1839 saw the end of Cincinnati’s antebellum hopes to have a direct railroad link to the Atlantic.  While Robert Young Hayne, the President of the LC&C had used the momentum from its 1836 Convention in Knoxville to reach the minimum of $4 million in stock subscriptions by November 1836 mandated by its charter in order to incorporate by 1837, he was engaged in an intense battle over the railroad’s actual route with, who at first might seem an unlikely opponent to Hayne’s South Carolina railroad, the state’s U. S. Senator, John C. Calhoun.  Calhoun actually owed his current seat in the Senate to Hayne, who had graciously resigned his seat so that Calhoun could return to the Senate following his resignation as Andrew Jackson’s Vice-President following the 1832 Presidential election in which Van Buren had been nominated and elected to replace him. Calhoun’s recalcintrance to the LC&C was not aimed at Hayne, but rather was a result of his conscious effort in which he was involved in at the time to remake himself and his political values to be more in alignment with his constituents.  In essence, Calhoun’s political career was a microcosm of how the antebellum South had evolved following the War of 1812.  

After having given his best in strengthening the War Department and doing all he could to support Monroe’s nationalist agenda during those eight years, Calhoun, who was elected Vice-President in 1824,  was disappointed by not being elected President and had returned to his South Carolina home early in 1825 to reevaluate his politics before he was to be sworn in as Adams’ Vice-President.  During these last seven years, the country’s politics had changed, and even more important to his long-term political career, the politics of his home state had radically changed while he had been in Washington.  The sense of relief throughout the country following the passage of the Missouri Compromise in 1820 had been short-lived, especially among whites in South Carolina due to the Denmark Vesey affair.  Vesey was a former African-American slave who had bought his freedom around 1799 in Charleston, where he had become a leading member of the city’s African-American community.  Encouraged by the anti-slavery talk elicited during the Congressional debate over the Missouri Compromise, Vesey apparently hatched a plan for “the uprising,” a revolt by the town’s slaves that involved taking over the city’s armory, killing as many whites before commandeering ships in the harbor and sailing to the free-black republic of Haiti.  Vesey had originally scheduled the revolt to begin on Bastille Day, July 14, 1822, to evoke the French Revolution, but two slaves who did not support the plan reported it to city officials in June who quickly arrested Vesey and any suspected accomplices.  Vesey and three others were hanged on July 2, 1822, after having been given little, if any legal advice or hearings.  The city’s actions were controversial among the country’s legal experts, but they assuaged the immediate fear of the city’s white citizens, who at the time were in the minority of the city’s population.

Then on May 22, 1824, Congress enacted a tariff on manufactured goods to protect nascent American industries, primarily in the North, from cheaper British goods. The tariff was the first of three to pit the interests of Northern industrialists against Southern growers, who now enjoyed none of the protection of the tariff but were forced to pay the higher prices for industrial goods.  The effects of the tariff were just begining to be felt in 1825 when the price of cotton plunged forty percent, brought on by the additional supplies of cotton coming from the newly-established plantations in Alabama and Missisissippi. Therefore, at the time of Calhoun’s election as Vice-President, South Carolina had fallen under the influence of its political “Radicals” who had little interest in Calhoun’s prior commitment to nationalism that argued for the necessity to protect the country’s industries with tariffs and to moderate reconciliation on the slavery issue.  As he traveled around his home state following his election, this change was abundantly clear to him, and he realized that if he was ever to achieve his presidential ambitions, he needed to first secure the support of South Carolina’s voters by realigning his political views with those whose votes he needed. Thus had emerged in 1825 the John C. Calhoun that the history books record as the Sectionalist who was the champion of Southern state’s rights as he returned to Washington as Adams’ Vice-President.  

He grew increasing combative with Adams over the President’s proposed internal improvement programs, eventually accepting a deal with Andrew Jackson, negotiated by none other than the wily Martin Van Buren, who had his own political agenda in blocking DeWitt Clinton’s ambition to be Jackson’s running mate (that ended with Clinton’s death on Feb. 11, 1828), to be Jackson’s Vice President in 1828, thereby informally politically abandoning Adams, his President.  In an attempt to seal the election for Jackson, Calhoun, in league with a number of Southern Senators, concocted a scheme now referred to as the Tariff of Abominations, that so increased the cost of tariffs across the board that even Northerners would vote against it, gving the Southerners an election issue.  To their chagrin, the plan had backfired because there were sufficient Northerns who saw the tariff as an opportunity to protect the country’s (albeit the majority were in the North) businesses and passed it on May 19, 1828, leaving the South with higher prices to pay for almost all of their imported goods.

Nonetheless, Jackson handily defeated Adams’ bid for reelection in 1828 with Calhoun continuing as the Vice-President. While Calhoun’s revised political views would succeed in having him reelected to the Senate for the remainder of his life, they often ran counter to those of Jackson, especially when the two came into conflict over Nullification, the issue of whether or not a state had the right not to enforce a federal law, such as the 1828 Tariff.  Calhoun had defended this theory, following the election, in his pamphlet, The South Carolina Exposition and Protest that he anonymously published in December 1828, assuming that Jackson upon assuming office would simply support the repeal of the tariff.  Jackson, however, had no such plans and with the able assistance of the ambitious Van Buren would see to it that Calhoun would never be a Presidential candidate, starting with his selection of Van Buren, and not Calhoun, to be his Vice-President candidate in his upcoming reelection campaign of 1832.  South Carolina held a state convention immediately after the election on Nov. 24, 1832, in which it voted that it had the right to refuse to enforce the U.S. tariff, beginning on Feb. 1, 1833.  Meanwhile, Hayne had been elected as South Carolina’s Governor, leaving his U.S. Senate seat vacate.  The embittered Calhoun resigned as Vice-President before Van Buren could be inaugurated as his replacement.  The South Carolina legislature then promptly elected Calhoun to fill Hayne’s remaining Senate term so that he could return to the national stage to better defend South Carolina’s rights.

This was the embittered Calhoun that was now fighting Hayne’s planned route to Cincinnati through South Carolina. Calhoun was initially in favor of the proposal to build a railroad to Cincinnati, but he wanted a route within the state different from the one Hayne was in the process of surveying at the time.  Hayne was looking out for the commercial interests of Charleston’s port and, therefore, was pursuing a route through the center of the state, hoping to divert agricultural products away from the Savannah River that flowed to Savannah’s port (in Georgia).  Calhoun’s plantation, Fort Hill, however, was located in the far northwest corner of South Carolina, near the Savannah River, and it would be to his obvious advantage if the railroad’s planned route would be as close as possible to make it easier to ship his  plantation’s cotton to Charleston.  Hayne’s standing among his stockholder’s was sufficient for him to overcome Calhoun’s campaign and contracts for the first leg of the new route from Columbia, the state capital, to the C&H’s station in Branchville were signed and the start of construction was celebrated in Columbia with the traditional parade and speeches in March 1838.  As the national economy continued to sour, however, Charleston suffered a devasting fire on April 27-8, 1838, that destroyed over 1000 buildings and 25% of the city’s business district that totalled over $3 million in property, leaving some of the railroad’s investors bankrupt.  Hayne did all he could do to keep the construction on schedule, but this effort completely exhausted him and he died from “bilious fever” at the age of 48 on September 25, 1839.  This was all Calhoun needed to succeed in rerouting the South’s first attempt to build a railroad to the Mississippi basin away from the NorthWest to the SouthWest at either Memphis or New Orleans, “Thus ends the humbug with a debt of several millions on the state, great loss to those concerned, and the loss of credit and mortifcation to the projectors,” crowed Calhoun.  While the route between Columbia and Branchville was eventually completed by 1842, Calhoun’s surrogate, James Gadsden was elected President of the company in September 1840, who changed the company’s name (to the South Carolina Railroad) and its goal from linking Charleston to the NorthWest at Cincinnati to one that consolidated railroad traffic within the state.  Having killed the potential link between the South and the NorthWest, Calhoun now focused on championing an all-southern route between the Atlantic and the Mississippi River at Memphis to keep as much investment within the region, and out of the hands of Northerners.  With the premature death of Hayne and Calhoun’s subsequent rerouting of the South Carilina Railroad, Dr, Drake’s dream of Cincinnati’s continued growth as it became the hub between the Southeast and the NorthWest never materialized.  The “rehabilitated” John C. Calhoun would make sure that the South and NorthWest would never be connected with a railroad, leaving the future of the route of a railroad connecting the country open to Chicago.

FURTHER READING:

Grant, H. Roger. The Louisville, Cincinnati, & Charleston Rail Road. Bloomington: Indiana University Press, 2014.

Heidler, David S. and Jeanne T. Heidler. Henry Clay- The Essential American. New York: Random House, 2011.

Howe, Daniel Walker.  What Hath God Wrought: The Transformation of America, 1815-1848. New York: Oxford University Press, 2007.

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

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)

The Chicago that Ogden had inherited, and that now greeted Van Osdel was not unlike this fallen wall.  The optimism that had been unleashed with the final payment of the Federal debt in early 1835 had been largely financed by the local issue of paper currency from regional and private banks, with or without state charters, that had been backed by Jackson’s distribution of the government’s financial revenues away from the 2BUS.  Jackson had tried to gain control over this economic frenzy by regulating “Wildcat” banks that had been approving loans for the purchase of land with paper currency without sufficient reserves of specie.  On July 11, 1836, he issued an Executive Order that required the Secretary of the Treasury to initiate the Specie Circular that required the department’s land offices not to accept bank notes, but only gold or silver toward the purchase of public land by speculators (however those who actually intended to settle the land were exempt).  This had the effect of draining species out of the banking system faster than anyone had thought would happen.  For instance, New York City banks’ specie reserves plummeted from $7.2 million on Sept. 1, 1836, to $1.5 million on May 1, 1837.

Meanwhile, despite Jackson’s opposition to the 2BUS, its actions had just begun to bring the national economy out of recession, that led to a marked increase in imports without a corresponding balance in exports.  Once again the country faced a deficit in its balance of payments that was being ultimately financed to a large degree by the Bank of England.  By early 1837, the BOE’s investment in the U.S. deficit had reached £6 million with no end in sight.  Precisely at this moment, the BOE was forced to curtail its financial support of British merchant bankers who were financing the U.S. debt, in order to cover a large outflow of specie to Europe to pay for a major crop failure in Britain that had occurred during the preceding fall.  These dual crises converged, unfortunately for newly-elected Pres. Van Buren. Within a month of his inauguration, cotton brokers in New Orleans began to fail due to the withdrawal of British financing in March.  In April, New York creditors began feeling the credit crunch and on May 1, the banking house of Arthur Tappan collapsed, sending the country into a financial panic.  With the economic decline, the demand for cotton fell accordingly, leading to the downward price of cotton, the country’s main export. The crisis swept the country, ruining fortunes made solely on the anticipation of the potential of the West.  On May 24, 1837, only twenty-two days after Ogden’s election, the Chicago Branch of the State Bank of Illinois suspended all specie payments.  Prices of land in Chicago, valued as high as $1,000 in 1836, crashed to their pre-boom worth of fifty dollars.  While land values had caved in under the pressure, bringing them back into line with their real worth, the loans made on these same lands remained at the inflated values.  Wholesale bankruptcy brought Chicago’s meteoric growth to a screeching halt.

The pressures of financial ruin grew so great that the only publicly perceived salvation for the city was repudiation of the debts: “Let us have stay laws, anything to save us from our bitter enemies, the creditors!”  At a meeting called in anticipation of repudiation, however, Mayor Ogden quelled the hysteria and, more importantly, saved the city’s credit rating by appealing to the residents’ conscience and sense of civic honor: “Above all things, do not tarnish the honor of our infant city.”  Van Osdel’s timely appearance in June to erect Ogden’s house only a month after the start of the Panic, can be seen as another endeavor by the Mayor to restore public confidence and salvage what little was possible from the worsening recession.  Ogden even went so far as to personally borrow funds to help pay the city’s debts.  While at face value his actions were noble and thoroughly based on moral and legal principles, in reality, he, and even more so Arthur Bronson, one of the city’s largest creditors, had a vested financial interest in making sure that the city’s debts were repaid.  Besides having loaned money to the city and to back the canal bonds, Bronson was heavily committed in private mortgages to settlers of the canal lots that Ogden had arranged for a percentage of the loan.  In fact, Ogden, even during his one-year tenure as Mayor, was still the leading mortgage agent in Chicago representing many Eastern capitalists, and had reaped the benefits of the flood of mortgage money during the land boom.

Ogden’s heroic, yet somewhat self-serving efforts were of little consequence to the nationwide malaise.  It was virtually impossible to sell any land in Chicago during 1838. Construction of the G&CU, which had just started in early 1837, was suspended in June 1837.  The railroad construction initiated throughout the state by the Internal Improvement Act of 1837, stretched fitfully into 1839 before it was halted by the legislature’s repeal of the act.  The political “wisdom” of starting all nine railroads simultaneously from both ends had left Illinois $6 million in debt with little to show for the expenditure except eventual state bankruptcy in 1842.  Although the Federal engineers under Lt. Davis had successfully opened a 200-foot-wide channel through the sandbar at the lake in 1834, it had been a continuous struggle to keep it clear of new sandbars created by the lake’s strong current.  The deposits against the north pier had pushed the shoreline north of the river’s original mouth some 700 feet eastward into the lake.  

By 1838, the piers had been extended over 1,800 feet into the lake at great cost and questionable effectiveness.  The financial panic caused Federal appropriations to be reduced to a level that attempted only to maintain what had already been completed.  At the start of 1839, even dredging operations had to be halted, and by April the newest sandbar had completely formed across the channel’s opening, preventing ships with draughts greater than eight and one-half feet from entering the harbor.  The only enterprise, therefore, that continued to pump needed cash into the city’s economy was the construction of the canal because the state funds earmarked for the canal had been kept separate from the railroad funds of the Internal Improvement Act.  However, even the canal’s contractors had to eventually make financial concessions to enable the canal work to continue until the state declared bankruptcy in 1842. Nonetheless, the expenditure of over $5 million during the six-year period of canal construction would greatly help Chicago to weather its first depression.

In the four hectic years since Chicago’s organization as a town, hundreds of buildings had been erected, the majority being located south of the river’s Main Branch.  All of these, with the exception of perhaps twenty brick structures, were constructed with wood, the majority of which had employed the new balloon framing technique.  One of the larger balloon-framed business blocks stood at the southwest corner of Lake and Dearborn.  It had a frontage of one hundred feet along Lake Street that had emerged as the principal commercial district by 1837. This was summarized by Andreas:

“Lake Street was well built up from State Street to Franklin.  The streets running north and south from the river were well-sprinkled with buildings.  A court-house, a jail, and an engine-house adorned the present square.  There were seven hotels and seven churches.  No church had a steeple, and, as one approached the city either from the lake, or south, out of the oak woods, no structure rose above the height of the chimneys of the town.  The city lay low down on the marsh ground,… and was to the sight of the new-comer, a most unsightly place to live, or even die in…  The speculation which had been rampant for the past three years was gone, but a grim determination showed in the lineaments of each true Chicagoan’s face, which meant that although fortunes had fled, Chicago was still left.”

While the Panic of 1837 did, indeed, stop Chicago’s adolescent growth in its tracks, the financial crisis was felt equally across the country.  Unfortunate as it was for the short-term financial viability of the new city, the Panic bought the one, most important commodity that Chicago needed for its long-term success at this precise moment that neither Chicago nor even William B. Ogden could buy: Time.  The time to catch up with Cincinnati, the largest economy and city west of the Appalachians, the time for the region’s new farmers to establish their farms, the time for the technology of the railroad to evolve, and the time during which the country’s politics began to critically divide the North and the South to a point beyond which it would be impossible for them to be united in the construction of a railroad, let alone a turnpike, that ran through the middle of the country from Washington, D.C. through Cincinnati and on to St. Louis, to which Chicago in the north and Memphis in the south could be linked by feeder lines.  All told, the Panic of 1837 would be a Godsend for Chicago’s future.

Further reading:

Adler, Dorothy R. British Investment in American Railways, 1834-1898. Charlottesville: University of   Virginia, 1970.

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

Grant, H. Roger. The Louisville, Cincinnati, & Charleston Rail Road. Bloomington: Indiana University Press, 2014.Pierce, Bessie Louis. A History of Chicago- I. New York: Knopf.  1940.

Hidy, Ralph W. The House of Baring in American Trade and Finance. Cambridge: Harvard University Press, 1949.

Howe, Daniel Walker.  What Hath God Wrought: The Transformation of America, 1815-1848. New York: Oxford University Press, 2007.

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

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