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Money and Banking in a “Bankless” State: Iowa, 1846–1857

Published online by Cambridge University Press:  11 June 2012

Erling A. Erickson
Erling A. Erickson
Affiliation:
Assistant Professor of History, University of the Pacific
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Abstract

During the first half of the nineteenth century, a number of American states prohibited the establishment of banks of issue within their borders. In theory, these states seemingly opted for the slow economic development associated with an inelastic currency supply. In the case of Iowa, however, the people's demand for an elastic currency was met by the creation of substitute financial institutions — land agency-banks — that functioned as de facto banks of issue.

Type
Research Article
Information
Business History Review , Volume 43 , Issue 2 , Summer 1969 , pp. 171 - 191
Copyright
Copyright © The President and Fellows of Harvard College 1969

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References

1 For books on the bank war and the Jacksonian anti-bank philosophy see: Catterall, Ralph C., The Second Bank of the United States (Chicago, 1903)Google Scholar; Schlesinger, Arthur M. Jr., The Age of Jackson (Boston, 1945)Google Scholar; Hammond, Bray, Banks and Politics in the United States from the Revolution to the Civil War (Princeton, 1957)Google Scholar; Goven, Thomas P., Nicholas Biddle (Chicago, 1959)Google Scholar; SisterGrace Madeleine, M., Monetary and Banking Theories of Jacksonian Democracy (Philadelphia, 1943)Google Scholar; Meyers, Marvin, The Jacksonian Persuasion (Stanford, 1957)Google Scholar; Van Deusen, Glyndon G., The Jacksonian Era, 1828–1848 (New York, 1959)Google Scholar; and Remini, Robert V., Andrew Jackson and the Bank War (New York, 1967).Google Scholar

2 The case of Texas demonstrates a parallel development in banking. The Republic of Texas had one bank, the Commercial and Agricultural Bank of Galveston, chartered by Mexican authorities in 1835. When Texas entered the Union in 1845, it, like Iowa in 1846, outlawed banks of issue (although its one chartered bank continued in operation until the end of its charter in 1855). Helderman, Leonard C., National and State Banks: A Study of Their Origins (New York, 1931), 124–127.Google Scholar

3 Taylor, George Rogers, The Transportation Revolution, 1815–1860 (New York, 1951), 324–351Google Scholar; Studenski, Paul and Krooss, Herman E., Financial History of the United States (New York, 1952), 119–127.Google Scholar

The acreage of land in farms in the United States increased from 293,000,000 in 1850 to 407,179,000 in 1860. In the same period the value of gross farm output increased from $904,000,000 to $1,579,000,000. In the fifteen-year period from 1842 to 1857, railroad mileage grew from 4,026 to 24,503. During approximately the same period the value added to the national product by construction increased from $80,000,000 to $230,000,000; by manufacturing from $310,000,000 to $820,000,000. Bureau of the Census, Historicai Statistics of the United States, Colonial Times to 1957 (Washington, D.C., 1960), 139, 278, 284, 409, 427.Google Scholar

4 There were 77,397 foreign-born in Iowa in 1856. State of Iowa, Census of Iowa for 1880 … with Other Historical and Statistical Data, 168; Bureau of the Census, Historical Statistics, 13; Cole, Cyrenus, A History of the People of Iowa (Cedar Rapids, 1921), 279–281Google Scholar; Johnson, Jack T., Peter Anthony Dey: Integrity in Public Office (Iowa City, 1939), 42–72.Google Scholar

5 Sherman, Hoyt, “Early Banking in Iowa,” Annals of Iowa, V (1901), 2.Google Scholar Sherman, the brother of General William T. and Senator John Sherman, was head of Hoyt Sherman and Company of Des Moines, a land agency and banking house. He also had a prominent part in organizing the State Bank of Iowa in 1858. See also, Andrews, L. F., Pioneers of Polk County, Iowa (Des Moines, 1908), I, 67–71.Google Scholar

6 Brewer, Luther A. and Wick, Barthinius L., History of Linn County Iowa (Cedar Rapids, 1911), 435.Google Scholar

Corroborating Sherman's and Carpenter's contemporary observations is a recent study of land speculation in Iowa that discovered that many of the major real estate agencies doubled as lending institutions in order to carry on their land business. The author of the study compiled a list of buyers of large acreages of government lands in eastern and central Iowa and of the fifty-seven large buyers (10,000 acres or over), 29.8 per cent (17) were proprietors of combination real estate agencies and banking houses. Significantly, the three largest banking houses in the state, Cook and Sargent of Davenport, Greene and Weare of Cedar Rapids, and Henn, Williams and Company of Fairfield (the three accounting for fourteen institutions across the state) were among the largest land buyers in Iowa. Swierenga, Robert P., Pioneers and Profits: Land Speculation on the Iowa Frontier (Ames, 1968), 27, 36Google Scholar; and “List of Private Bankers in the Principal Cities and Towns of the United States,” Banker's Magazine, New Series, V (1855), 471–472.

7 Code of Iowa, 1851, 378–379.

8 Davenport Gazette, October 21, 1847 and April 3, 1851; Ross, Earle D., “George Barnard Sargent, Western Promoter,” Iowa Journal of History and Politics XLV (1947), 115–132Google Scholar; Inter-State Publishing Company, History of Scott County, Iowa (Chicago, 1888), 610, 614–615, 771Google Scholar; Burrows, J. M. D., Fifty Years in Iowa (Davenport, 1888), 88.Google Scholar

9 Greene and Weare of Cedar Rapids had branches in Council Bluffs, Des Moines, Marion, Fort Dodge, Sioux City, Cedar Falls, and Vinton. George Greene was an English immigrant. He had worked as a surveyor, lawyer, newspaper editor, and territorial legislator, and in 1847, at the age of 30, he was appointed to the Iowa Supreme Court. His partner, John Weare, Jr., came to Cedar Rapids from Vermont via Michigan. He handled most of the daily operations of the firms. Carroll, George B., Pioneer Life in and Around Cedar Rapids, Iowa, From 1839 to 1849 (Cedar Rapids, 1895), 142–145, 148–153Google Scholar; Ely, John S., George Greene (Cedar Rapids, 1914), pp. 5–24.Google Scholar

Henn, Williams and Company of Fairfield had branches in Chariton, Council Bluffs, Fort Dodge, and Sioux City. Bernhard Henn, from New York, was variously a land office clerk in Burlington, register of the Fairfield land office, and U.S. Congressman. Jesse Williams was a newspaper editor turned politician (territorial agent, territorial auditor, and first Iowa Secretary of State). A third partner of the firm, George D. Temple of New Hampshire, was a territorial legislator and later mayor of Fairfield. Stiles, Edward H., Recollections and Sketches of Notable Lawyers and Public Men of Early Iowa … (Des Moines, 1916), 128–129Google Scholar; Lake City Publishing Company Portrait and Biographical Album of Jefferson and Van Buren Counties, Iowa … (Chicago, 1890), 282–283Google Scholar; State Historical Co., History of Lucas County, Iowa (Des Moines, 1881), 673–674.Google Scholar

10 Brewer and Wick, History of Linn County, 439; Swierenga, Pioneers and Profits, 109–110.

11 Cook Sargent and Downey Papers, Iowa State Historical Society, Iowa City. The Cook and Sargent records available are from the Iowa City branch. Hugh Downey, an Iowa City lawyer, was the resident partner and conducted the operations in Iowa City. The collection covers the years 1855–1859.

12 V. Ten Eyck to Cook, Sargent and Downey, December 5, 1855; and William H. Brown to Cook, Sargent and Downey, December 12, 1855, Cook, Sargent and Downey Papers. Hoyt Sherman related that 2% to 3 per cent per month was the current rate, “but in transactions of this character, forty per cent was paid, because it figured out to even change….” Sherman, “Early Banking in Iowa,” 2.

The figure of 40 per cent interest cannot be accepted in the literal sense. It is true that a person purchasing land from a land agent-banker usually paid at the end of a year $1.25 per acre plus 40 per cent (i.e., $1.75). However, to calculate the true interest one would have to take into account the appreciation of land values during the year. If, for example, land appreciated 25 per cent during the period of the loan, the true interest rate would be 15 per cent, for the buyer could immediately sell the land (after having had use of it for one year) at $1.25 per acre plus 25 per cent.

13 William H. Brown to Cook, Sargent and Downey, December 12, 1855, Cook, Sargent and Downey Papers; Sherman, “Early Banking in Iowa,” 2.

14 Preston, Howard, History of Banking in Iowa (Iowa City, 1922), 55.Google Scholar Warrants were not always sold at a discount, and at times buyers would have to invest $200 or more for a 160 acre warrant. It was economically sound for them to do this as “warrants could more easily, safely, and cheaply be shipped through the federal mails than could bulk gold or silver, which was virtually the only alternative acceptable at the land offices.” Swierenga, Pioneers and Profits, 146.

15 Sherman, “Early Banking in Iowa,” 2; Brewer and Wick, History of Linn County, 436; Cyril James, F., The Growth of Chicago Banks, II (New York, 1938), 195.Google Scholar

16 Brewer and Wick, History of Linn County, 436.

17 V. Ten Eyck to Hugh Downey, December 5, 1855, Cook, Sargent and Downey Papers.

18 Sherman, “Early Banking in Iowa,” 3–4; Daily Iowa State Democrat (Davenport), July 21, 1856 and September 2, 1856; Daily Hawkeye and Telegraph (Burlington), July 2, 1856; and Glick and Willingrod to Cook, Sargent and Downey, February 13, 1857, Cook, Sargent and Downey Papers.

19 For example see, Edward Thomas, Jr. (Wheeling, Va.) to Cook, Sargent and Downey, December 4, 1856; William Reddick (Ottawa, Illinois) to Cook, Sargent and Downey, December 24, 1856; and Bank of Commerce, E. R. Hinckly and Company (Chicago), to Cook, Sargent and Downey, December 18, 1856, Cook, Sargent and Downsy Papers.

20 Brewer and Wick, History of Linn County, 440. See also Sherman, “Early Banking in Iowa,” 3.

21 For example see: Hiwit, Tibbits and Company to Cook, Sargent and Downey, February 23, 1857; Shawmut Bank (Boston), to Cook, Sargent and Downey, February 19, 1857; and Banking House of Hoffman and Celpoke (Chicago), to Cook, Sargent and Downey, February 18, 1857, Cook, Sargent and Downey Papers.

22 F. B. Martin to Cook, Sargent and Downey, September 20, 1858, Cook, Sargent and Downey Papers.

23 Smyth, Twogood and Company to Cook, Sargent and Downey, December 26, 1856, Cook, Sargent and Downey Papers.

24 S. Cunningham to Cook, Sargent and Downey, December 24, 1856, Cook, Sargent and Downey Papers.

25 David Lehman to Cook, Sargent and Downey, February 28, 1857, Cook, Sargent and Downey Papers. See also, Daily Iowa State Democrat (Davenport), September 2, 1856.

26 Cook, Sargent and Downey Papers; Lucius Langworthy Papers, State Historical Society, Iowa City, Iowa; Burrows, Fifty Years in Iowa, 100. For a discussion of the use of checks in early American banking see: Redlich, Fritz and Christman, Webster M., “Early American Checks and an Example of Their Use,” Business History Review, XLI (Autumn, 1967), 285–302CrossRefGoogle Scholar; and Baughman, James P., “Early American Checks: Forms and Functions,”,Business History Review XLI (Winter, 1967), 421–435.CrossRefGoogle Scholar

27 Smith, Alice E., George Smith's Money (Madison, Wisconsin, 1966)Google Scholar; Larson, Henrietta M., “E. W. Clark & Co., 1837–1857: The Beginnings of an American Private Bank,” Journal of Economic and Business History, IV (May, 1932), 429–460.Google Scholar

28 Hammond, Banks and Politics in America, 625; Stiles, Recollections and Sketches, 128–129.

29 Sterling Morton, J., Illustrated History of Nebraska (Lincoln, 1905), II, 27Google Scholar; Gallaher, Ruth, “Money in Pioneer Iowa, 1838–1865,” Iowa Journal of History and Politics, XXXIII (1934), 27–28Google Scholar; Warner, A. G., Transactions and Reports of the Nebraska State Historical Society, II (1887), 25Google Scholar; and Lathrop, H. W., “Some Iowa Bank History,” Iowa Historical Record, VIII (1897), 59.Google Scholar

30 Morton, History of Nebraska, II, 3–4; Olson, James C., History of Nebraska (Lincoln, 1955), 99Google Scholar; and Lathrop, H. W., “Some Iowa Bank History,” Iowa Historical Record, VIII (1897), 59.Google Scholar

31 Lathrop, “Some Iowa Bank History,” 60; Morton, History of Nebraska, II, 26.

32 R. Mickel to Cook, Sargent and Downey, February 6, 1857, Cook, Sargent and Downey Papers; Preston, History of Banking in Iowa, 63; Sheldon, Addison E., Nebraska, The Land and the People (Chicago, 1936), I, 274.Google Scholar

33 R. Mickel to Cook, Sargent and Downey, February 6, 1857, Cook, Sargent and Downey Papers; Lathrop, “Some Iowa Bank History,” 59; and Davenport Gazette, November 12, 1857.

34 Iowa Weekly Citizen, February 17, 1858; Tri-Weekly Citizen (Des Moines), February 27, 1858.

35 Burrows, Fifty Years in Iowa, 114–115.

36 History of the First National Bank, 21–23; Morton, History of Nebraska, II, 26.

37 James Callahan, Jr. to Mrs. H. L. Colt, August 28, 1858, James Callahan, Jr. Letter Books, 1858–1863, Iowa State Department of History and Archives, Des Moines, Iowa; Sheldon, Nebraska, I, 274; Lathrop, “Some Iowa Bank History,” 60; Andrews, Pioneers of Polk County, I, 57, 65; and Preston, History of Banking in Iowa, 63–64.

38 Andrews, Pioneers of Polk County, I, 254.

39 Tarbell, v. A. J. Stevens & Co., 7 Iowa 163.

40 Drexel and Co., Bankers, to Cook, Sargent and Downey, December 3, 1855, Cook, Sargent and Downey Papers. For additional illustrations of this practice see: Dewey, Davis R., State Banking Before the Civil War (Washington, 1910), 103Google Scholar; and Redlich, Fritz, The Molding of American Banking: Men and Ideas, Vol. II (New York, 1951), 4.Google Scholar

41 Gallaher, “Money in Pioneer Iowa,” 30–31; Aurner, Leading Events in Johnson County, 445; Richman, Irving, History of Muscatine County, Iowa (Chicago, 1911), 400.Google Scholar

42 Davenport Gazette, November 12, 1857; and Lathrop, “History,” 60.

43 Charter and Laws of Iowa City, 1853–1859, 82–83. Copy is in Special Collections, University of Iowa Library, Iowa City; Gallaher, “Money in Pioneer Iowa,” 31–34.

44 Debates of the Constitutional Convention of the State of Iowa, 1857, I, 355–358.

45 Gallaher, “Money in Pioneer Iowa,” 35. The term “shinplaster” technically refers to fractional paper currency although it is (and was) commonly used to refer to the paper of wildcat or unsound banks, regardless of the denomination. See Munn, Glenn G., Encyclopedia of Banking and Finance (New York, 1924), 511.Google Scholar

46 John Burrows wrote that once when he took a trip to St. Louis during the winter months, Cook and Sargent of Davenport asked him to take a “package of gold” valued at $2,600 and bring back notes in exchange. In the early days of Iowa banking this casual method of obtaining exchange apparently was common. Eventually express companies set up regular routes, but they were slow. Consequently, it was not until the railroad connected Iowa with the East that the problems caused by closed rivers in the winter months were mitigated. Burrows, Fifty Years in Iowa, 88–92.

47 Ibid., 98–107.

48 Hiram Price, “Some History,” Annals of Iowa, 3rd Ser., I (1894), 270.

49 That is, the bank merely held the notes for safekeeping but did not assume responsibility for redemption. “Special deposits never become the assets of the bank, and in case of failure are not applicable to the extinguishment of liabilities, but must be returned intact to depositors.” Munn, Glen G., Encyclopedia of Banking and Finance (New York, 1924), 156.Google Scholar

50 Burrows, Fifty Years in Iowa, 107, 116–121. The profit to Burrows and Pettyman came from savings on interest charges and from lost bills that were not presented for redemption.

Another example of private issue was that of the Western State Company. The company, managed west of the Mississippi by Colonel Edward Hooker of Des Moines, issued scrip that was paid out for labor, horses, and horse feed, and it was also taken for stage fares. Arrangements were made for its redemption in current funds at a Chicago bank. Lathrop, “History,” 60. Hooker was a cousin of the famous Civil War general, Joe Hooker. Andrews, Pioneers of Polk County, I, 429–437.

In the Lucius Langworthy Papers, Iowa State Historical Society, Iowa City, there is a “Dubuque Harbor Improvement Company Land Dividend Scrip” in the sum of $50. It is likely that this circulated as money in the 1850's.

51 Preston, History of Banking in Iowa, 68–69; The History of the First National Bank in the United States, 23; Burrows, Fifty Years in Iowa, 132–141; and Brewer and Wick, History of Linn County, 439.

52 Iowa land agent-bankers could, however, make large profits. Cook and Sargent, later with, assets valued at over $1,000,000, started on capital amounting to “but a few thousand.” But, “they began on the dawn of improving times….” Inter-State Publishing Company, History of Scott County, 771. Weare, Finch and Company, Cedar Rapids, one of the three largest land agencies in the state, started with a capital of $2,000. Brewer and Wick, History of Linn County, 435. Robert Swierenga compared the net worth of the real property of Iowa land agent-bankers, for the central Iowa area only, as listed by the federal census marshals in the decennial censuses of 1850 and 1860. He discovered that in that decade the value of real property of the land-agent bankers in that portion of Iowa (some owned sizeable amounts of land in other areas of the state) “increased nearly tenfold … from an average of $6,316 in 1850 to $56,375 in 1860.” Swierenga, Pioneers and Profits, 102–103.

53 Daily Evening Reporter (Iowa City), October 27, 1856. The paper, a hard-money advocate, editorialized that the no-bank policy was best, but if the people “will not take the only truly Democratic method [i.e., total abolition of banks], let them take the more feasible one of a good State Bank or something of the kind….” From this, it would appear that some of the hard-money Democrats were reconciled to the fact that banks must come and were now concerned with having the most conservative banking system adopted.

54 Preston, History of Banking in Iowa, 100; “Records of the Board of Directors of the State Bank of Iowa,” State Historical Society, Iowa City, 291–295.

55 Austin Corbin, of the firm of Macklot and Corbin of Davenport, helped found the first National Bank in the country, the First National Bank of Davenport, and later established the Austin Corbin Banking House in New York City. The most prominent, however, was William F. Coolbaugh, of the firm of Coolbaugh and Brooks of Burlington. In 1862, be moved to Chicago and later founded the Union National Bank of that city. He became, according to one authority, “a dominating personality in the National Banking Association” and the “greatest banker of the Northwest.” Dictionary of American Biography, IV, 436–437; History of the First National Bank in the United States (Chicago, 1913); Remey, J. T., “William F. Coolbaugh,” Annals of Iowa, 3rd. Ser., VII (July, 1906), 401–412Google Scholar; Redlich, Molding of American Banking, II, 153; and James, Growth of Chicago Banks, see index.