Research Yields Twist on State’s First Fiscal Squeeze:
Historian to Explore Local Ties to 1820s Banking Crisis
Independent historical researcher David M. Brady will take 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 when he talks about “Fraud on the Frontier: The State of Illinois vs. the People of the Sangamo Country” at the Tuesday, October 20 meeting of the Sangamon County Historical Society.
The meeting will be held at the Elijah Iles House, 628 South 7th Street, Springfield, starting at 7 p.m. The free presentation is open to the public. Refreshments will follow.
In his talk, Brady, a Springfield resident who previously researched and wrote about causes and impact the Panic of 1819 had on Illinois history, will focus on the action or inaction on the part of three of Springfield’s then most prominent citizens in what would become the state’s first economic crisis. 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.
“Our county histories are based on ego inflating personal biases that are problematic. They hide the truth,” says Brady who came to that conclusion while researching the Panic of 1819 and its aftermath. “At no time in Sangamon County's history has this been more evident than during the pioneer days.” Brady’s book, “The Panic of 1819” was published by the Society in 2006.
Iles, a Kentucky native, came to Illinois via Missouri after parlaying the money he made selling cattle and in real estate speculation. He opened Springfield’s first store in July, 1821. He was elected a State Senator in 1826 and again in 1830.
The Panic of 1819 was part of a collapse of the world economy that coupled the effects of the Napoleonic Wars and the War of 1812 with the catastrophic 1815 eruption of Mount Tambora in Indonesia, still the largest vocanic eruption in recorded history. The ash it produced caused a temporary worldwide climate change that led to crop failure, starvation and disease in the northern hemisphere.
In the United States, 1816 became known as the “Year Without Summer.” Killer frosts ruined crops in New England and in Europe, the cold and wet weather rotted crops in the field. America’s western frontier, now the Midwest, was less affected by the harsh weather and as a result, farmers here were able to sell their produce in domestic and overseas markets at a high price. Within a few years, “the Midwest had established itself as an agriculture icon. The farmer had become an important figure in world trade,” says Brady in his book.
In those days, you either traded goods or used silver dollars that were in short supply in what was still frontier territory. If you were lucky, you could borrow money with a promissory note, but that was risky, especially for the lender, he says. With a growing market for their produce, Midwest farmers pressured local governments to provide them with a better way to borrow money. “Banks were thought to be the answer and states and territories took charge by chartering dozens,” Brady says, providing farmers with the means to get cash that was needed until their crop could be sold. At the same time, many Europeans fled to the United States seeing it as a haven from their economic plight. Once here, they looked west as a way to start a new life. “Easy money and high grain prices drew masses of emigrants into the Midwest,” he points out.
The booming agricultural-driven economy bubbled over into land speculation, adds Brady. With an $80 down payment, anyone could purchase 160 acres of federal land. “By 1819, there were 3,730,000 government acres for sale in Central Illinois. The speculation mania and the spurious currency reached even the remotest settlements.”
But by then, the global climate had returned to normal. Exports from the Midwest dried up and because farmers were unable to sell crops, they could not repay these bank loans and went into debt. Banks foreclosed when land used as collateral could not be sold to satisfy the loans. And when they could not sell the land for what was owed nor get repayment of the difference, the banks themselves were forced to close, the currency they issued worthless. Depression had arrived in the Midwest and only deepened.
In 1820, federal laws were passed to allow those who had bought federal land on credit to be released from debt by relinquishing the acreage back to the government. The federal government, in fact, got out of the underwriting business, lowering the price of its public land to $1.25 per acre, with the stipulation that the buyer had to pay for it in cash.
At the same time, Illinois politicians thought they saw a way to bring relief by creating the State Bank of Illinois, with offices in Vandalia, Shawneetown, Edwardsville, Palmyra, and Brownsville. The state was the sole proprietor of the bank, but the directorship for each office was composed of local politicians. The banks had the authority to issue $300,000 in state currency in $100 loans payable in a year. The money was to be used to purchase 80 acres of land from the federal government. That did not always happen, Brady points out. “Most wasted their money; others like those in the Sangamo Country, hoarded their cash waiting for the land to come to market.” It took until 1823 for the federal lands here to be offered for sale.
With Illinois still in the grip of Depression, about a third of those who did borrow money from the State Bank of Illinois could not or would not pay the loan back and, as a result, the land had to be sold for taxes, representing just pennies on the dollar, leaving the State out the difference. That, in turn, forced the State to borrow $100,000 from an Ohio man in order to remain solvent, Brady notes. How Iles and his associates play into this scenario won’t be disclosed by Brady until the meeting, but it reflects years of research on his part.
The Panic of 1819 is just one of many areas of local history that has drawn Brady’s attention. He is also the author of “Divernon: It’s Place In Time” and many articles on Native Americans and the frontier period in Illinois. His works have appeared in publications such as The Illinois Heritage, The Spring-House, Illinois Times, and Historico.
His research into old Illinois trails led to the discovery and dedication of an extant section of the Edwards Trace located at Lake Park in Springfield. Working with archeologist Robert Mazrim, he has also been involved in the excavation of the Birkbeck home in southern Illinois, two sites in French Cahokia, and the Lincoln house site in New Salem.
Brady has served as chair of the Divernon Centennial Committee, on the advisory board of the Illinois State Historical Society, the Sangamon County Historical Society, and the Illinois Foundation for Frontier Studies. In addition to his research on the geological and economic impact of the Tambora eruption and the Panic of 1819, he has explored the history of Sangamon County and the Americanization of Illinois.