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Overview
Product Details
| ISBN-13: | 9780253027290 |
|---|---|
| Publisher: | Indiana University Press |
| Publication date: | 03/23/2018 |
| Series: | Railroads Past and Present |
| Pages: | 304 |
| Product dimensions: | 10.00(w) x 8.00(h) x (d) |
| Age Range: | 18 Years |
About the Author
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CHAPTER 1
HUMBLE BEGINNINGS
LAMENTATION
What had he gotten himself into? Ankle deep in turgid marsh water, William Butler Ogden surveyed the plot of land for which he had forsaken prominence, fortune, and security. His wealthy brother-in-law, Charles Butler, had been persuasive — seemingly too persuasive — in talking his young relative into seeking glory on the American frontier. Butler and his friends paid a fortune, $100,000, for property the size of a small farm. This land elsewhere would cost less than $150 and it stretched the imagination to call it land. Purchased in the dry summer prior to Ogden's arrival in the wet spring of 1835, much of it was now marsh. The sole Chicago asset of Butler and Ogden's enterprise, the American Land Company, was a windswept 182-acre tract of virgin sand drift. Scrub and weeds grew from its undulating dunes and stagnant pools collected in the intervening hollows. Ogden found it hard to imagine a worse property. Like the sandy lakeshore extending a hundred miles in each direction, it was unsuitable for crops and had no timber, no stone, not even sod to construct a shelter. These were only the first of his problems.
As with all real estate, the Land Company's property value derived from its location, but Ogden must have had second thoughts about that as well. Located north of an outpost huddled around a log-walled stockade, it was separated from both by a stillwater stream. The village appeared smaller than its reputed population of 4,000. Lack of local capital combined with the expense of importing construction materials meant that there were few buildings. Residents slept a dozen to a room, often two or three to a bed. As a result, flea and chigger bites tormented Ogden as he paced the sandy wasteland the morning after his arrival. His friends seemingly paid more for their landholdings than the entire village of Chicago was worth.
The justification for the village was the feeble river of like name that flowed into Lake Michigan. The Chicago River, however, also gave Ogden pause. Even with the season's freshets, the diminutive stream sat languidly. Without a current sufficient to scour a path through the dunes, it was evident that the recently dredged channel would soon silt back to even lesser prominence. This channel was the lifeline that allowed steamboats, like the one that brought Ogden from Buffalo, a Chicago berth. The port, in turn, promised to make the American Land Company's river frontage an attractive investment. But could this feeble creek support the Land Company's lofty ambition?
Lake Michigan's western shore had better anchorages than Chicago. Chicago, however, had a plan — no more than a dream really — for a canal from its meager stream westward to the Illinois River. A waterway to crest the divide between the Great Lakes and the Mississippi watersheds, the era's principal travel arteries, was a glimmering prospect. There were signs, albeit faint ones, that this canal might soon be more than tavern talk. Chartered to great fanfare, the Illinois and Michigan Canal Company was nevertheless far from a reality. Its proposed route looked short and easy, but canals by their nature were enormously expensive projects. Fortunately, canal company stocks and bonds were popular investments. In fact, they were one of the few marketable securities in which an individual could invest. A canal connecting the unsettled frontier to a minor lakeside village, however, was speculative by any standard.
To jump-start the enterprise, the federal government gave I&M canal commissioners a land grant that included the best part of their port, a knoll next to Fort Dearborn on the south bank of the Chicago River. Ogden arrived just as they prepared to subdivide and sell the town lots needed to finance the long-dreamed-of ditch between watersheds. This presented Ogden with a dilemma. At once canal lots came to market whose value vastly exceeded all property previously sold in the region. They were superior to the Land Company's north side lots if for no other reason than that they were drier. They also enjoyed existing wharfage and were near the fort whose soldiers provided the only local market. On the other hand, if Ogden prevailed on settlers, against the odds, to buy his company's land, I&M Canal Company land sales could suffer. That jeopardized the financial underpinnings of the very project upon which the future of his enterprise depended.
Ogden seemingly abandoned a prosperous future to settle in the rude West. He was the son of a Revolutionary War officer rewarded for his service with land in then-remote Walden, New York. The father prospered in lumber, which he sent down the nearby Delaware River to Philadelphia. He built a sawmill, soon joined by a gristmill and then by several woolen mills that carded and pulled local fleece. The mills created Ogden family wealth and their specialized machinery gave William an early education as a millwright. Young William next studied law until age sixteen, when his father died. Abandoning his studies, he and his brothers took control of the family businesses and multiplied their profits. At twenty-three, his life took a dramatic turn at the urging of his oldest sister's husband.
Charles Butler came from wealth and influence, including a brother who was US attorney general. His own rise to prominence and fortune came after he studied law under Albany's preeminent attorney, Martin Van Buren. Entering his own practice, he devised a financial plan that allowed upstate New York farmers to buy property from the original Dutch land companies. This endeavor was backed by mortgages from the New York Life Insurance and Trust Company, the first financial services company established in the nation's future banking center.
Butler was a key member of the Albany Regency, Van Buren's faction of Jacksonian Democrats that dominated New York politics. He persuaded Regency leaders to have Ogden represent his district in the 1834 election. Ogden espoused many Jacksonian ideals, but Regency support was pragmatic. Party leaders, including Butler, had investments in the proposed New York and Erie Railroad. They needed loyal votes to procure state aid for their enterprise, one of the largest railroad projects in the world. An instant insider, Ogden simultaneously learned politics and railroad finance.
Ogden confirmed Butler's confidence. The young legislator's sole speech praised the necessary legislation and helped enact a previously rejected bill. After less than a year in the legislature, however, Butler pushed Ogden to undertake another task, the management of land investments. Butler formed the American Land Company, which bought frontier tracts. Arthur Bronson, whose family founded and controlled the New York Life Insurance and Trust Company, was a Land Company cofounder. Ogden became both a shareholder and the company's Chicago agent. Capitalized at $1 million, the company allowed its stockholders to purchase shares in a portfolio of holdings rather than speculate on one location. It owned farmland in Ohio, timber tracts in Michigan, and plantations in several southern states. It developed town lots in Toledo and Evansville, both canal terminals like Chicago. It was Chicago, however, that became its premier investment.
Ogden arrived in Chicago fresh from his legislative resignation. Although he had bought and sold forestland, he had little experience with town lots. Nevertheless, he quickly induced his wealthy backers to add a further $15,000 to their original $100,000 Chicago investment and proceeded to grade streets, improve drainage, and build model buildings. Ogden then followed Butler's earlier model, forgoing quick profits by providing credit to prospective buyers. The concept of improving raw land before subdividing it was relatively novel for the cash-starved frontier, and when combined with easy financing, it proved an effective sales stimulant. Ogden turned the canal company's nationally publicized land sale to his advantage, for it attracted prospective settlers and spectators to Chicago. Once they saw the American Land Company's well-drained lots on graded streets, many purchased them as the superior product. The company sold nearly one-third of its Chicago holdings, more than recouped its original investment, and guaranteed itself an income stream from future installment payments.
Despite initial reservations, Ogden stayed in Chicago to collect these installments and to further the business. By 1837, he not only managed the American Land Company office but was agent for nearly one hundred other eastern investors. Selling property to these absentee landholders, he then performed on-site duties for a nominal fee. He contracted for the erection of buildings, arranged leases, collected rents, paid taxes, and generally acted as property manager and trustee. Because he routinely counseled clients about other local investments, handled their cash, and provided them with extensive news about frontier business conditions, his moneyed investors saw him as a valued investment adviser. One byproduct, however, was that from the town's first days absentee landlords held large sections of its land. At the same time, Ogden continued to sell land on credit to local buyers, hired them as laborers, and advised land purchasers about taxes or other legal matters. Local inhabitants thus viewed him as their banker, their attorney, and their employer. Despite potential conflicts of interest, Ogden melded these roles to his advantage. Pioneer businessmen and eastern speculators alike viewed him as one of their own.
WILLIAM OGDEN AND THE ASCENT OF A CITY
The Town of Chicago had been born on August 12, 1833, when twenty-eight voters ratified a charter and elected five trustees. These soldiers and settlers had been the vanguard of settlement that followed completion of the Erie Canal. That project shifted the nation's east-west transportation corridor away from the Ohio River to the Great Lakes. In turn, the Illinois and Michigan Canal Company promised to extend this route westward. The I&M commissioners, Ogden, and other speculators platted streets and town lots bordering the harbor where canal and lake boats were to meet, literally placing Chicago on the map.
So begins our story, which centers upon the contentious relationship between a city and one of its largest absentee property owners, a railroad company. First, however, we must understand the legal foundation of this relationship. Chicago's original charter from the state of Illinois was frustratingly vague as to the legal powers granted the village. Charter revisions in 1835 and 1837 dealt with immediate shortcomings and the later revisions elevated Chicago to the status of a city. City charters were less restrictive than those for towns and villages, as the latter were thought to be too small to have educated and effective trustees. No charter in Illinois allowed a municipality to issue bonds to finance canals, railroads, or other private corporations. Nor could cities levy taxes to commercial enterprises. In 1837, however, an Illinois statute did allow cities to issue debt instruments and scrip for their own account.
Local governments could "invest surplus funds" from a municipal bond sale as they saw fit, but the full faith and credit of the city supported the debt and eventually bond proceeds had to support a valid municipal project. "Eventually" never came in some cases and this was a loophole large enough to drive a train through. Illinois towns used the statute's vagaries to purchase blocks of securities in fledgling private ventures. Municipal bonds purportedly created public works, but everyone winked at their true intent, which often was to induce businesses to locate in the newly indebted town. Loophole or not, Chicago's political climate prevented municipal investment in the railroad or turnpike schemes that proliferated in the era. From their city's earliest days, Chicagoans had a single-minded conviction of their locational superiority. Railways, they knew, had to come to them. Unlike many towns, Chicago's government never gave cash subsidies or donated large parcels of property to railroad enterprises. By contrast, Wisconsin law allowed Milwaukee to issue bonds in support of eight railroad companies.
Like most frontier communities, fledgling Chicago had problem enough funding its own explosive growth, let alone financing region-wide projects. Property taxes were the city's dominant revenue source, but their take was meager. By definition, revenues from property taxes lag city growth, so they barely covered Chicago's day-to-day needs and were woefully insufficient to fund improvements. Underwriting tax-supported municipal securities for public sale was itself relatively novel. It did not take hold until the issuance of New York City's general obligation bonds of 1848. Banks could lend money, but they were few in number and even after they formed locally, their thin capitalization was insufficient to meet staggering municipal needs. In a now-famous incident, the only major bank in Illinois, the State Bank in Shawneetown, turned down the city's loan application because it believed Chicago would never amount to much. To cover its bills, the city paid creditors with scrip in one-, two-, and three-dollar denominations. These noninterest-bearing bills traded locally and were redeemable only with the collection of the semiannual tax levy. They nevertheless established the city's ability to issue debt, and more importantly to repay it.
The 1837 city charter concentrated political power with the mayor. Previously, authority vested jointly among the aldermen. The new arrangement fostered partisan politics and pushed William Butler Ogden toward political office. With the support of the city's leading newspaper, John Wentworth's Chicago Democrat, Ogden became the first mayor on May 3, 1837. His opponents painted him as a "transient speculator," but he won convincingly by a vote of 489–217. Summer of that year saw a financial panic grip the nation, with ruinous consequences for both Ogden and Chicago. The Illinois legislature, whose prescription for municipalities prohibited corporate investment, had never taken its own medicine. Like other states, its guarantee stood behind a staggering amount of bonds used to finance an ill-conceived network of canals, turnpikes, and railroads. Dizzying growth in the national economy created a desperate need for infrastructure, then known as "internal improvements." Less developed areas of America such as Illinois, however, built transportation projects in advance of demand.
These projects soon defaulted on their bonds. Their original plan anticipated earnings sufficient to pay debt, but many enterprises failed before they opened. Upon default, the interest and scheduled principal payments on these "improvement bonds" became payable from each state's general fund — debt that by definition was repayable from taxes. In many cases the bonds accelerated upon default; that is, all principal became due at once. State governments simply lacked the cash for redemptions. Since governments were the only large-scale enterprises in the frontier economy, their embarrassment caused the entire commercial sector to collapse. Banks had purchased bonds bearing the full faith and credit of state governments because they sought an ultraconservative investment. Perversely, the default of these seemingly sound state bonds ruined the strongest banks. Throughout America, there were calls to repudiate crushing state debts, especially from the Jacksonians who first elected Ogden to the New York legislature.
Ogden had his own problems because the speculators to whom he sold land on credit also defaulted. Cash from land sales evaporated at the very moment that local governments hiked property taxes to raise money for their own spiraling needs. Hounded by his own creditors, he defiantly retorted to his fellow citizens that their governments should not "commit the folly of proclaiming their own dishonor." To press his point that state and local debts must be repaid, Ogden turned his back on the Jacksonians. A later commentator dryly noted that he was "not much of a partisan." He amply demonstrated this during his life-time, as four different political parties were to nominate him for office. His mayoral duties, of course, were secondary to the time he spent on commerce, and his business affairs held up surprisingly well during the financial panic. Local debtors supported him for defending their honor, while eastern bondholders had every incentive to agree with his platform. Despite the severity and longevity of this depression, his correspondents continued to send Ogden funds to invest.
Ogden's involvement in transportation projects grew from his belief that Chicago's geographic advantage, in and of itself, was insufficient to assure its growth. He personally built over one hundred miles of streets and two bridges in Chicago. Later he applied the development principles he honed selling city lots to the entire region. He formed a lake steamship company in 1836 and as early as 1840 held construction contracts for several portions of the I&M Canal. The steamship company was decidedly unprofitable, and it is questionable whether direct gain was even a goal of the canal contracts. Ogden hitched his wagon to Chicago's rising star, and while he couldn't move heaven to promote his adopted city, he most certainly moved a lot of earth.
(Continues…)
Excerpted from "Chicago Union Station"
by .
Copyright © 2018 Fred Ash.
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