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The Loop Chicago Part 4

  • Feb 8
  • 38 min read

Updated: Feb 12


In this series, I explore the sights and scenes of Chicago’s Loop. Post 1 traced the Loop’s borders and my walk along Michigan Avenue; Post 2 covered State Street and Wabash Avenue; Post 3 followed Clark and Dearborn.


In this installment, I walk LaSalle Street—the last north–south artery in this sequence—before turning to the east–west streets in the next post.



N-S Street 6: LaSalle Street


City Hall


At 121 North LaSalle stands City Hall—the seat of the mayor and city government, the city’s administrative heart:



The city government has occupied several homes since Chicago’s incorporation in 1837. The current building has housed city officials since 1911. Chicago’s government has an executive branch led by the Mayor and a legislative branch, the Chicago City Council, composed of 50 aldermen, each representing one of the city’s wards.


One notable feature of Chicago’s municipal elections is their “non-partisan” design—a term that can carry one or both of two meanings in the United States. First, the ballot does not list party affiliation. Second, there is no party-level gatekeeping of candidates. Chicago meets both criteria. Any candidate who satisfies legal requirements and gathers enough signatures may run for mayor, and all qualified candidates appear together on the ballot. If no one secures more than 50 percent of the vote, the top two advance to a runoff—even if they belong to the same party.


Illinois municipalities adopted this nonpartisan system in the late 1990s after Republicans, then in control of the Illinois State Legislature, passed enabling legislation. In a city as deeply blue as Chicago, Republicans believed that removing party labels from ballots might improve their prospects. It did not. The last Republican mayor of Chicago was elected in 1927.


Some analysts trace the change to the 1983 election of Harold Washington, Chicago’s first Black mayor. Washington won the Democratic primary after the white vote split between two rivals, then narrowly defeated a little-known Republican who ran a racially charged campaign. Critics contend that shifting from a party-primary system to a non-partisan runoff was meant to blunt the chances of a Black candidate prevailing, on the assumption that the broader electorate would be more racist than Democratic primary voters. Yet Chicago has elected Black mayors even under the nonpartisan regime.


The non-partisan system promised a Republican opening and a racial rollback; it delivered neither, proving that voters are harder to engineer than ballots.


Even in these “so-called” non-partisan systems, party affiliation is rarely unknown. A real-world experiment unfolded in 2024, when Pakistan’s establishment barred Imran Khan’s party—Pakistan Tehreek-e-Insaf (PTI)—from contesting elections. PTI candidates were prohibited from using the party’s signature cricket-bat symbol, a crucial recognition aid in a country with widespread illiteracy. The Election Commission assigned them unfamiliar symbols, including the sexually suggestive eggplant and a bottle—an awkward choice in a country where alcohol is both taboo and legally restricted. Yet these “independents” emerged as the single largest bloc of winning candidates.


Whether in a Chicago mayoral race or a Pakistani federal election, expecting voters to assess candidates without party cues assumes a level of cognitive exertion few can sustain. Kahneman's System 1 is fast, automatic, and intuitive thinking—the mode we use when driving—while System 2 is slow, deliberate, and effortful, as when weighing job offers. Because sustained effort is taxing, we default to System 1, often substituting a difficult question with an easier one. Instead of scrutinizing a candidate’s positions, the mind may simply ask: Do I like the party’s leader? The political party becomes a System 1 solution for the masses.


Four figures are carved into the LaSalle Street facade of City Hall, each embodying a principal concern of municipal government: playgrounds, schools, parks, and water supply.


The figure below represents playgrounds for children:



The figure below symbolizes the city’s water supply:



Of the four functions depicted in the reliefs, Chicago’s water supply has the most arresting history. From just 4,000 residents at incorporation in 1837, the city swelled to more than 100,000 by 1860. Growth brought sewage, much of it emptied into the Chicago River, which in turn drained into Lake Michigan—the city’s primary source of drinking water. The result was predictably lethal: recurring outbreaks of cholera and typhoid and high annual mortality.


Two solutions were implemented.


The first was a pumping station built in 1866 that drew water through a two-mile tunnel to a cleaner intake point farther out in the lake. The station pictured below stands on the lake side of Michigan Avenue:



Three years after the construction of the pumping station, the Water Tower—an architectural landmark—rose across the street, concealing a vertical standpipe that stabilized water pressure:



However, as the sewage volume kept growing with the population of the city, a stronger remedy than simply drawing water from farther offshore was needed.


The second solution was far more audacious and controversial. The city decided to reverse the direction of the river so that it would not empty into the lake. The picture below illustrates the solution:



In the “Before” panel, the Chicago River empties into Lake Michigan. In the “After” panel, the Sanitary and Ship Canal links the Des Plaines River to the Chicago River. Completed after nearly a decade of construction and inaugurated in January 1900, the 28-mile canal reversed the river’s flow—pulling water from Lake Michigan into the Chicago river and sending it west through the canal, into the Des Plaines, and ultimately the Mississippi, carrying Chicago’s sewage with it.



Picture of the Western Avenue Bridge over Sanitary & Ship Canal


Downstream cities were understandably alarmed. Officials in St. Louis feared that “poisonous filth” discharged daily into the Mississippi—their drinking-water source—would spread disease. In a landmark dispute between Missouri and Illinois, the U.S. Supreme Court dismissed the case against Chicago. Expert testimony conflicted on whether bacteria could survive the 300-plus-mile journey downstream. Today, the term “sanitary” is something of a misnomer: sewage is treated in wastewater plants before release.


Chicago may have prevailed in court, but nature’s judgment hangs like the Sword of Damocles. In the 1970s, Arkansas imported invasive subspecies of Asian carp as a natural alternative to chemical agents in wastewater treatment plants. Floods caused some of these captive fish to swim over from ponds in which they were held and eventually find their way into the Mississippi. Should they reach Lake Michigan through the Sanitary canal, they could devastate the Great Lakes fishing economy. To prevent that outcome, authorities are planning infrastructure costing more than a billion dollars. It is ironic that the integration of the Mississippi and Great Lakes water systems, which once underwrote Chicago’s prominence as a trading hub, now presents an existential economic risk.


The Water Tower and pumping station are no longer operational; advances in technology rendered them obsolete, the Tower as early as 1918. When Oscar Wilde lectured in Chicago in 1882, he dismissed the Tower as “a castellated monstrosity with pepper-boxes stuck all over it.” Yet efforts to demolish it provoked civic outrage. In 1971, the city yielded, granting landmark status to both structures and foreclosing their destruction.


The City Hall building also performs a second function: it houses the county government. The county side entrance is on Clark Street:



American governance comprises three tiers: federal, state, and local. Within local governance, counties serve as the broader administrative units for the cities nested within them. Cook County, for instance, encompasses Chicago and suburbs like Evanston, Oak Park, and Skokie.


For Chicagoans, the city government feels tangible. It provides policing, fire protection, sanitation, and public schooling. The county, by contrast, is more archival than immediate—the office where one registers births, deaths, marriages, and property transfers. The city keeps you safe and educated; the county shows up mainly to record that you were born, married, and eventually done.


The county half of the building was completed in 1907, a year before construction began on the city half and four years before the city side was finished.


Like the city entrance, the county entrance features four carved reliefs. Two depict young men holding an artistic interpretation of the Cook County seal:



The seal features an inverted Y:



The two lower arms of the inverted Y—an emblem repeated across the city—represent the north and south branches of the Chicago River. They converge into the stem, symbolizing the river’s east–west main branch. The point where the arms meet the stem is Wolf Point, pictured below:



Cook County holds roughly 40 percent of Illinois’s population, and Chicago alone accounts for more than half of the county’s residents. As a deep blue metropolis, Chicago keeps the county reliably Democratic.


Illinois is often labeled a “blue state,” yet most of its roughly 100 counties routinely vote Republican in presidential elections. Barack Obama carried 48 of 102 counties in 2008 and only 23 in 2012. Still, Cook County’s demographic weight has ensured that the last Republican to win Illinois statewide was the senior Bush in 1988.


Travel south from the greater Chicago area and the politics turn more conservative—a pattern rooted in the state’s early history. Although Illinois fought for the Union in the Civil War, downstate support for slavery was strong. In a historical inversion that jars contemporary perception, many Northern supporters of slavery were Democrats, derided as “Copperheads.” Lincoln won Illinois by narrow margins in 1860 and 1864. The divide persisted into the twentieth century. In 1919, Illinois ratified the Eighteenth Amendment instituting Prohibition, as downstate teetotalers outvoted Cook County.


The Cook County Democratic Party has long dominated Chicago’s political life and, by extension, the state’s. Over time, city and county politics have passed through four broad phases: the WASP period, the era of mass politics, machine rule, and today’s personal-brand politics.


In the decades after Chicago’s incorporation in 1837, affluent industrialists from the North set the tone. Early mayors such as William B. Ogden and Augustus Garrett came from wealthy New York families. Joseph Medill—newspaper magnate and early owner of the Chicago Tribune—became mayor after the Great Fire of 1871; he was Canadian-born. These leaders belonged to the so-called White Anglo-Saxon Protestant elite—Americans of British Protestant ancestry—often beneficiaries of generational wealth dating to seventeenth-century East Coast settlement. Even WASP mayors of modest means, such as John Wentworth, pictured below, possessed social capital rooted in education and lineage.



Source: Smithsonian


Chicago’s WASPs either held office directly or shaped policy through proxies. Journalist Colin Woodard has argued that the United States is a mosaic of eleven regional “nations,” each formed by distinct founding settlers and values. In his framework, Chicago’s early elite belonged to “Yankeedom,” a culture that prized thrift, enterprise, and abolitionism tinged with moral self-assurance. Party labels varied, but mayors were overwhelmingly drawn from this cultural stock.


By the late nineteenth century, the WASP dominance yielded to a competitive era. More recent immigrants from Ireland, Germany, Italy, and Eastern Europe challenged the Yankeedom elite for power. As noted in Post 1, Prohibition grew partly from temperance reform imposed by incumbents on these “rowdy” arrivals. Even before the Eighteenth Amendment, patrician mayors such as Medill sought to enforce Sunday closing laws unpopular with German and Irish residents fond of a tipple on Lord's Day. Medill, from his perch at the Tribune, derided working-class Irish as shiftless drunkards—a posture unimaginable for a modern mayor. These conflicts extended beyond culture wars into economics.


Economist John Kenneth Galbraith proposed that economic power is checked not only by markets and regulation but by “countervailing power.” When corporations grow dominant, opposing forces—labor unions, large buyers, professional bodies, consumer groups—arise to balance them. In Chicago, organized labor became that counterweight.


In July 1877, amid a nationwide rail strike, thirty workers died when thousands clashed with police at Halsted Street in what became known as the Battle of the Viaduct. Less than two decades later, on May 11, 1894, workers at the Pullman Palace Car Company walked out of their factory south of downtown. The strike followed layoffs and wage cuts during a period of broader economic distress:



Four scenes showing homeless men: in corridor of the City Hall at night, working with brooms for meals and lodging, receiving meals at Lake-side kitchen, and in bunks in lodging house: Drawing by Charles Mente from 1894


The strike might have remained local, but a month later the American Railway Union boycotted Pullman cars. Switchmen refused to attach or detach them, paralyzing rail traffic across states and prompting federal troops to enter Chicago in July 1894:



Top panel depicts United States Troops encamped in Chicago and bottom panel depicts National Guardsmen firing into the mob


The 1904 meatpackers’ strike referenced in Post 2—later immortalized by Upton Sinclair—was another assertion of working-class power.


Chicago’s mayoral politics reflected these tensions. In 1893, John Patrick Hopkins became the city’s first non-WASP working-class mayor. An Irish Catholic and former machinist at Pullman, he signaled a shift. Thereafter, mayors and aldermen, if not working class, often hailed from humbler immigrant origins—Irish, German, Eastern European.


This mass-politics phase—the last in which a Republican would hold the mayor’s office—gave way in the 1930s to machine politics: a system in which party bosses traded patronage jobs, contracts, and preferential services for votes. An alderman who delivered turnout might see his ward rewarded with roads, sewers, and public buildings; his relatives and allies might secure city employment.


Machine politics differed from garden-variety patronage because it was systematic. A central committee within the Cook County Democratic Party allocated “goodies” like city jobs to Chicago’s wards and suburban districts in proportion to Democratic vote totals. The party representative of the ward—often aldermen—managed precinct captains, who oversaw block captains. Spoils flowed down this hierarchy; vote tallies flowed up. The ledger was revised every election.


Anton Cermak, elected mayor in 1931, laid the machine’s foundations. It was refined under Edward J. Kelly, who assumed office after Cermak was fatally shot in an assassination attempt aimed at FDR. The system favored incumbents: those in power dispensed favors that generated votes, which renewed their tenure. Hence it is not surprising that the elder Mayor Daley remained in office for 21 years starting 1955.


The machine era effectively ended with the 1983 victory of Harold Washington, Chicago’s first Black mayor. Though once a precinct captain within the system, Washington defeated the machine’s preferred candidate by mobilizing a loyal base he had cultivated over years.


In the post-machine “personal brand” era, candidates assemble their own organizations, but the essentials remain the same: money and voter outreach. Richard M. Daley and Brandon Johnson leaned on machine like organized groups such as unions and donor networks for both. Others like Rahm Emanuel combined elite fundraising with direct voter outreach, while Lori Lightfoot pursued a more retail strategy in both fundraising and voter contact.


The evolution of Chicago’s politics evokes universal themes.


First is the “circulation of elites,” a concept articulated by the Italian economist Vilfredo Pareto, better known for the 80–20 rule. Every society, he argued, contains a minority distinguished by exceptional ability. Some are non-governing elites—artists, physicians, doctors at the apex of their professions. Others are governing elites—ministers, legislators, judges. Pareto argued that where social mobility exists, governing elites do not remain fixed. They are displaced—sometimes by revolution, or, as in Chicago, through a gradual process in which incumbents co-opt talented outsiders and are eventually supplanted by them.


Post-independence India offers a parallel. The dominant Indian National Congress was led by Brahmins and Banias. Like Chicago’s WASPs, this stratum gradually ceded ground—first to backward-caste movements in southern India in the 1960s, and more decisively in the north in the 1990s, when the controversy surrounding affirmative action reshaped political competition.


Second, economic growth furnishes the precondition for Pareto's circulation of elites: social mobility. In feudal or early industrial societies, survival struggles overwhelms the masses; politics remains the province of the secure. Industrialization creates a middle class from which professional politicians can emerge. Chicago’s meatpacking plants and railroads symbolized capitalist predation. Yet they also generated the economic surplus that enabled a machinist like John Patrick Hopkins to rise to the mayoralty.


Third, democratization often travels with venality. It is politically incorrect to observe that newly empowered groups may govern poorly, yet history suggests as much. Early non-elite politicians, long excluded from the "good life", frequently resolve the asymmetry between political authority and personal wealth through corruption. Their constituents, far from being critical, bask in the reflected glory of their newfound "respectability".


Chicago’s post–Great Fire decades illustrate the pattern. A journalist coined the term “Gray Wolves” for a cohort of aldermen—gray-haired and ravenous—who conferred licenses to legitimate businesses like utilities and protection to illegal ones like gambling in exchange for bribes. William Hale Thompson, elected in 1915 and again in 1927, extended protection to Al Capone for campaign finance support. The Indian polity today, in what might be termed its post-patrician rogue era, exhibits analogous strains.


Fourth, as societies grow wealthier, patronage based politics recedes. Machine politics thrived among immigrants laboring in squalid conditions, trading jobs and services for votes. Over time, prosperity alters expectations: citizens demand fishing nets instead of fish. Civil service laws existed even at the height of Chicago’s machine, but were circumvented with impunity. Change flows less from laws than from the public’s desire for an ethical life—one that prosperity makes affordable. The need to hustle in a scarcity economy corrodes ethical judgement, which gets reignited in the age of abundance.


It is helpful for one's mental health to remember that the demagogue whose appearance on television spikes your blood pressure is merely a symptom of economic and social churn. The “barbarians at the gate” must be allowed inside so that the process of clean up is initiated by the same masses who are electing them today. When entrenched elites such as the Shah of Iran or the Pakistan Army refuse accommodation, upheaval follows.



The Rookery


Walking south, a short distance from City Hall, one encounters the striking Rookery Building at 209 South LaSalle:



In 1885, a consortium of wealthy investors incorporated the Central Safety Deposit Company to construct an office building on land leased from the city for ninety-nine years. The company’s name nodded to the space allocated to vaults embedded in the design. At the time, state law barred corporations from speculating in real estate unless they were banks. Including vault space was enough to satisfy the letter—if not the spirit—of the law.


Completed in 1888, the Rookery has functioned as commercial office space through successive renovations and remains one of the city’s most cherished buildings. When ownership reverted to the city in the 1980s, a major restoration followed, including the addition of a twelfth floor.


While the Loop boasts an abundance of handsome buildings, the Rookery, with its reddish-brown hue, stands apart—a welcome reprieve from the gray terracotta façades that dominate the vicinity.


Alluding to its name, two open-mouthed birds flank the arched LaSalle Street entrance, pictured below:



The Rookery is famed for its Light Court, designed to channel sunlight through a glass ceiling at a time when electric and gas lighting cast a dim and unreliable glow:




The Rookery’s backstory returns to two themes already alluded to: water and corruption.


The site on which it stands was purchased by the city in 1852 for an aboveground reservoir intended to expand piped water service. Chicago had begun distributing Lake Michigan water through rudimentary pipes as early as 1839. Three additional sources coexisted: private wells drawing groundwater, private vendors hauling lake water by the barrel, and the destitute drawing directly from the polluted Chicago River.


As the city expanded, reservoirs were constructed to store lake water and extend the piped network. The South Side Reservoir rose at Adams and LaSalle in 1854 as part of that effort:




When most of the storage facility was destroyed in the Great Fire of 1871, Chicago hastily erected its fifth City Hall on the site. One water tank survived and was repurposed to house the Chicago Public Library within the new City Hall building:



Source: wikipedia


Locals dubbed that City Hall the “Rookery,” and the name stuck to its successor. Two explanations compete. One treats “Rookery” as a pun: literally, birds roosted near the old tank; figuratively, officials were accused of “rooking”—swindling—residents. The two open-mouthed birds at the LaSalle entrance may reflect the architect’s impish nod to that double meaning. Another explanation holds that journalists used “rookery” pejoratively for the shabby press room inside City Hall.


The second theme—corruption—emerges in the lease that enabled construction of the Rookery. The promoters of the Central Safety Deposit Company secured unusually generous terms: a ninety-nine-year lease at $35,000 annually, well below market rates, with neither inflation indexation nor periodic revaluation. The building itself would be exempt from property tax.


The lease required payment in the “lawful money of the United States,” an atypical formulation for the time. Comparable long-term leases often included a gold clause mandating payment in gold of specified weight and fineness. In 1933, Congress retroactively invalidated such clauses, arguing they constrained federal control over monetary policy—but the aldermen of 1885 could not have foreseen that turn.


No corruption was ever proven. Still, the city appears to have negotiated hard against itself. If not corrupt, the arrangement bore the hallmarks of an insider deal. The investor consortium’s ringmaster, Edward C. Waller, was a family friend of Mayor Carter Harrison III; both families traced their roots to Kentucky.


The stretch of LaSalle Street where the Rookery sits forms Chicago’s Financial District. If you are ok with the risk of getting hit by a car, you can stand in the middle of LaSalle and take in the “LaSalle Street canyon”—so named for its box-canyon illusion, as though the only exit lies behind you:



For a time, one of the Rookery’s most prestigious tenants was the Chicago Stock Exchange, whose more iconic headquarters at 30 North LaSalle was demolished in 1972:




The Chicago Stock Exchange began with a false start. Its first incarnation opened in January 1865. At the time, bonds traded alongside stocks, and the Exchange’s primary activity was underwriting debt issued by Cook County to fund soldiers in the Civil War. Very soon in April 1865 the war ended. Within a year, the fledgling exchange folded, only to be revived in 1882.


When we trade stocks today, we fret about market risk—buying too dear or selling too cheap. In reality, there are many other risks that the modern trading system mitigates. Comparing stock trading with real estate clarifies these extraneous risks—and reveals what a miracle the contemporary stock market truly is.


The first is discovery risk: not knowing what is for sale or at what price. Outside the Anglo-Saxon developed world—with a few exceptions—most real estate markets remain opaque. Buyers depend on hyperlocal brokers; listings are incomplete, and transaction prices opaque.


Discovery risk is lower in the United States because realtors typically list properties on a centralized Multiple Listing Service (MLS), which feeds consumer platforms such as Zillow and Redfin. Although there is no legal requirement to use the MLS, bypassing it shrinks the potential buyer pool. Moreover, sale prices are publicly accessible online in most states, except those that prohibit disclosure.


Early stock markets resembled opaque property bazaars. In the seventeenth century, a prospective investor in the Massachusetts Bay Company rarely knew who was selling or at what price. Even with that knowledge, entry often depended on social proximity to insiders. Equity trading resembled elite venture capital.


Second is hidden-markup risk—the possibility that brokers structure transactions to favor themselves. In real estate, buyers rarely know sellers personally, and vice versa, so both rely on agents who aggregate demand and supply. But unlike machines, humans cannot be programmed to act in good faith. Brokers may curate information to enhance leverage—minimizing a seller’s flexibility, exaggerating rival bids, or selectively presenting “comparable” sales.


The same dependence marked early stock trading. Before formal exchanges, buyers and sellers relied entirely on brokers; price discovery was physical and auditory. Whereas realtors meet near the property, stockbrokers gravitated to gathering spots that evolved into unofficial exchanges. In late seventeenth-century London, coffeehouses along Exchange Alley became favored venues. When the rooms overflowed, trading spilled onto the street. Empire, it seems, required not only muskets but Londoners sipping coffee and buying shares in the East India Company.


One prominent Exchange Alley establishment was Jonathan’s Coffee House, often listed as the “office address” of many stockbrokers. The London Stock Exchange notes that in 1698 a broker, John Castaing, began publishing prices for currencies, stocks, and commodities there. By 1773, regulars concluded they had outgrown the coffeehouse and leased dedicated premises—“New Jonathan’s,” soon renamed the Stock Exchange.

Outside London, in the other great financial center of the age, the Tontine Coffee House on Wall Street—second building from the left in the image below—served as the first home of the New York Stock Exchange:



Source: Smithsonian


Unlike Jonathan’s Coffee House—which evolved organically into a trading hub after brokers were expelled from the Royal Exchange for rowdy conduct in the late seventeenth century—the Tontine Coffee House was purpose-built in 1794 by New York brokers forced off the streets after a federal crackdown followed a crash in U.S. government bond prices.


In both instances, these venues emerged as refuges for traders in a novel asset class viewed with suspicion by the establishment—much as cryptocurrency was initially dismissed by traditional banks.


In 1719, Daniel Defoe published a polemic, The Anatomy of Exchange-Alley, accusing stockbrokers of forming “confederacies” to inflate prices before unloading shares on clients—a “complete system of knavery,” in his phrase.


The creation of formal exchanges can be read as an effort to launder that reputation. By establishing physical venues where only dues-paying members bound by rules could trade, brokers imposed structure on what had been alleyway opportunism. Just as buyers today prefer organized used-car dealerships to curbside sellers, investors gravitated toward exchanges. Though not regulators, exchanges conferred legitimacy on the securities they admitted for listing.


For all the technological upheaval since the eighteenth century, one feature of the stock market endures: only exchange members may place orders. When we trade through apps such as Charles Schwab or Robinhood, we are clients of those brokerages. The brokerage—not the retail investor—is the member firm of the New York Stock Exchange or Nasdaq that executes the order.


Beyond discovery and hidden-markup risk lies title risk—the possibility that the seller does not own the property. Real estate transfers occur through deeds, yet no single national registry tracks ownership. In the United States, the authoritative record resides in the County Recorder’s Office where the property is located; most countries rely on analogous local systems. To verify ownership, buyers typically commission a professional to examine the “chain of title”—the chronological record of prior owners—to confirm that the seller holds valid legal title.


Stock ownership once posed similar hazards. Well into the twentieth century, shares were evidenced by physical certificates. After negotiating a trade—often in a coffeehouse—buyer and seller would present themselves at the issuing company to record the transfer. The certificate functioned as evidence of title, but the definitive record was the corporation’s shareholder register. Because transfers required officer signatures, skilled forgers sometimes fabricated convincing documents.


Layered atop title risk is settlement risk—the possibility that the buyer does not have the full funds available on closing day. Even in modern real estate, 5 to 7 percent of transactions collapse after an accepted offer, often because a buyer’s mortgage financing falls through.


An eighteenth-century stock trade might be struck on Monday in a coffeehouse, only to unravel on Friday when settlement was due and the cash failed to appear. The seller would still hold the shares, but the price might have dropped—or he might urgently need the funds. Worse, unlike real estate, where title is verified before closing, it could emerge on settlement day that the seller did not possess the shares either.


In Wall Street, Gordon Gekko proclaims that “greed is good.” but by the time he returns from prison in the sequel, he marvels that "greed is legal". In the modern coffeehouse of finance, the seller may lack securities and the buyer lack cash—but if both materialize by settlement, the system deems it kosher.


Finally, real estate transactions carry one-sided handover risk—the danger that one party tenders payment or delivers the deed before the other performs. This is graver than a mere settlement failure, because one side may lose both asset and cash.


In the United States, buyers and sellers do not exchange funds and deeds directly. A neutral intermediary—typically a title company, escrow agent, or real estate attorney—holds the money and releases it only after verifying the signed deed and confirming that the transfer is ready for recording at the county office.


In India, as in many countries, there is no neutral third-party system. Buyer and seller meet at the government office; the buyer hands over a bank draft as the seller signs the sale deed before an official. These “table closings” were once common in the U.S. as well. Historically, share transfers followed a similar choreography—except the table stood in the issuing company’s office rather than a government office.


The root of one-sided handover risk is structural: asset transfers—whether deeds or shares—occur in a system separate from the banking rails that move cash. That separation remains unresolved, though crypto bros claim it can be bridged by tokenizing both asset and payment on a single blockchain ledger.


Unlike real estate, modern stock trading spares us anxiety over flawed discovery, broker duplicity, dubious title, failed payment, and one-sided handover. We confront only market risk—the possibility of losing money. That burden alone is so formidable that after his losses in the South Sea Bubble, Isaac Newton said, perhaps apocryphally, “I can calculate the motions of the heavenly bodies, but not the madness of people.”


Yet the market’s management of these ancillary risks does not mean they have vanished. Nicolas Puech, an octogenarian heir to Hermès, alleged that roughly six million shares—about 6 percent of the company, valued at over $16 billion—were transferred without his knowledge, reducing his holdings to zero. The buyers of Puech's shares, LVMH and its chairman Bernard Arnault, confronted title risk in the transaction.


The Chicago Stock Exchange (CHX) was one of several regional exchanges that emerged in the United States in the latter half of the nineteenth century. These regional markets often specialized in industries overlooked by the New York Stock Exchange (NYSE) and maintained more permissive listing standards, drawing smaller and emerging companies.


After its 1882 revival, the CHX endured teething troubles. Its rebirth coincided with the labor unrest described previously, hardly fertile ground for financial expansion. Meanwhile, the New York Stock Exchange had already secured a commanding share of railroad listings—a crucial industry in Chicago.


CHX promoters persuaded the Illinois legislature to require railroad companies operating in the state to maintain local registry offices, where share transfers could be recorded. Without such offices, settlement required documents to travel to New York, delaying completion by days. The statute, however, met stiff industry resistance and proved unenforceable.


The Chicago Stock Exchange revived in the 1890s as railways and waterways reshaped the Midwest into a nexus of trade, industry, and real estate. Between 1890 and 1920, Chicago’s population tripled to nearly three million, and the CHX became the nation’s most active regional exchange.


By 1894, trading volumes had grown so robust that the Exchange moved into a landmark building on LaSalle Street. In 1907, it expanded further, leasing space in the Rookery to situate itself more squarely within the Financial District’s core.


The stock market crash of 1929 struck regional exchanges more severely than the New York Stock Exchange (NYSE). In its aftermath, Congress enacted the Securities Exchange Act of 1934, creating the U.S. Securities and Exchange Commission (SEC) and imposing federal oversight on exchange listing standards. The reform erased the regulatory advantage regional exchanges had long claimed over the NYSE: lighter compliance burdens.


Structurally, stock exchanges resemble social networks. Brokers gravitate to the venue with the most listed companies; companies gravitate to the venue with the deepest pool of brokers. The NYSE, which handled nearly 75 percent of trading volume in the 1920s, grew still more dominant once regional exchanges lost their lighter regulatory burden.


Many regional exchanges closed or merged. CHX receded in the decades following the Great Depression and, in 2018, was rebranded NYSE Chicago following its acquisition by the NYSE’s parent company. It no longer lists new companies, functioning instead as an infrastructure provider for its parent exchange.


The Chicago Stock Exchange Building at 30 North LaSalle occupies a pivotal place in the city’s civic history. Its demolition in 1972 exposed the fragility of Chicago’s landmark protections and galvanized a modern preservation movement.


Richard Nickel—a photographer and preservation advocate associated with the Chicago Architecture Center—was killed while documenting architectural fragments when part of the structure collapsed. The building itself was lost, but elements were salvaged. The trading floor was reconstructed inside the Art Institute of Chicago, where it remains on display. Its ornate entrance arch was reinstalled outside the museum at the corner of Monroe and Columbus:




Financial markets today are far better regulated than in the early days of the exchanges. Yet no matter how thick the rulebook or how sophisticated the technology, the hunger for a financial frontier persists. Speculation is not a bug; it is a feature of human ambition. One such frontier was New York’s Curb Market:




The Curb Market was an informal, open-air bazaar where brokers traded highly speculative securities on the sidewalk outside the NYSE. No membership was required; anyone with shares could appear. Many participants could not afford exchange seats and operated much like their coffeehouse predecessors. By the 1860s, they clustered near the NYSE, likely because Exchange affiliated brokers routed orders their way. In 1921, the Curb Market finally moved indoors.


Chaotic though it seemed, the Curb stood above the bucket shops that proliferated after the 1863 invention of the stock ticker—a telegraph device that printed company symbols and prices on continuous ticker tape:



Two men standing beside a ticker-tape machine

Source: Smithsonian


Bucket shops tapped telegraph feeds of ticker quotations from stock exchanges, allowing customers to wager on price movements without owning the underlying shares. In 1905, the U.S. Supreme Court held that exchange price quotes were proprietary data. Once exchanges cut off those feeds, bucket shops withered.


The Curb Market and the bucket shops remind us that markets do not begin with marble halls or rulebooks, but with people determined to trade—even when barred from doing so. For every therapist’s couch, there is a 2 a.m. bartender; for every licensed chemist, a street dealer. Formal systems channel demand. They never capture it fully.



The Central Standard Building


Just south of the Rookery, at 231 South LaSalle, stands the Central Standard Building:



Though the current building was designed in 1924 as office space, its name recalls an 1883 event at the Grand Pacific Hotel, which once occupied the site. There, the United States was divided into five standard time zones.


A brief detour on the basics of timekeeping would make the event of 1883 clearer.


Imagine a remote village untouched by clocks. Life moves by rough markers: dawn, sunrise, the sun at its zenith, dusk, nightfall.


A curious teenager, Leo, wants finer calibration. He begins with an anchor. He plants a pole in the ground and studies its shadow. When the shadow shrinks to its shortest length of the day, the sun stands at its highest point in the sky:



Leo christens this moment “solar noon” and uses it as his anchor. One cycle of time runs from one solar noon to the next.


But he anticipates the monsoon; clouds will soon obscure the sun. So he improvises. At solar noon, he fills a bucket perforated with tiny holes. Over a week, he marks the water level the bucket falls to between successive solar noons. That mark becomes his “24-hour” line:



Thereafter, Leo refills the bucket each time the water level falls to the chalk line. When it reaches that mark, he knows a full day has elapsed—and that it is solar noon again, even if clouds veil the sun.


Leo can now identify the span between two solar noons, yet he still cannot divide that span into smaller, reliable units. For that, he needs a process that moves at a constant rate. His leaking bucket fails that test. As the water level falls, pressure drops and the flow slows. The outflow is not linear. For instance, the halfway point to the chalk mark does not represent half the time to the next solar noon.


Leo then notices that if he suspends a rock from a string and sets it in motion, it swings rhythmically. A revelation follows: whether he nudges it gently or forcefully, the time it takes to swing back and forth remains nearly constant. The "beat" of the swing is determined by the length of the string, not the strength of the push. Leo now has a "heartbeat" for time. He just needs a way to keep the rock swinging so it doesn't stop.


Leo devises a contraption to keep the rock in motion. He and his friends count the swings between two solar noons. The tally: 86,400.


He defines the interval between two oscillations as a “second.” Sixty oscillations make a “minute,” 3,600 an “hour,” and 86,400 a “day.” In his system, a day contains 86,400 seconds.


All that remains is to build a mechanism that can count those swings automatically—and display the tally in a form the eye can read at a glance.


Leo builds a device that counts the swings and displays, at any instant, how many have elapsed since the last solar noon. He marks the position corresponding to solar noon as 12 and arranges the display on a circular dial.


One hand circles the dial twice every 86,400 swings. A second completes one revolution every 3,600 swings, and a third, finer hand turns once every 60 swings. Together, they render the continuous tally visible—seconds nested within minutes, minutes within hours, and two full revolutions of the largest hand composing a single day.



Voilà—Leo has invented the clock.


Leo’s clock carries a flaw. Each town sets its dial to its own solar noon. When it is 12:00 in Leo’s village, it might be 12:30 in Sophie’s a hundred miles away.


Nineteenth-century America operated on the same principle. Every town kept its own local solar time. By one account, North America had as many as 144 local time zones. This patchwork posed little difficulty—until the explosive growth of railroads during the American Civil War and the Reconstruction era made synchronized timetables essential.


This patchwork became untenable for the railroad industry. Trains moved faster than the sun could repaint the hour in shadows. If a train left Leo’s town at 12:00 and arrived in Sophie’s thirty minutes later, local clocks there might read 1:00. Such discrepancies are tolerable across national borders. Neither railways nor passengers could navigate a country splintered into a hundred local times.


To impose order, railroad executives convened on October 11, 1883, at the Grand Pacific Hotel, then standing on the site of today’s Central Standard Building:




A majority of railroad companies endorsed a plan dividing the United States into five zones, each anchored to the clock time at specified meridians west of Greenwich. At noon on November 18, 1883, railroad clocks nationwide were reset to the new standard.


The date became known as the “Day of Two Noons,” because in many cities the old local noon had already passed when clocks were rolled back to align with the new zone time. Railroads championed the reform, pressing municipalities to conform. Only in 1918 did Congress formalize the system through federal legislation.


The name “Central Standard Building” dates to a 2017 rebranding tied to a major renovation, intended to evoke the site’s historical role. “Central Standard” was one of the five time zones adopted in the 1883 railroad resolution.


A plaque on the Jackson Street façade commemorates the event:



The notion that a technology such as the railroad could reorder the structure of the day feels incongruous. Ironically, logical predictions—that computers would annihilate jobs or television would extinguish cinemas—have often proved misplaced. Yet few would have anticipated what historian Roger Ekirch uncovered: before gas and electric illumination, medieval Europeans commonly practiced biphasic sleep, dividing their diurnal sleep into two distinct periods rather than one continuous stretch.


The Pacific Hotel opened here in 1871 and promptly burned down in the Great Fire. Two years later, the owners rebuilt and, in a triumph of confidence over memory, upgraded the name to The Grand Pacific Hotel. The new establishment lived up to its ambition, hosting luminaries from across the world, including Oscar Wilde, who in 1882 delivered his acerbic verdict on the Water Tower referenced earlier.


By the 1890s, the structures that would define Chicago’s Financial District had begun to encircle the site. In 1895, commercial logic prevailed: the western half of the hotel was demolished and replaced with office space, while the eastern wing continued operating as a hotel.


In 1921, the hotel portion was razed as well, and the entire structure became the headquarters of Continental Illinois Bank—a fitting occupant for a neighborhood fast becoming Chicago’s Wall Street. The building gained renown for its Grand Banking Hall on the second floor:




Continental Bank was founded in Chicago 1883. In 1910, it merged with an even older Civil War era Chicago bank—Commercial National Bank, whose original headquarters, the National Building, was profiled in the previous post. Through the twentieth century, Continental expanded steadily, ranking among the nation’s ten largest banks by 1980. In 1984, however, fears of its collapse popularized the phrase “too big to fail” in American banking—long before the proverbial fan was hit by its match in 2008. A decade later, in 1994, Continental was sold to Bank of America.


The Federal Reserve Building


Across from the Central Standard Building, at 230 South LaSalle, stands the Federal Reserve Bank of Chicago:



Continental Bank managed to implode in 1984 while staring straight at the Chicago Fed—apparently supervision weakens with proximity.


Although the Chicago Fed building was completed in 1922, subsequent renovations and added floors have altered it. The ground-floor atrium shown below, imposing as it is, may not reflect the building’s original interior:



The history of the Federal Reserve is best understood after a brief detour into the nature of money.


Imagine a self-sufficient medieval village running on barter. A butcher swaps one pound of chicken for ten pounds of wheat—equal value, no coin exchanged.


One day, a stranger drops a bag of 10,000 silver coins. The village headman announces that trade will henceforth use silver instead of barter. He fixes the price of one pound of wheat at one silver coin. By implication, a pound of chicken now costs ten coins. Because every good is directly or indirectly exchanged for others, assigning a silver price to one item anchors the prices of all the rest:



Within a generation, barter fades from memory, and silver coins become the unquestioned medium of payment.


The preceding example highlights five fundamental features of money.


First, money—like the alphabet or the calendar—is a technology we rarely recognize as such. It lacks gears, circuits, or screens, yet it is a human-designed system that extends our capabilities.


Introducing money simplifies even the rudimentary agrarian economy sketched above. If demand for wheat rises faster than supply, the farmer need only adjust its silver price rather than renegotiate multiple barter ratios with every tradeable product.


Second, money need not possess intrinsic value. Even if no silversmith existed in the village, what matters is collective belief—whether enough people accept the silver coins in exchange for goods they actually want.


Third, money embodies a claim on another person’s labor. In a hunter-gatherer community with no surplus food, everyone must forage and cook to survive. Once society produces surplus food, division of labor emerges—and money becomes the portable claim on that surplus, allowing one person’s effort to be exchanged for another’s.


Fourth, the supply of money must be finite—or at least predictable. Suppose another bag of 10,000 silver coins appears and the headman distributes them evenly. With more coins chasing the same goods, prices rise.


In a purely mathematical world, proportional price increases would leave real relationships unchanged. But economies are not equations. As villagers observe rising prices, they begin to hoard. Inflation expectations take hold and become self-fulfilling. Workers demand higher wages; merchants raise prices in anticipation of higher costs. A wage–price spiral gathers momentum. The butcher hesitates to price meat because feed costs are uncertain. Prices do not move in neat parallel lines; relative prices shift, and with them, planning becomes fraught.


Fifth, just as money can be excessive, it can also be scarce.


In the village of our story, imagine a farmer who discovers crop rotation and doubles his yield. Infant mortality is falling; demand for food is rising. Yet there are not enough silver coins in circulation to absorb the additional output. To sell the surplus, he cuts prices until margins evaporate. The gains from higher volume are offset by lower prices. Chastened, he abandons further innovation. Others draw the same lesson.


Consider the butcher who wishes to build a henhouse to protect his flock. Investment requires “net new” coins to finance construction and to purchase the extra meat once production expands. Without an increase in the money supply, new ventures depend solely on existing savings—coins villagers are willing to forgo and lend.


Taken together, the fourth and fifth features point to the need for elasticity in the money supply. Money must expand to accommodate growth—but contract, or at least pause, when expansion fuels inflation. In other words, there must be monetary policy. The village headman must judge how much of the second hoard of silver coins to release into circulation and how much to keep under his carpet.


Sixth, decisions about the money supply are inseparable from credit. If the butcher needs 100 silver coins to build his henhouse and villagers have saved enough—and are willing to lend—no new coins are required. Credit reallocates existing money toward productive use. The headman must therefore think about monetary policy and credit conditions together.


In a modern economy with checking accounts, the complexity deepens. Even if the headman hoards the original coins, the money supply can expand through banking. Suppose Jack deposits $100 in a bank and writes checks against it. The bank lends $50 to John, crediting his checking account. John can now spend that $50. The initial $100 of money has become $150. Magic!


Money may begin as a convenient fiction, but once we entrust it with measuring value and coordinating labor, its supply quietly governs whether a society thrives, stagnates, or spirals into chaos. Transplant the village headman’s dilemma into a modern economy and the magnitude of the Federal Reserve System’s task comes into focus—its responsibility both critical and immensely complex.


The chain of events that culminated in the creation of the Federal Reserve System can be viewed in three phases: from the adoption of the Constitution in 1789 to the Civil War; the war years from 1861 to 1865; and the postwar decades leading to the Fed’s establishment in 1913. In each phase, two threads ran in parallel: a state-led monetary system and a private, market-driven one.


Phase 1: 1789 to Civil War


There was a time when payment meant metal—often gold or silver—passed hand to hand. In 1792, Congress enacted the Coinage Act of 1792, defining the dollar as 371.25 grains of pure silver, struck into a coin weighing 416 grains in total. Gold coins were authorized in denominations of $2.50 and $10, with their gold content set at a statutory ratio of 15:1 relative to silver. For the mathematically inclined, that ratio implies that a $10 gold coin contained 247.5 grains of gold.


The flaw in bimetallism is that gold and silver have markets beyond the mint. If, for example, the market ratio shifted from the statutory 15:1 to 30:1, gold would become undervalued at the mint. Rational actors would melt or export gold coins for profit and transact in silver instead. If the ratio swung the other way, silver would disappear and gold would dominate. The mint was forced to chase the metal market.


Strikingly, from the adoption of the Constitution in 1789 until the onset of the Civil War in 1861, the federal government issued no paper currency of its own.


Coin based currency is not just inconvenient to the mint. Carrying metallic coins is cumbersome.


In seventeenth-century Europe, goldsmiths offered a workaround. They issued receipts to depositors who stored gold in their vaults—vaults already secure from their own trade. Further, unlike sovereigns, goldsmiths did not command armies that might seize the hoard. Over time, these receipts began circulating as money. Marked “payable to bearer,” they entitled whoever held the note—not merely the original depositor—to claim the gold.



Later, depositors turned to banks rather than goldsmiths. In exchange for gold, banks issued their own notes—promises to pay the bearer on demand.


In design and intent, the early currency note was little more than a claim check: like the stub you present to retrieve your car from valet or your coat from a checkroom, it entitled the holder to reclaim the gold it represented.


Just as no central authority issues valet parking tickets, goldsmiths and early banks once printed their own notes. Currency was a private promise, not a sovereign monopoly.


The Money Museum inside the Federal Reserve Bank of Chicago displays several such privately issued banknotes:



Private banknotes feel strange today, but the mechanics were straightforward. Imagine a grocer accepting notes issued by five different banks. At day’s end, he deposits them in his own bank. That bank then presents the notes to the issuing banks and demands redemption in gold.


This system required trust. The grocer’s bank had to believe the other banks were not issuing notes unbacked by gold. In the era of private currency, a bank’s reputation was its collateral. The arrangement resembles modern hospitals that permit cashless treatment only from insurance companies they trust to settle claims.


In such a low-trust system, not all dollars were equal. A $1 note from a shaky bank might be valued at 80 cents.


With slow communication and limited transport, geography shaped credibility. A five-dollar note issued by a bank in Tennessee might fetch only three dollars in New York. The farther the note traveled from its issuing bank, the steeper the discount to its face value.


While the paper money issued by private banks was redeemable for gold or silver, many—unsurprisingly in a capitalist system—printed more notes than their metal reserves could justify. It sounds illegal, until finance obligingly supplies a phrase that recasts suspicion as naïveté. The term of art, in this case, is “fractional reserve banking.”


Goldsmiths noticed that only a small fraction of customers ever appeared to redeem their gold. Most found it easier to transact in “paper claims.” Sensing the pattern, goldsmiths began issuing more claim checks—notes—than the gold in their vaults, lending the surplus at interest. Banks later adopted the same practice, now explicitly legal. Indeed, unlike goldsmiths, banks could not survive without lending out their deposits.


The history of the Federal Reserve involves a question fiercely debated during the framing of the Constitution and still unsettled today: what is the proper balance between federal authority and state power? In George Washington’s first Cabinet, Treasury Secretary Alexander Hamilton, aligned with the Federalists, championed a strong central government, while Secretary of State Thomas Jefferson argued for greater autonomy for the states.


Hamilton, with his affinity for the “commanding heights,” persuaded Congress to establish the Bank of the United States in 1791. Its headquarters, built between 1795 and 1797, stands in Philadelphia and remains one of the oldest federal buildings in the United States:




The bank was not a “central bank” in the modern sense, but a state-sponsored institution—closer to the public-sector banks seen in countries like China and India, though with a far smaller government stake. The federal government owned 20 percent of the equity; private investors subscribed the rest. It accepted private deposits, extended credit, and served as the fiscal agent of the federal government.


With no income tax, most federal revenue came from tariffs. The Bank’s branches, clustered in port cities, were well placed to collect them. Backed by the government, the notes issued by the Bank of the United States were widely accepted; federal taxes, moreover, could be paid only in its banknotes.


With Uncle Sam’s imprimatur, it became the nation’s largest financial institution. Its size allowed it to shape monetary conditions without the formal mandate modern central banks possess. Given its centrality to the economy, private bank notes routinely flowed into it as deposits. The Bank would normally present these notes to the issuing banks for redemption. But when the government sought to stimulate lending, it would simply hold onto them. By refraining from demanding gold, it left larger reserves with private banks—freeing them to extend more credit.


The monetary policy role of the Bank of the United States helps explain why critics—among them Argentina’s president, Javier Milei—call for abolishing central banks. To them, “central” banking is central chiefly in its two conceits.


The first is the conceit of wisdom. In the example above, they would argue it is presumptuous to assume the Bank could discern when to redeem private notes—tightening money—and when to refrain—easing it. To them, the central banker is no smarter than the village headman in our story.


The second is the conceit of good intentions. A central bank, they contend, may act in the short-term interests of the ruling dispensation. Central bank independence, in this view, is a fiction.


Chartered for twenty years, the Bank of the United States faced its reckoning amid mounting resistance to federal power. Renewal failed by a single vote in both the House and the Senate. Hamilton was dead—felled in a duel—and the Federalists were in political winter when the charter came up for extension. On the afternoon of March 3, 1811, the Bank of the United States closed its doors.


A first bank could be killed, but the idea refused to stay dead—proof, depending on one’s priors, that bad ideas are immortal or that good ones are impossible to keep out. Barely five years after the First Bank closed, President James Madison signed a bill in April 1816 establishing its successor. Like its predecessor, the Second Bank was headquartered in Philadelphia:




The Second Bank of the United States operated much like the first. The federal government held a twenty percent stake, but the capitalization was larger, making the institution more consequential. Like its predecessor, it influenced monetary conditions indirectly by regulating how many state bank notes it presented for redemption in specie.


Its first president, William Jones—formerly Secretary of the Navy—was an odd choice to guard solvency; he had already been bankrupted himself.


The bill to renew the Second Bank’s charter, due to expire in 1836, cleared both the Senate and the House—only to be vetoed by President Andrew Jackson. Jackson’s hostility toward banks had a personal edge. A land deal had left him holding worthless paper notes. The episode hardened his conviction that only gold and silver were real money.


On the eve of the Civil War, nearly 1,500 state-chartered banks were issuing thousands of distinct currency notes.


Phase 2: the Civil War years 1861 to 1865


When the Civil War began in April 1861, the federal government needed money—urgently. An exhibit at the Money Museum in the Chicago Federal Reserve building underscores how essential money is to financing the state’s priorities:



To finance the war, Congress passed the Legal Tender Act in February 1862, authorizing the government to issue paper money not immediately redeemable in gold. What had once been a banker’s recklessness became a sovereign prerogative. Printed with green ink on the back to deter counterfeiting, the notes came to be known as “Greenbacks":



Unlike previous bank notes, Greenbacks were "fiat" money—they had value because the government said they did. The Act effectively took the United States off the gold standard. A Greenback presented at the Treasury could not be exchanged for a gold coin.


The Greenback was the first paper currency issued directly by the U.S. government since independence. Until then, it had minted coins. The First and Second Banks of the United States had issued notes, but they were, at least formally, private institutions, with the government holding only a twenty percent stake. Now the government had discovered a metal more reliable than gold: the public’s faith in a fiat currency—issued by a sovereign backed by the bayonets of an army the public itself had financed.


Congress followed the Greenbacks with the National Bank Act of February 1863. Any bank seeking a national charter now had to purchase government bonds equal to one-third of its share capital. In return, national banks could issue notes—but only against the U.S. bonds they held.


With one statute, the federal government killed two birds: it financed the war and imposed order on a chaotic currency system. The Act also created the Office of the Comptroller of the Currency, a federal agency empowered to grant national bank charters and supervise them.

Following the National Banking Act, three forms of currency circulated.


One: Greenbacks. Untethered from gold, their value rose and fell with Union fortunes. A battlefield loss depressed them; a victory buoyed them. The law’s exception is revealing: customs duties—the government’s largest source of revenue—had to be paid in specie. The state demanded faith in paper, but preferred metal when it was the one collecting.


Two: national bank notes. These were uniform in design, differing only in the name of the issuing bank and the signatures of its officers:




Unlike Greenbacks, national bank notes were redeemable in gold at the Treasury. If an issuing bank lacked sufficient specie, it could sell the government bonds it held and receive gold in return. In circulation, national bank notes far exceeded Greenbacks.


Three: the notes of state-chartered banks. These were regulated out of existence. The legislation imposed punitive taxes on payments made in such notes, making their continued issuance uneconomic.


Greenbacks and the National Bank Act of 1863 gave the federal government a far simpler grip on the nation’s monetary system than the earlier strategy of chartering the First and Second Banks of the United States.


Phase 3: the post Civil War era 1865 to 1913


As one might expect, the issuance of Greenbacks stoked inflation and became a political flashpoint. In this light, the 1888 Rookery lease clause mentioned earlier—permitting payment in paper money without a gold-clause safeguard—appears dubious.


Congress responded to voter discontent by mandating a return to the gold standard by 1879. It achieved this by gradually retiring Greenbacks until the government could, at least in theory, redeem the remaining notes in specie at the pre–Civil War parity.


While the return to the gold standard checked inflation, it did not resolve the fundamental—some would say intractable—problem of banking instability. That fragility lies in the tenor mismatch between loans and deposits. Even when loans perform, they mature over years; checking deposits are payable on demand. No bank, however disciplined, can survive a full-scale run.


Recurring bank failures stirred a political backlash, echoing the populist anger that would surface decades later in movements like Occupy Wall Street after the 2008 crisis. The creation of the Federal Reserve in 1913 was, in part, a response to mounting public demand to discipline the banking system.


Beyond its regulatory role, the Federal Reserve was empowered to issue currency. Federal Reserve notes were conceptually analogous to Greenbacks than to National Bank Notes: unlike the latter, they were issued directly under federal authority. In time, these notes—now the currency in circulation—displaced all others.


While most exhibits at the Money Museum in the Chicago Fed focus, fittingly, on money itself, one ledger recording employee salaries offers a quieter glimpse into the institution’s inner working:



The Fed operates through three interlocking bodies.


First, the network of twelve regional Federal Reserve Banks, each overseeing institutions within a geographically defined district. The Chicago Fed, in the Loop, is one of them. The member banks in each district are its shareholders. Though formally equal, the New York Fed is preeminent, supervising the major Wall Street banks.


Second, the Board of Governors: seven members appointed by the President and confirmed by the Senate.


Third, the Federal Open Market Committee (FOMC), which meets eight times a year to set interest rates. It comprises the seven Governors, the president of the New York Fed, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year rotating terms.


Esoteric though it may seem, monetary policy has always been contentious. Greenbacks were widely mocked. The 1864 political cartoon “Running the ‘Machine’” captures that skepticism: it shows William Pitt Fessenden, the Treasury Secretary, frantically cranking “Chase’s Patent Greenback Mill,” an assembly-line metaphor for the relentless printing of fiat currency to finance the Civil War. Samuel Chase was William Pitt's predecessor under whom the Greenbacks were first issued.




The total Greenbacks issued amounted to $450 million—about $15 billion in today’s dollars. Small change beside the roughly $3 trillion the Fed conjured during the 2008 crisis. Fortunately for the Fed, “printing money” smells of ink; “quantitative easing” carries the scent of gravitas. Yet doomsayers of both eras proved wrong. The Greenbacks caused prices to double between 1860 and 1865. While this sounds bad, the Confederacy saw prices increase sixty fold during the same period. History vindicated the Union's monetary policy. Meanwhile, in the period after GFC, inflation was stubbornly low.


Many scholars offer tortuous explanations for why ostensibly reckless monetary policies did not end in ruin. Perhaps there is more than a grain of truth in Democritus’ warning: “In reality we know nothing, for truth is in the abyss.” Luckily, Democritus was not a central banker. Else his observation would have tanked the markets.


Wrapping Up


Walking along LaSalle Street in the Loop, one is reminded of three forces that constrain our lives—including our most intimate relations: the state (City Hall), time (Central Standard), and money (the Fed). These are human inventions, abstractions Adam never grappled with in the Garden of Eden. Adam had temptation; we added regulation, deadlines, and inflation. Had these constraints existed then, he might never have eaten the fruit.


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