- Historic Sites
A Foot In The Door
Grain elevators had false bottoms; freight rates had no ceilings. The farmers raised the roof, and government regulation crossed industry’s threshold
February 1964 | Volume 15, Issue 2
While this sophisticated graft pleased the profiteers, it aroused its victims. As early as 1857, Chicago’s grain merchants, acting through the Board of Trade, sought to impose a system of self-regulation upon the grain-elevator owners. Their aim was to get impartial inspectors into the warehouses to report on the condition and quantity of the grain in storage. A related objective was to make the Board a central registration agency which would record incoming shipments of grain and validate their sale, so as to eliminate the practice of issuing bogus receipts. The warehousemen naturally resisted, claiming that as private owners they had an inherent right to exclude outside parties from their property. Since the elevator proprietors also had representation on the Board of Trade, they were usually able to turn the regulatory proposals into meaningless compromises. The upshot was the semblance but not the substance of regulation: grain weighers who were in the employ of the warehousemen; Board inspectors whose admission into the elevators depended upon the owners’ good will and who were vulnerable to bribes; and unverifiable reports, filed by the warehousemen, which were as worthless as many of their grain receipts.
The Munn & Scott firm was both a prime cause of complaints and a leader in the fight against effective control by the Board. In 1861, after warehouse “wheat doctors” had camouflaged a huge quantity of spoiled grain and mixed it with good grades, open charges of fraud were voiced. The Board appointed an investigating committee, but by tacit agreement its report was suppressed. When Joseph Medill’s crusading Chicago Tribune suggested that the report had been shelved because it incriminated many elevator men, Munn & Scott succeeded in getting Tribune reporters expelled from Board meetings. Similar newspaper charges hinting at Munn & Scott frauds appeared in 1865; another public furor followed, but the lax inspection procedures remained unchanged.
Four years later almost all of Chicago’s receivers, shippers, and dealers united in demanding a system of real inspection. The immediate cause was a raise in storage rates and the imposition of an extra charge for grain that spoiled while in storage. New Board regulations designed to eliminate fraudulent issues of grain receipts were adopted early in 1870; once again the warehousemen, including Munn & Scott, asserted their right to control matters within their own elevators. The fight intensified. Elections for Board of Trade offices in the spring of 1870 split the membership into two factions—one supported the warehousemen; the other, which won most of the positions, insisted that their power be broken.
Businessmen are not customarily champions of governmental regulation, but the warehouse situation had become intolerable. The conduct of complex business relationships, after all, depends in significant part on mutual trust. Unable to control the warehousemen, the Board of Trade turned to the state, asking that Illinois subject them to public regulation. It was necessary, declared the retiring Board president in 1870, to destroy “a monopoly highly detrimental to every interest of the city.“Joseph Medill, whose newspaper made warehouse regulation its cause, put it more colorfully when he described the warehousemen as “rapacious, blood sucking insects.” These complaints went before the state’s constitutional convention of 1869–1870, then in session. The result was one of those strange yet almost typical alliances of American politics: a temporary pact between two normally opposed interests, the grain merchants and the grain producers.
The farmer-merchant alliance was an unusually strange one for 1870 because that year found the mid-western farmer in the grip of depression. Beyond a doubt, the economic balance of the post-Civil War period was heavily weighted against the American farmer. Between 1861 and 1865 he had rapidly expanded production to meet burgeoning needs, but the postwar market absorbed only part of his fantastic output of wheat, corn, and other grains. The farmer, moreover, sold in an unprotected world market at a time of falling prices; wheat, which sold at $1.45 a bushel in 1866, dropped to 76 cents within three years. As prices dropped, the value of money appreciated, and the farmers, who had borrowed in the wartime flush of inflationary optimism, had to meet debts with a scarce and hard-earned currency. Manufacturers, by contrast, were protected by a high tariff which pushed up the cost of the farmers’ tools and domestic necessities.
The farmers of the West and Midwest had yet another grievance which became a focus of all their discontents _the great railroad systems whose shiny rails criss-crossed the farm country. No one had welcomed the coming of the railroad more than the western farmer, since it opened up new markets for his products and made farming feasible in otherwise remote areas. Many had mortgaged their property to buy railroad shares; others had cheerfully accepted high local taxes to finance the bonds that lured the iron horse into their territory.