Liquid Capital. Joshua A. T. Salzmann
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from a Midwestern farm to New York City. In 1864 The Prairie Farmer estimated that Chicago’s warehousemen reaped one million dollars in annual income or an average of eighty thousand dollars per elevator.23 By the late 1860s, Munn’s dividends from the pooling agreement averaged one hundred thousand dollars per year, an income he sought to augment through market manipulation.24
A Chicago grain elevator bestowed upon its owner the ability to control market information—a power warehousemen frequently abused. As the grain of the American Midwest passed through Chicago, elevator owners issued storage receipts. Those texts not only functioned as a claim check, they told a story about the quality and supply of a commodity. And, as that story changed, so too did prices. In the hands of a duplicitous elevator operator then, the storage receipt took on a literary form best described as market fiction. Sometimes an elevator owner issued bogus receipts. Other times, an owner simply neglected to retire a receipt after a client claimed a lot of grain.25 In either case, the effect was the same. The elevator owner circulated receipts not backed by actual grain, thereby profiting from a lie.
That lie also created the impression of larger grain supplies, driving prices lower. An elevator owner could profit from buying low on his own reports of large supplies, leaking the truth about the actual amount of grain in store, and selling to hapless traders as the prices rose. If an elevator owner wanted to put upward pressure on prices, he could fabricate a story of scarcity. An elevator owner might falsely report that grain supplies in his care had spoiled—and sell high on the news.26 Whatever the market fiction, an elevator operator’s word was made both plausible and unverifiable by the space he controlled. His elevator contained the truth about grain supplies, but by invoking his private property rights, he could deny others the opportunity to confirm his word.
Public Space and Access to Market Information
After the Civil War, Midwestern farmers belonging to cooperative organizations known as Granges successfully pressed Midwestern state legislatures to enact railroad and grain elevator rate restrictions, leading to a series of six cases testing the legitimacy of statutory economic regulation. The court’s ruling in Munn was the first in the “Granger Cases,” which upheld the state rate regulations.27 Illinois farmers did advocate grain elevator rate restrictions, though the more powerful impetus for elevator regulation came from Chicago grain traders who wished to peer inside the bins. The story of this strange alliance of farm and finance shows that critical economic spaces like the Chicago waterfront were the site of fierce contests over more than just goods. In Munn, the court used the language of space—the “gateway of commerce”—to pronounce upon a conflict over information.28
That fight began in the Board of Trade during the 1850s, and it spilled out into state politics. The board’s members comprised, in part, grain traders who wanted a public accounting of supplies and elevator operators who sought to hide their stores from prying eyes. In 1857, the grain traders took the upper hand, compelling the board to appoint inspectors to enter the warehouses and report on the quality and condition of stores. At the same time, the Board of Trade also began to act as a clearinghouse for market information by recording incoming and outgoing grain shipments to prevent the issue of false receipts.29 Two years later, the Illinois state legislature enhanced the Board of Trade’s powers by granting the organization a special charter as “a body politic and corporate.” The board thus assumed a quasi-governmental status with legal authority to compel its membership, which included the elevator owners, to comply with its inspection rules and standards for weights and grades.30
Elevator owners nonetheless sidestepped board regulations. Since the elevators were private property, board inspectors depended on the permission of their owners to enter. Consequently, elevator operators could arrange for inspections at times when they were in compliance with regulations or their abuses could be masked.31 In light of these evasions, a growing faction of board members began to call for state regulation of the warehouses. That faction drove the grain elevator operators out of power during the 1870 Board of Trade officers’ election. Thus, the board that Munn had headed ten years earlier was now committed to using the state government to, in the words of its president, break “a monopoly highly detrimental to every interest of the city.”32
The Chicago Board of Trade immediately pressed the state of Illinois for regulation. At the same time as the pro-regulation faction had gained power in the Board of Trade, Illinois lawmakers were in the midst of drafting a new state constitution. Constitutional convention delegates were being bombarded by petitions from merchants and farmers calling for passage of an article regulating grain elevators.33 The convention did not take action, however, until the Board of Trade threw its weight behind the effort. At its urging, Delegate William Cary introduced an article calling for warehouse regulation, the text of which, some alleged, had actually been drafted by members of the board. The Board of Trade’s support for the measure made some delegates uneasy. Claiming to represent famers, delegate Thomas Turner, for one, decried the article as a means to help grain traders who he described as “leeches upon commerce and the community, that suck the life blood out of the farmers and dealers in grain.”34
Even if the article was drafted for the benefit of grain traders, other delegates noted that farmers too would profit from accurate market information. Delegate William Coolbaugh, for instance, asked, “Can it wrong the farmer in Fulton county who ships a thousand bushels of grain to Chicago and holds it there, subject to the market, to require the warehousemen there to inform him and the public how many bushels of grain are in store, so that he may exercise his judgment about the best time to sell it?”35 Coolbaugh’s rhetorical question not only described farmers’ need for market information, it underscored the challenges they faced operating over time and distance. The farmer had to pay to transport his crop to Chicago before he knew what price it would fetch on the grain market. The rapid price fluctuations brought about by the market manipulations of grain elevator operators could make this all the worse. Farmers, like commodities traders, had an interest in securing accurate information about grain supplies.
The delegates to the Illinois State Constitutional Convention designated grain elevators as “public” spaces in order to ensure access to market information. They passed an article stating, “All elevators or storehouses where grain or other property is stored for a compensation … are declared to be public warehouses.” If warehouses were public, the delegates reasoned, elevator operators could not invoke their private property rights to prevent inspection. The constitution not only designated the warehouses public, it mandated that their operators take responsibility for disseminating market information by making daily reports of the quantity and quality of grain stores. It also required elevator operators to permit the holders of grain receipts to inspect stores as well as the elevator’s account books. To give “full effect” to this article, the constitution called on the state legislature to “pass all necessary laws to prevent the issue of false and fraudulent warehouse receipts.”36 Members of the state legislature, in turn, invited the Chicago Board of Trade to draft laws regulating warehouses and railroads. With the board’s proposals as a framework, the Illinois General Assembly passed the 1871 Warehouse Act designed to curtail railroad rate discrimination, set maximum storage fees, and prevent the issue of false elevator receipts. The legislature also required warehouse owners to obtain a state operating license and submit to the regulatory power of a new Board of Railroad and Warehouse Commissioners.37
Grain elevator operators resisted state regulation, but Chicago’s Board of Trade and its banks ultimately forced them to comply with the law. Munn and Scott, for instance, refused to obtain an operating license or to let state inspectors enter their elevators. The state sued and won. In July of 1872, the court ordered Munn and Scott to pay a fine of one hundred dollars. The warehousemen appealed the ruling to the Illinois State Supreme Court, beginning the case that would culminate in the U.S. Supreme Court’s 1877 decision in Munn v. Illinois.38 Even before the high court ruling, however, bankers and the Board of Trade forced elevator owners to comply with the regulations intended to prevent the issue of bogus receipts. Chicago banks refused to accept receipts from elevator operators that did not register them with state inspectors, and the Board of Trade barred unregistered receipts from the trading