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The Bank of Manchester - Speculation, Boom and Bust in the 1830s
by Ray Berg and Alan Dyer (October, 2008)
In previous articles, we have seen the influence of the Fargo brothers, Stephen F. and James H., in the early development of commerce and government in Manchester Village. The brothers opened the first general store on August 21, 1833, and in 2008 we celebrate the 175th anniversary of commerce in Manchester. In addition, James H. Fargo served in organizing Manchester Township as its first supervisor, and in establishing the Manchester Village Lyceum for educational, scientific and moral enlightenment. The year 1837 proved pivotal to Manchester, as Michigan entered the union, Manchester Township was formed, and the village itself got caught up in a speculative and frenzied era whose "bubble economy" has many similarities to today. As we read today about the current credit crunch, real estate foreclosures, and banks "going under," let's look back to 1837–1840 when the Bank of Manchester was created, grew and died in the days of "wildcat banks" and banking fraud.
The opening of the Erie Canal in 1825 made pioneer travel easier and much more economical, which started a tide of emigration that rapidly swept westward for more than a decade. Detroit and Monroe served as terminals of the principal water routes from Buffalo, and the population of Michigan Territory increased from 31,639 in 1830, to 87,278 in 1834 and 175,169 in 1837. This rapid increase of population, and the equally rapid taking up of available government land, aroused fierce speculation in real estate. It was not uncommon for a "promoter" to hunt up a mill site or some other location supposedly available for a town site, purchase a quarter section from the government at $1.25 an acre, make a plat showing the river and mill site, water lots, a public square, and other home sites, and then promote a golden vision of the future. The speculative value of land and general inflation quickly rose throughout the 1830s, and new sources of capital were required to keep up. Federal banking policies promoted by Andrew Jackson also led to government surpluses, distribution of reserves to state banks, and a rapidly growing sense of business euphoria by 1837.
This speculation also led to a craze for internal improvements, such as railroads, canals, dams and plank roads. Because the purported capital needs for these improvements far exceeded the available money (which was almost exclusively "specie," or gold and silver coinage), and because a regulated banking system as we know it now did not exist, local pressure developed to create a "free banking system." This law was intended to promote the development of local infrastructure and to aid local farmers in land development when specie was limited. This consisted of local banks established by a group of twelve or more residents, upon application to the county treasurer and clerk for the right to conduct business. On March 15, 1837, the Michigan State Legislature passed a law allowing the formation of these banks, which initially did not require a state charter and were not subject to any Federal regulations.
The Bank of Manchester
The young village of Manchester certainly considered itself a candidate for prosperity and growth, and no doubt was influenced by the frenzy in land speculation, the booming economy of the times, and the resulting inflation in prices. The bank was organized in October 1837, and was capitalized at $ 100,000, with the sale of stock to take place at the Manchester Hotel from November 6–9, 1837. During the appointed days, the residents of Manchester and the surrounding townships eagerly subscribed to the stock of what they saw as "their" bank, and the issue was quickly sold out. A list of stockholders as has survived is shown in Figure 1.
This list might be considered to include the leading citizens of the Manchester area at the time.
The names of the bank's nine directors have not been positively determined—a fire destroyed the internal records of the Michigan Bank Commission of that period. But we know that George Howe served as the bank's first and only president. Howe had arrived in Manchester in 1832, settling in what was then called Hixon Township, and in 1833 was elected first supervisor of Bridgewater Township. Andrew G. Irwin was elected as cashier for the bank. The bank began operations on November 22, 1837, two days after the first notes were signed by Howe and Irvin. In December, it was included in a state list of banks that had begun, or were about to begin, operations, but had not been visited by state bank commissioners.
The Bank of Manchester, like all free banks established under Michigan's law, created bank notes to transact its business and encourage capital flow. The bank took advantage of commercial printers who stood ready to issue highly ornate and idealistic engravings which would instill confidence and pride in their holders. Vignettes or illustrations highlighted rural scenes, fertile lands, large and healthy cattle, and images of Revolutionary War heroes. Prosperous farmers sowing their rich lands and beautiful farm wives wielding the sickle would often grace these bills. The bills also carried the term "Safety Fund" and "Real Estate Pledged and Private Property Holden" to promote further confidence in the bank. The Bank of Manchester started off with the full faith of local stockholders and a belief that the "good times" created at the end of Andrew Jackson's presidency were here to stay.
Figure 2 shows the $3 bill with a likeness of Benjamin Franklin, a statesman, inventor, businessman and scientist, but also most importantly, a man of industry and thrift. A very healthy bull complements the image of prosperity. Other denominations portrayed Washington and Lafayette and similar scene of tranquility and happiness.
The Michigan free banking law required 30% of the issued notes to be backed by specie (gold and silver coin) held at the bank's location. The rest could be backed by either bonds or mortgages upon real estate within the state, or in bonds executed by resident freeholders of the state. Two problems quickly developed. Because there was initially no regulation or oversight of the specie, bankers began transferring specie from bank to bank to "guarantee" different bank notes. They also filled bank vault boxes with an upper layer of actual specie, but used it to cover scrap iron, nails, broken glass pieces and other heavy but worthless materials to create an appearance of ample specie on site. Potential problems with bonds and mortgages on real estate include inflated appraisals and depreciated real estate values, particularly when mortgages began being called in as the banks ran into trouble. In some cases, cities and villages were platted for the purpose of raising the price of land to be mortgaged for the issue of more bank bills. There is speculation that the platted village of Windham in Manchester Township, which never developed, was done for this purpose.
The Bank of Manchester is sometimes referred to as a "wildcat bank." Various explanations have been given for this term, but the most common reference is to "reckless" or "financially unsound" Michigan banks established during the 1830s in remote and inaccessible locations, and often fictitious towns, "where the wildcats roamed." In the free banking period, such locations benefited the banks because they hampered the note holders' attempts to redeem notes, and banks with fewer notes redeemed could hold less specie and generate higher net revenue for their owners. The Bank of Manchester was not remote or fictitious to its local users, but it fell victim to the same speculative temptations which affected other wildcat banks. Bank of Manchester notes issued in late 1837 were themselves the focus of a major fraud committed in the wildcat Miners Bank of Dubuque, Iowa in 1838.
The Bank of Manchester was located on Lot 2 of Block 4 of the Original Plat of Manchester, which is now 107 W. Main Street. The lot was sold by James Fargo to Andrew G. Irwin on December 28, 1837 for $ 75. It is apparent that Irwin built a home there which also served as the bank office. However, after the bank problems occurred discussed below, Irwin supposedly sold the property to the Bank of Manchester on November 30, 1839 for $ 3,000. This somewhat questionable transaction was apparently negated during the bank's troubled period, and the property was sold by Irwin to Oliver Kellogg on March 6, 1845 for $ 800. The 1856 plat map of Manchester shows no structure on this site. It is not certain what happened, and perhaps the structure was demolished or moved prior to 1856, or destroyed in the 1853 fire. But the 1864 plat map does show a structure, which is believed to be a house which was subsequently moved to 325 S. Macomb Street after a sale by Dr. Walter Klopfenstein, who built the current home at 107 W. Main in 1907. Information provided by Annetta English in an earlier Manchester history may have incorrectly attributed the original Bank of Manchester building as being the current 325 S. Macomb home.
The Short Life of the Bank of Manchester
It quickly became apparent by late 1837 that multiple cases of specie fraud were occurring at various banks. The same specie (i.e., exact same combination of gold and silver coin denominations) was being noted at different banks. In some cases, paper notes saying that a bank officer possessed specie were themselves treated as legitimate specie. Specie was being moved by speedy overnight coach from bank to bank before the bank commissioner made his arrivals at different banks, but eventually the state bank commissioners became aware and started investigations and audits under a state banking amendment in January 1838. The commissioners would tell the first bank they inspected that they were next going to a specific bank, but instead paid a surprise visit to a different bank. Several of these specie fraud cases involved the Godard brothers, Abel and Lewis, owners of the Bank of Ypsilanti and other banks. Abel Godard was the son-in-law of John Gilbert, the founder of Manchester, and when the Godard brothers' fraud was uncovered, not only did John Gilbert suffer severe financial setback, as discussed in an earlier article, but the ramifications quickly spread to other Washtenaw area banks.
Pressure on the state legislators resulted in increased inspections led by state bank commissioner Alpheus Felch, who as a legislator had opposed the formation of Michigan's free banks. Felch came to Manchester, and on February 21, 1838, Andrew Irwin, the cashier of the Bank of Manchester, swore to Felch that only $ 34,000 of the bank's bills had been placed in circulation, within the specie and mortgage/bond backing limits. In reality, the bank had actually issued between $ 107,000 and $ 118,000 in bills, exceeding the legal limit. We can surmise that Irwin, clearly with George Howe's participation as they were both signers of the bills, got caught up in the financial frenzy. The fraud was certainly common knowledge by April 19, 1838, when the State Journal reported:
"The Cashier of this institution (Bank of Manchester), we understand, has taken leg bail, having disposed of some fifty thousand dollars without knowledge of the Directors! Hurrah! For the General Banking Law! The wildcat tory currency! Three cheers for Gov. Mason's "principle correct in theory, but mischievous in practice!" One hundred guns for this immortal display of modern democratic, wildcat, tory, loco foco wisdom!"
James H. Fargo replaced Irwin as cashier. In May 1838, a Washtenaw County Circuit Court grand jury found that Irwin should stand trial for falsely swearing to the number of bills in circulation, and a perjury warrant for his arrest was issued May 18, 1838. He was taken into custody and bail granted. A second warrant was also issued on May 18 against both Howe and Irwin for fraud, for having "willfully, unlawfully and contemptuously refused and neglected to report to the bank Commissioners whenever they discovered such violation." Bail was also posted for these warrants.
With its officers facing criminal charges, and a general wave of financial hysteria beginning to unfold concerning all the wildcat banks, the Bank of Manchester had to do two things fast. It first had to find a means of providing security for the illegal outstanding bills in circulation. A plea was made to the community for its help, and largely due to the efforts of James H. and Stephen Fargo, land appraised at $ 91,282 was mortgaged to the state's auditor general in June and July 1838—a feat which was gratefully acknowledged in the Bank Commissioners' report to the State Senate in 1839. These mortgages reveal a long list of Manchester area residents participating in the rescue beyond the original stockholders.
Second, the Bank of Manchester was faced with redeeming or buying back its bills. This was made possible by the general rapid depreciation of wildcat money which allowed it to be bought back at less than face value. James Fargo moved expeditiously to accomplish this, and by September 1838, Commissioner Felch reported that total circulation was down to $ 45,334, and the bank now deserved the public's confidence. By January 1839, the number was down to $ 25,514, with sufficient bank assets to cover its liabilities. Still the commissioners recommended the bank be closed, in keeping with a letter written by Commissioner Felch to his wife on January 10, 1839 stating that he was in Ann Arbor engaged in his "old business of Killing Banks." (Felch became governor of Michigan in 1845).
James Fargo worked to close the bank in an expeditious and secure manner. As the receiver, he took charge of all assets and property, determined what debts and liabilities existed, and collected outstanding debts to the bank. Fargo served as receiver until his death in November 1840, and final paperwork was filed with the state in late 1841. The state annulled the bank's charter in its 1840 session, effective February 1842. In retrospect, the Bank of Manchester ended up among the more fortunate of the financial outcomes of the wildcat banks, but this only occurred due to the Fargo brothers' work and the timing of Alpheus Felch's challenge of cashier Irwin in February 1838. Bills totaling $ 180,000 had been printed, but $ 62,000 of them had not been issued when Felch showed up. Had these notes been issued, Fargo and his colleagues might not have been able to rescue the bank and bring about an orderly shutdown.
When it appeared that the Bank of Manchester would be able to recall its notes, repay creditors and effect an orderly shutdown without an outright collapse, the charges against Howe and Irwin were never pursued beyond their initial bail hearings and Irwin's grand jury appearance. The County dropped all charges by 1840. Perhaps once it was determined that the bank could meet its obligations, the idea of prosecution lost its appeal, and the Manchester community just wanted to move on. The banknotes eventually saw value as collectors' items, wallpaper, and some limited use as currency in the Confederacy during the 1860s.
George Howe and his family left Manchester and became involved in the development of the Village of Jefferson, Alaiedon Township, in Ingham County with his brother-in-law, Joseph Cowles, building a sawmill and farm. It is recorded that he passed away in 1846, and his wife and children had relocated back to Manchester by the 1850 census. Andrew Irwin relocated to Brooklyn, where he lived out his life as a farmer.
Interested readers of this Bank of Manchester story can contact author Alan Dyer for more information on his extensive research on this subject, as well as the similar Farmers' Bank of Sharon. You can also find Bank of Manchester notes available on eBay and other historic auction websites.
In the meantime, stay with us for our next article, where we'll discuss the origin, history and occupants of downtown Manchester's "Original Burying Grounds," another of James Harvey Fargo's initiatives.
[Previously published in M, Manchester's Magazine. Presented here by permission.]