Chapter 63: Finance and Turbulence

**Dave Broker** (0:06)
In early 1848, as revolutions were breaking out in Paris and Vienna, a pair of merchants met in the tiny but rapidly growing city of Chicago. One sold grains, the other sold elevators. Now, one of the reasons the United States became such an economic success in the 19th century was because of its ever growing agricultural productivity. We've talked about this in the past, with innovations like the McCormick Reaper, the John Deere plow, the disassembly line process for meatpacking, and the refrigerated rail car, all of which have their own connections to Chicago. Well, one that I have only briefly mentioned before but should really talk more about is grain elevators. As homesteaders settled the American West, many of them took up grain farming. They used the expanding railroads, as well as navigable rivers and canals, to move these grains to markets across the country and indeed across the globe. By the end of the century, grain was the nation's most important export, feeding much of Europe, in fact.
Much of this grain was being processed into flour in a handful of cities in the Midwest, with Chicago, soon the nation's top railroad hub, taking the lead. Between 1850 and 1890, grain production in the Windy City increased more than 20-fold. Grain elevators were a key reason why. Storing that much grain in a city like Chicago required skyscraping warehouses that could hold millions of bushels. Because of, you know, gravity, the grain would need to be lifted up to the top of those towers and dropped in to fill them. Good luck doing that without an elevator. Additionally, transporting grains off of boats and ships was much quicker and easier when using grain elevators instead of pulleys hoisted by laborers. And it was grain elevators that brought those two merchants together in the early months of 1848 As one Elias Colbert put it in his 1868 book, Historical and Statistical Sketch of the Garden City, Early in the year 1848, a time anterior to the introduction of the iron horse, which now snorts over the broad and fertile prairies of Illinois, long before elevators of one million bushels capacity were even thought of, a time when the clearance of a lumber schooner from this port received a local notice, when elevators used horses as a mode of power, Thomas Richmond and W. L. Whiting discussed one afternoon the propriety of establishing a board of trade in Chicago. Mr. Richmond was then in the elevating business, and Mr. Whiting a grainbroker, the first who pursued this avocation in Chicago. These gentlemen consulted with other businessmen, and the result of this consultation was an invitation published at the time for the merchants generally to meet together on the 13th of March, 1848, to take the initiatory steps in regard to the formation of the Chicago Board of Trade. End quote.
After adopting a constitution and a committee to draft bylaws, the leading businessmen of the city agreed to regular meetings and activities. They advocated for the city's commercial interests, critically its transport infrastructure, and collected economic data. By 1859, the governor of Illinois signed a law chartering the Chicago Board of Trade, or CBOT as I'll call it from here, so it could regulate the undertakings of its members by providing standardized grades and appointing grain inspectors.
But the big developments came in the 1860s. In 1865, the CBOT adopted trading rules for margin and delivery procedures. This was followed in 1868 by a rule banning corners, which they defined as, Making contracts for the purchase of a commodity, and then taking measures to render it impossible for the seller to fill his contract for the purpose of extorting money from him.
With this rule, the CBOT had created a standardized and regulatory framework for futures contracts. And thus, the institution had evolved from a little agricultural association into an important financial exchange.
Up until they went digital in recent years, the CBOT, now part of the CME group, housed hundreds of traders and pits who would shout and make hand signals to buy and sell these commodity futures.
As industrialization drove economic growth all over the Western World, financial systems had to keep growing in complexity and value. And as they did, they continued to drive industrialization further in turn. And then as now, they were susceptible to greedy players, bad decisions, and panic. That's right, it's time yet again for the booms and the busts.
This is The Industrial Revolutions. Chapter 63, Finance and Turbulence.
Alright, so, as always, we gotta begin with a little admin. First, a correction from last time. I was quoting the historian Frederick Jackson Turner, and accidentally called him Frederick Jason Turner. My apologies. Shout out to listener Lauren Escan, who studied Turner in college and caught the mistake. I will also go back and fix it in Chapter 62 as well. Second, I want to thank everyone supporting the podcast financially. Special shout outs this month go to Doris Hauslander, Alonso Ibanez, and new patron Russell Tanner, as well as John Bartlett, Adam Bibby, Chris Bradford, Elizabeth Brooking, Tara Carlson, Michael Hosknek, Eric Hogenson, Naomi Kanakia, Brian Long, Mack Loveland, Andrew C. Madigan, Martin Mann, Duncan McHale, John Newton, Emeka Okafor, Ido Uziel, Brad Rossi, Joshua Shanley, Christian Sebast, Jonathan Smith, Tanner, Ross Templeton, and Seth Wiener. Thank you. With that, let's get the show going.