Full Remarks from Dave M. Brady’s presentation to the Sangamon County Historical Society on “Fraud on the Frontier: The State of Illinois vs. the People of Sangamo Country,” Tuesday, October 20, 2009, Elijah Iles House, Springfield.

 

            “Much of our past has been swept under the rug of time. Many historical events that have been covered up were no small matters. Some played major rolls in the lives of our forefathers,” declared historical researcher and guest speaker David M. Brady, in his introductory remarks to a full house October 20 at the Society’s monthly program meeting at the Elijah Iles House in Springfield. About 60 people attended.

            Brady, who would later share the results of his research in a talk about

 “Fraud on the Frontier: The State of Illinois vs. the People of the Sangamo Country,” cautioned the history buffs that “we are creatures that are constantly responding to events. They shape our lives. Events that have not found its way in print, still have occurred. “

            In his lecture, Brady took a closer look at the role Elijah Iles and his contemporaries Charles Matheny and John Taylor played in nearly bankrupting the State of Illinois in the 1820s. At the time, Iles was a state senator and a director of the State Bank of Illinois, Charles Matheny, the County Clerk, and John Taylor, County Sheriff.

            Brady’s findings came as a follow-up to  research for a book he wrote on the causes and impact the Panic of 1819 had on Illinois history. His book, The Panic of 1819” was published by the Society in 2006.

            In the period of economic depression that followed the Panic of 1819 Sangamo Country in Central Illinois became home to a large number of homeless refugees, especially from Kentucky where a Draconian approach to debtors led to foreclosure, riots, debtor’s prison and poverty for those caught in the economic squeeze.

            The year 1820 was an election year. The platform on which politicians campaigned reflected the severity of times. “It was ether relief for the debtor or the creditor. In Kentucky, this issue split the state, inciting riots and making a difficult life even harder.” The migration to Illinois was so large and the newcomers’ debts so great that they economically crippled the State,” Brady said. “The State Bank of Illinois was founded as a sympathetic gesture of relief for the citizens of Illinois; however corruption and dishonesty soon morphed it into an economic disaster!”

             Politicians in Illinois, he explained, believed a State Bank was the solution, even though banking was believed to have been one of the causes of their current financial embarrassment. “It was thought that a loan of $100 would help both debtor and creditor if the money were used to pay an outstanding debt. If the creditor refused the state currency as payment, the debtor by law received a three-year grace period. The newly printed state currency was to be held at par with gold.”

            When State Bank of Illinois was created, the main office was located at the State’s new capitol of Vandalia. Branches of the bank where opened at Palmyra, Shawneetown, Brownsville, and Edwardsville. Each branch office had a board of five directors to approve loans and monitor operations.

            “All that was required of the debtor for a loan of $100 was a co-signer. The ledger shows most borrowers co-signing for one another. Directors became very popular as they approved nearly everyone, except for Robert Pulliam who no one would co-sign for,” Brady noted.  The loans received at the Edwardsville Branch became available in August of 1821 and again in October, the same year Elijah Iles opened his store in Springfield.      A total of 140 loans totaling $14,000 were made to 280 men, half of them putting up security. In today’s terms, that would equal about $42 million. Getting the borrowers to pay back the loans was not as easy, Brady found.

            “Ignoring the original reasoning behind the loans, which was to pay off debts, many borrowers squandered their money,” even though the notes were designed to be debtor friendly with six percent interest and renewable yearly with 10 percent paid on the capital. While some borrowers paid their loans promptly, others with less than honorable intentions refused to pay when the notes became due. “Most saw it as a gift, ignoring their promise to pay it back. Under federal law, states could loan money but it was illegal for them to print and issue currency. This is one of the twisted reasons behind the slacker’s thoughts,” he explains, adding, “their argument was weak without reason, for the money was spent and was not paid back.”

            In his inaugural address of December 5th 1822, Governor Edward Coles spoke of the evils that had been spawned from the misuse of the State Bank, noting that as much wrong had been done by the directors as the debtors. A House examination was ordered. During the term of his successor, Governor Ninian Edwards, charges were brought against the directors of the Bank of Edwardsville and a further House investigation followed.

            In April, 1823, the State Bank of Illinois filed suit against many of the citizens of the Sangamo Country. At that time the Sangamon County Sheriff John Taylor and Clerk Charles Matheny were responsible for serving those named in the suit with legal papers. Whether they actually served the papers is another matter, Brady indicated.

            “The answer may be found in their response. In a blanket reply, they simply stated ‘no property found,’” he noted. Under State law, Taylor and Matheny would not be paid for serving the papers unless the recipients were found guilty and fines collected. “This led Taylor and Matheny, with the help of the citizens of Sangamon County, to file a counter-suit against the State Bank in July 1823 as a way to receive fees for serving the papers! The State Bank had funds. Although as of July 1823 no one had assets, in November of the same year many people had the $100 it took to buy government lands,” Brady observed.

            Bank directors representing the Sangamo Country were Daniel Parkinson and Elijah Iles, who operated out of the Edwardsville branch bank. Soon after the bank abuses were discovered, Parkinson left for the lead-mine region in Wisconsin. Iles, burdened with all his assets, stayed to face reality.

            “He, of course, did not admit guilt in the matter,” said Brady, even though during his watch, “directorship loans had been approved without regard to the bylaws of the bank.” For example, a large loan was made without a meeting of the directors and without receiving the proper security for the loan. “In today’s money the loan would have been $2.4 million. Iles was in part guilty of running the bank into the ground but, having never been a banker before, he was exonerated,” Brady noted with skepticism. “Elijah Iles, who has been long held in high esteem as Springfield’s first great businessman--a man who had been successful in Kentucky and Missouri before moving to Illinois--somehow did not know what he was doing!”             Some bank directors used their popularity in order to be elected to public office such was the case of Elijah Iles who was later elected to the Illinois Senate in 1828 and 1832, Brady noted.

            “The fact remained Illinois did not have the money to operate. It was broke. A man named Wiggins who had business in Illinois loaned the state $100,000 at 6% to stay afloat. This loan was not paid off until after 1850.”

Governor Thomas Ford (who served from 1842 to 1846), estimated a $100,000 of loans were never paid, he said.

            “How do you cover up such a mess so that future generations cannot sit around the fire and talk about had badly our first settlers were? You hide the proof, even if that is illegal,” Brady observes.  

            “For Central Illinois the cover up was complete, saved were the good names of the people of Sangamon County. The Sangamon County Court Case Files of the suits brought by the State Bank against the citizens of the county were destroyed, so one could not see the charges against them.  All of the Sangamon County insolvency records have vanished,” he discovered.

            “The Sangamon County histories do not discuss the mater. Even Iles did not mention it in his autobiography even though he mentions banks in Missouri and Kentucky. It would have been nice if their story had been told for the sake of future generations, rather than to cover up the fact that they lived through an economically depressed period of our history. Our founding fathers have made a very strong statement by denying us the truth. Granted this was a chapter of history they found no pride in recalling, but it is up to us to fill in the gaps so maybe future generations may avoid making the same mistakes.”