaded as an 
 excuse for delay a lack of definite information as to the 
 ownership and financial standing of the bank. A list of 
 the stock holders was promptly forwarded to him, together 
 with statements as to the bank's standing at various in- 
 tervals. Mr. Woodbury next sought to discourage the 
 directors by indicating to them the little need there was 
 for a disbursing agency in a thinly populated community. 
 He warned them that the large revenues collected in the 
 state from the sale of public lands would have to be trans- 
 ferred at once to other parts of the country, leaving but 
 a very small permanent balance with the state deposi- 
 tary. 70 President Mather, however, promptly expressed 
 
 65 Laws of Illinois, 1835-36, p. 244. 
 66 February 12, 1835. 
 
 67 Page 599 of the proceedings of the special committee appointed by 
 the national house of representatives to investigate the relations which 
 existed between R. M. Whitney, special examiner of depositary banks, and 
 R. M. Whitney and Company, Washington, representatives of a number 
 of depositaries. 
 
 68 U. S., H. of R., Special Comm. Report, 597. 
 
 ™Ibid. 
 
 ™Ibid., 604. 
 
431] BANKING AND INTERNAL IMPROVEMENTS 73 
 
 the willingness of the directors to be content with what- 
 ever funds the government saw fit to allot to them. 71 In 
 the meantime Judge Smith, defeated in his attempt to con- 
 trol the bank, carried the fight to Washington. With his 
 letter to Mr. Woodbury, attacking the men in control of 
 the bank, he inclosed a copy of the proceedings of the com- 
 mission which allotted the shares of stock. Having but a 
 few months before besought Mr. Woodbury to make the 
 bank a depositary, Mr. Smith now felt it his special duty 
 to apprize the treasury department of the great danger of 
 entrusting the present regime of unscrupulous politicians 
 with government funds. 72 
 
 It is well to note here that the bank was under the 
 control of Whigs and that Mr. Smith and other political 
 opponents used this fact against it with the Jackson ad- 
 ministration. In like manner, William Kinney in a letter 
 to Mr. Woodbury characterized the state bank as an "insti- 
 tution chartered by the influence of a designing man 
 
 for the sole purpose of speculation both in pecuniary 
 and political matters." He predicted that if this Whig 
 institution were entrusted with federal deposits it would 
 be so ungrateful as to turn against the Van Buren cause 
 and "throw sand in the eyes of the present administration 
 and its true advocates.' 773 A similar communication was 
 received by Mr. Woodbury from Samuel McRoberts, a re- 
 ceiver of public money. He warned the administration 
 "that the president and nearly all of the directors of the 
 principal bank, all the cashiers of the branches, and an 
 immense majority of the branch directors have been most 
 decided opposition men to General Jackson, to his meas- 
 ures, to his friends and supporters." He hoped that so 
 long as the bank continued in the hands of the "federal 
 party" it might not receive the patronage of the govern- 
 ment. 74 One cannot get the least inkling from Mr. Wood- 
 bury's replies to these men or from any of his utterances 
 
 71 U. S., H. of R., Special Comm. Report, 604. 
 
 "Ibid., 605 ff. 
 
 "Ibid. 
 
 74 U. S., H. of R., Special Comm. Report, 612. 
 
74 THE DEVELOPMENT OF BANKING IN ILLINOIS [432 
 
 in connection with the whole affair that he was swayed 
 by political considerations but without giving a formal 
 decision against the state bank, he early developed an un- 
 favorable attitude toward its case. 75 
 
 As the heavy drain upon the bank's specie continued 
 with the increased land entries, the directors decided to 
 adopt more summary measures in order to secure the 
 government deposits. Accordingly they sent one of their 
 number, Mr. John Tillson, to Washington to wait upon 
 the treasury officials. When he reached New York, en 
 route, Mr. Tillson sought to pave the way by writing to 
 Keuben M. Whitney, special examiner of depositaries, 
 asking him to use his influence with his chief, Mr. Wood- 
 bury. He promised that if all went well, Mr. Whitney's 
 firm would be employed as the Washington representatives 
 of the Illinois state bank at whatever salary it was cus- 
 tomary for a western bank to pay for such a service. 76 
 In reply, Mr. Whitney stated very frankly that the depart- 
 ment was unfavorably disposed toward the bank and an- 
 nounced his intention of doing all in his power to prevent 
 the selection of such an institution as a federal depositary 
 even if such action involved the loss of a substantial fee. 
 Unlike his superior officer, Mr. Whitney did not hesitate 
 to bring political considerations into the matter by de- 
 claring that an institution which had openly worked for 
 the election of its friends to represent the Springfield dis- 
 trict in the legislature was unfit to handle government 
 funds. Notwithstanding this rebuff, Mr. Tillson proceeded 
 to Washington and presented his case to the treasury 
 officials. 77 
 
 In a letter of December 8, 1835, addressed to Presi- 
 dent Mather, Mr. Woodbury furnished the officers of the 
 bank a definite list of charges that had been made against 
 it. 78 The first of these was that the stock had been allotted 
 illegally. The second, that the bank was merely posing 
 
 7 ~>U. S., H. of R., Special Comm. Report, 612, 613. 
 7Q Ibid., 102. 
 77 Ibid., 102. 
 ™Ibid. } 613. 
 
433] BANKING AND INTERNAL IMPROVEMENTS 
 
 75 
 
 as a state bank in order to exist in contravention of the 
 state constitution. The third, that the notes issued at 
 one branch were put into circulation at some other dis- 
 tant branch which refused to redeem them. 79 To these 
 charges, Mr. Woodbury added the personal objection that 
 the branches at Galena and Chicago, the only places where 
 the bank could be of much service to the government, had 
 not been placed in operation. He inclosed a blank bond 
 and application sheet, however, and asked that they be 
 returned, filled out, together with the bank's answers 
 to the charges. Mr. Mather's reply 80 to the charges is a 
 crude attempt at evasion and subterfuge. He stated that 
 "the distribution of the stock was in conformity with the 
 provisions of the charter — the whole of it being assigned 
 to citizens of the state in the manner defined by the char- 
 ter." He admitted that the state did not own a dollar's 
 worth of stock in the bank but considered that it still 
 had "an interest" in the bank so long as the bank was re- 
 quired to pay an annual tax into the state treasury. He 
 failed to see how any person could consider a charter un- 
 constitutional which had received the unanimous approval 
 of the supreme judges sitting as members of the council 
 of revision. The reply of Mr. Mather to the charge that 
 the branches were refusing to redeem one another's notes 
 is somewhat vague. He admitted that separate sets of 
 notes were ordered for each branch and that these had 
 just been received from the printer, but he did not promise 
 that the notes of one branch would be redeemed by an- 
 other. He explained further that until they had received 
 their separate issues the branches had been issuing the 
 notes of the parent bank. As to whether the branches 
 ever refused to redeem this temporary issue, Mr. Mather 
 replied vaguely: "Of course, the bank could not have 
 refused to redeem its notes, as stated. I will add, that all 
 the present paper issued at Alton has been promptly re- 
 
 79 The Alton branch is mentioned in particular. Mr. Woodbury ob- 
 tained this information from T. W. Smith's letter of November first. 
 Ibid., 614. 
 
 ™Ibid., 615. 
 
76 THE DEVELOPMENT OF BANKING IN ILLINOIS [434 
 
 deemed there whenever presented." In closing, Mr. Mather 
 assured Mr. Woodbury that the Galena and Chicago 
 branches were now in a position to take care of govern- 
 ment deposits. A few weeks later, Mr. Woodbury sub- 
 mitted the question of the constitutionality of the bank 
 to Attorney General Butler and was given the opinion 
 that it was not a state institution and therefore its whole 
 existence was in defiance of the Illinois constitution. 81 
 
 The directors of the bank, realizing the futility of 
 further effort, formally requested Mr. W T oodbury to "sus- 
 pend" the application of the bank until he received further 
 notice. 82 The statement of Mr. Whitney in his letter to 
 Mr. Tillson that the bank was meddling in Illinois politics 
 aroused the anger of the Illinois Whigs. As a result the 
 state senate in January, 1836, appointed a committee of 
 five to take evidence, first, as to whether the control of 
 the public money had not been put to an improper use by 
 the Jackson administration in trying to force local banks 
 to support Van Buren ; second, as to whether Mr. Whitney, 
 who was "now stationed near the treasury," was not hold- 
 ing an improper correspondence with the state bank offi- 
 cials. 83 The committee examined the correspondence of 
 the bank and summoned Colonel Mather, Judge Smith, 
 Samuel Wiggins and others to testify, but aside from mak- 
 ing "political capital" nothing came of the investiga- 
 tion. 84 In August, 1836, the Shawneetown bank was 
 made a special depositary for the public money collected 
 at the Shawneetown land office 85 and for a time had the 
 use of considerable sums of money, but as the govern- 
 ment land sales diminished this amount on deposit 
 decreased until after 1836 a nominal deposit of only forty 
 
 81 Sangamo Journal, May 13, 1842. In connection with the question 
 of constitutionality, it is interesting to note that Judge Smith, who drew 
 up the charter and fought for its passage, was in hearty accord with the 
 attorney general's opinion. Ford, History of IHinois, 179. 
 
 82 U. S., H. of R., Special Comm. Report, 619. 
 
 83 Senate Journal, 1835-36, p. 259. 
 
 ^Missouri Republican, January 19, 1836. 
 
 6 *Sangamo Journal, August 27, 1836. 
 
435]- BANKING AND INTERNAL IMPROVEMENTS 
 
 77 
 
 dollars was kept in the bank, probably as a sort of "retain- 
 ing fee." 86 
 
 By midsummer, 1836, the country-wide wave of specu- 
 lation in land and town lots had reached Illinois. Under 
 its influence Chicago grew like magic from a mere settle- 
 ment to a city of several thousand inhabitants and became 
 the center of the real estate business of the adjoining 
 states and territories. It was in Chicago that town 
 site speculators exhibited their plats and auctioned off 
 their lots. Her fame spread rapidly through the East 
 and started a stream of immigration by way of the Erie 
 Canal and the Great Lakes. The mania for speculation 
 spread throughout Illinois with the result that the inter- 
 ests of legitmate business were everywhere sacrificed to 
 the desire for suddenly acquired riches. 87 The demand 
 for loans at the state bank far exceeded its accomoda- 
 tions on account of a lack of specie. Since the issuance 
 of the specie circular, the heavy drain on the bank's cash 
 reserves by land purchasers now came directly from the 
 purchasers themselves, whereas before they paid with 
 notes of the bank which were later returned by the de- 
 positary bank for redemption. 88 As a consequence of 
 this condition, the bank suspended its discount business 
 until it received a shipment of $280,000 in gold and silver 
 from New York and New Orleans. 89 
 
 The people of Illinois, as well as the citizens of the 
 older states, were beginning to be carried away with the 
 idea that improved means of communication must be 
 provided regardless of the cost. In Illinois this idea was 
 
 86 Various reports of the bank show the following amounts on deposit 
 by the United States treasurer : 
 
 January, 1837 $81,414.69 
 
 January, 1838 28,14247 
 
 November, 1838 40.00 
 
 November, 1839 40.00 
 
 November, 1840 40.00 
 
 and so on until the bank went into liquidation. 
 
 87 Reports of Session (Senate), 1839-40, p. 5; Ford, History of Illinois, 
 
 181. 
 
 88 Sangamo Journal, August 13, 1836. 
 
 89 Illinois Register (Vandalia), November 4, 1836. 
 
78 
 
 THE DEVELOPMENT OF BANKING IN ILLINOIS [436 
 
 given expression through the press and in mass meetings 
 in the principal towns. When the general assembly con- 
 vened in December, 1836, an internal improvement con- 
 vention also assembled at the capital for the purpose 
 of influencing the members of the legislature to provide 
 for an elaborate system of railroads and waterways. 90 
 The legislature responded most liberally. Instead of 
 merely providing for the completion of the canal between 
 the Illinois River and the Great Lakes, a task which 
 alone would have been a strain upon a pioneer com- 
 munity, they authorized the immediate construction by 
 the state of seven railway lines and the dredging of all 
 the important rivers. As an anti-climax to the whole per- 
 formance, the sum of two hundred thousand dollars was 
 voted as a gift to those counties which had not been 
 given a line of railroad. 91 In order to carry out this pro- 
 gram the legislature authorized a loan of eight millions, 
 an amount eight times as great as the total expenses of 
 the state government from its inception to the year 1836. 
 The next problem, however, was not so easily solved: 
 How was the enormous annual interest bill to be met? 
 The people were already as heavily burdened with taxes 
 as their meager resources would permit and no legislator 
 would have the courage to face his angry constituents 
 after proposing or voting for such a measure. At length 
 it occurred to the framers of the bill that the banks 
 could be made a part of the internal improvement system. 
 As one of the leading journals of the state put it: "In 
 connection with our internal improvement system it is 
 impossible not to associate the banks of this state — the 
 interests of both are alike and rest alike upon enlightened 
 public opinion. One is the hand-maid of the other, and 
 since the internal improvement system is based upon 
 credit it cannot be carried on without the aid of banks." 92 
 
 90 C. M. Thompson, Governors' Letter Books, ii, Introduction, li ; see 
 also Douglas, Autobiography, in Illinois State Historical Society Journal, 
 October, 1912. 
 
 91 Laws of Illinois, 1836-37, pp. 121, 131-133, 134-136. 
 
 92 Sangamo Journal, January 27, 1837. 
 
437] BANKING AND INTERNAL IMPROVEMENTS 
 
 79 
 
 During the eighteen months of its existence the state 
 bank had declared dividends aggregating seven dollars 
 and seventy-five cents a share, 93 an amount equal to nine 
 per cent on the paid up capital, and the Bank of Illinois 
 had done quite as well. 94 It seemed plausible to the mem- 
 bers of the legislature, therefore, that if the state be- 
 came the owner of a large amount of profitable bank 
 stock, the financial obligations of the internal improve- 
 ment system could be met with ease. Accordingly 
 there was inserted in the internal improvement act 
 the following provision: "All profits arising from bank 
 and other stocks hereafter to be subscribed for and owned 
 by this state, after liquidating the interest on loans con- 
 tracted for the purchase of such bank or other stock," 
 should be devoted to the payment of the interest on the 
 eight millions to be borrowed for internal improvements. 95 
 Governor Duncan in his message to the legislature 96 had 
 recommended that the state subscribe only for the one 
 hundred thousand dollars' worth of stock reserved for it 
 in the charter of the state bank, but the legislature was not 
 disposed to stop at this modest sum. By the acts of March 
 2 and 4, 1837, not only was the one hundred thousand dol- 
 lars' worth of stock subscribed for, but the capital of 
 $2,500,000 was increased to $4,500,000, 97 and the state took 
 the whole additional issue of $2,000,000. 98 At the same 
 time the capital stock of the Bank of Illinois was increased 
 from $300,000 to $1,700,000, of which one million dollars' 
 worth was to be subscribed for by the state. 99 
 
 In order to provide the necessary funds for the pur- 
 chase of this stock, the board of fund commissioners, a 
 
 93 Report of state bank investigating committee, 1836-37, p. 36. 
 ^Senate Journal, 1836-37, pp. 352 ff. 
 95 Lazvs of Illinois, 1836-37, p. 137. 
 "Senate Journal, 1836-37, p. 22. 
 
 97 0nly a small part of the million dollar additional issue of shares of 
 capital stock to individuals was ever paid in, so the total capital liability 
 was never much in excess of $3,500,000. Reports of Session (Senate), 
 1839-40, p. 301. 
 
 "Laws of Illinois, 1836-37, p. 18. 
 
 "Ibid., Section 6. 
 
80 THE DEVELOPMENT OF BANKING IN ILLINOIS [438 
 
 body created to direct the financing of the internal im- 
 provements, was authorized to float a loan of not more than 
 three million dollars. There were to be issued to the lend- 
 ers shares of "Illinois Bank and Internal Improvement 
 Stock/' bearing interest at not more than six per cent, and 
 redeemable by the state at any time after I860. 100 In no 
 case, however, could these bonds be sold for less than par. 
 The fund commissioners were to dispose of enough bonds 
 to enable them with the aid of available cash in the treas- 
 ury to make a payment to the two banks equal to those 
 already made by private stockholders on their shares. To 
 the nine directors of the state bank were added five state 
 directors elected biennially by a vote of the two houses of 
 the general assembly. 101 This arrangement was hardly a 
 fair one, however, for it gave to the state, the owner of a 
 majority of the shares, a minority of the directorate. In 
 like manner, state directors were added to the board of the 
 Shawneetown bank and its activities were enlarged by 
 providing for branches at Jacksonville, Lawrenceville and 
 Alton, and authorizing the establishment of two others. 102 
 The bank law as well as the internal improvement act pro- 
 vided that the net profits arising from the stock must be 
 applied to the interest upon internal improvement bonds. 
 The banks were made the depositaries of the funds accumu- 
 lating from the sale of bonds and were required to pay to 
 the state a rate of interest agreed upon by both parties. 
 Moreover, the act designated the banks as the fiscal agents 
 of the state as long as quarterly statements of their condi- 
 tion indicated that they were solvent. 103 
 
 The original charter of the state bank permitted the 
 i directors to borrow any sum not exceeding a million dollars 
 for the purpose of making loans on real estate. The legis- 
 
 100 Laws of Illinois, 1836-37, p. 18, Section 3. 
 101 Ibid., Section 8. 
 
 102 The bank of Illinois later established one of these at Pekin. Laws 
 
 of Illinois, 1849, p. 39. 
 
 103 Ibid., 1836-37, p. 18, Sections 10, 12. 
 
439] 
 
 BANKING AND INTERNAL IMPROVEMENTS 
 
 81 
 
 lature now extended this privilege to the Bank of Illinois, 
 but set a maximum limit of $250,000. 104 
 
 The legislature still contained a considerable element 
 hostile to banks and they succeeded in carrying a resolution 
 providing for the investigation of the state bank's affairs 
 by a joint committee of five. 103 The object stated in the 
 resolution was to ascertain whether the bank had violated 
 any of the provisions of its charter and was on that account 
 not a fit place to keep the state's funds. In spite of the 
 able opposition of Abraham Lincoln, 106 who contended that 
 such an investigation was an unwarranted intrusion into 
 the affairs of what was still a private institution, the resolu- 
 tion was adopted. The report of the committee declared 
 that the bank's management was free from all questionable 
 practices and declared that it was not only a safe place to 
 keep funds, but that its shares would prove a good invest- 
 ment for the state. 
 
 A similar investigation of the Bank of Illinois throws 
 light upon the general policy of conducting that institution 
 since its revival in 1835. 107 The Bank of Illinois had not 
 yet become a state institution and hence could have pre- 
 vented any intrusion into its private affairs, but President 
 Marshall was anxious to make a good impression and placed 
 all the bank's records at the disposal of the committee, not 
 to mention a bountiful supply of whisky and "plenty of 
 sugar to sweeten it." 108 The bank was found to be owned 
 and managed by practically the same men who had it in 
 charge during its brief existence some years before. All 
 the directors were men of good standing in southeastern 
 Illinois, most of them having lived in the neighborhood of 
 
 104 Laws of Illinois, 1836-37, p. 17. 
 105 Senate Journal, 1836-37, p. 244. 
 
 106 Sangamo Journal, January 28, 1837. Mr. Lincoln was a member of 
 the lower house, having been elected as a Whig from the Springfield 
 district. He was a staunch friend of the state bank. 
 
 107 Senate Journal, 1836-37, p. 352. For complete report of the inves- 
 tigation see, also, U. S., Letter of Secy, of Treas. on State Banks, 1838, 
 pp. 778-783. 
 
 108 Ford, History of Illinois, 197. 
 
82 THE DEVELOPMENT OF BANKING IN ILLINOIS [440 
 
 Shawneetown for over twenty years. 109 They had been 
 impartial in making loans and discounts, restricting the 
 latter to business men. 110 As for loans, the entire business 
 of the bank was confined to property loans in southeastern 
 Illinois. The principal item of income arose from the pur- 
 chase and sale of bills of exchange. The southern Illinois 
 farmer usually shipped his grain and live stock down the 
 river to New Orleans and drew a bill of exchange on the 
 commission man in that city. These bills were sold to the 
 bank and being payable at short dates were used to replen- 
 ish its stock of specie. The committee found a reserve of 
 specie on hand to the amount of $47,278, and a few days 
 later a shipment of $23,300 arrived, making a total of 
 $70,578 as against an outstanding circulation of $105,563 
 and deposits to the amount of $110,000. 
 
 The committee found that the practice, forbidden by 
 the legislature at this session, 111 had been indulged in of 
 issuing bank notes payable at some point outside the state. 
 Of the $105,563 in bank notes then outstanding, $83,178 
 had been issued at home, $14,900 at Philadelphia, $2,825 at 
 Louisville, and $4 ; 660 at New Orleans. The bank had just 
 redeemed $8,500 of the Philadelphia issue, which left but 
 I $13,885 to come under the ban of the new law. The direc- 
 tors gave as their reason for this foreign issue the desire to 
 create at these places ample funds with which to meet the 
 needs of Illinois merchants without seriously disturbing 
 the bank's credits created by the shipment of grain and pro- 
 visions. On the whole, the two committees seem to have 
 had grounds for their laudatory comments on the manage- 
 ment of the two banks. 
 
 With the entry of the state into the field of banking 
 the situation was completely changed. Illinois had received 
 from the federal government $477,919.14 as her share of 
 the surplus revenue distributed among the states in 1836. 112 
 
 109 Senate Journal, 1836-37, p. 356. 
 ™Ibid., 355. 
 
 lxl Laws of Illinois, 1836-37, p. 18. 
 
 ^Auditor's Report, Laws of Illinois, 1836-37, p. 193. ' 
 
441] BANKING AND INTERNAL IMPROVEMENTS 83 
 
 The legislature devoted $335,592.32 of this sum to the re- 
 payment of the amounts taken from the school fund by 
 their predecessors and spent the rest in internal improve- 
 ments. Since, however, funds were needed to pay for a 
 portion of the state's bank stock in cash, the federal money 
 just returned to the school fund was reborrowed and di- 
 vided between the two banks. 113 As soon as the new "Bank- 
 ing and Internal Improvement" bonds were ready, the com- 
 missioners proceeded to New York to offer them for sale, 
 in order that the balance due the banks for the state's shares 
 of stock might be met. On the day set for opening the 
 bids for the bonds, the commissioners were chagrined to 
 find that not a single offer had been made. The act forbade 
 them to sell the bonds at less than par, so they were com- 
 pelled to abandon their efforts. The banks were now so 
 involved in the state's affairs that they agreed to accept 
 the bonds at their face value in payment of the remainder 
 of the state's stock; the state bank took $1,765,000 worth 
 and the Shawneetown bank, $900,000. The latter bank 
 afterwards succeeded in disposing of its share but those 
 taken over by the state bank continued to burden its re- 
 sources and embarrass its operations during the rest of its 
 existence. 114 The banks had scarcely begun to adjust them- 
 selves to their new relationship with the state when the 
 panic of 1837 burst upon the country and left ruin every- 
 where. 
 
 Beginning in New York City, the first week in May, 
 the suspension of specie payments by the banks spread 
 like a contagion down the Middle Atlantic Coast and then 
 to the West and South. 115 By the twenty-second of May 
 it had reached the St. Louis depositary bank and a week 
 later the Illinois banks voted to suspend for an indefinite 
 period. 116 In so doing the directors of the state bank un- 
 j doubtedly realized that the legislature would not demand 
 the winding up of the bank's affairs as a penalty for violat- 
 
 113 Senate Journal, 1842-43, p. 36. 
 114 Ford, History of Illinois, 190. 
 115 Sangamo Journal, May 27, 1837. 
 
 11Q Ibid., June 3, 1837; Senate Journal (special session), 1837, p. 12. 
 
84 THE DEVELOPMENT OF BANKING IN ILLINOIS [442 
 
 ing its charter by suspending specie payment, while the 
 charter of the Shawneetown bank did not contain such a 
 forfeiture clause at all. The banks and the state were now 
 so closely associated that the sudden termination of the 
 activities of either of them would result in indescribable 
 chaos in the state's finances. Thoroughly alarmed at the 
 possibility of such a contingency in the case of the state 
 bank, two of the canal commissioners hastened to Jackson- 
 ville in search of the governor. They finally persuaded 
 him to call a special session of the legislature in order that 
 legal sanction might be given to the violation of the bank's 
 charter. Accordingly at the opening of the special session 
 in July, 1837, a memorial was presented from the state 
 bank asking that the penalty of forfeiture be suspended. 
 The legislature acceded to the request and authorized the 
 suspension of specie payments until the end of the next 
 J general assembly. Certain stipulations were imposed, how- 
 ever, the chief of which were: (1) No dividend could be 
 declared until the bank resumed specie payment; (2) No 
 specie could be disposed of in any way, except in amounts 
 of five dollars or less, for change; (3) A monthly statement 
 of the bank's condition must be furnished the governor and 
 the newspaper owned by the state printer; (4) The total 
 issue of notes during suspension must not exceed the 
 amount of capital actually paid in; (5) The state's funds 
 must be collected and disbursed as usual; (6) Relief must 
 be granted to the bank's debtors by allowing them to pay 
 their notes in instalments; (7) If any of the foregoing 
 , provisions was violated, the bank's charter was ipso facto 
 liable to forfeiture. 117 
 
 A brief act was also passed at the special session au- 
 thorizing the state to sell its stock in the banks to private 
 individuals if funds were needed to meet the interest on 
 internal improvement loans. 118 Notwithstanding that the 
 crisis now made their extravagant railroad and waterway 
 program impossible of fulfilment, the legislature refused 
 
 117 Laws of Illinois (special session), 1837, p. 6. 
 lis lbid., 5. 
 
443] BANKING AND INTERNAL IMPROVEMENTS 
 
 85 
 
 to curtail the plans in any way. By the fall of 1837, hard 
 times set in, but the banks were powerless to furnish aid to 
 tide over the situation. Instead, the discounting of notes 
 was reduced to a minimum and suits were instituted 
 against delinquent borrowers, most of whom were business 
 men. They in turn had done a very heavy credit business 
 since 1835 and were compelled to force the farmers and 
 artisans to settle with them. 119 This caused a feeling of 
 resentment against the banks among the rank and file of 
 the people. 
 
 The Whig party and its newspaper organs remained 
 loyal to the banks, but the Democratic journals either de- 
 nounced all banks on general principles or favored their 
 establishment on an absolutely specie-paying basis. 120 Even 
 Governor Ewing, who had been instrumental in the estab- 
 lishment of the state bank, now turned against banks in gen- 
 eral and his former pet project in particular. 121 
 
 As conditions throughout the country began to im- 
 prove the Illinois banks, after a suspension of over thirteen 
 months, resumed specie payment, August 13, 1838. 122 In 
 Governor Duncan's farewell message to the legislature in 
 December, 1838, he again urged in vain the repeal of the 
 whole internal improvement system. As for the banks, he 
 commended them for their voluntary resumption and for 
 their general stability displayed during the crisis. To en- 
 courage the relief of the multitude of poverty stricken land 
 holders he suggested that the state furnish, without any 
 responsibility therefor, to any person lending money on 
 Illinois land for five years at six per cent, circulating notes 
 to the full amount of the principal, to be secured by the J 
 mortgage on the property, the lender to be allowed to circu- 
 late these notes freely provided he redeemed them promptly 
 in specie. 123 Instead of giving serious consideration to the 
 
 119 Memoirs of Gustave Koerner, 429. 
 120 Sangamo Journal, August 19, 1837. 
 * 21 Ibid., July 29, 1837. 
 122 Ibid., August 18, 1838. 
 123 House Journal, 1838-39, p. 14. 
 
86 
 
 THE DEVELOPMENT OF BANKING IN ILLINOIS [444 
 
 governor's proposal, the legislature made more secure the 
 monopoly of note issue enjoyed by the banks, by passing 
 the act of December 4, which prohibited persons and private 
 institutions from issuing notes. 124 
 
 Governor Carlin was a bank hater, and in his inaugural 
 address took the reverse of his predecessor's position. 125 
 He denounced the state bank in particular and pointed out 
 four dangerous defects in the existing system: (1) There 
 was no adequate machinery for compelling the banks to 
 comply with their charters ; ( 2 ) They were allowed to med- 
 dle in politics with impunity; (3) The state bank was 
 lending millions to a few speculators; (4) The legislature 
 did not use the means it had of compelling the banks to live 
 up to the letter of the law. While he deplored the fact 
 that such an elaborate system of improvements had been 
 inaugurated, Mr. Carlin was of the opinion that it was 
 too late to turn back after an expenditure of ten millions 
 had been made. The legislature heeded his advice by au- 
 thorizing nearly a million dollars' worth of additional 
 projects rather than surrender the principle of state con- 
 struction of public improvements. 126 In addition to the act 
 forbidding the issue of notes by unauthorized persons, sev- 
 eral other minor bank laws were passed at this session. 
 The first of these was known as the foreign small note act 
 and had for its object the expulsion from the state of all 
 notes of less than five dollars denomination. The state bank 
 had been forbidden by its charter to issue notes smaller 
 than five dollars and the Bank of Illinois had consistently 
 followed the policy of not doing so, 127 hence the public had 
 been compelled to depend for its small notes upon the issues 
 of the Bank of Cairo and a miscellaneous assortment of 
 foreign notes. By excluding foreign small notes a monop- 
 oly of the issue of ones, twos and threes was given to the 
 Bank of Cairo, but, as will be seen, this privilege was later 
 
 12i Laws of Illinois, 1838-39, p. 80. 
 125 Senate Journal, 1838-39, p. 18. 
 126 Reports of Session (Senate), 1839-40, p. 5. 
 127 Senate Journal, 1836-37, pp. 354 ff. 
 
445] BANKING AND INTERNAL IMPROVEMENTS 
 
 87 
 
 exercised also by the Bank of Illinois and the legislature 
 finally extended it to the state bank. 128 A third act relating 
 to banks was passed at the 1838-39 session. It placed the 
 selection of the state directors of the two banks in the 
 hands of the governor, instead of the legislature. 129 
 
 The federal government still refused to establish a de- 
 positary in the state, hence the depositary at St. Louis 
 continued to receive the large amount of land money col- 
 lected from Illinois purchasers. The legislature by joint 
 resolution again besought the secretary of the treasury to 
 make the state bank a federal depositary but he had no 
 funds to place in the hands of the Whigs. The official rea- 
 son given was that the banks of Illinois did not conform 
 to the federal requirements by refraining from paying small 
 bills to their patrons. 130 The secretary, however, found it 
 convenient to use the Chicago branch of the state bank and 
 in 1839-40 had nearly fl50,000 on deposit there. 131 The 
 failure to secure the federal deposits was a hard blow to 
 the state bank and its excessive issue of notes soon began to y 
 depreciate. 
 
 Meanwhile the temporary revival of business in 1838 
 and the earily part of 1839 was followed by a second crisis 
 in the autumn of 1839. When the news reached Springfield, 
 October 20, that the banks of the East and South had again 
 suspended specie payment, the directors of the state bank 
 Avere called together and again decided to order another 
 suspension in spite of losing their charter by so doing. Mes- 
 sengers were despatched to every branch notifying them 
 to suspend at once. 132 The news spread quickly and the 
 next morning a large amount of notes was presented at the / 
 bank for redemption ; but the directors refused to pay out 
 
 128 Laii>s of Illinois, 1838-39, p. 79. The note issues of the Bank of 
 Cairo will be taken up hereafter in connection with the history of that 
 institution. 
 
 129 Ibid., 234. 
 
 lzo Sangamo Journal, January 19, 1839. 
 131 Reports of Session (Senate), 1839-40, p. 310. 
 132 Niles' Register, lvii, 167. 
 
88 THE DEVELOPMENT OF BANKING IN ILLINOIS [446 
 
 any specie. 133 The directors of the Bank of Illinois at first 
 decided that they were able to weather the storm, 134 but 
 after making the attempt for two weeks they followed the 
 example of the state bank. 133 
 
 The alarming condition of the state's finances caused 
 the governor to convene the legislature in the special ses- 
 sion of 1839-40. The credit of the state had been extended 
 to the limit, the total liabilities aggregating $11,107,919.44 
 and calling for an annual interest payment of $637,800. 136 
 Furthermore, to provide funds to complete the work al- 
 ready authorized would increase the amount to $21,846,- 
 444.50. Not only had the legislature ordered the w T ork 
 over the whole system of improvements to be undertaken 
 simultaneously but they had, as has been noted, enlarged 
 the scope of the work. The governor now urged that only 
 one or two of the most important projects be continued. 
 He then proceeded to criticize the state bank; first for 
 having suspended specie payment again; second, for 
 utterly disregarding the interests of the state and the gen- 
 eral public by furthering the interests of a few speculators 
 in lead and pork. He therefore recommended that no 
 mercy be shown the bank and that its recent operations be 
 subjected to a most searching investigation. The attitude 
 of the governor and the legislature seems to have been 
 more friendly toward the Bank of Illinois. 137 Conse- 
 quently they were content to let that institution off with a 
 demand addressed to its state directors for an explanation 
 as to their votes in favor of suspension. The defense 
 offered by the directors was that the interests of the state 
 demanded that the bank's specie be thus protected during 
 country-wide suspensions of specie payment. Furthermore, 
 they argued that the constant advances to the state had 
 weakened the bank's ability to withstand a drain of its 
 gold and silver. The part of the reply that was calculated 
 
 133 S7. Louis Bulletin, October 24, 1839. 
 
 134 Shawnee town Voice and Journal, October 26, 1839. 
 
 13ti Reports of Session (Senate), 1839-40, p. 46. 
 
 ™«Ibid., 3. 
 
 ls 'Ibid., 12. 
 
447] BANKING AND INTERNAL IMPROVEMENTS 
 
 89 
 
 to appeal to the legislature was the statement that if the 
 bank must continue to pay out specie, it must curtail 
 its discounts and loans to such an extent that no dividend 
 could be paid on the state's million dollars worth of J 
 stock. 138 
 
 With regard to the state bank, the legislature decided 
 to follow Governor Carlin's advice and give its affairs a 
 thorough airing before a committee of the two houses. 
 Although the majority of the committee appointed favored 
 the bank wherever possible, they were forced to acknow- 
 ledge in their report that startling abuses had crept into 
 its management. All the members agreed that the bank had 
 violated its charter by a suspension lasting more than 
 sixty days, but on other more important matters the dis- 
 cord was so great that three separate reports were submit- 
 ted to the legislature. 139 A number of persistent rumors: 
 about the bank were investigated by the committee and 
 more or less truth was found in them. In the first place, 
 the statement that money was loaned to non-residents was / 
 found to be correct but the amount had been greatly exag- 
 gerated, only four per cent of the loans having been made 
 to persons outside of the state. There was a current rumor 
 that Nevins, Townsend, and Company, the bank's eastern 
 correspondents, were given the use of large sums without 
 interest, but on the contrary the bank was found to have 
 overdrawn its account with this house to the extent of 
 $150,000. Considerable suspicion having been attached 
 to the stockholdings of Samuel Wiggins of Cincinnati, the 
 committee made a careful inquiry as to the character of 
 his relations with the bank. They found that of the 
 original issue of $1,400,000, Mr. Wiggins obtained $193,100. 
 He had paid some of the installments when called for, but 
 in October, 1835, he had failed to respond to the call and 
 was compelled to ask that the penalty of forfeiture of his 
 stock be not inflicted for sixty days. Contrary to the 
 bank's charter, he was granted a loan of a sufficient amount 
 
 138 Reports of Session (Senate) 1839-40 f 128. 
 ^Ibid., 241 ff. 
 
90 THE DEVELOPMENT OF BANKING IN ILLINOIS [448 
 
 to meet the call, by offering $50,000 worth of his stock 
 as collateral. 140 The bank not only renewed this loan from 
 time to time, but in addition advanced enough money to 
 enable Mr. Wiggins to complete the payments on his 
 f 193,100 worth of stock. In over four years, he had repaid 
 but $18,500 of the $58,500 borrowed but had continued to 
 draw a semi-annual dividend on all the stock. 
 
 In addition to his personal holding, it will be remem- 
 bered that Mr. Wiggins was a member of a syndicate which 
 agreed to purchase all the second issue of a million dol- 
 lars left unsold. They had paid eleven dollars on each of 
 the 8,665 shares and were receiving a proportional share 
 of the dividends and Mr. Wiggins had a correspondingly 
 larger voice in the direction of the bank's management 
 although ineligible to a place in the directorate. Aside 
 from the accommodations granted to Mr. Wiggins, the 
 bank had confined its activities very largely within the 
 state. It had even refrained from accepting any consider- 
 able share of the St. Louis patronage which would have 
 been exceedingly profitable on account of the large volume 
 of produce which was transhipped at that point. But this 
 failure to accommodate the business men of St. Louis was 
 due to no exalted ideas of devotion to home interests but 
 was the result of the selfish ambition of a small clique of 
 Alton speculators to destroy the commercial supremacy of 
 St. Louis and to amass great fortunes for themselves by 
 diverting the commerce of the Mississippi to Alton. As 
 has been noted, Godfrey, Gilman and Company, Alton 
 commission merchants, had a large portion of the state 
 bank stock under their control and unlike the other influ- 
 ential stockholders, were residents of the state and eligible 
 to election as directors. Accordingly, Mr. Gilman had 
 been a director of the parent bank for over three years and 
 Mr. Godfrey had held a directorship in the Alton branch 
 for almost as long a time. But for reasons which are 
 about to be revealed, both had recently resigned their 
 respective offices. 141 
 
 140 Reports of Session (Senate), 1839-40, p. 274. 
 141 Ibid., 289. 
 
449] BANKING AND INTERNAL IMPROVEMENTS 
 
 91 
 
 Since the prosperity of their business depended upon 
 the development of Alton at the expense of St. Louis, this 
 firm proceeded to enlist the state bank in their campaign 
 to make Alton the commercial emporium of the Mississippi 
 Valley. Much of the corn and pork from the farms of the 
 Middle West, as well as the lead from the mines at Galena 
 on the upper Mississippi, were sold to St. Louis merchants 
 and transhipped by them to southern or eastern markets, 
 thus creating for the benefit of St. Louis brokers a large 
 amount of credit in the money centers of the country. 142 
 The region around Galena was exporting by way of St. 
 Louis six or seven hundred thousand dollars worth of lead 
 each year, the greater part of it to the Atlantic seaboard, 
 and the directors of the state bank were allured by the 
 prospect of becoming the possessors of the large amount of 
 credit that would result from these shipments. Conse- 
 quently, they were easily persuaded to make liberal ad- 
 vances to the Alton lead merchants, especially to their 
 fellow directors, Messrs. Godfrey and Gilman. In fact, the 
 accommodations to this one firm as drawers, discounters, 
 and endorsers of paper amounted to $800,748.00 143 before 
 the other directors came to their senses and called a halt. 
 The larger part of this liability had been created by the 
 firm's transactions with H. H. Gear, a Galena lead pro- 
 ducer, who, whenever he drew bills of exchange on them for 
 shipments of lead, promptly sold them to the Galena 
 branch of the state bank. The bank, however, was not 
 wholly committed to the interests of one Alton concern for 
 it had made similar advances of over one hundred thousand 
 dollars to the firm of A. G. Sloo and Company. 144 With 
 such generous financial backing the Alton commission 
 men had combined for the purpose of raising the price of 
 lead and succeeded in a short time in raising it from $2.75 
 per hundred weight to $4.25. In their efforts to corner the 
 supply they bought with a free hand, but soon found that 
 
 142 Reports of Session (Senate), 1839-40, p. 277. 
 143 Ibid., 256. 
 
 144 Ibid., 265; Ford, History of Illinois, 176. 
 
92 THE DEVELOPMENT OF BANKING IN ILLINOIS [450 
 
 they were unable to control the situation in the eastern 
 market, which was supplied by scores of producers. 145 By 
 the time their lead reached New York, the market had 
 become so unsatisfactory that the whole large shipment 
 was placed in the warehouses to await a rise in price. 
 Meanwhile in addition to their speculations on the lead 
 market itself, Godfrey, Gilman and Company had used 
 several hundred thousand dollars of the bank's money in 
 buying up mines and smelters and in speculating in Galena 
 town lots. 146 The burden, therefore, finally became too 
 great and they and their fellow speculators were compelled 
 to bring their lead out of storage and sell it at a great 
 sacrifice. Sloo and Company went into bankruptcy and 
 the other firms were practically ruined. Mr. Gear of 
 Galena was compelled by the directors to assume a large 
 part of Godfrey, Gilman and Company's obligation, thus 
 reducing that firm's liability to the bank to |419,358. 147 
 The attempt to make Alton a great metropolis cost the bank 
 nearly a million dollars and brought disaster to the city's 
 legitimate business interests. 148 
 
 The connection of the bank with speculation in Illinois 
 produce did not end here, for it came dangerously 
 near to the point of speculating in lead and pork on its 
 own account. In its eagerness to secure credit in the 
 East the bank had united with some Galena mine owners 
 in employing J. G. Lamb of Alton as their joint agent. 
 According to the arrangement made with Mr. Lamb, these 
 lead producers delivered their product to the Galena branch 
 of the bank and were paid about three-fourths of its market 
 value. The cashier then shipped the lead to Mr. Lamb, 
 who in turn consigned it to Nevins, Townsend and Com- 
 pany, the bank's New York correspondents. When the 
 lead was sold in the New York market, Nevins, Townsend 
 and Company placed the proceeds to the credit of the state 
 
 145 Reports of Session (Senate), 1839-40, p. 277. 
 146 Ford, History of Illinois, 176. 
 147 Reports of Session (Senate), 1839-40, p. 265. 
 148 Ford, History of Illinois, 176. 
 
451] BANKING AND INTERNAL IMPROVEMENTS 
 
 93 
 
 bank. The bank in turn deducted the interest on the 
 money paid to the lead producers and credited Mr. Lamb 
 with the rest. Mr. Lamb then deducted his commission 
 and other charges and sent the producer a check for the 
 balance. Thus while the bank cannot be said to have 
 speculated directly in lead it was guilty of devoting too 
 large a share of its resources to the fostering of a highly 
 hazardous undertaking. 149 
 
 The cashier and clerk of the Chicago branch also dis- 
 played a lack of good judgment, to say the least, by engag- 
 ing in pork speculation with two Chicago commission men. 
 They used over $26,000 of the bank's funds in this way at 
 a time when accommodations were being refused the legiti- 
 mate enterprises of the city. 150 
 
 Closely related to the inquiry into the bank's relations 
 with speculators was the charge that all the directors as 
 well as members of the legislature had received a dispropor- 
 tionate amount of credit. In spite of the fact that Messrs. 
 Godfrey and Gilman had now withdrawn from the director- 
 ate, it was found that $493,227.57 was due the bank from 
 its directors and the firms of which they were members. 
 The president of the bank urged in defense of the practice 
 of favoring the directors the consideration that these men 
 gave a great deal of valuable time to the bank's business 
 and were entitled to special consideration in lieu of a fixed 
 salary. 151 As for special favors being shown members of 
 the legislature, the investigation showed that twenty-one 
 members had borrowed over $2,000 each, but that their total 
 liabilities reached the modest sum of $50,394.26. 152 The 
 extent to which the bank accommodated the different 
 classes of borrowers, however, can be seen from the fol- 
 lowing table in which debtors are divided into groups ac- 
 cording to the amount of their obligations. 153 
 
 149 Rcports of Session (Senate), 1839-40, pp. 311 ff., 336. 
 150 Ibid., 266, 331, 332. * 
 1 * 1 Ibid., pp. 279, 287. 
 
 152 Ibid., 307. w 
 133 1 bid., 290. 
 
94 
 
 THE DEVELOPMENT OF BANKING IN ILLINOIS [452 
 
 Amount 
 $200 or less. 
 
 $200-500 
 
 $500-1000 .... 
 $1000-3000 .. 
 $3000-5000 .. 
 Over $5000 
 
 Number of borrowers 
 
 1875 
 .1408 
 
 ■ 713 
 
 ■ 732 
 . 172 
 
 202 
 
 Although the majority report of the committee ex- 
 pressed confidence in the bank's solvency, in spite of its 
 reckless advances to favorites, an analysis of the official 
 statement of the institution for January, 1840, reveals 
 some assets of a very questionable value. 154 For example, 
 the first item under "assets" (discounts, bills of exchange 
 and loans) amounts to $3,937,584.75, but Dr. Murphy of 
 Chicago, a member of the committee, in his separate re- 
 port, shows that at least $921,461.19 of this amount should 
 have been listed as a suspended debt. 155 The second item 
 in the "asset" column, "Illinois State Bonds," shows that 
 the bank had not been able to dispose of the $1,765,000 in 
 state bonds received in part payment of the state's shares, 
 nor the $699,750 worth of canal stock unloaded by the state 
 upon the directors of the bank. 156 In view of the actual 
 market value of Illinois securities, the bonds should have 
 been entered at about half their face value instead of at 
 par. It was evident, therefore, that if the bank were com- 
 pelled to forfeit its charter because of its recent suspension 
 of specie payment, the stockholders, including the state, 
 would not be able to realize the full amount invested in 
 the enterprise. 
 
 The legislature, although dominated by Democrats, 
 many of them hostile to banks, decided that the state's 
 interests demanded a further postponement of the penalty 
 of forfeiture. By the act of January 31, 1840, the bank 
 was allowed to continue the suspension of specie payments 
 until the close of the next session of the legislature. The 
 directors, however, were required to bind themselves to an 
 
 ^Reports of Session (Senate), 1839-40, 348. 
 155 Ibid., p. 263. 
 15Q Ibid., 308. 
 
453] 
 
 BANKING AND INTERNAL IMPROVEMENTS 
 
 95 
 
 agreement: (1) To make no more loans based upon the 
 bank's stock; (2) To permit any person holding five or 
 more shares to become a director; (3) To limit the amount 
 of liabilities of any one person to $10,000 in promissory 
 notes and $25,000 in bills of exchange; (4) To choose not 
 less than three new directors at the next election and not 
 less than two new members at each succeeding election ; (5) 
 To accept their own currency for all claims against them. 
 In addition to these stipulations, the restrictions placed 
 upon the bank during its former suspension were again put 
 into force. 157 
 
 The use of bank funds for pork speculation by officers 
 of the Chicago branch furnished an opportunity for some 
 of the legislators to "get even" with the cashier of the 
 branch by securing its removal from Chicago to Lockport, 
 a village about forty miles away, on the line of the Illinois 
 and Michigan Canal. 158 During its existence of less than 
 four years the Chicago branch had been a factor in the 
 rapid development of that city. It had furnished eastern 
 exchange at from one to two per cent while its discounts 
 of business paper averaged about $500,000. The directors 
 of the parent bank, however, decided to obey the mandate 
 of the legislature and in July, 1840, closed the branch. 159 
 Scarcely had a beginning been made in the new location, 
 however, when the legislature restored the branch to Chi- 
 cago. 160 On the whole, the most commendable piece of legis- 
 lation enacted at the special session, although it dealt only 
 indirectly with the banks, was the repeal of the internal 
 improvement act and the issuance of an order that all work 
 be indefinitely suspended. 161 
 
 The year 1840 witnessed some improvement in the gen- 
 eral situation in Illinois but the banks were gradually 
 falling into bad repute. Their notes, which had never 
 
 157 Laws of Illinois, 1839-40, p. 15. 
 158 Ibid. 
 
 159 Chicago American, August 7, 1840. 
 160 Laws of Illinois, 1840-41, p. 40. 
 1Q1 Ibid., 1839-40, p. 93. 
 
96 THE DEVELOPMENT OF BANKING IN ILLINOIS [454 
 
 suffered a discount of more than two or three per cent, were 
 now rated by brokers at ninety cents on the dollar. Hence 
 it was estimated by Congressman Stuart in a speech in 
 the federal house of representatives that the bank paper 
 of Illinois was costing the people of the state one hundred 
 and sixty thousand dollars a year in higher prices for 
 goods bought in the East and lower prices for produce sold 
 there. 162 A number of Chicago business men made an un- 
 successful attempt to drive Illinois bank paper out of 
 circulation in that city, while the notes were dubbed "bank 
 rags" by the newspapers. 163 
 
 Meanwhile the interest bill of the state had assumed 
 such alarming proportions that Governor Carlin was forced 
 to summon the legislature to meet two weeks before the 
 regular date (December 7, 1840) in order that some way 
 might be devised for providing the needed revenue. There 
 had been so much resentment manifested toward previous 
 legislatures which had levied additional taxes that some of 
 the members favored a bill providing for the purchase by 
 the state of three millions of additional bank stock, with 
 the expectation that the dividends on the $6,100,000 thus 
 invested would not only pay the interest on the money 
 borrowed to buy the stock but would suffice for the pay- 
 ment of the state's entire interest bill. In support of the 
 project it was urged that the unsatisfactory condition of 
 the banks was due solely to a lack of capital and if this 
 were supplied, dividends would probably increase at once 
 to the desired amount. 164 Governor Carlin was bitterly 
 opposed to this plan and warned the legislature against all 
 such chimerical schemes. 165 The matter was referred to 
 the committee on banks, which presented in its report the 
 following vivid picture of the existing situation : 166 
 
 "Such schemes of producing wealth as the multiplica- 
 tion of banks and paper money all end in disaster. Up to 
 
 1C2 Quoted by the Vandalia Free Press, June 26, 1840. 
 163 Chicago American, October 9, 1840. 
 ^Reports of Session (H. of R.), 1840-41, p. 13. 
 ^Reports of Session (Senate), 1840-41, p. 3. 
 ™*Ibid. (H. of R.), 14. 
 
455] BANKING AND INTERNAL IMPROVEMENTS 97 
 
 1836-37, when their capital was increased, our whole debt 
 was only $100,000. Three years have elapsed and what is 
 their history? Paper money multiplied, foreign debts cre- 
 ated, visionary schemes of internal improvement com- 
 menced and abandoned — prodigality abounding in every 
 department, until we find ourselves burdened with a debt 
 of thirteen millions. The payment of this stock at the 
 present rate of our bonds would involve borrowing four 
 millions to pay three. Since 1837 the dividends have been 
 constantly diminishing until we find them for the last year 
 only equal to the interest on our bonds. 167 .... The banks 
 have been in operation for four years and during a large 
 portion of the time have been in a state of suspension. . . . 
 They have been unable to handle three millions rightly, 
 then why give them three more?" 
 
 The legislature was convinced of the wisdom of this 
 view and partially met the situation by voting an increase 
 of taxes. The immediate needs, however, had to be met in 
 a very questionable manner. The fund commissioners 
 being unable to sell the state's interest bonds, hypothecated 
 $804,000 with Macalister and Stebbins of Philadelphia as 
 security for a loan of but $321,600. The firm remitted 
 $261,500, but, according to Ford, the state never was paid 
 the rest. 168 
 
 By summoning the legislature two weeks earlier than 
 the time fixed by the constitution Governor Carlin caused 
 a very important question to be raised. The Democrats 
 held that since the regular session could not lawfully begin 
 until December 7, the session called by the governor was 
 
 187 The following table shows the fluctuation in the semi-annual divi- 
 dend rate in the case of both banks. Reports of Session (Senate), 1840-41, 
 
 
 State Bank 
 
 Bank of Illinois 
 
 June, 1837 
 
 2]/ 2 % 
 
 not given 
 
 December, 1837 
 
 5 
 
 not given 
 
 June, 1838 
 
 5 
 
 not given 
 
 December, 1838 
 
 4 
 
 zV 2 % 
 
 June, 1839 
 
 4 
 
 4 
 
 December, 1839 
 
 3 l A 
 
 4 
 
 June, 1840 
 
 3 
 
 3 
 
 'Ford, History of Illinois, 198. 
 
98 THE DEVELOPMENT OF BANKING IN ILLINOIS [456 
 
 entirely distinct from the regular session and must be ad- 
 journed sine die on the preceding legislative day, Decem- 
 ber 5. It will be remembered that the state bank was re- 
 quired by the recent suspension act to resume at the close 
 of the next session of the legislature, but the directors 
 naturally supposed that there were several months in 
 j which to prepare for resumption and had not given the 
 matter serious consideration. When the Whig members 
 realized the seriousness of the bank's situation, they 
 planned to absent themselves from the room and thus break 
 up the quorum and prevent adjournment. When the fifth 
 of December arrived they proceeded to carry out their plot, 
 but the Democrats grasped the situation and by guarding 
 the doors and windows until a motion for adjournment 
 could be carried, won the day and forced the bank to the 
 choice of resumption or liquidation. 169 
 
 The state bank, in common with those of the entire 
 West and South, had originally planned to resume volun- 
 tarily, January 15, 1841, but now that it was suddenly 
 confronted with the danger of losing its charter, the direc- 
 tors hurriedly voted to resume at once. 170 In order to for- 
 tify itself as much as possible in its single-handed battle, 
 the bank ceased discounting entirely and refrained from the 
 issue of notes as far as possible. As a somewhat pardonable 
 measure of revenge upon the legislature, it was ordered 
 that all further advances to the state should cease. The 
 bank had been very liberal in allowing the state to over- 
 draw its account to the extent of $196,000 and the directors 
 estimated that at the present rate this overdraft would 
 amount to about $300,000 by the end of the next year. In 
 undertaking to resume specie payments, the bank was not 
 only compelled to cut off all sources of profit but was offer- 
 ing several cents premium for specie, hence its officers felt 
 
 169 Letter of W. Fithian to A. Williams, December 6, 1840, in Williams- 
 Woodbury Mss.; Ford, History of Illinois, 225; Reports of Session (Sen- 
 ate), 1840-41, p. 12. 
 
 170 Sangamo Journal, December 18, 1840. 
 
457] BANKING AND INTERNAL IMPROVEMENTS 
 
 99 
 
 no compunctions about refusing further advances to the 
 state. 171 
 
 The directors had adopted this policy of resuming 
 single-handed with the firm belief that the other banks 
 would live up to their agreement to resume, January 15, 
 but as that day drew near instead of specie, only excuses 
 were offered to note holders and the State Bank of Illinois 
 continued to fight it out alone. 172 On January 25, the rep- 
 resentatives of the banks of Kentucky, Indiana, Ohio and 
 Illinois met in convention at Louisville to fix another date 
 for resumption, but failing to reach a decision, they ar- 
 ranged for a second meeting at some distant date. The 
 state bank's officials came home thoroughly discouraged, 
 for there seemed to be no prospect for a general resumption 
 within the next six months or possibly a year. During the 
 bank's own brief period of resumption $455,000 in specie 
 had been withdrawn by note holders and it was evident 
 that such a situation could not long continue. 173 And yet, 
 on the other hand, the surrender of the charter would in- 
 volve the sale of the state bonds at an enormous loss and 
 the collection of loans at a time when the borrowers were 
 unable to meet their obligations in full. The curtailment 
 of the bank's activities and the contraction of the currency 
 by the retirement of the $455,000 of redeemed notes had 
 already caused a fall in prices, and made the lot of the 
 debtor increasingly hard. These considerations were pre- 
 sented by the directors of the state bank to the legislature 
 in the form of a memorial, in which was also incorporated 
 a request for further authorization of the suspension of 
 specie payment. 174 
 
 In the interval which had elapsed since the legislature 
 had brought about the humiliation of the state bank, the 
 members had occasion to pay dearly for their cruel sport, 
 for as soon as the bank had been compelled to resume, it 
 
 171 Reports of Session (Senate), 1840-41, p. 14. 
 172 Chicago American, January 15, 1841. 
 17S Reports of Session (Senate), 1840-41, pp. 416 ff. 
 17 *Ibid. 
 
100 THE DEVELOPMENT OF BANKING IN ILLINOIS [458 
 
 stopped cashing their salary warrants and they were com- 
 pelled to dispose of them at half their value. 175 Conse- 
 quently, as the session drew near its close, those members 
 who had been so eager to compel a strict compliance with 
 the law were now disposed to show mercy. Accordingly, 
 by the act of February 27, 1841, the banks of the state were 
 ] declared free to suspend until the other banks of the South 
 and West should resume. As the New York Evening Post 
 put it, a the Illinois legislature has authorized the sale of 
 indulgences." 176 The act even set aside any forfeiture that 
 might have accrued before December 5, 1840. In addition 
 to the long list of restrictions imposed at the time of the 
 last suspension, it was further provided that the interest 
 on loans should be reduced one per cent, in order to accom- 
 modate the more impecunious borrowers. Until January 
 1, 1843, the state bank could issue one, two and three dollar 
 notes, but, in return for this and other favors, it was forced 
 to purchase of the state at par fifty thousand dollars' worth 
 of six per cent bonds every six months for two years. The 
 state treasurer was specifically instructed, however, not to 
 use the money thus obtained for paying any of the state's 
 indebtedness to the bank. The maximum amount for which 
 a director, or any firm of which he was a member, could 
 thereafter become liable, was reduced to $5,000. 177 
 
 Both the state bank and the Bank of Illinois were com- 
 pelled to give bonds as surety for an agreement not to pay 
 any dividends to private stockholders during suspension, 
 but they were both required to declare "to the full amount" 
 the "just and proper dividends on the state's stock." 178 
 Owing to a slight difference in the wording of their respect- 
 ive charters, the Bank of Illinois had been paying a capital 
 stock tax on all its paid up capital while the state bank 
 paid only on the three-sevenths of its capital owned by 
 individuals. The inequality was remedied in the "suspen- 
 
 175 Chicago American, December 18, 1840; Ford, History of Illinois, 
 
 225. 
 
 176 Quoted by Sangamo Journal, April 2, 1841. 
 177 Laws of Illinois, 1840-41, p 40. 
 178 Ibid., p. 42. 
 
459] BANKING AND INTERNAL IMPROVEMENTS 101 
 
 sion act" by the imposition of a "bonus" of one-half of one 
 per cent per annum on all the state shares of the state 
 bank. 179 The legislature at the same session, authorized 
 the auditor, treasurer and secretary of state to settle with 
 the Bank of Illinois for generous advances made by it to 
 the state capitol building fund and the internal improve- 
 ment account. The bank was given the warrant of the 
 auditor for the full amount, payable after 1850, with inter- 
 est at six per cent. 1 80 
 
 The state bank had never been permitted to issue notes 
 of a less denomination than five dollars, and this indulgence 
 was granted now in the belief that the ones, twos, and 
 threes would supply the place filled by gold and silver and 
 thus the banks would soon be able to accumulate a sufficient 
 amount of the displaced coins to warrant early resumption 
 of specie payments. But instead of facilitating resumption 
 the small notes had the opposite effect and the task of ac- 
 cumulating specie became more difficult than before. 181 In- 
 stead of continuing their policy of retrenchment the officers 
 of the state bank plunged more deeply than ever into finan- 
 cial difficulties. They enlarged its circulation and pro- 
 ceeded to erect a costly banking house, while its stock was 
 quoted at thirty-seven cents on the dollar and the institu- 
 tion itself was rated in New York as utterly insolvent. 182 
 In spite of this condition of affairs the directors voted them- 
 selves, as compensation for their services, the use of four 
 thousand dollars each, without interest. 183 When June 1 
 arrived the directors purchased fifty thousand dollars- 
 worth of state bonds as required by the suspension act, but 
 were unable to pay any dividends on state stock. 184 
 
 So long as the Bank of Illinois continued under the 
 careful management of John Marshall and his colleagues^ 
 
 179 Session Reports, 1840-41, p. 186. 
 180 Laws of Illinois, 1840-41, p. 39. 
 181 Ford, History of Illinois, 226. 
 182 Chicago Democrat, September 14, 1841. 
 183 Sangamo Journal, November 19, 1841. 
 184 Ibid., July 23, 1841. 
 
102 THE DEVELOPMENT OF BANKING IN ILLINOIS [460 
 
 who had guided the bank's affairs in the old territorial days 
 and had revived its charter in 1834, it was at least able to 
 bear up under the crushing load which its partnership with 
 the state had thrust upon it. Its affairs, however, were 
 becoming badly entangled and when it paid the semi-annual 
 dividend in July, its resources were strained to the ut- 
 most. 185 Although the directors had suspended specie pay- 
 ments whenever the other banks of the West had taken 
 such action, they did so with impunity, for they were not 
 liable to forfeiture of their charter. But at length the 
 anti-Marshall faction among the stockholders, defeated in 
 their effort to oust the officers of the bank and to place 
 J. C. Stickney at the head of affairs, instituted quo war- 
 ranto proceedings based upon the plea that the charter of 
 the bank was unconstitutional. As was noted in an earlier 
 part of this discussion, the court decided in favor of the 
 bank's charter. 186 At the annual election of officers, Janu- 
 ary 2, 1843, Mr. Marshall declined election as president and 
 the bank's policy was soon changed to one of getting all 
 that was possible out of a doomed enterprise before it 
 should go to pieces. In their effort to carry out this policy 
 the directors even attempted to defraud the state, as will 
 be seen in connection with the settlement of the bank's 
 affairs. 
 
 In spite of the ever increasing evils of state banking, 
 the Illinois Whigs continued in their loyalty and argued 
 that all that was needed to remedy the situation was an- 
 other national bank to act as a regulator of the state insti- 
 tutions. 187 The opposition of the Democrats was consid- 
 ered by the Whigs as disloyalty to the country's institu- 
 | tions. On the other hand, "the Whigs in the estimation of 
 the Democrats were a set of bank vassals, and were fre- 
 quently called by the Democrats 'the ragocracy.' The presi- 
 
 185 Sanganw Journal, July 23, 1841. 
 
 186 Ibid., January 21, 1841. Decision of the supreme court is found in 
 I Gilm. 672. 
 
 187 Ibid., November 12, 1841. 
 
461] BANKING AND INTERNAL IMPROVEMENTS 
 
 103 
 
 dents and directors of the bank were called 'rag barons/ 
 bank paper was called 'bank rags,' and 'written' or 'printed 
 lies.' " 18S 
 
 Now that the state had finally abandoned the various 
 internal improvement projects, several of the directors of 
 the bank became interested in a proposition to take over 
 the Northern Cross Railroad, which was the most 
 promising of the projected lines of railway. Accordingly, 
 they entered into an agreement to complete the line for 
 the state and to receive payment in Illinois and Michigan 
 Canal bonds. 189 These same directors with the aid of their 
 fellows had made a rule that the bank should not expand 
 its issue of paper during the suspension of specie payments, 
 but now they proceeded to disregard the bank's condition 
 and voted themselves and their business partners generous 
 loans for building the railroad. When a beginning had 
 been made it was easy to continue and even the state came 
 in for an advance to piece out her insufficient revenues. 190 
 Finally in February, 1842, the directors announced that 
 the bank had been compelled to suspend all its operations 
 for an indefinite period. This announcement was followed 
 by the rapid depreciation of its paper. By March 25, the 
 notes had fallen in value from eighty-five cents to fifty, 191 
 while in April they were quoted at forty-four cents. 192 In 
 May the directors discontinued the Chicago, Danville and 
 Jacksonville branches and moved their specie to the parent 
 bank. Instead of resumption, everything now pointed to 
 liquidation. 193 It was confidently expected that the Bank 
 of Illinois would be in a position to resume specie pay- 
 ments in June along with the other western banks, but 
 
 188 Ford, History of Illinois, 227. See, also, article from Belleville 
 Representative copied in Sangamo Journal, February 16, 1839. 
 189 Ford, History of Illinois, 227. 
 190 1 bid., 223. 
 
 191 Sangamo Journal, March 25, 1842. 
 ™ 2 Ibid., April 8, 1842. 
 193 Ibid., May 13, 1842. 
 
104 THE DEVELOPMENT OF BANKING IN ILLINOIS [462 
 
 when the day agreed upon arrived the directors announced 
 that they had been compelled to follow the state bank's 
 example and had therefore ordered an indefinite cessation 
 of the bank's activities. 194 
 
 During the year ending June 30, 1842, one hundred 
 and fifty-two other banks in the United States had closed 
 their doors and the rest had greatly reduced their circula- 
 tion in preparation for the resumption of specie payments. 
 This had led the people of the State of Illinois to rely all 
 the more upon the issues of the Illinois banks until they 
 too suspended operations and their paper became thor- 
 oughly discredited. 195 Moreover, specie to the amount of 
 $798,998.69 lay inaccessible in their vaults. Large amounts 
 of their notes were being accumulated by speculators from 
 the easily frightened countrymen, 190 so that by December, 
 1842, there was not enough money in circulation to carry 
 on the business of the community and resort was had to 
 payment in kind. 197 For the first time the governor, auditor 
 and treasurer made use of the provision in the act of Janu- 
 ary 16, 1836, which authorized them at any time to publish 
 a proclamation forbidding the acceptance of state bank 
 paper in payment of public dues. Collectors were further 
 warned not to take the notes of the Shawneetown bank at 
 more than their current value. 
 
 At this point, which marks the close of their active 
 existence, the writer has brought together a sufficient num- 
 ber of the statements made by the two banks to the legisla- 
 ture to indicate: (1) The general character of their opera- 
 tions during the whole period of their activity; and (2) 
 the specific changes of policy that occurred from year to 
 year. The following table shows the balance sheet of the 
 state bank for the dates indicated : 
 
 194 Goodspeed, pub., History of Gallatin, etc., Counties, ioo. 
 195 Senate Journal, 1842-43, p. 20. 
 196 1 bid., 43. 
 ™ 7 Ibid., 18, 19. 
 
463] 
 
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106 THE DEVELOPMENT OF BANKING IN ILLINOIS [464 
 
 The first statement was made just three months after 
 the bank began business as a private institution. The 
 items in the balance sheet reveal the sources of the funds 
 with which the bank carried on its earlier operations as 
 well as the character of the accommodations extended to 
 borrowers. Subscribers to the $1,400,000 capital stock 
 had made payments to the amount of $278,739.11 in "specie 
 or its equivalent." Judging from the large amount of 
 specie on hand payments must have been made generally 
 through that medium or with funds readily convertible into 
 specie. The $209,396.30 due from other banks is almost 
 entirely offset by the item, "real estate fund, $200,000." 
 The bank had recently borrowed this amount in the East 
 for the purpose of reloaning it on real estate, and the money 
 was still on deposit in a New York bank. 198 Individual 
 deposits form a larger percentage of total liabilities than 
 at any subsequent report. The bank had but a small supply 
 of notes at this time on account of a delay in the shipment 
 of the separate issues provided for each of the branches. 199 
 
 Since the real estate fund was not yet available, 
 scarcely any loans had been made on real estate, the busi- 
 ness being confined to the purchase of bills of exchange and 
 the discounting of promissory notes. 
 
 By January, 1837, the date of the next statement given 
 in the above table, a great change had occurred. Almost 
 all the capital stock had been paid for and an additional 
 sum of $350,000 had been borrowed to re-lend on real estate 
 security. The specie reserve had been increased 225 per 
 cent, while the note issue had been expanded to seven times 
 the amount outstanding in 1835. The bank as the deposi- 
 tary for state funds had on hand $298,799.58 of the pro- 
 ceeds from the sale of Illinois and Michigan Canal bonds, 
 in addition to individual deposits of $475,265.63. The con- 
 stant drafts on the canal funds, however, made that item 
 of little benefit to the bank. The large circulation out- 
 
 198 U. S., H. of R., 24 Cong., 2 Sess., Doc. no. 193, p. 603. 
 1Q9 Ibid. f 615. 
 
465] BANKING AND INTERNAL IMPROVEMENTS 
 
 107 
 
 standing indicates that most of the loans and discounts 
 were received in the form of the bank's notes. The year 
 1836 had been marked by a great demand for accommoda- 
 tion on the part of land speculators and the bank had ex- 
 panded its loans very rapidly ; in fact, but a few weeks be- 
 fore this statement was made it had been compelled to 
 suspend its discount business until it could receive a ship- 
 ment of |280,000 in specie from New York and New Or- 
 leans. At this period the purchase of bills of exchange 
 arising from sales of produce in the South and East formed 
 a large part of the bank's business, for the reason that the 
 bills were readily converted into specie while the ordinary 
 loans or discounts at this period were considered as "slow" 
 assets. 200 The connection of the bank with the lead and 
 pork speculation accounts for a large amount of the out- 
 standing accommodations. 201 
 
 At the time of the next report recorded in the table, 
 the volume of the bank's business had reached the maxi- 
 mum point. The individual stockholders had paid in the 
 full amount of the first stock issue of f 1,400,000 and had 
 to their credit $144,655 on the second issue of one mil- 
 lion dollars. In the meantime the state had received its 
 $2,100,000 in shares, making the total paid up capital 
 $3,644,655.00. However, instead of paying in cash for its 
 shares, the state had turned over to the bank $1,765,000 in 
 bonds. The bank had also been practically compelled to 
 buy $700,000 worth of canal bonds and about $300,000 
 worth of other state securities, in order to retain the good 
 will of the legislature. Thus $2,763,750.00 of the bank's 
 resources were tied up in securities of questionable value 
 and $28,748.73 more had been advanced without interest 
 in order to help make up the deficit in the current expenses 
 of the state government. 202 The proceeds of a recent sale 
 of internal improvement bonds had been deposited with 
 
 200 Special Report, Investigating Committee, 1836-37, p. 40. 
 ^Reports of Session (Senate), 1839-40, pp. 266, 331, 332, et passim. 
 202 Ibid., p. 263. 
 
108 THE DEVELOPMENT OF BANKING IN ILLINOIS [466 
 
 the bank by the fund commissioners and had increased the 
 total deposits to over a million dollars; but the deposit 
 items were soon reduced to their normal amount and as the 
 difficulties of the bank increased, rapidly disappeared. The 
 circulation of the bank had more than doubled, but the re- 
 serve had increased but twenty-five per cent and was equal 
 to but thirteen per cent of the liabilities other than capital 
 stock. The heavy drafts made upon the bank by the state 
 enabled it to turn to a profitable use but $3,700,000 out of 
 its total resources of $8,900,000. The reckless advances 
 made to favorites had increased the discount item to the 
 amount of $3,287,770.60, but almost a million dollars of 
 this amount was pronounced worthless by Doctor Murphy 
 of the legislative investigating committee. 203 
 
 The report for November 16, 1840, shows a marked 
 decline in the general activities of the state bank. But 
 $1,470 had been paid in by private stockholders, making a 
 total of $146,125 paid in on the million dollars stock issue 
 to individuals. The amount loaned on real estate had been 
 reduced and one hundred thousand dollars returned to the 
 original holders of the fund. A surplus of $90,000 had been 
 accumulated for emergencies but the deposits of over a 
 million dollars had shrunk to $107,000. In the face of un- 
 favorable conditions the note issue had been increased 
 while the reserve had decreased more than twenty-three 
 per cent. In their efforts to protect the bank from loss 
 the bank officials were compelled to bid in at judgment 
 sales large amounts of property which they had accepted 
 as security for loans. As may be seen from the "real estate" 
 item, nearly half a million dollars was tied up in this way. 
 The items, "Illinois securities, $2,101,899.59," and "Ad- 
 vances to the state, $243,397.07," indicate what a crushing 
 load the partnership had placed upon the bank's resources. 
 The first amount indicates that the bank had been able to 
 dispose of $600,000 worth of bonds, probably at a heavy 
 discount. The second shows the severe drain that was being 
 
 203 Reports of Session, (Senate), 1839-40, p. 263. 
 
467] BANKING AND INTERNAL IMPROVEMENTS 109 
 
 made upon the bank to meet the state's current obligations, 
 |193,300.65 of it being for the ordinary expenses of govern- 
 ment while the remaining $50,096.42 represents advances 
 for labor and material employed in the internal improve- 
 ment projects. 
 
 The decrease of fifty per cent in discounts and bills of 
 exchange purchased as well as the accumulation of large 
 amounts in eastern banks and listed in the statement as a 
 part of the "$797,278.16 due from other banks" shows that 
 the bank was preparing to resume specie payment along 
 with the other banks of the West and South. 204 
 
 By the time the next report was made, the bank was 
 hopelessly insolvent. It had practically suspended all op- 
 erations but the settlement of outstanding accounts. 
 $568,742.22 of the discounts were listed on the bank's books 
 as "suspended debt" and much of the remaining $826,344.85 
 as well as the loans on real estate later proved to be worth- 
 less. Through the foreclosure of mortgages it had come 
 into possession of over a million dollars' worth of land, but, 
 as will be seen, only a small part of this amount was 
 ever realized. Some of the bonds had been sold but the 
 state had continued to demand advances for current ex- 
 penses until $448,869.59 was due the bank. The bank had 
 suspended its operations since February, 1842, and its sup- 
 ply of specie remained intact. During the preceding period 
 of enforced resumption it had redeemed a large amount of 
 its paper but there was still almost a million and a half 
 outstanding. The large amount of undivided profits is due 
 to the fact that the bank had been forbidden by the legis- 
 lature to declare dividends during a suspension of specie 
 payments. The bank c-untinued in a dormant condition 
 until February, 1843, when it went into liquidation under 
 conditions which will be considered presently. 
 
 ^Reports of Session, 1840-1, 14. 
 
110 THE DEVELOPMENT OF BANKING IN ILLINOIS [468 
 
 The following table shows the condition of the Bank 
 of Illinois at various periods : 
 
 Aug. 5, 1837 Dec. 1, 1838 Nov. 2, 1840 Nov. 12, 1842 
 Loans and discounts..$243,3i8.3i $1,005,568.84 $1,339,215.00 $1,170,619.87 
 
 Bills of exchange 15,444.76 78,850.61 270,738.40 201,843.76 
 
 Suspended debts 28,313.41 133,869.59 
 
 Advances to fund 
 
 commissioners 240,037.04 
 
 Advances for state 
 
 house 84,197.00 
 
 Illinois securities 500,000.00 25,280.96 370,818.84 
 
 Insurance stock 1,500.00 11,200.00 
 
 Due from banks 41,727-93 517,121.58 308,539.63 44,85348 
 
 Real estate 975-00 11,331.91 62,426.95 98,661.24 
 
 Incidental expenses.... 29.25 28,874.95 6,566.67 6,892.05 
 
 Specie 158,610.34 306,708.05 413,255.38 307,040.47 
 
 Notes of other banks 45,450.00 82,772.00 63,147.00 2,605.00 
 
 Other assets 11,982.22 
 
 Total 2,531,227.54 2,843,217.44 2,360,386.02 
 
 Capital 1,288,400.00 1,342,740.00 1,349,240.00 
 
 Circulation 64,846.00 712,204.00 1,262,414.00 757,848.00 
 
 United States de- 
 posits 39,79590 40.00 40.00 40.00 
 
 Unclaimed dividend.... 404.00 707.44 1,908.00 
 
 Individual deposits 121,238.80 74,998.60 90,552.30 88,634.69 
 
 Due to banks 108,665.62 31,211.41 11,684.15 
 
 Branch balances 15,533-35 
 
 Undivided profits 32,029.53 32,838.97 24,092.89 
 
 Surplus fund 4,489.52 67,179,97 126,938.29 
 
 The statement for August 5, 1837, shows the condition 
 of the bank shortly before its transformation from a pri- 
 vate into a quasi-state institution and its consequent en- 
 tanglement in the state's disordered finances. The bank at 
 that time enjoyed an excellent reputation and its balance 
 sheet shows that its creditors were well protected. 205 As 
 special depositary for the receipts of the land office at 
 Shawneetown it was subjected to the supervision of the 
 secretary of the treasury. As has been indicated in another 
 
 205 Senate Journal, 1836-37, p. 352; U. S., Letter of the Secy, of the 
 Treas. on State Banks, 1838, pp. 778-83. 
 
469] BANKING AND INTERNAL IMPROVEMENTS 
 
 111 
 
 connection, the bank as a private institution performed a 
 useful service in southeastern Illinois, confining its accom- 
 modations to lending on local real estate, discounting com- 
 mercial paper and purchasing bills of exchange from 
 commission men who had sold grain and live stock "down 
 the river." 206 
 
 Before the next report listed in the above table ap- 
 peared, the state had subscribed for a million dollars' 
 worth of the bank's stock, paying $100,000 in cash and the 
 rest in bonds. At the time of the report, December 1, 1838, 
 the bank had disposed of $400,000 worth of the bonds. 207 
 It will be seen that the partnership with the state brought 
 about a radical change in the bank's condition. The federal 
 government had withdrawn its deposits with the exception 
 of the nominal sum of forty dollars. The deposits of indi- 
 viduals had decreased forty per cent but the fund commis- 
 sioners had placed in the bank proceeds from the sale of 
 bonds to the amount of $309,996.27. Under the new regime 
 individual deposits ceased to play an important part in 
 the bank's affairs while the deposits made by various state 
 officials never remained in the bank's keeping for any length 
 of time. The large amount ($517,121.58) due from banks 
 may be accounted for by the fact that the bank was now 
 the fiscal agent of the state and was concerned in the trans- 
 fer of funds for the prosecution of the internal improve- 
 ment enterprises. The bank no longer confined its opera- 
 tions to southeastern Illinois, but with its branches in sev- 
 eral important business centers its activities covered a 
 large part of the state. In this way the great increase 
 in the volume of loans, discounts and bills of exchange, as 
 well as the greatly expanded note issue, may be explained. 
 
 The report of November 2, 1840, almost two years 
 later, shows an increased volume of business, but in reality 
 the bank was in a much weaker condition. $28,313.41 of its 
 assets were already listed as suspended debt and, as after- 
 wards developed, a large part of the loans and discounts 
 
 206 Page 82. 
 
 207 Ford, History of Illinois, 190. 
 
112 THE DEVELOPMENT OF BANKING IN ILLINOIS [470 
 
 were uncollectible. Officials in charge of the construction 
 of the new capitol building had obtained advances of $84,- 
 197 without interest, while similar favors had been granted 
 to the fund commissioners for the prosecution of internal 
 improvements. The Bank of Illinois had been more for- 
 tunate than the state bank in that it had been able to 
 dispose of all but $25,280.96 of its state bonds. The large 
 increase in the "real estate" item is probably due to the 
 erection of a banking house at Shawneetown at a cost, 
 when completed, of $80,000. 208 The bank had suspended 
 specie payments in October, 1839, and had thus been able 
 to maintain its specie reserve pending resumption by all 
 the western banks in January, 1841. 209 Meanwhile, the 
 outstanding circulation had increased steadily until it was 
 now greater by seventy-five per cent than in 1838. The 
 comparatively large amount of undivided profits represents 
 the earnings which had accumulated since the semi-annual 
 dividend of three per cent in June. It will be noted that 
 during the preceding two years a considerable sum had 
 been set aside by the directors as a surplus. 
 
 In June, 1842, as has been noted, the Bank of Illinois 
 suspended operations and soon after the date of the last 
 report in the table went into liquidation. Comparatively 
 little change had occurred in the status of loans and dis- 
 counts save that an increased amount had been charged 
 under "suspended debts." The $370,818.34 listed under 
 "Illinois securities" represents the scrip given to the bank 
 by the state in payment of the advances noted in the report 
 for 1840. The $11,982.22 listed in the table as other assets 
 represents the balances of the various branches. The bank 
 had withdrawn a considerable amount of its paper from 
 circulation and had increased its surplus to $126,938.29 
 but, as will be seen, its loans and discounts proved to be 
 entirely undependable when the final settlement was made. 
 
 In the gubernatorial campaign of 1842 former Gover- 
 nor Duncan became the candidate of the Whigs against 
 
 208 Goodspeed, pub., History of Gallatin, etc., Counties, 100. 
 209 Sangamo Journal, December 19, 1840; Laws of Illinois, 1839-40, 
 P- 15. 
 
471] BANKING AND INTERNAL IMPROVEMENTS 
 
 113 
 
 Judge Ford of the supreme court. The Democrats stigma- 
 tized Mr. Duncan as a British bank Whig and he in turn 
 cited his various acts while governor as consistently hostile 
 to the banks. 210 The majority in both parties was in favor 
 of putting the banks into liquidation, but a few still clung 
 to the hope that the banks would soon resume their opera- 
 tions. Judge Ford, the Democratic candidate, took the 
 stand that a compromise should be made by which the state 
 and the banks would dissolve partnership, leaving them to 
 settle up their own affairs and go out of business. 211 In 
 spite of the presence of a substantial element of radical 
 anti-bank Democrats in his party, Judge Ford was elected. 
 The sympathies of Mr. Carlin, the retiring governor, were 
 with the more radical wing of his party but, out of defer- 
 ence to Mr. Ford, he agreed to omit from his farewell mes- 
 sage the paragraphs recommending summary treatment 
 of the banks. 212 In the meantime, however, he succumbed 
 to the influence of the anti-bank element and, much to Mr. 
 Ford's surprise, recommended to the legislature prompt 
 repeal of the banks' charters. 213 He gave as his reason for 
 urging such action that the banks deserved no further 
 respite, for they had utterly failed to accomplish the pur- 
 pose for which they were created. He felt that the time 
 had come when the freedom of the individual citizen should 
 be asserted against the domination of vested interests. In 
 his inaugural message, Governor Ford presented the pos- 
 sible avenues of escape from the existing bank situation and 
 the consequences attached to each of them. The first was 
 to allow the banks to make an effort at resumption; the 
 second, to wind them up abruptly and withdraw their notes ; 
 the third, to effect a compromise by which the state bonds 
 held by the banks would be exchanged for the state's stock 
 in the banks, dollar for dollar. He argued that the first 
 plan would be feasible in the case of a small neighborhood 
 institution, but wholly impracticable in the case of banks 
 
 210 Sangamo Journal, May 13, 1842. 
 
 211 Ford, History of Illinois, 293; Alton Telegraph, April 1, 1843. 
 212 Ford, History of Illinois, 298. 
 * 13 Senate Journal, 1842-43, p. 21. 
 
114 THE DEVELOPMENT OF BANKING IN ILLINOIS [472 
 
 with a circulation of four and a half millions scattered 
 over the whole United States. In opposition to the second, 
 and in support of the third, plan he argued that if the 
 state's three millions in stock of suspended banks were 
 thrown upon the market very little could be realized and 
 the value of the shares of individuals would be practically 
 wiped out. 214 
 
 Mr. Ford was opposed in the legislature by the radical 
 wing of his party under the leadership of Secretary of State 
 Trumbull. In fact, Mr. Trumbull became so active in his 
 opposition to a compromise with the banks that the gover- 
 nor removed him from office. 215 In spite of the anti-bank 
 faction, however, a joint resolution was passed recommend- 
 ing the dissolution of the connection between the state and 
 the banks, and authorizing the governor, auditor and fund 
 commissioner to find out upon what basis a settlement 
 could be had. 216 These officers entered into negotiations 
 with the banks and in a short time submitted the following 
 report from the state bank : The state was indebted to the 
 bank to the extent of |2,152,404.09, 217 while the bank was 
 liable to the state for $2,100,000 invested in shares of stock. 
 The directors were willing to settle with the state by ex- 
 changing the bonds and other evidences of state indebted- 
 ness for stock, dollar for dollar. The relationship between 
 the two would thus be dissolved and the bank would be 
 allowed to continue as a private institution with only a 
 nominal amount of state shares to use as a defense against 
 attacks on its constitutionality. 218 This plan was embodied 
 
 214 Senate Journal, 1842-43, pp. 36 ff. 
 
 215 Independent Democrat (Springfield), March 20, 1843; Gerhard, 
 Illinois as it is, 103. 
 
 216 Laws of Illinois, 1842-43, p. 321. 
 
 217 This amount was made up as follows : 
 
 Bonds $1,686,000.00 
 
 Scrip 17,534.50 
 
 Advances for current expenses 292,373.17 
 
 Advances to fund commissioners 156,496.42 
 
 $2,152,404.09 
 
 218 Reports of Session (Senate), 1842-43, p. 94. 
 
473] BANKING AND INTERNAL IMPROVEMENTS 115 
 
 in a bill drawn up by Governor Ford and presented by Mr. 
 McClernand, chairman of the House committee on finance. 
 In his speech, which was later published in pamphlet form, 
 Mr. McClernand showed in an able manner the unquestion- 
 able wisdom of a complete divorce between the state and 
 the banks. He estimated that the state had already paid 
 out |360,000 interest on the bonds used in buying bank 
 stock and had received in dividends but |207,500. If she 
 continued this relationship, at the present outlook she 
 would be called upon to meet the interest but with the 
 prospect of no dividends whatever. 219 The bill was passed 
 by a vote of 107 to 4 and sent to the senate, where the oppo- 
 sition tried to kill it with amendments, but it was passed / 
 without serious difficulty and received the approval of the 
 council of revision. 
 
 The act required the state bank to go into liquidation 
 at once and within thirty days to pay all its specie over its 
 counters, except fifteen thousand dollars, to depositors and 
 holders of notes. The officers of the bank were first to 
 ascertain the ratio which the supply of specie on hand bore 
 to the amount of notes and deposits and no person was to 
 receive more than that proportion of nis claim in specie. 
 For the balance, he was to be given certificates good for 
 payment of debts to the bank and for the purchase of bank 
 land sold on execution. Four years were allowed for the 
 complete settlement of affairs and at the end of each year 
 a distribution of specie was to occur until all notes and 
 certificates were redeemed. Debtors, however, were to be 
 allowed to pay their obligations in five instalments. The 
 act created the office of state bank commissioner, whose 
 duties were as follows : ( 1 ) superintend the transactions 
 of the bank officers; (2) act as a state director; (3) obtain 
 information (by administering oaths, if necessary), and 
 stop all questionable practices with court injunction, if 
 needed. The bank was given only three days in which to 
 accept or reject the provisions of the law. If it accepted, 
 
 219 Speech of J. A. McClernand : On Bill to Divorce Banks of Illinois 
 from State. 
 
116 THE DEVELOPMENT OF BANKING IN ILLINOIS [474 
 
 it must deliver to the governor evidences of state indebted- 
 ness to the amount of $2,050,000 and receive from him a 
 like amount of its stock. 220 The state directors were then 
 required to resign in favor of the state bank commissioner, 
 and if any differences should thereafter arise between the 
 state and the private directors the matter must be left to 
 arbitration. 221 All the branches were to be closed at once 
 and all the bank's property appraised and sold at public 
 auction. 222 
 
 The terms of the act were promptly approved by the 
 directors, who delivered to the governor $1,786,000 in bonds 
 and $287,501.51 in auditor's warrants, thereby reducing the 
 state debt by $2,073,501.51. 223 When the governor and the 
 general assembly gathered in front of the state house and 
 made a bonfire of the bonds, the spirit of repudiation was 
 destroyed with them and the general feeling pervailed that 
 the state was on the road to recovery from the effects of six 
 years of folly. 224 The legislature then proceeded to enact 
 several minor laws relating to the banks, chief among 
 which was the act of February 23, which provided that no 
 note issued by an Illinois bank should be received for public 
 dues and that holders of auditors' warrants should cease 
 to receive interest. 225 The act of February 25 authorized 
 the treasurer to pay out all Illinois bank notes in his pos- 
 session at their current value, which at that time was less 
 than fifty cents on the dollar. 226 
 
 Governor Ford appointed N. H. Purple state bank 
 commissioner and he assumed his duties, January 31. In 
 his examination of the bank's books he found that $476,- 
 
 220 This left a nominal state holding of $50,000 in the bank. 
 
 221 This method was resorted to on August 14, 1845, in order to settle 
 a claim held by the bank against the state. The arbitrators awarded the 
 bank $85,380.45. Reports of Session (H. of R.), 1846-47, p. 20. 
 
 222 Laws of Illinois, 1842-43, pp. 21 ff. 
 
 223 Greene and Thompson, Governors' Letter-Books, ii, 51-53. 
 224 February 9, 1843. Senate Journal, 1844-45, P- 10; Greene and 
 Thompson, Governors' Letter-Books, ii, 54. 
 225 Laws of Illinois, 1842-43, p. 231. 
 22Q Ibid., 231. 
 
475] BANKING AND INTERNAL IMPROVEMENTS 
 
 117 
 
 772.53 in specie was available for paying noteholders and 
 depositors. Of this amount, he authorized the cashier to 
 pa} 7 $8,432 on a judgment and f 15,000 was placed on re- 
 serve according to the terms of the liquidation act. The 
 remaining $453,349.53 was distributed among the depos- 
 itors and noteholders as their first dividend. By the time 
 Mr. Purple made his first report, December 2, 1844, the 
 bank had reduced the outstanding circulation from $1,- 
 430,308 to $229,901.00 and its total liabilities other than 
 capital stock to $870,000. In his judgment, the assets would 
 be sufficient to meet this obligation, but he offered no en- 
 couragement to the holders of the more than $1,500,000 
 worth of capital stock. 227 
 
 In his message to the legislature, which met in Decem- 
 ber, 1844, Governor Ford commented on the great improve- 
 ment that had taken place. The depreciated notes of the <t 
 banks had been withdrawn from circulation and specie and 
 the paper of specie paying banks had succeeded them. A 
 period of economy had followed the reckless extravagance 
 and accumulation of indebtedness which characterized the 
 whole internal improvement era. Mr. Ford granted that 
 banks were necessary to a community with well established 
 business interests, but he was convinced from almost thirty 
 years of observation that Illinois succeeded better without 
 them. He cited the three successive failures in conducting 
 banks in the state as proof of his assertion and added that 
 so long as debtors were so indifferent about meeting their 
 obligations a bank was impossible. 228 
 
 During the year 1845 some progress toward a final 
 settlement was made by the state bank, but its assets Avere 
 shrinking at an alarming rate. The expense account due 
 to salaries, taxes, fees and court costs left little for the 
 creditor. In his report for 1846 the commissioner listed 
 under available assets: bills and notes receivable, $432,- 
 856.35, suspended debts $460,098.21, loans $50,218.23, real 
 estate (nearly all of it pledged by bank debtors) $1,009,- 
 
 227 Reports of Session (H. of R.), 1844-45, P- 123. 
 228 Senate Journal, 1844-45, P- J 0- 
 
118 THE DEVELOPMENT OF BANKING IN ILLINOIS [476 
 
 522.86, which, with $11,193.21 in coin, made a total of 
 $1,020,716.07. On the other hand, the liabilities other than 
 capital amounted to $663,073.62, so that if every dollar of 
 the assets could be realized there would be left for the 
 holders of $1,544,655 worth of stock but $357,642.45, not 
 to mention the fact that they had not received a dividend 
 in several years. 229 The editor of the Alton Telegraph, in 
 commenting upon the situation, condemns the state for 
 causing what he considers an entirely unmerited loss to the 
 private stockholders. In proof of his assertion he cites the 
 fact that the private holders of shares were compelled to 
 pay for them with specie while for the greater part of the 
 state's stock there was placed in the bank at their face 
 value an issue of bonds worth but twenty cents on the dol- 
 lar. He calculated that if the state had paid the same pro- 
 portion of specie as had been exacted from individuals the 
 bank could reimburse its shareholders to the extent of 
 seventy-eight cents on the dollar instead of twenty-six, the 
 former figures comparing favorably with the terms of settle- 
 ment of any western bank. 230 
 
 Governor Ford may be pardoned for mildly boasting 
 in his farewell message in 1846 of the improvement in con- 
 ditions since his inauguration in 1842. At the earlier date 
 the state had become indebted for bank stock and internal 
 improvements to the extent of over fourteen millions. The 
 books of the treasurer showed a deficit of more than 
 $313,000 current expenses. The warrants of the auditor 
 were received at fifty cents on the dollar and the state's 
 credit had fallen into so great disrepute that the postmaster 
 at Springfield refused to deliver any mail to the state 
 house unless some one became personally liable for the 
 postage. The "credit" habit had taken such a hold on the 
 people that the liquidation of debts, both public and pri- 
 vate, seemed hopeless. By 1846 the annual shortage for 
 
 ^Reports of Session (H. of R.), 1846-47, p. 25. 
 
 230 'Alton Telegraph, July 4, 1846. The final outcome was that the 
 stockholders received nothing at all. Reports of Session (Senate), 1859, 
 P. 831. 
 
477] BANKING AND INTERNAL IMPROVEMENTS 119 
 
 current expenses amounted to but $20,000. The warrants 
 of the auditor were received nearly at par in spite of the 
 fact that they no longer bore interest. The period of reck- 
 less banking had come to an end and a dependable cur- 
 rency had come in to take the place of depreciated notes. 
 The state debt had been reduced by three millions and pro- 
 vision had been made to pay five millions more as soon as 
 the canal should be completed. The general situation all 
 over the country had improved, as was evidenced by the 
 lively demand for land on the part of newly arrived set- 
 tlers". 231 
 
 The feeling against banks was too universal to warrant 
 a candidate for governor running on a pro-bank platform. 
 Although the more intelligent citizens realized the need of 
 adequate banking facilities, the politicians in both parties 
 were eager to clear themselves of any responsibility for the 
 events of the last ten years and announced their opposition 
 to the incorporation of any more banks. Aside from a word 
 of commendation for the bank policy of the Ford adminis- 
 tration, Governor French in his inaugural address had little 
 to say on the subject. 232 As the date set for the end of the 
 state bank's existence (March 4, 1847) approached, Mr. 
 French found that institution far from ready to wind up 
 its affairs. The officers of the bank had collected nearly 
 a million dollars, which was about all that the general con- 
 dition of its debtors seemed to permit. For this reason 
 only, the House committee on banks recommended that an 
 extension of time be granted, but that in so doing care 
 should be exercised "to leave no spark of vitality in the 
 bank or its charter." 233 This was seized upon by the advo- 
 cates of the bank, however, as the psychological moment 
 for securing the revival of the state bank, and they pre- 
 sented a bill to recharter that institution for five years. 
 A surprisingly large minority was found to be in favor of 
 
 231 Senate Journal, 1846-47, pp. 8 ff. 
 232 Ibid., pp. 15 ff. 
 
 233 Re ports of Session (H. of R.), 1846-47, p. 276. 
 
120 THE DEVELOPMENT OF BANKING IN ILLINOIS [478 
 
 the measure, 234 but it was compelled to give way to the act 
 of March 1, 1847, which extended the life of the bank until 
 November 1, 1848, for the sole purpose of settling its affairs. 
 It provided that if by that time the affairs of the bank were 
 still unsettled the governor should appoint three trustees 
 to wind up its business. The legislature was determined to 
 discourage any undue procrastination on the part of the 
 directors and incorporated several provisions calculated to 
 stimulate a speedy settlement : (1) It was provided that 
 the certificates given to note holders and depositors should 
 draw six per cent interest until paid; (2) All accounts due 
 the bank ceased to draw interest from the date of passage 
 of the act; (3) Any creditor was thereafter at liberty to 
 attach any of the bank's real estate and obtain judgment by 
 forced sale; (4) The local assessors were commanded to 
 tax all bank property within their jurisdiction, whereas 
 before it had been exempted and a capital stock tax paid 
 into the state treasury. 235 
 
 When the first of November, 1848, arrived, the affairs 
 of the bank were far from settlement, so the governor ap- 
 pointed N. H. Ridgely, the cashier, Uri Manly and John 
 Calhoun trustees to settle its affairs. Thereupon the di- 
 rectors resigned and assigned all the remaining assets to 
 the trustees. 236 In their report to the governor in 1851, 
 the trustees stated that the assets of the bank would not 
 meet its liabilities and that the stock was utterly worthless. 
 During their tenure of office they had collected only $36,- 
 666.85 with which to pay obligations, other than capital 
 stock, to the extent of $454,190.96. The book value of the 
 real estate and the suspended debts due the bank was 
 $1,444,000, but only a small part of this amount could ever 
 be realized. 237 Mr. Ridgely shortly afterwards offered to 
 Governor French $50,000 in state bonds in settlement of 
 the stock still held by the state. Governor French refused 
 
 ^Chicago Democrat, February 23, 1847. 
 
 235 Laws of Illinois, 1846-47, p. 20. 
 
 23Q Bankers Magazine, iii, 382. 
 
 237 Reports of Session (Senate), 1851, pp. 137, 138. 
 
479] BANKING AND INTERNAL IMPROVEMENTS 
 
 121 
 
 to take the bonds until lie heard that a Cincinnati creditor 
 of the bank was about to seize them. He then accepted 
 them, with the approval of the legislature, and the state's 
 connection with the bank was brought to an end. 238 
 
 The settlement of the bank's affairs continued to drag 
 along year after year until in 1857 Governor Bissell at- 
 tempted to remove Messrs. Ridgely, Manly and Calhoun, 
 and appointed three new trustees. The old board, however, 
 refused to give up the property in their hands and Mr. 
 Bissell instituted quo warranto proceedings to oust them. 
 The court decided that with the surrender of the $50,000 
 of state stock the bank ceased to be subject to the state's 
 jurisdiction and that the removal of the trustees was pos- 
 sible only by judicial proceedings begun by a stockholder. 
 Governor Bissell was determined nevertheless that the state 
 should interfere in the conduct of the bank's affairs and 
 secured the appointment of a committee of the legislature 
 to inquire into the affairs of the trustees. They found that 
 Mr. Manly had ceased to take an active interest in the 
 bank's business and that Mr. Calhoun had moved to Kansas. 
 These gentlemen, however, continued to draw the annual 
 stipend of $1,000, but they each remitted $250 of this 
 amount to Mr. Ridgely for doing all the work. 239 Mr. 
 Ridgely, when called to the stand, scored the committee for 
 intruding into the affairs of a private institution, but gave 
 them a fund of information about the progress that had 
 been made and the reasons for delay in settlement. 
 
 The liabilities still outstanding in 1859 — sixteen years 
 after the bank had gone into liquidation — amounted to 
 $150,000, while the more than $1,500,000 invested in capital 
 stock was a total loss to the investors. The assets amounted 
 to fifteen or twenty thousand dollars in cash and "some 
 old debts due for fifteen or twenty years and practically 
 worthless." The trustees had held office for eleven years, 
 but had been able to declare but one dividend of sixteen 
 and two-thirds per cent to the note holders and depositors. 
 
 238 Re ports of Session, 1859, p. 841. Senate Journal, 1852, p. 13. 
 ^Reports of Session (H. of R.), 1859, p. 838. 
 
122 THE DEVELOPMENT OF BANKING IN ILLINOIS [480 
 
 Asked as to the trustees' plan for a final settlement, Mr. 
 Kidgely replied that they purposed to advertise all the 
 assets, chiefly land, for sale, but most of the land was very 
 undesirable or had a faulty title. Arrangements for such 
 a sale had all been completed when a Mr. Corwyth, the 
 holder of a large amount of outstanding certificates, at- 
 tached forty or fifty thousand dollars' worth of land in the 
 lead region and the sale had to be postponed. Mr. Ridgely's 
 explanation of the poor showing made by the trustees was 
 that property had been accepted years ago at ten times its 
 value and the notes of persons afterwards hopelessly insol- 
 vent had been freely discounted. One of the most interest- 
 ing episodes in the lengthy examination occurred when the 
 witness was questioned about the personal relations of the 
 trustees with the bank : 
 
 Mr. Mack : "You are reaching a low point in the avail- 
 able assets of this bank and yet there is a constant and con- 
 tinuous drain upon these assets of at least three thousand 
 dollars a year, to pay for the services of trustees when one 
 man could discharge the duties just as well as three." 
 
 Witness (Mr. Ridgely) : "There is no question of that. 
 Then again, I suppose that the creditors and individual 
 stockholders would rather have one trustee than three but 
 the legislature thought otherwise." 
 
 Mr. Mack: "But suppose that the legislature should 
 alter or repeal that law?" 
 
 Witness: "I don't think that they could touch it. 
 If we are under the supervision of the courts the legislature 
 has no control over us." 
 
 Mr. Mack: "Mr. Calhoun (who had moved out of the 
 state) could resign but you cannot remove him without 
 application to a court of chancery . . . and up to the time 
 the court removes him he continues to draw $1,000 a year?" 
 
 Witness : "He never has drawn but f 750 a year. The 
 arrangement was that I should do all the work and take 
 half the pay ($1,500) ," 240 
 
 The closing sale of the bank's real estate and chattels 
 was held in November, 1862, when auctions were held at 
 ^Reports of Session (H. of R.), 1859, p. 838. 
 
481] BANKING AND INTERNAL IMPROVEMENTS 
 
 123 
 
 Mineral Point, Wisconsin, and Springfield. 241 Upon the 
 death of Mr. Ridgely, the trusteeship of the state bank was 
 handed over to Mr. William Ridgely, his son, who has been 
 called upon a number of times to help clear the title of 
 property in which the bank had an interest at some time. 242 
 The history of the settlement of the affairs of the Bank 
 of Illinois at Shawneetown is somewhat similar to that of 
 the state bank. At the time when a committee of state 
 officers (1842) had inquired upon what terms the directors 
 of the Bank of Illinois would settle they replied that they 
 would buy the state's stock and pay for it with bonds ; but 
 instead of being compelled to go into liquidation they in- 
 sisted upon continuing as a private institution. 243 The 
 legislature was determined that the bank should end its 
 existence and yet could not make any alterations in the 
 original charter without the bank's consent. In order to 
 induce the directors to accept a plan for a compromise with 
 the state similar to the one made with the state bank, and 
 yet compel them to go into liquidation, two laws were 
 passed. One, very stringent in its terms, provided for the 
 immediate assignment of all the bank's assets to three com- 
 missioners who were to be clothed with extraordinary 
 powers. 244 The other was much more mild and provided 
 for an equitable settlement with the state and the liquida- 
 tion of the bank's affairs under the direction of its own 
 officials. 245 The scheme of the legislature succeeded and 
 the bank committed itself to an agreement to turn over to 
 the governor $500,000 in evidences of state indebtedness 
 at once, and the remaining f 500,000 within a year with in- 
 terest at six per cent. The state was to retain three direc- 
 tors until the full amount was received. The governor 
 accepted the first payment and surrendered a like amount 
 of capital stock held by the state. The directors then pro- 
 
 241 Bankers Magazine, xvii, 476. 
 
 242 An example of this is the site of the Auditorium Hotel and Theater 
 in Chicago. Knox, History of Banking in the United States, 722. 
 243 Reports of Session, 1842-43, p. 201. 
 244 Laws of Illinois, 1842-43, p. 27. 
 24 Hbid., 30. 
 
124 THE DEVELOPMENT OF BANKING IN ILLINOIS [482 
 
 ceeded to wind up the bank's business under about the same 
 provisions as had been laid down for the state bank. 
 
 The Bank of Illinois, as has been noted, had recently 
 changed hands and was now controlled by a group of men 
 who intended to make the most of their opportunity. Just 
 before the passage of the liquidation act they borrowed 
 $100,000 of the bank's specie and spent it in buying state 
 bonds for a few cents on the dollar. Among the bargains 
 obtained was one from Macalister and Stebbins who had 
 advanced $261,500 to the state and were still holding 
 $804,000 as security. Although the title to these bonds 
 was still vested in the state, the firm did not hesitate to 
 dispose of $333,000 worth of them to the Shawneetown 
 bankers. These men now repaid their $100,000 loan to 
 the bank with bonds, reaping a profit of more than seventy 
 cents on the dollar. But they did not stop at this point 
 for they owed other large amounts which they now settled 
 with bonds. When the time came for making a final settle- 
 ment with the state, these Macalister and Stebbins bonds 
 were tendered to Governor Ford at their face value. When 
 the governor refused to accept them the directors sought 
 to compel their acceptance by an order of the court but the 
 judge refused to issue a mandamus against a co-ordinate 
 branch of the government. 246 
 
 When Governor Ford found that Macalister and Steb- 
 bins were unable to make a settlement with the state and 
 that the Shawneetown bank shares held by the state were 
 daily becoming more worthless, he received the disputed 
 bonds subject to the consent of the legislature. For a 
 time that body refused to give its sanction but later agreed 
 to accept the bonds at forty-eight cents on the dollar, leav- 
 ing a balance of $295,000 still due from the bank. 247 In 
 December, 1844, after nearly two years devoted to settling 
 the bank's affairs, the state commissioner reported that 
 the cashier by paying $166,885.50 in specie to creditors 
 
 'Greene and Thompson, Governors' Letter-Books, ii, 106, 107. 
 Ibid., 120; Lazes of Illinois, 1844-45, P- 246. 
 
483] 
 
 BANKING AND INTERNAL IMPROVEMENTS 
 
 125 
 
 and by matching debits against credits through the medium 
 of the notes and certificates, had settled more than a third 
 of the obligations other than capital stock. He estimated 
 that from a half to three-fourths of the assets were good. 248 
 The legislature decided, however, to abolish the office of 
 commissioner and authorized the bank to place its property 
 in the hands of four assignees. As fast as any evidences 
 of state indebtedness came into the bank's hands, they 
 were to be turned over to the state in payment of the 
 $295,000 still due it in the exchange of bonds for stock. 
 If after four years the amount was not paid in full, the 
 state's claims were to be preferred over that of the stock- 
 holders to the extent of $20,000 if necessary. If, however, 
 at the time of the final settlement there still remained a 
 balance due the state, the assets were to be divided between 
 the state and the private stockholders in proportion to 
 the amount of their respective stock holdings at that 
 time. 249 The assignees found that the four years time 
 allotted to them were entirely inadequate for the per- 
 formance of their task so the legislature advanced the date 
 of final settlement to January 1, 1851. 250 After that date 
 the assignees were given the power to sue in their own 
 names; the assets and liabilities arising at Shawneetown 
 and Lawrenceville were accepted by Messrs. Caldwell and 
 Ryan and those at Jacksonville, Alton and Pekin by 
 Messrs. Dunlap and Smith. The assignees had not only 
 never paid the state any part of the $295,000 still due but 
 had allowed interest on it to accumulate to the extent of 
 $62,000. 251 In 1852 the State Bank of Missouri united with 
 several other creditors in bringing a chancery suit in the 
 federal courts against the Bank of Illinois and its 
 assignees. The court ordered the assignees to turn over 
 the bank's affairs to three receivers who were instructed 
 to settle up the business as speedily as possible. The legis- 
 
 2 * 8 Reports of Session (H. of R.), 1844-45, P- 163. 
 249 Laws of Illinois, 1844-45, P- 2 46. 
 250 Ibid., 38. 
 
 251 Re ports of Session (Senate), 1849, p. 104. 
 
126 THE DEVELOPMENT OF BANKING IN ILLINOIS [484 
 
 lature ratified this action by an act recognizing the receiv- 
 ers as the legal successors of the Bank of Illinois. 252 Only 
 one of the receivers qualified for the office and in 1853 he 
 proceeded to sell at public auction the remaining effects of 
 the bank. The handsome four story building erected at a 
 cost of $80,000 was bought by Governor Matteson for 
 $15,000 and other property was disposed of at similar 
 sacrifices. 253 The claims of the note holders and depositors 
 seem to have been settled in a fairly satisfactory way but 
 after the state had been reimbursed and the receivers' fees 
 and court costs paid there was nothing left for the 14,884 
 private stockholders. 254 
 
 But little attention was paid by the press or the legis- 
 lature to the Bank of Cairo which was opened at Kaskaskia 
 by a group of investors who had obtained possession of its 
 unused territorial charter. As late as 1839 the bank bore 
 a good reputation and furnished a considerable portion of 
 the medium of exchange in south-western Illinois. 255 A 
 large portion of its stock was held by Wright and Com- 
 pany, London bankers, as agents for various owners, hence 
 the policy of the bank could be dictated by the holders of 
 their proxies. 256 The directors suspended specie payment 
 with the other western banks but on account of their lim- 
 ited clientage their action did not attract wide attention. 257 
 In 1840 the Bank of Cairo was declared to be serving the 
 interests of its locality better than the other Illinois banks 
 were doing in their respective territories. It furnished 
 about seventy per cent of the small notes in circulation in 
 the region tributary to St. Louis, and thus supplied the 
 demand for change much more easily than its larger rivals 
 who depended upon gold and silver or the notes of other 
 banks for amounts less than five dollars. The directors 
 made a specialty of the small notes, for the fact that they 
 
 252 Laws of Illinois, 1851, p. 120. 
 
 253 Goodspeed, pub., History of Gallatin, etc., Counties, 100. 
 ^Chicago Democrat (weekly), September 10, 1853. 
 255 Sangamo Journal, December 24, 1839. 
 256 Chicago American, January 15, 1841. 
 
 257 Greene and Thompson, Governors' Letter-Books, ii, 60, 61. 
 
485] 
 
 BANKING AND INTERNAL IMPROVEMENTS 
 
 127 
 
 were always in demand kept them from being presented for 
 redemption. 258 In reply to the charge of a St. Louis paper 
 to the effect that the bank was not solvent, the cashier 
 published a statement in September, 1840, of the resources 
 and liabilities. At that time a circulation of $200,138.00 
 and deposits of about $13,000 constituted the only liabili- 
 ties in addition to the capital and surplus of $295,000. To 
 offset these items there was specie to the amount of $112,- 
 451.70, eastern exchange to the extent of $10,096.85 and 
 loans and discounts to the amount of about $350,000. Of 
 this last item more than $250,000 was created by the pur- 
 chase of bills of exchange arising from the shipment of 
 produce down the Mississippi. 259 The bank later became 
 heavily involved in the operations of the Cairo City and 
 Canal Company, a corporation engaged in constructing 
 levees and other public works at Cairo, and its standing 
 began to be questioned. 260 The result was that the notes 
 had depreciated five or ten per cent before those of the 
 other Illinois banks had begun to suffer a discount. 261 A 
 year later, the affairs of the bank were in so hopeless a 
 condition that its paper was refused by brokers. 262 In 
 February, 1843, the directors went into bankruptcy and 
 assigned all the bank's property, thereby virtually surren- 
 dering their charter. 263 Thereupon the legislature by the 
 act of March 4, 1843, formally repealed the act of incorpor- 
 ation and provided a plan for the speedy settlement of the 
 bank's affairs. 264 Governor Ford and the legislature were 
 criticized for the immediate repeal of the charter of the 
 Cairo bank when the other banks were allowed such liberal 
 terms of settlement. In his reply to these criticisms, the 
 governor justified the more severe treatment of the Bank 
 of Cairo by the fact that it had expanded its discounts 
 
 258 Chicago American, September 18, 1840. 
 259 Ibid. 
 
 260 Ibid., January 15 and 21, 1841. 
 °-^Ibid., July 2, 1841. 
 
 2G2 Chicago Democrat (weekly), June 8, 1842. 
 
 263 Ibid., March 21, 1843. 
 
 2& *Laws of Illinois, 1842-43, p. 36. 
 
128 THE DEVELOPMENT OF BANKING IN ILLINOIS [486 
 
 beyond all hope of redeeming the consequent issue of notes, 
 that it had operated under a charter of very doubtful 
 legality and that the directors had already virtually sur- 
 rendered the charter when they assigned their office and 
 placed the bank in the hands of receivers. 265 It was at first 
 believed that with the specie in the vaults and the money 
 obtained from the sale of the Cairo Canal Company's prop- 
 erty the notes of the bank could be redeemed at par 266 but 
 the late cashier of the bank disappeared with the whole 
 supply of specie. Some years later, enough was realized 
 from the remaining assets to redeem the notes at five cents 
 on the dollar. 267 
 
 A history of the banking operations during the period 
 of internal improvements would not be complete without 
 some discussion of the more or less illegal banking opera- 
 tions that were carried on in Chicago. 268 Up to 1835 there 
 was little demand for banking facilities in Chicago. Gor- 
 don S. Hubbard, a local merchant, kept a bank account at 
 Buffalo and supplied the other traders with drafts on the 
 East. As has already been noted, however, the population 
 and commercial importance of the village were increasing 
 at so rapid a rate that the directors of the state bank 
 located a branch in that place. 269 The paper of the branch 
 bank furnished but a small part of the circulating medium, 
 however, for Chicago was rapidly becoming the commercial 
 center of the whole Northwest; hence the bills of Wiscon- 
 sin, Michigan and Indiana banks mingled freely with those 
 of the Illinois banks and helped to drive out what little 
 specie there was. For small change the merchants issued 
 4 tickets "good for groceries," "good for tobacco," "good for 
 a drink," etc., according to whatever business the person 
 issuing the notes followed. 270 The legislature of 1835-36, 
 
 265 Greene and Thompson, Governors' Letter-Books, ii, 60, 61. 
 -^Chicago Democrat (weekly), March 21, 1843. 
 267 'Illinois State Journal, February 2, 1862. 
 
 268 This subject is treated at great length by Andreas in his History of 
 Chicago. 
 
 269 Morris, History of the First National Bank of Chicago, 26. 
 270 Andreas, History of Chicago, i, 531. 
 
487] BANKING AND INTERNAL IMPROVEMENTS 
 
 129 
 
 in addition to chartering banks, had incorporated the Chi- 
 cago Marine and Fire Insurance Company with a capital 
 of $100,000. After granting to the company the usual 
 powers possessed by a concern of that character the priv- 
 ilege of receiving deposits and lending money was added 
 but the issue of paper "in the similitude of bank notes" / 
 was strictly forbidden. 271 In May, 1837, the directors of 
 the company announced that during the "deranged condi- 
 tion" attendant upon the panic of 1837 they would make 
 loans and receive deposits. Depositors were given certifi- 
 cates redeemable in specie on demand which, although they 
 bore no physical resemblance to bank notes, circulated 
 freely at par. When the company finally went into volun- 
 tary liquidation its notes were redeemed and retired with- 
 out the slightest loss or friction. 272 
 
 In the meantime, Mr. George Smith of Aberdeen, 
 Scotland, visited Chicago and was so impressed with the 
 prospects of the city and the surrounding country that 
 upon his return to his native land he induced his friends to 
 unite with him in forming the Scottish Illinois Land and 
 Investment Company. They bought and sold Illinois real 
 estate, obtaining large returns until the panic of 1837 
 brought business to a standstill. Smith hastened to Amer- 
 ica to look after his interests and during his sojourn in 
 Chicago was so impressed with the success of the Chicago 
 Marine and Fire Insurance Company's operations that he 
 decided to conduct a similar enterprise. Accordingly he 
 obtained from the territorial legislature of Wisconsin the 
 charter of the Wisconsin Marine and Fire Insurance Com- 
 pany with a capital of $225,000, all of which was taken by 
 Smith and a small group of fellow countrymen. The head 
 office was nominally in Milwaukee, but Mr. Smith carried 
 on the greater part of his operations in Chicago. 273 In spite 
 of the fact that the issue of certificates of deposit designed 
 to circulate as money was forbidden by its charter, the 
 company issued them freely, but maintained such high 
 
 271 Laws of Illinois, 1835-36, p. 30. 
 
 z72 Chicago American, May 16, 1837; Bankers' Magazine, xvi, 234. 
 27B Chicago Democrat (weekly), January 29, 1846. 
 
130 THE DEVELOPMENT OF BANKING IN ILLINOIS [488 
 
 business standards that its paper was in universal demand 
 and furnished a most acceptable addition to the medium of 
 exchange. So great were the quick assets of the firm that 
 the whole circulation could be taken up on short notice, 
 hence it was never found necessary to suspend specie pay- 
 ment. 274 Beginning with the modest sum of $34,028 in 
 1841, the issue of certificates increased until in 1851 the 
 total outstanding circulation amounted to $1,470,000 and 
 numerous agencies had been established to facilitate re- 
 demption. 275 In addition the business men of the territory 
 tributary to Chicago were provided with eastern funds at 
 one to two per cent. 276 The success of the enterprise 
 aroused the opposition of the banks of the surrounding 
 states and territories and in 1852 the legislature of Wis- 
 consin was persuaded to force the company to retire its 
 circulation. 277 Meanwhile Smith had organized banks in 
 Washington, D. C, and Atlanta, Georgia, and was issuing 
 and redeeming their paper in the Northwest. When Illi- 
 nois adopted the free banking law, which is to be discussed 
 in another place, Smith incorporated the Bank of America 
 under the Illinois law but its circulation was never very 
 extensive. By 1857, having acquired a large fortune with- 
 out a suspicion of crooked dealing attached to it he retired 
 to his native land. 278 
 
 For many years unincorporated firms in Chicago and 
 elsewhere in the state had carried on a profitable banking 
 business, but they were not permitted under the constitu- 
 tion of 1818 to incorporate as banks or to issue notes, hence 
 they were usually classed as brokers. In conclusion, it 
 may be said that as a whole the record made by the private 
 banking institutions of this period, notwithstanding the 
 illegality of the note issues of some of them, is very much 
 more creditable than that made by the elaborately safe- 
 guarded state institutions. 
 
 274 Chicago American, September 28, 1841. 
 275 Andreas, History of Chicago, i, 532. 
 276 Baldwin, History of La Salle County, 184. 
 271 'Chicago Democrat (daily), February 9, 1852. 
 278 Knox, History of Banking, 726, 742. 
 
CHAPTER V 
 
 The Free Banking System of Illinois 
 
 In commenting upon the situation which existed in 
 Illinois just after the collapse of the banks in 1842 a writer 
 of the time remarks : "All the banks 1 of Illinois have ceased 
 to be. Their history is brief; their story is instructive ; and 
 the lesson taught will long be remembered." 2 This state- 
 ment could have been applied with equal force to a number 
 of southern and western states whose banks had failed 
 under similar circumstances. In fact, the state bank of 
 Indiana was the only conspicuous success among the pro- 
 jects undertaken or fostered by a state. 3 For nine years 
 after the failure of the Illinois banks, the Indiana bank 
 currency furnished that part of the circulating medium 
 Avhich was considered both sound and lawful. A con- 
 siderable amount of paper from other states, especially 
 Michigan, was of unquestionable legality but of very doubt- 
 ful soundness; while the issues of the Wisconsin Marine 
 and Fire Insurance Company and other similar institutions 
 made up in soundness what they lacked in legality. 4 
 
 The presence of such an assortment of money of all 
 degrees of goodness made it necessary for persons handling 
 it in business houses to be supplied with "bank note re- 
 porters," "counterfeit detectors" and other similar publi- 
 cations, while the general public relied upon the money 
 tables published in the newspapers. 5 
 
 In so far as the banking functions other than note is- 
 sue were concerned, they were performed by the private 
 banking firms which had sprung up in all the principal 
 
 1 This refers to the regularly incorporated banks of issue. There were 
 a number of private banking firms in the state. 
 2 Brown, History of Illinois, 428. 
 3 White, Money and Banking, 333. 
 
 ^Chicago Democrat, January 15, 1845; Bankers' Magazine, iii, 724. 
 5 Niles Register, Ixviii, 272. 
 
 131 
 
132 THE DEVELOPMENT OF BANKING IN ILLINOIS [490 
 
 towns. These establishments were subject to no supervi- 
 sion by the state and whenever the absence of competitors 
 permitted it, charged exorbitant rates of interest — the cus- 
 tomary rate paid by a central Illinois cattle grower, for 
 example, being twenty-four per cent. 6 Those portions of 
 the state adjacent to Chicago, St. Louis or Vincennes were 
 more fortunate, however, and secured accommodations at 
 reasonable rates, but at best the situation in the state was 
 satisfactory neither to the bankers nor the public. Deposit 
 banking was practiced by an inconsequential minority, 
 hence the private bankers, under the necessity of paying 
 out currency to borrowers, either violated the law by issu- 
 ing their own paper or confined themselves to lending the 
 notes of other banks, while the public was subjected to a 
 constant risk in using a conglomeration of bank bills of 
 uncertain value. In the campaign of 1846 two radically 
 different remedies, both involving changes in the state con- 
 stitution, were proposed by the two political parties. The 
 Whigs favored the adoption of a general banking law under 
 which banks of issue could be chartered which would pro- 
 vide the people of the state with a plentiful supply of safe 
 currency. The Democrats, on the other hand, contended 
 that in view of the unhappy experiences of the past both 
 banks and bank paper should be forever banished from the 
 state. They argued that the ideal monetary situation, 
 namely, the exclusive use of specie, could never be brought 
 about so long as paper money was allowed to circulate. 7 
 In his campaign speeches, Mr. Killpatrick, the Whig candi- 
 date for governor, took the position that it was a great 
 injustice to the business of the state that Illinois should be 
 the only state in the Union without banks of issue. He 
 pointed out to the voters the economic ills growing out of 
 the use of foreign bank notes, the chief of which was that 
 the people of Illinois were bearing the loss attendant upon 
 the use of such paper without receiving accommodation at 
 the banks which issued it. As for the establishment of an 
 -exclusive specie system of money, Mr. Killpatrick argued 
 
 6 Prince and Burnham, History of McLean County, ii, 760. 
 7 Alton Telegraph, January 24, 1846. 
 
491] 
 
 THE FREE BANK SYSTEM 
 
 133 
 
 that no law ever enacted could prevent the circulation of 
 bank notes to the exclusion of specie. 8 The Democrats 
 nominated Augustus C. French, an anti-bank man, on a 
 platform which declared that the "resuscitation or rechar- 
 ter of any of the old banks . . . would be disastrous to the 
 best interests of the people of Illinois" and that "the cre- 
 ation of any new bank in Illinois, either as a state bank 
 or in any other form is uncalled for by the people." 9 
 
 The Democratic party throughout the campaign took 
 advantage of the popular prejudice against all corpora- 
 tions. The average Illinoisian looked upon the act of incor- 
 poration as a mere "loophole for knavery" which permitted 
 the incorporators to do under its protection things which 
 they could not do as private individuals. He believed that 
 the incorporation of a bank of issue enabled the incorpor- 
 ators without money or credit of their own to reap a for- 
 tune from the resources of their patrons. 10 Mr. French and 
 a Democratic legislature were chosen at the November elec- 
 tion and all hope of a general banking act seemed to have 
 disappeared. A new field of operation, however, was soon 
 opened for the friends of banks. The state had long out- 
 grown the old constitution of 1818, but none of the efforts 
 to provide a new one had thus far met with success. At 
 length the proposition to hold a constitutional convention 
 passed the legislature, was submitted to the people and 
 received the support of the voters of both parties. The 
 convention was in the hands of the Democrats, "nineteen- 
 twentieths" 11 of whom were supposed to be opposed to all 
 banks, and yet a pro-bank Democrat was made president of 
 the convention and every effort to force the adoption of 
 constitutional prohibition of banks met with defeat. 12 
 
 8 AUon Telegraph, July 4, 1846. 
 ^Chicago Democrat, March 10, 1846. 
 10 Chicago Democrat, October 28, 1845. 
 
 ^Illinois State Register, quoted by Illinois State Journal, November 9, 
 1857. 
 
 12 Alton Telegraph, June 29, and July 9, 1847; Niles' Register, lxxii, 
 307; Chicago Democrat, June 29, 1847; Jacksonville Prairie Argus, quoted 
 by Alton Telegraph, July 16, 1847. 
 
134 THE DEVELOPMENT OF BANKING IN ILLINOIS [492 
 
 The constitution was completed on the last day of 
 August, 1847, and the following March was submitted to 
 the people and adopted by a large majority. The follow- 
 ing sections relating to banking were included in the article 
 dealing with corporations: 12 
 
 "No state bank shall hereafter be created, nor shall the 
 state own or be liable for any stock in any corporation or 
 joint stock association for banking purposes, to be here- 
 after created. 
 
 "The stockholders in every corporation, or joint stock 
 association for banking purposes, issuing bank notes, or 
 any kind of paper credits to circulate as money, shall be 
 individually responsible, 14 to the amount of their respective 
 share or shares of stock in any such corporation or asso- 
 ciation, for all its debts and liabilities of every kind. 
 
 "No act of the general assembly, authorizing corpora- 
 rations or associations with banking powers, 15 shall go into 
 effect, or in manner be in force unless the same shall be 
 submitted to the people at the general election next suc- 
 ceeding the passage of the same and be approved by a ma- 
 jority of all the votes cast at such election for and against 
 such law. 16 
 
 The Democratic party still refused to commit itself in 
 favor of a banking law and. at its convention in 1848 re- 
 nominated Governor French on a platform which did "re- 
 newedly declare" the party's opposition to all banks and 
 advocated the expulsion of paper money from the state. 17 
 
 13 Article X, Sections 3, 4 and 5 ; see Journal of Constitutional Conven- 
 tion, 1847, p. 564. 
 
 14 To all the creditors of the bank. Decision of the supreme court of 
 Illinois in McCarthy vs. Lavasche. 89 Illinois, 270. 
 
 15 The supreme court of Illinois in the case of Anthony vs. Intern. 
 Bank (93 Illinois, 225) and also in People vs. Lowenthal (93 Illinois, 191) 
 held that "banking powers" meant full banking powers and that an act of 
 incorporation granting all the usual powers of a bank except that of note 
 issue was not a banking act and need not be submitted to the voters. 
 
 16 In the case of Smith vs. Ryan (34 Illinois, 364) it was held that 
 minor amendments to a banking law already approved by the people need 
 not be submitted. 
 
 17 Illinois State Journal, May 4, 1858. 
 
493] 
 
 THE FREE BANK SYSTEM 
 
 135 
 
 The Whigs still looked to a central bank as the true remedy 
 for the currency ills of the nation, but as a measure of ex- 
 pediency they were willing to adopt any sound system of 
 local banks so long as there was no prospect of securing 
 a third United States Bank. 
 
 Governor French was re-elected and when the first 
 legislature chosen under the new constitution assembled, 
 January 1, 1848, he announced his intention of using his 
 newly acquired veto power, if necessary, to prevent the 
 adoption of a general banking act. 18 Such action on his 
 part did not become necessary, for the only bill introduced 
 met an untimely end in the lower house. 79 
 
 Now that the constitution permitted the chartering of 
 banks, the business men of the state began a determined 
 fight to secure favorable action from the next legislature. 
 Just before the opening of the next session of that body, 
 a convention was held in Chicago at which the representa- 
 tives of the leading commercial and financial interests of 
 the state drafted a memorial to the legislature and the gov- 
 ernor urging them to abandon their attitude of hostility 
 to banks and to provide the state with a system of banking 
 adequate to its needs. 40 This time the appeal met with 
 success as far as the legislature was concerned and a gen- 
 eral banking system was passed for submission to the vot- 
 ers at the next general election. 
 
 The act was patterned after the free banking system 
 of New York and provided that the auditor of public ac- 
 counts should obtain a supply of circulating notes to be 
 issued to persons complying with its provisions. Each of 
 these notes was to be signed and numbered by the auditor 
 and the number entered upon an official register. Any 
 person or persons who desired to engage in the issue of 
 notes was required to deposit with the auditor bonds issued 
 (1) by the United States, (2) by any state which paid full 
 interest or (3) by the state of Illinois. The deposit of the 
 
 18 Senate Journal, 1849, pp. 11 ff. 
 19 House Journal, 1849, PP- 58, 73. 
 
 20 Harper and Ravell, Fifty Years of Banking in Chicago, 83. 
 
136 THE DEVELOPMENT OF BANKING IN ILLINOIS [494 
 
 first two classes of bonds entitled the owner to receive from 
 the auditor circulating notes to the full market value of 
 the bonds but not to exceed their par value; but Illinois 
 securities must be listed at twenty per cent less than their 
 average market value in New York during the preceding 
 six weeks. If any state failed to pay regularly six per 
 cent interest on its bonds, the auditor was required to de- 
 mand at least two dollars of its bonds for every dollar in 
 notes issued to the depositor. The securities were all listed 
 in triplicate, each list being signed by the auditor and the 
 depositors of the bonds. One of the lists was kept in the 
 state treasurer's office, one was retained by the auditor 
 and the third was given to the person making the deposit. 21 
 The privilege of forming a banking association was 
 open to any number of persons but a minimum of fifty 
 thousand dollars' worth of capital stock must be sold before 
 beginning business. The certificate of incorporation grant- 
 ed to such associations specified the corporate name, place 
 of business, amount of capital stock, the names and resi- 
 dence of stockholders and the number of shares held by 
 each. This certificate entitled the holders to discount bills 
 and notes, receive deposits, buy gold and silver coin and 
 bills of exchange, lend money on real estate and personal 
 security, and circulate their notes as money. 22 If, however, 
 a banking association failed to redeem its notes on demand, 
 the auditor was required after giving notice for ten days 
 in two New York City newspapers, to sell enough of the 
 bonds deposited by the association to enable him to redeem 
 the notes out of the proceeds of the sale, but in no case 
 could the state of Illinois be held liable for the redemption 
 of a bank's paper. 23 If any note holder chose to do so, he 
 could cause a bank to be put into liquidation because of 
 its failure to redeem its paper. The procedure prescribed 
 was as follows : The note was to be "protested" by a notary 
 public and the protest sent to the auditor who in turn was 
 
 21 Laws of Illinois, 1851, p. 163, Sections 2 and 3. 
 —Ibid., Sections 4 and 9. 
 23 Ibid., Section 14. 
 
495] 
 
 THE FREE BANK SYSTEM 
 
 137 
 
 to notify the officers of the bank to pay the obligation in 
 question at once. If they failed to do so, the auditor was 
 to insert a notice in one Springfield paper and one paper 
 in the place where the bank was located, to the effect that 
 he would redeem and retire all the notes of the bank. The 
 association was then to cease doing business except for the 
 purpose of settling its affairs under the direction of a re- 
 ceiver appointed by the courts. All assets were to be ap- 
 plied (1) to the redemption of notes, (2) to the payment of 
 all liabilities other than capital stock and (3) to reimburse 
 the shareholders. 24 The stockholders were all to be held 
 individually responsible for the debts of the bank to an J 
 amount equal to their respective holdings and the courts 
 were authorized to issue execution against each stockholder 
 in succession until the full amount of the judgment was 
 obtained. 25 Any note upon which payment had been re- 
 fused drew interest at the rate of twelve and one-half per 
 cent until paid. 26 Notes were redeemable only at the place 
 of business mentioned in the charter, and sufficient specie 
 must be kept on hand for their redemption. 27 If the auditor 
 or a group of shareholders whose holdings aggregated three 
 thousand dollars desired an investigation of a bank's af- 
 fairs, the circuit judge of the county in which the bank 
 was located was required to institute such an investigation 
 and to publish his findings together with his opinion as to 
 the wisdom and honesty of the bank's management. 28 
 
 The general supervision of the new system was placed 
 in the hands of three bank commissioners whose duties con- 
 sisted in examining the affairs of every incorporated bank 
 at least once a year and in inspecting the bonds on deposit 
 with the auditor. In case there was a shrinkage in the value 
 of any securities to such an extent that they no longer fur- 
 nished adequate protection to the note holder, the bank 
 was required to deposit additional bonds or withdraw a 
 
 2 *Laws of Illinois, 1851, pp. 163 ff., Sections 14 and 18. 
 25 Ibid., Section 28. 
 2Q Ibid., Section 18. 
 21 Ibid., Section 19. 
 2S Ibid., Section 25. 
 
138 THE DEVELOPMENT OF BANKING IN ILLINOIS [496 
 
 portion of its notes from circulation. As an additional 
 safeguard, a quarterly statement was required from every 
 incorporated bank, a copy of which must be published in a 
 local newspaper. 29 
 
 Although the current rate of interest was ten per cent, 
 the legislature restricted the banks to a rate of seven per 
 cent, thereby compelling them to evade the law in order to 
 secure the current rate. 30 
 
 The bill was sent to Governor French who returned it 
 with a vigorous veto message in which he noted the follow- 
 ing objections to the measure: (1) The bill should have 
 provided that a definite minimum amount of gold and silver 
 T)e kept on hand for the redemption of notes. (2) Instead 
 of a mere double liability provision the measure should 
 have required that every stockholder be liable to the full 
 amount of his private property. (3) A bond was a mere 
 evidence of indebtedness itself and was not a proper basis 
 for the creation of further evidences of indebtedness. If 
 a bond were worth its face value in gold then why not per- 
 mit the banks to deposit the gold itself as security for their 
 notes instead of resorting to a roundabout method which 
 amounted to the same thing? On the other hand if the 
 bonds were not as good as gold, then they did not provide 
 adequate security for the notes. (4) A bank could incorpo- 
 rate under the provisions of this bill and instead of issuing 
 notes based upon securities could act as the agent for some 
 foreign "wild cat 1 ' enterprise. (5) The New York system 
 upon which the Illinois banking law was modeled could not 
 be pronounced a success since it had not yet been called 
 upon to weather a severe crisis. 31 
 
 The same influences, however, which had forced the 
 original passage of the act again prevailed and it was re- 
 passed over the governor's veto. 32 It was now necessary 
 that the measure should receive the approval of the voters 
 at a general election before it could become effective. The 
 
 29 Lazvs of Illinois, 1851, pp. 163 ff., Section 34. 
 30 Ibid., Section 38. 
 
 31 Reports of Session (H. of R.), 1851, p. 493. 
 ^-Chicago Daily Democrat, February 22, 1851. 
 
497] 
 
 THE FREE BANK SYSTEM 
 
 139 
 
 next general election would have occurred in November, 
 1852, but the legislature deprived all the county treasurers 
 of their offices and provided that their successors should 
 be elected in 1851. This change in the law made it possible 
 to submit the measure a year earlier. 33 In spite of the 
 light vote and the hostility of the Democratic newspapers, 
 the law was adopted by a substantial majority. 34 
 
 Although the system provided was an improvement 
 over the chaotic conditions of the past, there was ample 
 room for abuses to creep in and the experience of subse- 
 quent years shows that unscrupulous persons made the 
 most of these defects in the law. Banks could issue an un- 
 limited amount of currency without reference to the needs 
 of the community so long as the requisite amount of securi- 
 ties was deposited with the auditor. The place of issue 
 named on the notes could be located in the most inaccessible 
 portion of the state and the notes circulated as far as possi- 
 ble from it. Finally, there was no provision made for the 
 actual payment of a dollar of the fifty thousand dollars' 
 worth of capital stock prescribed as a minimum. 
 
 Notwithstanding the ease with which bonds could be 
 obtained and circulating notes received there was not a 
 single application filed with the auditor for several months 
 after the passage of the act, a fact which led the editor of 
 the Chicago Democrat, an opponent of the system, to boast 
 that the law would soon become a dead letter. 35 The aud- 
 itor had signified his willingness to issue bank notes to the 
 full value of any six per cent bonds of the United States 
 or the states of New York, Ohio, Kentucky and Virginia, 
 none of which was quoted at less than 106 on the New 
 York stock market. He also offered to receive Illinois 
 securities at eighty per cent of their market price. 36 It was 
 the stringency of these bond deposit provisions of the act 
 
 zz Laws of Illinois, 1851, p. 144. 
 34 Memoirs of Gustave Koerner, i, 564. 
 S5 Chicago Daily Democrat, January 28, 1852. 
 
 ^Thompson's Bank Note Reporter, quoted in the Chicago Tribune, 
 February 13, 1852. 
 
140 THE DEVELOPMENT OF BANKING IN ILLINOIS [498 
 
 which discouraged the formation of banking associations 
 by even those bankers who had favored the passage of the 
 general law. 37 
 
 During the course of the year 1852, however, seventeen 
 banks were organized in various parts of the state and 
 deposited bonds with a market value of f 1,649,100, in re- 
 turn for which they were permitted to receive $1,142,544.83 
 in notes. Of this amount, $1,129,622 was actually in cir- 
 culation at the close of the year. 38 In the case of several 
 of the new associations the business of a private firm was 
 taken over and the lawful bank notes substituted for illegal 
 issues. 39 On the other hand, some of the private bankers 
 were so audacious as to issue "shin plasters" with which 
 to buy bonds for the purpose of obtaining lawful currency 
 from the auditor. In fact, several Chicago institutions 
 after becoming incorporated are said to have prepared an 
 issue of illegal notes exactly like their legal issue and to 
 have paid out the two kinds indiscriminately. 40 
 
 The law abiding bankers were determined to rid the 
 state of illegal currency, but met with little success in their 
 efforts to discredit such universally acceptable paper as 
 that of George Smith. Moreover, the law compelled them 
 to redeem their notes at par while Smith continued to 
 charge a one per cent premium for gold. Consequently, 
 Smith's paper continued to circulate without interruption 
 while the notes of the incorporated banks were constantly 
 presented for redemption. At length the incorporated 
 banking associations appealed to the courts (December, 
 1852) and secured indictments (against six banks and 
 George Smith's firm, the Wisconsin Marine and Fire Insur- 
 ance Company. 41 The cases dragged through the courts 
 and were eventually abandoned but the efforts of the bank- 
 ing associations in another quarter were more successful. 
 
 37 Bross, History of Chicago, 42. 
 
 ss Biennial Report of the Auditor of Public Accounts, 1853, p. 24. 
 39 Andreas, History of Chicago, i, 534. 
 ^Chicago Democrat, May 2, 1852, September 3, 1852. 
 ^Ibid., December 25, 1852. This effort to stamp out illegal note issue 
 was known as "the bank war." 
 
499] 
 
 THE FREE BANK SYSTEM 
 
 141 
 
 When the legislature met in 1853 pressure was brought 
 to bear both by the stock bankers and the auditor to secure 
 an amendment to the banking act which would protect 
 legitimate note issues. 42 At the same time, however, Gov- 
 ernor French in his farewell message pronounced the law a 
 failure in that instead of ridding the state of "wild cat" 
 currency it seemed to foster a spirit of law breaking. He 
 did not, however, urge the repeal of the act, but recom- 
 mended that the defects in the system be corrected. 43 In his 
 inaugural address Governor Matteson joined with the aud- 
 itor and the stock bankers in asking for legislation which 
 would give the banking associations who tried to obey the 
 law adequate protection against unauthorized note issues. 44 
 The legislature fell short of correcting all the defects 
 in the original bank law, but the supplementary act of 1853 
 w r as passed which afforded some relief to legitimate bank- 
 ing. The following are the principal provisions of the act : 
 No certificate of incorporation could be issued until at 
 least |50,000 in bonds had actually been placed in the 
 auditor's hands and if the amount of deposit should fall 
 below |50,000 the bank ipso facto forfeited its charter. A 
 heavy penalty was provided for the issue within the state 
 of anything designed to pass as money, other than the bills 
 authorized by the general banking law. Foreign notes were 
 not allowed to be circulated unless they were of a denom- 
 ination of five dollars or more and were issued by a regu- 
 larly authorized specie paying bank of a state, territory 
 or Canadian province. 45 The last named portion of the 
 act was not taken seriously, although proceedings were 
 instituted against offenders in various parts of the state. 
 The high premium on silver coins after 1834 made it neces- 
 sary to have a large amount of small bills to take their 
 place and merchants and bankers continued to make use 
 of foreign small notes in spite of the heavy penalty in- 
 
 ^-Reports of Session (Senate), 1853, p. 33. 
 ^Senate Journal, 1853, p. 14. 
 ^Reports of Session (Senate), 1853, p. 23. 
 45 Laws of Illinois, 1853, p. 38. 
 
142 THE DEVELOPMENT OF BANKING IN ILLINOIS [500 
 
 volved. Moreover, when a note holder turned a small note 
 from another state over to a bank for collection he was 
 compelled to submit to a charge for this service so that 
 most persons continued to use the notes and run the risk of 
 prosecution. 46 
 
 As a result of the co-operation of the Board of Brokers 
 of New York City with similar organizations in St. Louis 
 and Chicago the provision of the act of 1853 against 
 unauthorized domestic note issues was very effectively en- 
 forced. The Wisconsin Marine and Fire Insurance Com- 
 pany and similar institutions gave up the fight and with- 
 drew their notes from circulation. 47 The currency of the 
 stock banks came into more general use and for a brief time 
 enjoyed a good reputation both at home and on Wall Street, 
 where it was accepted at a discount of but three-fourths of 
 one per cent. 48 
 
 At the time of the bank commissioners' report for May, 
 1854, thirty-one banks had been organized, with an author- 
 ized capital of seventeen millions and securities in the 
 auditor's hands valued at $2,650,987.62. Of this amount, 
 $1,844,500 worth consisted of the bonds of Virginia, Geor- 
 gia, Missouri, Ohio, Wisconsin, Kentucky and Tennessee, 
 all of which states paid six per cent interest regularly. On 
 these bonds, notes were issued up to the full par value. 
 The remainder of the deposits was made up of California 
 bonds quoted at eighty cents on the dollar, on which the 
 auditor issued notes at the rate of fifty cents on the dollar, 
 and of Illinois securities of various kinds and values, on 
 which notes were issued to the extent of eighty per cent of 
 the New York stock market quotation. As far as evidences 
 of state indebtedness could be considered a sufficient secur- 
 ity for bank note circulation the issues of the Illinois banks 
 seemed to be amply protected. In fact, with the rapid im- 
 
 46 Chicago Democrat (weekly), August 6, 1853; Bankers Magazine, ix, 
 
 102. 
 
 «Ibid., vii, 846. 
 
 ^Thompson's Bank Note Reporter, quoted by Chicago Democrat 
 (weekly), April 2, 1853; Clark's Counterfeit Detector, quoted by Bankers 
 Magazine, vii, 846; New York Herald, cited in ibid., 739. 
 
501] 
 
 THE FREE BANK SYSTEM 
 
 143 
 
 provement in the credit of the state there was no longer 
 any reason for the discrimination against Illinois securi- 
 ties. 
 
 In lieu of the regular tax assessments the stock banks 
 (vere assessed by the bank commissioners upon loans, dis 
 counts and bond deposits. When the commissioners called 
 upon the banks for a statement as to the amount of these 
 items, but nine of the banks made any return at all upon 
 loans and discounts, the rest reporting merely the minimum 
 of fifty thousand dollars in bonds required for incorpora- 
 tion. This singular state of affairs was due to the fact that 
 the latter banks as such were not doing a loan and discount 
 business at all. They were incorporated in order to secure 
 the right to issue notes and then loaned the entire issue 
 as private brokers and not as banking associations. In 
 this way the seven per cent maximum interest rate could be 
 exceeded and the tax upon loans and discounts evaded. In 
 fact, a sort of an endless chain could be started by first 
 obtaining bonds, next, procuring notes with them, next, 
 obtaining more bonds with the notes, and so on as long as 
 the association's ability to keep its notes in circulation 
 permitted the process to continue. That this practice, 
 however, did not as yet prevail to any considerable degree 
 is evidenced by the fact that but few of the banks had de- 
 posited more than the minimum amount of securities. 49 
 
 The commissioners reported that the notes of foreign 
 banks continued to furnish almost seventy per cent of the 
 entire volume of paper in circulation in Illinois, in spite of 
 the increased issues of the stock banks. This situation they 
 accounted for in two ways : (1) Some Illinois bankers had 
 put their paper into circulation outside of the state in order 
 to postpone the necessity of redeeming it; (2) The amount 
 of notes which the stock banks found it profitable to issue 
 fell far short of the total demand for money. 50 
 
 Notwithstanding the ease with which a banking asso- 
 ciation could be formed, the efficient supervision of the aud- 
 
 49 Report of Bank Commissioners, in Bankers Magazine, ix, 102 ff. 
 ™Ibid. 
 
144 THE DEVELOPMENT OF BANKING IN ILLINOIS [502 
 
 itor in connection with the character of securities offered 
 limited the number of applications for charters and in- 
 spired public confidence in the system. During the summer 
 of 1854, however, the stock banks received their 
 first shock, which was caused by a panic of short duration 
 but characterized as the worst since 1837. The trouble was 
 precipitated by a too heavy drain upon the money market 
 I due to extensive railroad construction in the Middle West. 
 The crisis spread to the stock market, with the result that 
 Virginia and Missouri bonds, which formed the larger 
 part of the securities deposited by the Illinois banks, fell 
 to ninety-five and ninety-three cents on the dollar, respect- 
 ively. Suddenly a feeling of distrust seized the holders of 
 Illinois currency and as a result large amounts of it were 
 presented for redemption. The banks were wholly unpre- 
 pared to meet their obligations and a number were com- 
 pelled to suspend specie payments. 51 The bank commis- 
 sioners sought to allay the feeling against the stock bank 
 notes by assuring the note holders that every bill Avas amply 
 secured and that no one need sustain any loss. The process 
 of waiting for the auditor to dispose of securities in New 
 York and then call in the bills for redemption was too se- 
 vere a tax upon the patience and comprehension of many 
 persons, who disposed of their notes to brokers at a heavy 
 discount. 52 
 
 In their report for January, 1855, the bank commission- 
 ers indicated to the legislature the necessity of eliminating 
 at least two weak points in the general banking law: (1) 
 \ The abolition of the seven per cent maximum interest rate, 
 so that the banks would be induced to carry on their busi- 
 ness in a regular and legal manner ; (2) The requirement 
 that a definite minimum amount of specie be kept on hand 
 for purposes of note redemption. 53 The legislature, how- 
 ever, made but one slight change in the banking law of 1851 
 and that had to do with facilitating the retirement of the 
 
 51 Bankers Magazine, ix, 493. 
 52 Ibid. 
 
 53 Report of Bank Commissioners, in Bankers Magazine, ix, 751. 
 
503] 
 
 THE FREE BANK SYSTEM 
 
 145 
 
 notes of banks in liquidation. Any association which was 
 about to retire its notes and wind up its affairs was re- 
 quired to certify this fact to the auditor. It was then en- 
 titled to receive from him a proper proportion of its securi- 
 ties in return for every f 1000 package of notes forwarded 
 to him. If the association desired to go out of business 
 before all its notes were redeemed it must deposit with the 
 auditor sufficient specie to cover all the outstanding issue. 54 
 
 The auditor's report for the biennium ending Novem- 
 ber 30, 1854, showed that the banks had made a fairly good 
 recovery from the effects of the panic. Three of them had 
 closed their doors permanently, while five of the remaining 
 thirty-two institutions were still in a state of suspension 
 but had not yet been forced into liquidation. The total 
 circulation then outstanding amounted to $2,649,341, as 
 security for which there were on deposit state bonds valued 
 at $3,170,529.55. 
 
 The five banks which had not yet resumed specie pay- 
 ments were notified that if they did not do so within 
 sixteen days after the passage of the supplementary act of 
 1855 their portion of the securities on deposit would be 
 sold by the auditor and their notes redeemed at his office. 
 They were unable to comply with the notice and were 
 compelled to close their doors. 55 
 
 The number of banks and the amount of notes out- 
 standing continued to increase until in 1856 there was a 
 total of $6,480,873 outstanding, an increase of fifty per cent 
 over 1854. 56 In spite of this fact, the Illinois stock bank 
 notes formed the minor part of the circulating medium of 
 the state. As an illustration of the varied character of the 
 money in use in Illinois in 1855-56, Andreas cites the case 
 of a conductor on the Chicago, Burlington and Quincy 
 Railroad who on collecting $203 from his passengers re- 
 ceived the notes of twenty-three different banks. Of this 
 amount, all but $21 was the issue of banks outside of 
 
 54 Laws of Illinois, 1855, p. 32. 
 
 ^Bankers Magazine, ix, 822. 
 
 ™Re ports of Session (Senate), 1857, p. 139. 
 
146 THE DEVELOPMENT OF BANKING IN ILLINOIS [504 
 
 Illinois, $115, or more than half, being the notes of Geor- 
 gia banks. 57 
 
 The predominance of Georgia paper was not a mere 
 accident, but was due to the fact that several banks in that 
 state were owned by citizens of Chicago. After the passage 
 of the act of 1853, and the successful campaign against 
 illegal note issue, George Smith had opened two banks in 
 Georgia for the sole purpose of furnishing notes for circu- 
 lation in the territory tributary to Chicago, unhampered 
 by bond deposit restrictions. 58 In like manner Preston and 
 Company of Chicago issued from their office in that city 
 the notes of their bank at Dalton, Georgia. Both the 
 Smith and the Preston notes were in great demand, being 
 convertible into eastern exchange at three-fourths of one 
 per cent and into gold at one per cent upon being presented 
 at the Chicago offices of the banks. 59 The stock bankers 
 of Chicago did all in their power to drive the Georgia banks 
 out of existence. At one time they kept up a continuous 
 run for four months and presented a total of two million 
 dollars for redemption. On another occasion Elihu B. 
 Washburne was sent to Georgia with a large quantity of 
 notes, for the purpose of driving the Smith banks out of 
 business, but they succeeded in redeeming the whole 
 amount presented. 60 Unfortunately there was much paper 
 issued in the South which was not so easily redeemable. 
 The fact that the Smith paper bore so good a reputation 
 encouraged the issue of "wild cat" imitations of it. The 
 business men of Chicago, being the worst sufferers from 
 the notes, united in an appeal to the banks to stop handling 
 Georgia paper of all kinds. Some of the banks agreed to 
 co-operate in the matter but the rest were too heavily 
 involved in one way or another to admit of their doing 
 likewise. 61 By 1858, however, the business of issuing and 
 
 57 Andreas, History of Chicago, i, 547. 
 
 58 Andreas gives a detailed account of George Smith's various activi- 
 ties; see i, 547, ii, 617 et passim. 
 
 ^Chicago Daily Democratic Press, January 6, 1856. 
 60 Andreas, History of Chicago, ii, 617. 
 61 Ibid., i, 546; Bankers Magazine, ix, 572. 
 
505] 
 
 THE FREE BANK SYSTEM 
 
 147 
 
 lending notes had ceased to yield the large returns of for- 
 mer days and Smith retired his large Georgia issues and 
 returned to Scotland. 
 
 Agencies similar to those maintained in Chicago were 
 maintained by several Nebraska banks in Galesburg, Pe- 
 oria, Macomb and other cities and villages, the difference 
 being that the western currency was wholly unreliable. A 
 favorite scheme of these frontier institutions was to per- 
 suade a number of persons in Illinois to take stock in the 
 enterprise and thereby obtain the right to a certain amount 
 of its bank notes. These notes the stockholder could use 
 as he saw fit, but he became personally liable for their 
 redemption. For a time the various stockholders, by agree- 
 ing to circulate one another's notes, succeeded in keepings 
 them in circulation, but the crisis of 1857 put an end to 
 "Brownville," "Platte Valley," "Nehama Valley" and other 
 similar "wild cat" issues and left a number of hitherto 
 prosperous Illinois farmers and merchants the wiser and 
 poorer for the experience they had had. 62 
 
 In his report for November 30, 1856, the auditor stated 
 that since the passage of the amendment of 1855 requiring 
 banks to file notice of their intention to retire from busi- 
 ness, nine banks had taken such action. Three of them had 
 done so of their own free will and had retired their notes, 
 or deposited with the auditor sufficient specie for their; 
 redemption. The rest had been forced to go out of business 
 for failing to redeem their notes. The |6,500,000 in out- 
 standing notes was secured by bonds with a par value of 
 17,645,590.24 and an estimated cash value of |6,663,389. 
 The system had been in operation for five years and up to 
 that time the bonds in the auditor's possession had proved 
 to be more than adequate for the redemption of the out- 
 standing notes. 63 However, the new governor, Mr. Bissell, 
 did not believe that this showing was any criterion as to 
 the future of the stock banks. He granted that thus far the 
 
 62 Gale and Gale, History of Knox County, 6/8; Clarke, History of 
 McDonough County, 161 ; Rice, History of Peoria County, i, 448. 
 Q3 Re ports of Session (Senate), 1857, p. 50. 
 
148 THE DEVELOPMENT OF BANKING IN ILLINOIS [506 
 
 system had come up to all reasonable expectations but he 
 expressed the fear lest in time of great financial distress, 
 the holders of notes would suffer a heavy loss. 64 
 
 More than two-thirds of the notes of the Illinois banks 
 were secured by Missouri state bonds and the fact that that 
 state was suffering from an internal improvement mania 
 similar to the one which seized the State of Illinois about 
 twenty years before caused considerable alarm. The pub- 
 lic debt of Missouri already exceeded nineteen millions and 
 the legislature was contemplating an additional bond issue 
 of several millions, an act which would inevitably bring 
 about a marked decline in the value of the securities 
 already outstanding. 63 Moreover, in addition to this 
 threatened danger to the stock banking system, several of 
 the influences which led to the commercial disasters of the 
 year 1857 and 1858 were already in evidence. By Febru- 
 ary, 1857, five of the downstate banks were in so precarious 
 a condition from over-expansion of loans and discounts 
 that Chicago and St. Louis brokers flatly refused to accept 
 their notes. A period of prosperity and expansion of busi- 
 ness activities had led to excessive issues of notes and too 
 little scrutiny of the security offered by borrowers. 66 
 Nearly all the stock banks hastened to retire a part of their 
 note issue in order to fortify themselves against the 
 approaching storm. As a result of their action, the out- 
 standing circulation was reduced from $6,480,000 on Janu- 
 ary 1, to $5,500,000 on March 24, 1857. 67 
 
 The legislature, then in session, corrected some more 
 of the defects in the banking law by enacting the amend- 
 ment of February 14, 1857. It was specified that every 
 incorporated banking house must do business solely in the 
 name of the bank and at the place named on its notes and 
 in the certificate of organization. The practice of locating 
 banks in inaccessible spots was forbidden by a clause 
 requiring that the office of a bank must be situated in a 
 
 &4 Reports of Session (Senate), 1857, p. 20. 
 ^Illinois State Journal, January 19, 20, 1857. 
 ^Bankers Magazine, xi, 622, 827. 
 ^Illinois State Journal, March 25, 1857. 
 
507] 
 
 THE FREE BANK SYSTEM 
 
 149 
 
 settlement containing not less than two hundred persons. 
 This provision was aimed at such institutions as the Bank 
 of Southern Illinois which had been established at Bolton, 
 a town containing but one family and located in an out 
 of the way part of Williamson County. Banks of this 
 kind issued their notes in more populous parts of the state 
 with the assurance that few persons would ever take the 
 pains to present them at the bank for redemption. 68 The 
 act also definitely prohibited the practice of "wearing out" 
 persons presenting notes for redemption. Some banks in 
 order to discourage the return of their notes in any con- 
 siderable quantity compelled the note holder to present his 
 bills one at a time and received payment in small change. 
 Thereafter, if a person presenting a note for redemption 
 were accorded such treatment, he could have the notes 
 "protested" by a notary and mail it to the auditor who was 
 required to place the bank in liquidation if it refused to 
 make full payment to the noteholder within ten days. The 
 practice of starting a stock bank by merely borrowing the 
 requisite amount of securities and paying for them with 
 the notes received in exchange for them was brought to an 
 end by a provision that no more charters were to be granted 
 until the auditor had been convinced that there had been 
 paid into the bank a bona fide cash capital of fifty thousand 
 dollars. As an encouragement to legitimate banking the 
 legal rate of interest that might be charged by stock banks 
 was increased from seven to ten per cent. Finally, the 
 amendment put the bonds of Illinois and those of other 
 states which paid six per cent interest regularly upon the 
 same footing. Thereafter notes would be issued up to 
 ninety per cent of the actual market value of any stock 
 placed on deposit. This provision, while it increased ma- 
 terially the margin of security behind the notes of banks 
 depositing the bonds of other states, at the same time 
 removed the unreasonable discrimination which had 
 existed against the securities of Illinois. 69 
 
 68 Cairo Gazette, quoted in Illinois State Journal, December 24, 1857. 
 69 Laws of Illinois, 1857, p. 23. 
 
150 THE DEVELOPMENT OF BANKING IN ILLINOIS [508 
 
 At the same session of the legislature an act was passed 
 for the purpose of facilitating the settlement of affairs of 
 defunct banks. Thereafter, if the note holders and other 
 creditors of an insolvent bank did not present their claims 
 within three years the bank was released from further 
 obligation. 70 
 
 Salutary as the amendments to the banking law were, 
 they were of no avail in warding off the panic which spread 
 westward in the spring and summer of 1857. The period 
 \ of six years during which the stock banking system had 
 J been in operation had been one of remarkable development 
 for the State of Illinois. Taxable wealth had increased 
 almost three fold; a number of important railways had 
 been constructed, money was plentiful and land values 
 were highly inflated. The reaction had now set in in 
 earnest and the Chicago bankers tried to prevent a collapse 
 of the banking system by agreeing to receive the notes of 
 Illinois banks at par even though during the period from 
 September, 1857, to March, 1858, the price of eastern 
 exchange in terms of Illinois paper was never less than two 
 per cent. In fact, in October, 1857, it reached a maximum 
 of ten per cent. 71 
 
 As the situation in the New York stock market be- 
 came more acute, state bonds began to decline with such 
 rapidity that the Illinois auditor was compelled on May 8, 
 1857, to call upon practically every bank for additional 
 securities amounting to from two to six per cent of their 
 capital. 72 On July 5, the bank commissioners announced 
 that there was no need for alarm since the notes in circu- 
 lation amounting to $5,535,690 were secured by over six 
 million dollars worth of bonds, and all but two of the banks 
 had complied with the request for more securities. One 
 of the two delinquents, the People's Bank of Carmi, had 
 $127,500 worth of bonds with which to redeem $110,300, 
 but the note holders of the Stock Security Bank of Danville 
 were not so fortunate, its securities having depreciated so 
 
 70 Laws of Illinois, 1857, p. 220. 
 
 71 Chicago Tribune, January 1, 1861. 
 
 72 Illinois State Journal, May 9, June 25, 1857; Reports of Session, 
 1859, P. 193. 
 
509] THE FREE BANK SYSTEM 151 
 
 rapidly that the holders of its notes received but eighty- 
 eight and a fourth cents on the dollar. This was the first 
 instance in the history of the stock bank system of Illinois 
 where the proceeds from the sale of bonds on deposit had 
 not been adequate to reimburse the holders of notes, dollar 
 for dollar. 73 
 
 The value of securities continuing to decline, the com- 
 missioners called upon twenty-seven banks for still further 
 bond deposits to be made within the next ninety days. 
 This action evoked a vigorous protest on the part of bank- 
 ers and merchants and pressure was brought to bear upon 
 the commission to secure an extension of time, but the 
 members by a vote of two to one decided to adhere to the 
 terms of the original bill. At the expiration of the ninety 
 day period, all but three of the banks had reduced their 
 circulation within the legal limit or had deposited a suf- 
 ficient amount of additional securities. The bonds of the 
 three delinquent institutions were promptly sold and a 
 sufficient amount of specie obtained for them to enable the 
 auditor to redeem the outstanding notes in full. 74 Had the 
 rest of the banks failed to readjust their bond deposits or 
 circulation, the auditor would have been compelled to 
 dump upon the market at a most inopportune time over 
 four and a half millions in securities, $2,738,000 worth of 
 which was issued by the State of Missouri whose credit was 
 now almost ruined. In addition to voting extravagant 
 loans the Missouri legislature now threatened to adjourn 
 without providing for the interest payment on the enor- 
 mous state debt, a proceeding which would have sealed the 
 doom of the Illinois banking system. Fortunately, the 
 threat was not carried out and Missouri bonds, for the time 
 being, ceased their rapid decline in value. 75 
 
 Meanwhile the merchants of St. Louis became alarmed 
 at the frequent and extensive demands made upon the 
 Illinois banks for additional securities and voted to reject 
 all the Illinois currency offered at their counters. Since 
 a large part of the state was tributary to that city the 
 
 73 Reports of Session, 1859, p. 193 ; Bankers Magazine, xii, 239. 
 74 Reports of Session, 1857, p. 193. 
 
 75 State Journal, October 12, 1857; November 19, 1857. 
 
152 THE DEVELOPMENT OF BANKING IN ILLINOIS [510 
 
 effect of such action was quite as serious as if it had been 
 taken by a group of Illinois merchants. One of the bank 
 commissioners hastened to St. Louis and explained to a 
 gathering of business men the character of the Illinois 
 system and the exact condition of the banks at that time. 
 This action, together with the influence of the more con- 
 servative newspapers of St. Louis brought a restoration of 
 confidence and in a few days the paper of Illinois banks 
 was again accepted by the merchants and bankers of that 
 city. 76 The latter agreed to furnish specie for Illinois cur- 
 rency at the rate of ninety to ninety-five cents on the dol- 
 lar. During the few days when Illinois paper was dis- 
 credited, St. Louis "note shavers" reaped a harvest by 
 buying up the notes from the public at from ten to fifteen 
 per cent discount. 77 
 
 By January 1, 1858, the Illinois banks had made a 
 fairly complete recovery from the crisis. Only a small 
 number of them had been compelled to go into liquidation, 
 although the failures in other lines of business, especially 
 in Chicago, had been very extensive. In that city business 
 was for a time completely paralyzed, speculators were 
 ruined and the progress of the city retarded for two years. 
 The rest of the state had not been so seriously affected by 
 the crisis, there being but 199 failures out of 11,459 busi- 
 ness enterprises, whereas in Chicago 117 out of 1,350 estab- 
 lishments had failed. 78 By April, 1858, eastern exchange 
 could be had for one and one-half per cent premium and 
 the protesting of Illinois currency had fallen off materially. 
 Everything pointed to a rapid return to normal condi- 
 tions. 79 
 
 Unfortunately the adverse weather conditions of the 
 summer of 1858 left the Illinois farmer with a short grain 
 crop of most inferior quality. 80 As a result there ensued 
 
 76 St. Louis Democrat, quoted by Illinois State Journal, October 21, 1857. 
 
 77 St. Louis Intelligencer, October 23, 1857, quoted by ibid. St. Louis 
 Democrat, November 2, 1857, quoted by ibid. Illinois State Journal, Oc- 
 tober 21, November 9, 1857. 
 
 78 Bankers Magazine, xii, 681. 
 
 79 IlHnois State Journal, April 27, 1858. 
 
 80 Chicago Tribune, January 1, 1861. 
 
511] 
 
 THE FREE BANK SYSTEM 
 
 153 
 
 a depression in the down state portion of Illinois more 
 severe than that of the year before. The banks, however, 
 were doing business on a much more conservative basis 
 and were not seriously affected ; in fact, after two years of 
 hard times, only six of the fifty-four banks had gone out 
 of existence. All these institutions, with the exception of 
 the Danville bank, had redeemed their notes without loss 
 to the holders. 81 
 
 In the report of the secretary of the treasury of the 
 United States on the state of the finances for the year 
 ending June 30, I860, 82 Illinois was at the bottom of the 
 list of states in the amount of specie held by her banks in 
 proportion to outstanding circulation. The $269,585 re- 
 ported by Illinois banks amounted to but 4.25 per cent of 
 their note issue, whereas the average for the entire country 
 was 23.08 per cent. In reviewing the banking situation 
 as judged by the data in the secretary's report, Mr. W. M. 
 Gouge said of Illinois : 83 "In that state, debt is piled upon 
 debt. Funded debt forms the capital of banks and floating 
 debt the currency. ... A traveler relates that the redemp- 
 tion of notes with specie is little more than nominal. But 
 the people having confidence in their 'ultimate security' as 
 founded on state stock pass them freely." 
 
 The report of the bank commissioners in January, 
 1859, took a different view of the situation than Mr. Gouge 
 had done. They were of the opinion that a system which 
 had withstood the test of two successive years of financial 4 
 depression should receive the stamp of approval from the 
 public. In fact, the commissioners were convinced that 
 the banks of the state "enjoy today a larger share of public 
 confidence than at any former period." The recent experi- 
 ence with the bonds of Missouri and other states whose 
 credit had been badly shaken during the panic led the 
 commissioners to recommend that Illinois bonds be given 
 the preference over those of other states. They also asked 
 that they be given authority to prosecute offenders against 
 
 81 Reports of Session, 1859, p. 193. 
 
 82 U. S., 36 Cong., 1 Sess., Senate, Ex. Doc., no. 3, 368. 
 ^Bankers Magazine, xiv, 7. 
 
154 THE DEVELOPMENT OF BANKING IN ILLINOIS [512 
 
 the foreign small note law, in view of the fact that prose- 
 cuting attorneys did not take the act seriously. 84 
 
 Governor Bissell in his message pronounced the bank- 
 ing system "in the main satisfactory" and cited the fact 
 that but six banks out of fifty-four had failed, as proof of 
 his statement. He recommended no changes in the banking 
 act, save that the banks be compelled to substitute new bills 
 for the mass of filthy and almost unrecognizable paper 
 which they continued to circulate. He did, however, ex- 
 press a wish that the legislature could prevent citizens 
 of other states from "depreciating" Illinois paper. As it 
 was, a traveler from Illinois was compelled to submit to a 
 discount of his bank notes as soon as he crossed the line 
 into another state. 85 
 
 A considerable minority of the members of the legisla- 
 ture favored a bill which provided for the establishment of 
 "specie banks," entirely independent of the existing system, 
 their idea being that in addition to banks of issue there 
 should be state banks which made a specialty of furnishing 
 eastern exchange at reasonable rates. Most of the mem- 
 bers, however, were of the opinion that the existing banking 
 system had acquitted itself so well that it should be left 
 as it was, so no banking measures were passed during the 
 1859 session. Had the members followed the recommenda- 
 tion of the commissioners in regard to giving Illinois bonds 
 the preference over those of other states, the break down 
 of the banking system two years later would undoubtedly 
 have been prevented. Illinois was not only meeting the 
 interest on her indebtedness promptly but had reduced her 
 outstanding obligations to eleven millions. Moreover, the 
 constitution of 1848 forbade the increase of the state debt 
 in time of peace unless such action were first approved by 
 a majority of the voters at a general election. 86 On the 
 other hand, a large part of the securities purchased by 
 newly formed associations were those of the State of Mis- 
 souri, whose debt already exceeded twenty-five millions, 
 although she had a population of less than a million and 
 ^Reports of Session, 1859, p. 193. 
 
 Senate Journal, 1859, p. 23. , 
 86 Article iii, Section 37. 
 
513] 
 
 THE FREE BANK SYSTEM 
 
 155 
 
 was far behind Illinois in the extent of material progress 
 made. 87 The general sentiment throughout Illinois seems 
 to have been that the banking system was as satisfactory 
 as it could be made and that the general assembly should 
 let well enough alone. 88 
 
 The year 1859 witnessed a recovery from the hard 
 times of the preceeding t^Va years, but one marked by cau- 
 tion. Legitimate enterprises in Chicago were able to 
 obtain plenty of eastern capital at ten per cent, but only the 
 best unincumbered property was accepted as security. 89 
 However, neither Chicago nor the rest of the state could 
 be said to be prosperous, although they had learned the 
 much needed lesson that "patience, prudence and economy 
 are the most trustworthy roads to fortune." 90 The grain 
 crop of 1859 was of good quality and brought a good price 
 but it was not a very large one, hence the condition of the 
 eastern exchange market was little better than it had been 
 in 1857 and 1858. 91 The year 1860, on the other hand, was 
 the most prosperous one in the history of Illinois agricul- 
 ture up to that time. The crops of that year were unpar- 
 alleled in size and excellence, while the extraordinary de- 
 mands on the part of European countries kept up prices. 
 Eastern exchange soon returned to normal and bank cur- 
 rency was in great demand for crop moving. 92 As a result 
 the issues of the existing banks were expanded and many 
 new associations were formed. 93 
 
 The natural expansion of the currency, however, was 
 interfered with by another slump in the value of the Mis- 
 souri bonds which necessitated a call being made upon 
 eighteen of the banks for the deposit of more securities or 
 the retirement of a portion of their notes. 94 The banks 
 succeeded in adjusting their issues to the amount of securi- 
 
 87 Illinois State Journal, January 17, 1859. 
 ^Missouri Democrat, February 5, 1859. 
 89 Bankers Magazine, xiii, 625. 
 90 Ibid., xiv, 410. 
 
 91 Chicago Tribune, January 1, 1861. 
 * 2 Ibid. 
 
 93 Reports of Session (Senate), .1861, p. 331. 
 94 Illinois State Journal, February 20, i860. 
 
156 THE DEVELOPMENT OF BANKING IN ILLINOIS [514 
 
 ties on deposit but a number of the down state institutions 
 had practically suspended specie payment, for the Chicago 
 banks were protesting down state issues at the rate of 
 eighty to one hundred thousand dollars a month and send- 
 ing them in to the auditor for redemption. 95 Many country 
 bankers, in fact, purposely allowed their notes to go to 
 protest in the belief that it was less expensive to sacrifice 
 their securities than to keep in their vaults a large amount 
 of specie. 96 To many of the down state bankers the custom 
 of the large Chicago institutions of sending a messenger 
 to the country banks with a large amount of bills for re- 
 demption was exceedingly annoying. In spite of the act 
 of 1857 which forbade such a practice, the Keaper's Bank 
 of Fairfield undertook to discourage the presentation of 
 its notes by "tiring out" Chicago bank messengers. On 
 one occasion, when a representative of Willard and 
 Atkins of Chicago presented for redemption at the bank's 
 counter several packages, each containing five or six 
 hundred dollars worth of the bank's notes, the cashier pro- 
 ceeded to redeem the notes one by one with five and ten 
 cent pieces, stopping frequently to attend to other duties. 
 Finding at the close of the day's business that but one 
 hundred and fifty dollars worth of notes had been re- 
 deemed, the messenger had the rest of the notes protested 
 for non-payment and the auditor was called upon to place 
 the bank in liquidation. The officers of the bank resorted 
 to injunction proceedings and the case was ultimately de- 
 cided by the Illinois supreme court. Here it was held that 
 payment of notes "on demand" meant that the holder is 
 entitled to present all his notes simultaneously and receive 
 specie for them in a lump sum. 97 
 
 As the winter of 1860-61 approached and the political 
 situation in the South became more acute, southern securi- 
 ties began to decline and the price of eastern exchange in 
 terms of Illinois currency rose correspondingly. 98 The 
 
 ^McElroy's Reporter, April 10, i860. 
 ^Bankers Magazine, xv, 411. 
 
 97 See Reaper's Bank vs. Willard, 24 Illinois, 433. Bankers Magazine, 
 xiv, 487. 
 
 98 Chicago Tribune, January 1, 1861. 
 
515] 
 
 THE FREE BANK SYSTEM 
 
 157 
 
 bank commissioners, upon examining the securities in the 
 hands of the auditor, found it necessary to call upon 
 twenty-two banks for additional deposits, the amounts in 
 the different cases varying from $2,062 to $51,070. They 
 were granted the usual forty days grace in which to make 
 good the deficiency or retire a part of their circulation. 
 The Chicago bankers, however, were too concerned over the 
 prospects of civil war to be willing to await the action of 
 the delinquent banks and immediately agreed to refuse 
 to receive the notes of any of the banks under call until 
 they had been restored to good standing. The period of 
 grace would have expired January 1, 1861, but the com- 
 missioners, late in December, extended the time to March 
 20." The holders of the notes of these banks made vigorous 
 objection to the commissioners' action on the ground that 
 the notes were being subjected to a discount of fifteen to 
 twenty per cent, whereas if the banks were closed at once 
 and their bonds sold, an average of ninety-two cents on the 
 dollar would be realized. The commissioners, however, 
 were of the opinion that any effort to sell a large number of 
 bonds on the New York market would only result in a 
 heavy loss to the note holders. 100 Furthermore, between 
 November 20, the date of the original call, and December 
 20, the date when the extension of time was granted, the 
 securities of nearly every state in the Union had depreci- 
 ated to such an extent that out of justice to the twenty-two 
 banks under call it would have been necessary to require 
 nearly every bank in the state to deposit additional 
 bonds. 101 
 
 The beginning of the year 1861 marks so distinct a 
 transition in the history of stock banks, that a review of the 
 development of the system up to that time, and an analysis 
 of its internal workings as revealed in the statements issued 
 by the state officers will not be out of place at this point. 
 
 "Reports of Session (Senate), 1861, p. 333; Illinois State Journal, 
 November 20, 21, i860. 
 
 100 Reports of Session (Senate), 1861, p. 333; Illinois State Journal, 
 December 21, 22, i860; St. Louis Democrat, December 8, i860. 
 
 101 Reports of Session (Senate), 1861, p. 333. 
 
158 THE DEVELOPMENT OF BANKING IN ILLINOIS [516 
 
 The system had been given a fair trial for nine years and 
 the officers to whom the work of supervision had been 
 entrusted had performed their duties with ability and 
 honesty. The note issues had been so fully protected by 
 state and federal bonds that out of fourteen banks which 
 had gone into liquidation the securities of but one fell 
 short of providing for the redemption in full of all the out- 
 standing issue. And yet the system could not have been 
 pronounced a successful one. In the first place, the notes 
 were circulated with a fair degree of ease within the state, 
 but they were subjected to a discount as soon as they were 
 carried beyond its borders. 102 In the next place, the legis- 
 lature failed to make any discrimination in favor of Illi- 
 nois securities and banking associations bought up at a 
 bargain bonds of unstable value which failed utterly to 
 afford the needed protection to note holders when the Civil 
 War broke out. 103 Lastly, at no time during their exist- 
 ence had the banks kept on hand an adequate supply of 
 specie for the redemption of their notes. Instead of facili- 
 tating the process of redemption, they sought to make it as 
 difficult as possible. No system of note issue could be 
 termed successful in which the holders of notes in the great 
 majority of cases were compelled to resort to the cumber- 
 some process of protest and sale of securities in order to 
 exchange them for specie. 104 
 
 The following table 105 contains the aggregate state- 
 ments of the ninety-four banks reporting their condition 
 to the bank commissioners, October 1, 1860, and the balance 
 sheets of (1) a large Chicago bank, (2) the largest down 
 state bank, (3) one of the small group of conservative 
 country banks, (4) one of the more numerous banking 
 associations organized solely to obtain notes and lend them 
 through some third party : 
 
 102 Champaign Gazette, November 28, i860. 
 103 Senate Journal, 1863, p. 22. 
 104 Bankers Magazine, xiv, 7. 
 
 105 The data given in the table were obtained from Reports of Session 
 (Senate), 1861, p. 376. 
 
517] 
 
 THE FREE BANK SYSTEM 
 
 159 
 
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160 THE DEVELOPMENT OF BANKING IN ILLINOIS [518 
 
 The aggregate statement for October 1, 1860, shows the 
 condition of the banks when the stock system under the 
 stimulus of prosperous times had attained its maximum 
 growth. In addition to the ninety-four banks from which 
 returns were received there were eighteen others in exist- 
 ence at this time. They evidently had not complied with 
 the provision of the act calling for a quarterly statement 
 of their condition. The fact that $12,264,580.74 in securi- 
 ties had been deposited as a protection to but $11,010,837 
 in notes furnished a safe margin against the ordinary 
 fluctuations of the stock market. More than half of this 
 amount of securities had been deposited since the amend- 
 ment of 1857, hence the bank making the deposit received 
 in notes but ninety per cent of the market value of its 
 bonds. 106 
 
 Practically every item in the statement reveals the 
 fact that but few of the banks were conducting a regular 
 banking business. Only fourteen of them owned even 
 enough real estate to provide a site for their place of busi- 
 ness making a total amount of but $116,551.40 invested in 
 this way. 107 The item, "notes of other banks," represents 
 the holdings of but thirty-two institutions out of the ninety- 
 four, while but thirty-eight banks reported any indebted- 
 ness to other banks. Furthermore, but fourteen banks 
 carried on a loan and discount business of their own, which 
 accounts for the fact that but $540,876.28 of the nineteen 
 millions of resources was used in this manner. 108 On the 
 other hand, nearly all the banks had large amounts on 
 deposit with other banks, this item alone aggregating 
 $3,793,752.22. All these facts go to show that most of the 
 stock banks were mere devices for obtaining a supply of 
 paper money to use in connection with a private banking 
 business where the restrictions placed upon an incorporated 
 concern could be avoided. Closely related to the deposits 
 in other banks is the $1,950,244.39 due from banks and 
 
 t0Q Reports of Session (Senate), 1859, p. 206. 
 *° 7 Ibid., 1861, pp. 376 ff. 
 
519] 
 
 THE FREE BANK SYSTEM 
 
 161 
 
 individuals, aside from loans and discounts. A large part 
 of this amount probably can be attributed to the purchase 
 of bills of exchange arising from the sale of produce. 109 
 
 The remainder of the banks' note issues were invested 
 in bonds which served as security for a further note issue 
 and so on as long as the necessity of redeeming the notes 
 in specie could be avoided. That most of the banks had no 
 intention of redeeming their notes in specie can be seen 
 from the fact that but sixty-one of them kept any specie 
 on hand at all and half of these had a thousand dollars 
 or less. The f 302,905.26 on hand at the time of the report 
 was less than three per cent of the outstanding circula- 
 tion, 110 not to mention the other demand obligations. The 
 minor items in the aggregate statement column are either 
 self explanatory or furnish little indication as to their 
 exact character. 111 
 
 In the second column is represented a peculiar bal- 
 ance sheet, that of the Marine Bank of Chicago. It will be 
 noted that the association had invested but |55,753.83 of 
 its half a million dollars of paid up capital in stocks and on 
 this security had issued but $31,795 in notes. One could 
 conclude from this much of the bank's statement that it 
 was carrying on a discount and deposit business but a 
 glance at the other items shows that this is not the case. 
 Deposits aggregate but $19,378.35 and no loans and dis- 
 counts whatever were made. By far the largest part of the 
 bank's funds had been loaned through another bank or 
 banks, but no use was made of the "endless chain" device of 
 securing a large supply of bank notes by using the exist- 
 ing issue for the purchase of more bonds. The Chicago 
 banks found other lines of banking more profitable than 
 note issue under a restrictive law. 112 
 
 109 Reports of Session (Senate), 1861, pp. 376 ff. 
 
 110 The banks of Indiana, at the close of i860, had $2,296,648 in specie 
 and but $5,755,201 in notes; and those of Ohio $2,377,466 in specie and 
 $8,143,611 in notes. U. S. Comptroller of the Currency, Report, 1876, 
 p. 116. 
 
 ^Reports of Session (Senate), 1861, pp. 376 ff. 
 112 Andreas, History of Chicago, ii, 617. 
 
162 THE DEVELOPMENT OF BANKING IN ILLINOIS [520 
 
 In marked contrast with the Marine Bank is the 
 largest of all the stock banks and the successor of the old 
 Bank of Illinois, the State Bank of Shawneetown. In 
 spite of its high sounding name, however, it had no official 
 connection with the state. It had invested all its capital in 
 bonds, obtained notes for them and with these had obtained 
 more bonds as security for more notes. The |11,500 
 charged to real estate is of interest in that it probably rep- 
 resents the "present worth" of the $80,000 structure 
 erected by the old Bank of Illinois. It will be seen that 
 practically all the rest of the bank's funds were loaned out 
 through other agencies or invested in bonds. 
 
 The McLean County Bank is one of the very few stock 
 banks which conducted their affairs about as a small bank 
 issue would do at the present time. The capital stock had 
 been invested in securities and the full amount of notes 
 issued thereon, but in comparison with other stock banks, .a 
 large amount of discount business had been carried on and 
 an unusual amount of deposits received. The specie reserve 
 while small was much larger than the average. This bank 
 was one of the few to survive the outbreak of the rebel- 
 lion. 113 
 
 The bank maintained by Tinkham and Company, pri- 
 vate bankers of Chicago, affords an example of the type of 
 institution which was established in an out of the way 
 place for the sole purpose of obtaining a supply of cur- 
 rency. The incorporators of the enterprise made no effort 
 to carry on a banking business at the place mentioned in 
 the charter and on the notes, but circulated their currency 
 in Chicago or some other distant point where there was lit- 
 tle chance of anyone taking the trouble to find the bank's 
 counter. Tinkham and Company had evidently used about 
 $50,000 of the note issue in connection with their private 
 banking business and had invested the rest in bonds. 
 
 The table as a whole shows that the stock bank system, 
 instead of providing the state with adequate and dependable 
 
 3 Re ports of Session (Senate), 1863, i, 215. 
 
521] 
 
 THE FREE BANK SYSTEM 
 
 163 
 
 facilities for all lines of banking, had created a machine 
 for the issue of paper money. 
 
 As the secession movement advanced and the prospect 
 of war became more of a certainty, it was generally agreed 
 that some radical steps must be taken to bolster up the cur- 
 rency system of Illinois. Governor Yates in his inaugural 
 message joined with the bank commissioners in recom- 
 mending: (1) the limitation of the choice of securities 
 to the bonds of Illinois and the United States, (2) that 
 one or more cities of the state should be selected as central 
 redemption points where, for a small fee, the notes of a 
 stock bank could be exchanged for specie. 114 The Chicago 
 bankers were especially desirous of securing the adoption 
 of the latter recommendation and a convention of bank 
 presidents and cashiers was called by the bankers of that 
 city to formulate plans for a redemption system which 
 would obviate the necessity of sending messengers to re- 
 mote parts of the state to the counters of country banks. 
 The Chicago banks urged each country association to retire 
 one-tenth of its circulation and to open a redemption agency 
 at Springfield or Chicago. As compensation to the down 
 state banks for retiring a portion of their notes and selling 
 the securities back of them at such an unfavorable time, the 
 Chicago banks agreed to pay an extra premium of five per 
 cent for all New York sight exchange delivered to them 
 by country banks during the ten days following the making 
 of the agreement. As a hint concerning what would follow 
 upon an unfavorable response to the proposition, the Chi- 
 cago bankers mentioned the fact that they had on hand 
 large amounts of the notes of down state banks which were 
 likely to be presented for redemption at any time. When 
 the convention of presidents and cashiers met, January, 
 1861, with representatives present from thirty-seven banks, 
 a system of mutual redemption was formulated, but the 
 banks of themselves could accomplish little as the existence 
 
 114 Reports of Session (Senate), 1861, pp, 21, 335. 
 
164 THE DEVELOPMENT OF BANKING IN ILLINOIS [522 
 
 of all except a few of them was threatened by the probable 
 secession of the southern states. 115 
 
 The question of banking reform was therefore one 
 with which the legislature alone was competent to deal and 
 it responded to the appeal of the Chicago bankers by enact- 
 ing an amendment, February 14, 1861, entitled "An act to 
 amend the general banking law to afford greater security 
 to the public." First of all, it was provided that thereafter 
 all securities deposited with the auditor must be those of 
 Illinois or the United States. In order to encourage the 
 existing banks to dispose of their southern bonds, the act 
 provided that if securities which had been below par for 
 two years were exchanged for securities which had been at 
 par for two years, notes should be issued on the latter up 
 to their full face value, until September, 1861. After that 
 date, the usual ten per cent margin between notes and 
 securities should be required. Any bank whose circulation 
 exceeded the lawful limit was given sixty days in which to 
 make good the deficiency in securities. If at the end of that 
 time there was still a deficiency, the auditor was required 
 to place the bank in liquidation. Before the passage of this 
 act the auditor had been required to sell the bonds of banks 
 whose notes had been protested and to pay the note holders 
 in specie out of the proceeds. The present act provided 
 that the auditor should redeem the notes directly with 
 bonds and let the note holder dispose of the bonds as best 
 he could. 
 
 The act further provided for the adoption of a central 
 redemption system. All banks organized thereafter were 
 required to maintain an agency in Springfield or Chicago, 
 while the older banks were induced to do so by being offered 
 a special thirty day exemption from being placed in liqui- 
 dation in case their notes were protested. Furthermore, 
 persons protesting the notes of any existing bank which 
 should establish an agency were entitled to but six per 
 cent interest instead of the usual twelve per cent which had 
 been paid to holders of protested notes. The agency thus 
 
 115 IUinois State Journal, December 19, i860, January 17, 1861 ; Bankers 
 Magazine, xiv, 581 ; Chicago Tribune, January 1, 1861. 
 
523] 
 
 THE FREE BANK SYSTEM 
 
 165 
 
 provided for could be either a separate or joint affair and 
 was permitted to charge three-fourths of one per cent com- 
 mission during the year 1861 and after that not more than 
 one-half of one per cent. 
 
 In order to keep the public more closely in touch with 
 the banking situation, the governor and commissioners 
 were required to issue quarterly statements of the value of 
 the securities then on deposit. Every six months, the banks 
 were required to give to the public a complete list of their 
 stockholders and the amount of their respective holdings. 
 As a check upon the excessive issue of notes, it was speci- 
 fied that no bank could thereafter issue an amount greater 
 than three times the actual paid up capital. The minimum 
 capital requirement was reduced to twenty-five thousand 
 dollars in actual cash. Thereafter banks could not be estab- 
 lished in any town containing less than one thousand in- 
 habitants, an exception being made of county seats. The 
 charters of all banks having no bona fide officers or place 
 of doing business were declared forfeited and lending 
 through a third party was punishable by forfeiture of all 
 interest due. Whether a bank chose to issue notes or not, 
 it was required to keep a minimum bond deposit of f 5,000 
 in the auditor's office. 116 
 
 In addition to placing the existing system upon a 
 firmer basis so far as could be done without infringing upon 
 the rights of banks already in operation, the legislature 
 provided for the establishment of a great central banking 
 system entirely distinct from the stock banks. The state 
 bank of Indiana had met with such success and its paper 
 bore so high a reputation that the Illinois legislature be- 
 lieved that by providing a similar institution the currency 
 ills of the state would be at an end. The new institution 
 was to be called the Union Bank of Illinois and was to con- 
 tinue its existence for twenty-five years after its charter 
 had been approved at the next general election. Three 
 months after the ratification of the act by the people, the 
 bank commissioners were to divide the state into not more 
 
 116 Laws of Illinois, 1861, pp. 39 ff. 
 
166 THE DEVELOPMENT OF BANKING IN ILLINOIS [524 
 
 than thirty districts, in each of which a branch bank was to 
 be located. The capital was not to exceed ten millions and 
 every branch was to be held responsible for the debts of 
 the others. The maximum rate of interest was fixed at 
 seven per cent. The system was referred to as the "specie 
 system" of banking as contrasted with the "stock system." 
 The only safeguard provided for demand notes was that 
 they could not be issued in excess of twice the amount of 
 paid up capital. 117 
 
 At the next general election in November, 1862, the 
 bill was submitted to the people and rejected by^ large 
 vote. 118 The reasons assigned for its unpopularity were: 
 (1) It was expected that the greenbacks would furnish an 
 ample supply of good paper money. (2) A constitutional 
 convention was about to meet and the general opinion was 
 that the solution of the banking question should be left to 
 it. 119 (3) The collapse of the stock banking system, about 
 to be described, occurred between the passage of the act and 
 the date of its submission to the people. As a consequence, 
 a strong feeling against banks was engendered. 120 
 
 It will be remembered that the bank commissioners in 
 November, 1860, called upon twenty-two of the one hundred 
 and twelve stock banks in the state for more securities. 
 When the final date on which the deficiency could be made 
 good arrived (March 20), seventeen of the banks with an 
 aggregate circulation of f 2,726,795 were still unable to 
 comply with the call and were placed in liquidation. 
 
 Meanwhile the southern states had one by one seceded 
 from the Union and their bonds in the hands of the Illinois 
 auditor to the amount of f 9,467,500 had rapidly declined in 
 value. Missouri bonds, which were quoted at 67 cents on 
 the dollar on April 1, by April 17 had fallen to 51 cents 
 and the prospect of a recovery daily grew less. The notes 
 of thirty-two stock banks were refused by the Chicago 
 bankers, and the paper of as many more banks was on very 
 
 117 Laws of Illinois, 1861, p. 53. 
 ^Bankers Magazine, xv, 539, 554. 
 119 Champaign Gazette, October 30, 1861. 
 ^Illinois State Journal, June 26, 1861. 
 
525] 
 
 THE FREE BANK SYSTEM 
 
 167 
 
 dangerous ground. 121 Outside of Chicago, notes which 
 were discredited in that city were accepted at fifty cents 
 on the dollar, while the paper of other banks circulated 
 about as usual. The down state business men protested 
 that the strictness of the Chicago bankers was merely 
 making a bad situation worse by hastening the ruin of 
 the great majority of the country banks. 122 The merchants 
 of Chicago adopted a more liberal policy toward the stock 
 banks. Believing that the war would be of short duration, 
 they agreed to take at par all Illinois paper not already 
 discredited by Chicago bankers, 123 but this arrangement 
 became intolerable when New York exchange reached a 
 premium of twenty per cent and threatened to go higher. 
 When on May 15, Missouri stock had fallen to 35 cents on 
 the dollar, Tennessee to 45 and Virginia to 43 and the col- 
 lapse of the greater part of the stock banks was bound to 
 follow, the Chicago merchants hastened to abrogate their 
 agreement and to accept Illinois currency at what it would 
 bring in New York exchange. 124 
 
 Everywhere the whole issue of stock notes began to be 
 discredited. Merchants refused to give change in coin for 
 a bank note and persons depositing Illinois notes at a 
 bank were required to accept payment in the same from 
 the bank. 125 The business men of Springfield voted to 
 receive the notes of only thirty-six banks which had depos- 
 ited northern state bonds with the auditor. 126 As a result 
 of the scarcity of money a considerable amount of specie 
 was forced out of hiding places and into circulation. 127 
 
 If the war had begun in the autumn of 1860 instead of 
 in the spring of 1861, the farmers of the state would have 
 been caught with an immense amount of rejected and depre- 
 
 121 Chicago Tribune, April 17, 1861 ; St. Louis Democrat, April 3, 1861 ; 
 Champaign Gazette, April 10, 1861. 
 
 122 St. Louis Democrat, April 3, 1861 ; Missouri Republican, quoted by 
 Illinois State Journal, April 6, 1861. 
 
 123 Chicago Tribune, May 2, 1861. 
 
 12 *Ibid., May 16, 1861. 
 
 125 Illinois State Journal, May 16, 1861. 
 
 12 «Ibid., May 18, 1861. 
 
 X21 lbid., May 20, 1861. 
 
168 THE DEVELOPMENT OF BANKING IN ILLINOIS [526 
 
 dated currency on their hands ; but as it was, the large city 
 banks were the heaviest losers. At the next session of the 
 legislature they demanded that they be reimbursed under 
 the guise of a war measure, but they were unsuccessful. 128 
 The provision of the original banking act, which per- 
 mitted the banks to deposit any state securities on which six 
 per cent interest was regularly paid, had naturally led 
 banking associations to purchase the less expensive south- 
 ern securities. It was this fact that caused the almost 
 complete collapse of the whole system of banking in Illi- 
 nois. The securities of all the states except a few in the 
 North and East had shrunk almost fifty per cent in value 
 within six months and desperate efforts were made by con- 
 servative business men to eliminate all currency based upon 
 depreciated bonds. 129 To this end a conference of down 
 state bankers was held, June 4, 1861, at which representa- 
 tives from Springfield, Jacksonville, Decatur, Alton, Dan- 
 ville, and Carbondale were present. The conference made 
 up a list of fourteen banks, all of whose notes were pro- 
 tected by the bonds of northern states, and agreed to accept 
 at par the notes of any bank on the list and to reject the 
 paper of all other stock banks. This action reduced the 
 amount of paper in good standing to $1,076,737, whereas 
 six months before over twelve millions was in circula- 
 tion. 130 Much of the depreciated paper continued to be 
 used, however, at what were known as merchants', bankers', 
 and railroad rates. Lists of notes and their rating were 
 published in the newspapers and posted in stores and 
 railway stations for the guidance of note holders. 131 The 
 reduction in the amount of media of exchange caused no 
 appreciable change in prices for the volume of business 
 had diminished to such an extent that it could easily be 
 transacted with the remaining notes of Illinois banks and 
 those of Indiana and Ohio banks. 132 
 
 128 Journal of Constitutional Convention, 1862, February 6, 1862. 
 129 Chicago Tribune, May 23, 1861. 
 130 Illinois State Journal, June 5, 1861. 
 
 131 See Chicago, Springfield and other local newspapers for lists. 
 132 Chicago Tribune, May 30, 1861. 
 
527] 
 
 THE FREE BANK SYSTEM 
 
 169 
 
 In order to assist note holders in disposing of their 
 notes, firms like Tinkham and Company and the Ridgely 
 Bank in Springfield established agencies for the conver- 
 sion of rejected notes into bonds and then into New York 
 exchange. For a few weeks these firms along with scores 
 of individual note holders, poured the notes into the office 
 of the state auditor at the rate of $100,000 a day ; in fact, 
 that official was compelled to close his office for a time 
 until the accumulation of notes could be counted, can- 
 celled and burned. 133 
 
 In the meantime, the bank commissioners were trying 
 to secure additional bond deposits from a large part of the 
 banks, but were meeting with no success. On May 24, 
 twenty-three of these were added to the delinquent list. The 
 remaining seventeen were left undisturbed because their 
 notes were backed by bonds of northern states and those of 
 the United States, the latter, however, being worth but 
 eighty-five cents on the dollar. The banks were compelled 
 to agree to establish central redemption agencies in return 
 for their being exempted from call, the advantage to them 
 of such exemption being that in case their notes depreci- 
 ated greatly they could buy them up at a great discount and 
 present them to the auditor for redemption in bonds, dollar 
 for dollar. On the other hand, if their notes were under 
 protest the note holder had a prior lien not only on all the 
 bank's assets but also upon the stockholders up to an 
 amount equal to their respective holdings. 134 
 
 The rapid disappearance of Illinois notes from the 
 channels of trade placed business upon a specie basis and 
 the few banks which remained paid out no more local cur- 
 rency at their counters. The notes of the small group of 
 banks in good standing were accepted at the rate of ninety 
 cents on the dollar, while all the rest were refused. Chicago 
 had been rated as a "dear market" so long as business was 
 transacted on a paper basis, but now the wholesale houses 
 of this city were enabled to compete on equal terms with 
 those of other cities. 135 
 
 133 Commissioners' report in Illinois State Journal, June 20, 1861. 
 13 *Ibid. 
 
 135 Bankers Magazine, xv, 947. 
 
170 THE DEVELOPMENT OF BANKING IN ILLINOIS [528 
 
 A comparison of the auditor's report for October, 1861, 
 with those of July and April of the same year shows the 
 rapid progress made by that officer in retiring and destroy- 
 ing the stock bank notes sent in for redemption. On April 
 1, |11,107,600 was outstanding. By July 1, this amount 
 had been reduced to $7,294,855 and by October 1, to 
 $3,507,686.* 36 As the notes were presented to him, the 
 auditor calculated the ratio which they bore to the total out- 
 standing issue of the bank in question, and paid to the note 
 holder the same proportion of that bank's securities. For 
 instance, during the month of October, 1861, there were 
 presented notes with a par value of $279,089, but the hold- 
 ers received bonds worth only f 160,419.80, these amounts 
 having the same relation to the total amount of the bank's 
 notes and bonds respectively. 
 
 It is impossible to estimate the total loss incurred by 
 bank creditors through the collapse of the stock banks 
 in 1861 for the reason that many persons sold their bonds 
 or notes to brokers at a great sacrifice, while others were 
 in a position to hold their bonds until the credit of states 
 like Missouri, for example, recovered from the effects of 
 reckless finance and the depression which accompanied the 
 war. If the rate at which the note holders were reimbursed 
 by the auditor could be taken as a criterion, the loss could 
 be placed at about forty-four per cent but, as has been 
 shown, large numbers of persons submitted to a second 
 heavy discount at the hands of brokers, 137 the amount of 
 which it is not possible to estimate. 
 
 By the middle of November but $1,766,000 worth of 
 securities remained in the auditor's hands, $1,221,000 of 
 which were the bonds of Illinois. Two of the seventeen 
 solvent banks had been called upon for additional securi- 
 ties, leaving but fifteen in unquestionable standing. The 
 latter group had an outstanding circulation of but $504,346, 
 secured by $600,000 worth of bonds, $511,317 of them 
 
 136 Auditor's report, in Illinois State Journal, July 2, October 10, 1861. 
 137 Illinois State Journal, November 6, 1861 ; Message of Governor 
 Yates, Senate Journal, 1863, p. 24, or Reports of Session, 1863, p. no. 
 
529] 
 
 THE FREE BANK SYSTEM 
 
 171 
 
 being various Illinois securities. On January 1, 1862, the 
 auditor reported that the notes of but three of the fifteen 
 banks were received at par, the rest being subjected to a 
 discount of thirty to forty cents, although their securities 
 were quite as ample and of as good standing. The reason 
 for the discrimination lay in the fact that the three banks 
 in question had lived up to their agreement and had estab- 
 lished agencies in Chicago where their paper could be 
 redeemed in specie at a cost of but three-fourths of one 
 per cent. Thirty-six of the stock banks had been in the 
 hands of receivers for some time. The auditor, on behalf 
 of the note holders, was entitled to a prior lien upon the 
 proceeds obtained from the sale of the assets of these banks, 
 but in January, 1862, he reported that he had not yet re- 
 ceived a dollar from this source. On that date, the auditor 
 was still engaged in exchanging bonds for the notes of 
 fifty-seven banks. 138 
 
 The legislature in 1859 had provided that a refer- 
 endum be taken at the general election of 1860 on the ques- 
 tion of calling a convention to frame a new constitution. 
 The proposition received the sanction of the voters and the 
 convention met in Springfield in January, 1862. The events 
 of the preceding year had revived the old hostility toward 
 banks to such a degree that an article was inserted in the 
 new constitution prohibiting absolutely the incorporation 
 of any institution with banking powers. Although the 
 convention was not able to deprive the few remaining 
 banks of their right to exist, it provided that they should at 
 once restrict their issues to notes of not less than ten dol- 
 lars in denomination. In 1864 the minimum was to be 
 raised to twenty dollars, and in 1866 note issue was to 
 cease entirely. 
 
 In their "address to the people" the members of the 
 convention assigned the following reasons for their action : 
 (1) The advocates of stock banking had led the public to 
 believe that local bank paper was needed in addition to the 
 
 ^Proceedings of Constitutional Convention, 1862, pp. 65, 85 ; Report 
 of Auditor, in Bankers Magazine, xvi, 650 ; Chicago Board of Trade Re- 
 ports, 1861, p. 63. 
 
172 THE DEVELOPMENT OF BANKING IN ILLINOIS [530 
 
 existing supply of metallic money in the state, but the 
 paper had merely driven out a like amount of specie. 
 (2) The system had broken down completely and might 
 as well be abolished. (3) Gold and silver, together with 
 the new United States notes, would furnish a plentiful and 
 dependable method of exchange. (4) Patriotic devotion to 
 the cause of the Union demanded that all local bank paper 
 be retired so as to give the United States a clear field for 
 the circulation of its notes. 139 The article dealing with 
 banks was sumbitted to the people separately and was re- 
 ceived with less disfavor than was the main body of the 
 constitution, the banking article being rejected by 3,801 
 votes and the whole constitution by over 16,000 votes. 
 
 In his report of July 1, 1862, the auditor stated that 
 there were then seventeen banks in operation with a circu- 
 lation of |511,286 secured by Illinois and United States 
 bonds to the amount of $574,532. He was still engaged in 
 exchanging the securities of defunct banks for their 
 notes. 140 Within the next six months, five new banks were 
 started under the general law as amended in February, 
 1861, and the circulation was thereby increased to $566,133, 
 as compared with $12,320,694, the amount reported by the 
 auditor to the preceding general assembly. 141 
 
 The bank commissioners now made a last desperate 
 effort to rid the state of foreign small notes. They issued 
 notices to prosecuting attorneys to the effect that the 
 law must not be regarded as a dead letter, and visited 
 certain counties in order to secure evidence against vio- 
 lators. In Christian County, for example, they secured 
 the indictment of seventeen persons for passing the one, 
 
 ^^Proceedings of the Constitutional Convention, 1862, p. 1049. 
 140 Classifying the banks by value of securities, we find the notes of 
 
 38 banks were redeemed at 50-obc 
 
 25 banks were redeemed at 61 -70c 
 
 11 banks were redeemed at 71-8OC 
 8 banks were redeemed at 81-90C 
 
 3 banks were redeemed at 90-95C 
 
 4 banks were redeemed at par 
 
 Illinois State Journal, July 7, 1862. 
 ^Reports of Session (Senate), 1863, p. no. 
 
531] 
 
 THE FREE BANK SYSTEM 
 
 173 
 
 two and three dollar bills of banks outside of Illinois. They 
 soon found, however, that such a move was entirely un- 
 supported by public sentiment and their efforts to enforce 
 the act came to an end. 142 
 
 There is little doubt but that the stock banking system 
 as amended in 1861 would have made a favorable showing 
 had it had a fair trial. The restriction of securities to those 
 of Illinois and the United States, the limitation of note 
 issue and the redemption agency requirement remedied the 
 fatal defects in the system. However, the large volume of 
 United States notes, followed shortly after by the notes of 
 the national banks, prevented a satisfactory demonstration 
 of the merits of the revised banking system before it went 
 out of existence. In 1865 the legislature abolished the 
 office of bank commissioner and entrusted the supervision 
 of the banks to the auditor and treasurer. 143 At that time 
 there remained twenty-three stock banks with a circulation 
 of $199,364, based upon Illinois six per cent bonds valued 
 at $252,684.17. August 1, 1866, the ten per cent federal 
 tax upon state bank notes became effective and resulted in 
 the retirement of all but $35,046 by November 30 of that 
 year. 144 
 
 In 1867 the legislature authorized the existing stock 
 banks to retire their notes, reduce their capital stock to five 
 thousand dollars and continue their banking activities 
 other than note issue. It was provided that thereafter "no 
 more banks with power to issue notes . . . shall be organ- 
 ized.'' 145 The last official trace of the old stock banking 
 system is found in the report of the auditor for 1869 in 
 which he informed the legislature that he had in his pos- 
 session $631 in greenbacks as security for $531 worth of 
 bank notes still outstanding. 146 
 
 ^Illinois State Journal, December 4, 1862; Bankers Magazine, xvii, 
 
 241. 
 
 143 Laws of Illinois, 1865, p. 20. 
 
 ^Reports of Session (Senate), 1867, p. 115. 
 
 145 Laws of Illinois, 1867, P- 49- 
 
 ^Reports of Session (Senate), 1869, p. 324. 
 
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 THE DEVELOPMENT OF BANKING IN ILLINOIS 
 
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 Smith, W. H., The St. Clair Papers, Life and Public Services of Arthur 
 St. Clair . . . with his Correspondence and Other Papers. Cincin- 
 nati, 1882. 
 
 Thwaites, R. G., Michaux's Travels. (Early Western Travels, iii.) Cleve- 
 land, 1904-07. 
 
 Thwaites, R. G., The Jesuit Relations and Allied Documents. Volume 
 
 lxix. Cleveland, 1896-1901. 
 Washburne, E. B., The Edwards Papers. (Chicago Historical Society, 
 
 Collections, iii.) Chicago, 1884. 
 The Williams-Woodbury Manuscripts, in the possession of Mr. A. G. 
 
 Woodbury, Danville, Illinois. 
 Woods, John, Two Years Residence in the Settlement on the English 
 
 Prairie in the Illinois Country, U. S. London, 1822. 
 
INDEX 
 
 Auditor's warrants, circulation of, 41. 
 
 Bank commissioners, provided for, 137; reports, 142, 144, 153, 154; efforts 
 to save free bank system, 157, 169; duties under act of 1861, 165. 
 
 Bank of Edwardsville, location, 14; difficulties, 14, 16; government de- 
 posits, 15; relations with other banks, 16; suspension of operations, 17; 
 analysis of operations, 20; reasons for brief existence, 21. 
 
 Bank of Illinois (Shawneetown) 
 
 1818-1823. Location, 9; provisions of charter, 9 et seq.; government 
 deposits, 11 j character of management, 12; relations with other banks, 
 12, 16; devices for aiding note circulation, 12; suspension of opera- 
 tions, 13; analysis of operations, 20; reasons for brief existence, 21. 
 1835-1843. Amendments to charter, 64; constitutionality of charter, 
 65 ; government deposits, 76 ; made part of internal improvement 
 system, 78; dividends declared, 79; increase of capital, 79; branches, 
 80; investigation, 81; suspension of specie payment, 83, 88, 100; note 
 issue, 86; mismanagement under new officers, 101 ; analysis of oper- 
 ations, no et seq.; suspension of operations, 104, 112; liquidation act, 
 123; progress of liquidation, 124 et seq. 
 
 Bank of Kaskaskia, 19. 
 
 "Banking and internal improvement" bond issue, 80, 83. 
 Bissell, Governor, attitude toward free bank system, 147, 154. 
 Carlin, Governor, attitude toward banks, 86, 88, 96, 113. 
 Chicago bankers, plan of, for banking reform, 163. 
 
 City and Bank of Cairo, provisions of charter, 19; failure to operate, 20; 
 
 charter revived (1834), 64; operations during internal improvement 
 
 era, 126 et seq. 
 Coles, Governor, and the first state bank, 35. 
 
 Constitutional limitations upon banking (1818), 22; (1848), 134; (1862), 
 172. 
 
 Democratic party, attitude toward banks, 61, 85, 94, 132, 134, 139. 
 Duncan, Governor, attitude toward banks, 59, 61, 70, 79, 85, 112. 
 Duncan, James M., controversy over accounts, 52. 
 
 Edwards, Ninian, and Bank of Edwardsville, 15, 17, 18; controversy with 
 
 Secretary Crawford, 15, 16, 18; relations with first state bank, 42. 
 English occupation, monetary system during, 6. 
 Ford, Governor, relations with banks, 113, 117, 118, 120. 
 Foreign small notes, 86, 141, 172. 
 
 Free bank system, provided for in 1848 constitution, 134; adopted by 
 legislature, 135, 138; provisions of law, 135 et seq.; defects of law, 
 139; organization of banks, 140, 142, 145, 147, 148, 153, 155; amend- 
 ment of 1853, 141; of 1855, 144; of 1857, 148; of 1861, 164; condition 
 
 179 
 
180 THE DEVELOPMENT OF BANKING IN ILLINOIS [538 
 
 of banks, 140, 142, 145, 147, 148, 153, 157 et seq., 166, 170; effects of 
 panic of 1854, 144; of 1857-8, 148, 150, 152; analysis of statements, 157 
 et seq.; effect of secession of South, 166; abolition of, 173. 
 
 French, Governor, hostility to banks, 119, 133, 135, 138. 
 
 French settlements in Illinois, monetary situation in, 6. 
 
 Georgia banks, notes of in Illinois, 146. 
 
 Godfrey, Gilman and Company, 61, 90, 93. 
 
 Gouge, W. M., comments on Illinois banking system, 153. 
 
 Illegal note issue, 129, 131, 140, 142. 
 
 Indiana banks, notes of in Illinois, 131. 
 
 Internal improvement system, 78. 
 
 Michigan banks, circulation of notes in Illinois, 131. 
 
 Missouri bonds as security for Illinois bank notes, 148, 151, 153, 154, 155, 
 167- 
 
 Nebraska banks, agencies of in Illinois, 147. 
 
 Panic of 1819, 21, 27; of 1837, 83; of 1839, 87; of 1854, 144; of 1857-8, 148, • 
 
 150, 152. 
 Private banks, 130, 131. 
 Reapers' Bank, action of, 156. 
 Redemption agencies, 163, 164. 
 
 Reynolds, Governor, attitude toward banks, 48 et seq. 
 
 Smith, George, banking operations, 129, 146. 
 
 South, secession of, effect on banks of Illinois, 173. 
 
 Specie, scarcity of, 7, 60, 153. 
 
 Speculation in lead and pork, 90. 
 
 State bank, meaning of term, 22. 
 
 State Bank of Illinois, failure of attempt to establish in 1819, 23. 
 
 First State Bank (1821-1831), controversy over incorporation, 24 et seq.; 
 provisions of charter, 27 et seq.; character of officers, 30; loans to 
 officers, 34; efforts to secure government deposits, 31 ; standing of note 
 issue, 31, 41, 46, 48; constitutionality of charter, 32, 54; attitude of 
 borrowers, 32, 47; indulgence toward borrowers, 33, 42, 46, 47, 51, 54; 
 increase of note issue defeated, 34; investigation into its condition, 35 
 et seq.; measures for winding up affairs, 37, 46, 47, 51, 52, 53; loss to 
 state due to operations, 40 et seq., 57 ; attitude of Governor Edwards, 
 43 et seq., 47 ; attitude of Governor Coles, 35 ; attitude of Governor 
 Reynolds, 48 et seq.; the Wiggins loan, 50; analysis of statement, 55. 
 
 Second State Bank (1835-1843), conditions responsible for establishment, 
 60; provisions of charter, 61 et seq.; branches, 67, 95, 103; officers, 67; 
 subscription to stock, 65 ; struggle for control, 66 ; business methods, 
 67 et seq., 90 et seq., 105 et seq.; note issues, 62, 63, 71, 86, 95, 101, 103; 
 efforts to obtain federal deposits, 72 et seq., 87; made part of internal 
 improvement system, 78; dividends, 79; increase of capital stock, 79; 
 investigations by legislature, 81, 89, 93; suspension of specie payments, 
 83, 87, 88, 100; resumption of specie payments, 85, 98; operations in 
 Alton, 90; connection with speculation, 90 et seq.; mismanagement of 
 
539] 
 
 INDEX 
 
 181 
 
 directors, 101, 103; cessation of activities, 104, 109; analysis of state- 
 ment, 105 et seq.; liquidation act, 115; progress of liquidation, 117, 
 120 et seq. 
 Union bank, effort to establish, 165. 
 
 Whig party, attitude toward banks, 61, 85, 102, 112, 132, 135. 
 Whitney, Reuben, relations with the second state bank, 74 et seq. 
 Wiggins, Samuel, loan, 50, 51, 71; relations with the second state bank, 
 66, 71, 76, 89. 
 
 Wisconsin Marine and Fire Insurance Company, note issues, 131. 
 Yates, Governor, recommendations as to free bank system, 163. 
 
VITA 
 
 The writer of this study was born at Pontiac, Illinois, 
 December 27, 1880. He prepared for college in the Pontiac 
 Township High School and was graduated from Lake For- 
 est College in 1901. From 1901 to 1906 he was engaged in 
 secondary school work at Pendleton, Oregon, Jacksonville, 
 Illinois, and Pontiac, Illinois. He spent the year 1906-07 
 at the University of Chicago and obtained the degree of 
 Master of Arts in June, 1907. At that date, he was elected 
 to a professorship in Kingfisher College, Kingfisher, Okla- 
 homa, which position he held until 1910. Since September, 
 1910, he has been a student in the Graduate School of the 
 University of Illinois, holding the position of fellow in 
 economics, 1910-11, assistant in economics, 1911-13, and 
 instructor in the summer session, 1912 and 1913. 
 
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