CHAPTER 4.  STRUGGLING THROUGH THE DEPRESSION: PRAIRE SCHOONERS AND STEEPLES (1838-1843)

4.1. GEORGE SMITH’S MONEY

While the depression that worsened during 1838 and 1839 continued to slow the fledgling city’s economy, the State work on the canal, funded by loans from New York and Europe managed to continue fitfully after the 1837 Panic. This activity brought in a minimal amount of cash and was the only major financial operation that helped the new town weather the depression.   Although Chicago’s population stalled at 4,000 during the economic downturn, forces that had been put in place to exploit the area’s natural wealth prior to the Panic had started to develop a momentum of their own that, fortunately, took over when the city’s real estate market bottomed out in 1838.

No person in Chicago better appreciated the region’s profit potential at this moment better than George Smith, a twenty-six year-old entrepenuer from Aberdeenshire, Scotland, who had arrived in Chicago during the initial land craze in the Spring of 1834.  Having tried his hands at a variety of careers back home, Smith, having heard some of the success stories coming back from the New World decided to try his luck in America.  After finding little room to grow in New York City, he moved on to Chicago and took to the land speculation madness like a natural.  Like all good gamblers, he also hedged his bets by also buying land in Milwaukee, as at this time no one could predict which city would eventually come out on top.  Having made a significant profit, Smith left Chicago in July 1836 to return to his home country in order to generate more capital for investment purposes.  In conjunction with a syndicate of four other investors, he launched the Illinois Investment Company on February 1, 1837, a stock company intended to generate dividends for its owners through land investments and loans on land and personal property throughout the NorthWest.  Within a month he had pooled sufficient capital to return to Chicago to begin business, accompanied by two associates, Patrick Strachan and William Scott, who would assist him in running the business, eventually forming their own investment company Strachan & Scott. The three Scots arrived in Chicago on April 29, 1837, and two days later, the Illinois Investment Company was opened for business.  Smith’s timing was either pure luck or truly Machieveillian, for Chicago, along with the rest of the country was beginning to suffer the consequnces of Pres. Jackson’s Specie Circular as the wildcat bank notes of the past three years were now almost completely worthless.  Twenty-three days after Smith had opened for business, the Chicago Branch of the State Bank of Illinois suspended all species transactions, creating a currency crisis that was one of the local causes leading to the 1837 Panic.  Fortunately for businessmen and farmers in Chicago, as well as for George Smith and his Scottish partners, “Scotch George” had plenty money to lend.  Smith also had money to buy land, bankrupt land that went for a fraction of what it had cost to buy only a year earlier.

Capital was no good without currency, however, and Smith needed to address the  problem of the worthless banknotes if he was going to monetarily flourish during these economic hard times.  The Illinois legislature had just outlawed banks from printing their own notes, as a knee-jerk reaction to the problems that people had had with the wildcat banknotes. Looking around the region, as he also had a significant portfolio of land holdings in Milwaukee, he decided to charter a second company there, assuming it would be easier to subvert the ban on printing certificates of deposits in the weaker territorial government (Wisconsin would not become a state until 1848).  He chartered the Wisconsin Marine and Fire Insurance Company along lines similar lines to how Dole, Peck, Pruyne, and Theophilus Smith had organized the Chicago Marine and Fire Insurance Company, prior to the new state prohibition.  While the Milwaukee company was chartered to issue insurance policies and to collect deposits, nothing in its charter spoke of the issuance of certificates against those deposits.  Smith simply “inferred” that as he was chartered to take deposits, he could tacitly print certificates on those deposits, that he immediately began to do so that they could be used by himself and his customers as currency, i.e., money.  

Following the opening of Smith’s Milwaukee company in the spring of 1839, Smith’s notes were one of the few valid currencies in use throughout the NorthWest during the coming decade of the 1840s, commonly referred to as “George Smith’s money,” for he backed them with his promise to redeem them with specie on demand, Smith’s notes were responsible for lessening the effects of the 1840’s depression in the NorthWest.   Within weeks of opening the Wisconsin Marine and Fire Insurance in 1839, another Scot under Smith’s tutilage who had been trained in banking in Aberdeenshire, Alexander Mitchell, arrived on May 28, was voted onto the company’s Board of Directors on June 3, and was made the Secretary of the company, the company of which, and its successor, Mitchell would be the head of until his death in 1887.  Meanwhile, Strachan and Scott were sent by Smith to New York City to set up a brokerage house, Strachan & Scott, to give Smith’s group a presence on Wall Street.  With Mitchell in charge of the Milwaukee company that was issuing valid currency, and Strachan and Scott in New York keeping an eye of East Coast and European developments, Smith returned to Chicago during the summer of 1839 where he opened George Smith & Co. in a small office on Clark Street diagonally across from the door of the County Courthouse and just around the corner from the Federal Land Office, as the depression began to settle in.

FURTHER READING:

Andreas, Alfred T. History of Chicago, 3 vols. Chicago, 1884-1886. Reprint, New York: Arno Press, 1975.

Harpster, Jack. A Biography of William B. Ogden. Carbondale: Southern Illinois University, 2009.

Putnam, James William. The Illinois and Michigan Canal.  Chicago: University of Chicago Press, 1918.

Smith, Alice E., George Smith’s Money, Madison: State Historical Society of Wisconsin, 1966.

Taylor, Charles H., History of the Board of Trade of the City of Chicago– vol. 1, Chicago: Robert O. Law, 1917.

(If you have any questions or suggestions, please feel free to eMail me at: thearchitectureprofessor@gmail.com)

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