Article 2 - from the www.FranzosenbuschHeritageSociety.org
Samuel Insull (1859-1938)
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Mirroring the country as a whole, the various companies that made up the
Chicago "L" coasted through the 1920s on the misguided belief that the good
years would never end. It was a time of unbridled prosperity and optimism
for America of which the Chicago transit companies proudly demonstrated in
their capital improvements during this time. Although ridership was the
highest it would ever be, it was utilities magnate Samuel Insull’s vast and
profitable network of companies that helped offset the usually unprofitable
"L", financing new construction, upgraded equipment and infrastructure improvements.
Without Insull’s immediate capital improvements it is unlikely the Chicago "L" and
interurbans would have survived the Great Depression. Insull’s generous civic spirit and
love for the Chicago area also seemed to motivate this desire to acquire and improve these
electric lines as much as bottom line profit possibilities. But little did Insull or the "L" know
the reversal of fortune October 1929 would bring.
Samuel Insull was born in London, England in 1859, the son of a Congregationalist who
held a minor post at Oxford. At the young age of fourteen, young Sam became a secretary
and bookkeeper at an auction firm. In 1870, he became a secretary for George A. Gourand,
one of Thomas Edison’s agents in England. Edison was one of young Insull’s idols and he
strove to ingratiate himself with Edison’s staff. He came to the United States in 1881 at age
twenty-two to be Edison’s personal secretary. Insull had a gift for synthesizing concepts and
quantities of data into workable business operations, which Edison recognized. By 1889
Insull became vice president of Edison General Electric Company in Schenectady, New
York. Insull’s reputation as a business dynamo was so well known the when financier J. P.
Morgan took over Edison’s power companies in 1892, Insull was sent west to Chicago to
become president of the struggling Chicago Edison Company.
Under Insull’s direction Chicago Edison bought out all its competitors for a modest amount
after the Panic of 1893. He then constructed a large central power plant along the Chicago
River at Harrison Street. The modest steam-powered, electricity-generating operation would
serve as Insull’s springboard to a vast industrial power base. By 1908, all of Chicago’s
electricity was being generated by Insull’s Commonwealth Edison Company, a tribute to his
economic management. He also pioneered in unifying rural electrification and in supplying
gas. Insull was a cunning intelligent businessman and was well aware of the rampant
political corruption used by men like Charles Tyson Yerkes and the "Grey Wolves" of the
city council. It was common in the late nineteenth and early twentieth centuries for
politicians and other to engage in dummy franchise shakedown schemes. It would usually
work like so: a syndicate would charter a new company to directly compete with an existing
street railway or utility company. A competition between the two - to obtain franchises, to
get property owner consent signatures - would then ensue. Ultimately, the dummy company
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would extract some sort of bribe from the existing company, or simply force the company to
buy them out, to prevent the chance of competition. A clique of Roger P. Sullivan (later a
democratic chairman), George Brennan and former mayor John P. Hopkins set their sights
on Samuel Insull’s Chicago Edison Company. Sullivan first approached Insull to see how
much he would pay outright to prevent them from forming a competing company. When
Insull refused the invitation for a payoff, they formed the Commonwealth Electric
Company. Insull, instead of dealing with the syndicate directly, had simply bought the
exclusive rights to all electrical generating equipment from every U. S. manufacturer. When
the conspirators discovered they could not buy dynamos without going to Insull, they sold
their company to him for a paltry $50,000. Interestingly, the incident earned Insull the
respect of Sullivan and the two became close friends.
Whereas Yerkes tended to use bribes to get politicians to help him. Insull instead preferred
to cultivate relationships with them and make them his allies. Besides Democratic chairman
Sullivan, Insull also had a close relationship with Chicago Mayor William Hale Thompson.
Though Insull was usually successful in using his considerable influence as a captain of
industry to get what he wanted, he was less successful in ingratiating himself into Chicago
high society.
It was around this time that Insull became associated with Chicago transit. The Lake Street
Elevated had long had financial troubles, which only got worse after Charles Tyson Yerkes
relinquished control at the turn of the century. In 1901, the investment firm of Blaire &
Company took over and Clarence Knight replaced Charles E. Yerkes as president., Shortly
after, the Lake Street Elevated purchased a tract of land between Forty-sixth (Kenton) and
Forty-seventh (Kilpatrick) Avenues on the west side to build a storage yard and powerhouse,
but realizing his company could afford to construct neither, Knight decided to reduce power
costs by purchasing power for the elevated from an outside source. Knight chose the
Chicago Edison Company, an agreement which proved a major accomplishment for Insull,
who had been trying for some time to convince the elevateds to buy power from Edison’s
efficient central stations instead of generating it themselves.
Efforts to unify the "L" system actually started soon after the South Side Rapid Transit
began operation in 1892m before there were any other operating elevateds with which to
unify. As years went on and cross-town trips increased in time and fare, the push for some
sort of consolidation or cooperation increased. Several attempts were made in the early years
of the twentieth century, none successful. In 1909, another attempts was made, this time by
Insull and financiers Ira M. Cole and Emil K. Boiset. Insull’s involvement in electric
traction is actually quite logical, as the elevated (along with the street railways and later the
interurbans) was among his largest customers. They proposed to incorporate the Central
Terminal Company which would own the "L" structure and rolling stock, then lease it back
to the individual companies. Negotiations collapsed when the parties could not come to
terms on the financial details.
Meanwhile, Knight’s economy measures did not save the Lake Street Elevated and the Blair
syndicate decided to reorganize the company in hopes of turning around its economic
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fortunes. In April 1904, the company’s name had changed to the Chicago & Oak Park
Elevated Railroad Company and that month the rest of the reorganization was complete.
Unfortunately, the new company was no more adept at staying solvent than the old one and
the C&OP entered receivership on November 13, 1911. Samuel Insull, now a powerful
Chicago utilities magnate, was named as the company’s receiver. This put Insull in an
interesting position: he was not only in control of the elevated company, but was the
chairman of its largest creditor, the Commonwealth Edison Company.
In May 1910, another attempt was made at consolidation. Henry Blair and a group of
investors proposed a syndicate headed by the First National Bank of New York that would
buy up all the "L" companies outstanding shares, then issue new securities in the name of
the consolidated organization. Blair was a director of Insull’s Commonwealth Edison
Company and it was not far off before the utilities magnate would enter the deal. Blaire
secured the blessings of all four operating "L" companies, but financing was not
forthcoming. The National City Bank of New York, whom Blair was courting, was
unwilling to underwrite the merger without a guaranty against loses it might incur. After a
year of delays, it was announced that the financial obstacle had been overcome, thank to Mr.
Samuel Insull.
Insull, while still not an official member of Blair’s committee, exerted considerable behindthe-scenes
influence to help move the deal forward. Commonwealth Edison pledged six
million dollars to the underwriting syndicate. On May 22, 1911, the Blair syndicate offered
to purchase all outstanding shares of the South Side, Metropolitan, and Northwestern
Elevateds, but not the C&OP, which was in receivership At that time the C&OP was in
receivership with Insull its receiver. The Blair-controlled Northwestern owned fifty-two
percent of C&OP’s holding company. By the end of June 1911, the Blair syndicate had
accumulated enough shares to put the consolidation plan into effect on July 1. Instead of
creating a new company, it was instead opted to keep the individual companies in place and
create a voluntary holding company called the Chicago Elevated Railways Collateral Trust
(CER). The CER gave all the benefits of centralized control but without disturbing the
underlying companies’ outstanding stock and bond issues.
Samuel Insull was elected the CER’s chairman in August 1911 and he named Metropolitan
Elevated president Britton I. Budd president, beginning a long-standing association between
the two men. The South Side and Northwestern companies were then reorganized, with
Insull and Budd named chairman and president of each, respectively.
No sooner than the consolidation had been completed than the outcry for the lack of
through-routings and free transfers geared up again. On May 5, 1913, the CER’s executive
committee sent the city of Chicago a letter indicating they were not opposed to instituting
these things. … as soon as the city granted permission to extend the Loop elevated’s
platforms. Insull and Budd then presented a through-routing plan to the City Council’s Local
Transportation Committee. On July 21, a through-touting ordinance which also allowed the
platform lengthening was passed. Cross-town service began November 1st. About this time,
the remaining elevateds all began to shut down their own powerhouses and purchase power
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from Insull’s Commonwealth Edison. The Northwestern and Metropolitan did so in 1914
and the South Side presumably did so about the same time.
One year after taking control of the CER, Insull created his Middle West Utilities
Corporation, a holding company that eventually acquired hundreds of utilities and traction
companies. The two types of companies were a perfect pair: the electric traction companies
represented captive customers to the utilities companies and would in turn generate further
development along their routes which would in turn create more customers for the utilities
companies.
In 1916, Samuel Insull acquired control of the bankrupt Chicago and Milwaukee Electric
Railroad. Despite its name, the interurban actually only reached one of its namesake
destinations: although the line had been extended to Milwaukee in 1908, trains ended their
southbound runs at Church Street in Evanston. At Central Avenue or Church Street,
passengers had to switch to "L" trains to reach Chicago. With Insull in control of both
companies, that was soon to change.
Britton Budd, who Insull had installed as president of the reorganized Chicago North Shore
and Milwaukee interurban, quickly began the necessary negotiations to bring the North
Shore Line into Chicago via the Northwestern Elevated’s tracks, which they already used
from Linden Avenue, Wilmette to University Place, Evanston. Matters were somewhat
complicated by the fact that the Northwestern itself leased the tracks from the Chicago
Milwaukee and St. Paul Railroad. However, on March 31, 1919, a series of agreements were
made between the three companies giving the North Shore Line the necessary access. The
interurban began serving Chicago on August 6, 1919 via the Northwestern Elevated and the
Loop. Although trains terminated at Roosevelt Road, the interurban’s main office was at 209
South Wabash, adjacent to the Adams/Wabash station. (Trains were extended to
Dorchester/63 between 1922 and 1938.)
Insull’s acquisition of the North Shore (and other interurbans, as we will see) was motivated
by pure business opportunities. He wrote in his Memoirs that they, "were acquired in the
interest of the territory they served." The electric interurbans would prove useful in
developing rural countryside into populated suburbs which would need to be supplied with
electric power, which Insull’s utilities companies could conveniently provide. The
interurbans’ right-of-ways could also provide ready-made paths for power transmission lines
and towers. (The North Shore Line’s Skokie Valley right-of-way is still used today by
Commonwealth Edison high tension towers.)
In 1922, Sam Insull made an address before the city council’s local transportation committee
announcing his willingness to consider any reasonable proposal from the city to take over
the elevated lines. He received no offers. Although forming the CER had helped the elevated
better coordinate their activities and had created a number of economies, the company was
nevertheless still only breaking even, due in part to fares being kept below cost by the city
and the Illinois Commerce Commission.
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Since the city seemed unready to take over the city’s transportation, Insull and his associates
decided it was time to formally merge all of the "L" companies into a single corporate entity.
This new organization, the Chicago Rapid Transit Company (CRT), scaled back the
companies’ capitalization by approximately forty million dollars. On April 23, 1923, The
Insull-controlled boards of the South Side, Metropolitan and Northwestern Elevateds
approved a consolidation plan, followed by ICC approval on June 14. Stockholder
concurrence came on January 8, 1924 and operations under the CRT banner was began the
next day. The bankrupt Chicago and Oak Park became part of the CRT when it was bought
for $2.4 million at a court-ordered auction. As was expected, the CRT’s officers were
Samuel Insull, chairman, and Britton Budd, president. The majority stockholder was
Commonwealth Edison, whose shares were in turn owned by the Commonwealth Subsidiary
Corporation.
Although it had little, if any impact on the "L", it is important to note that at the same time,
Insull added another Chicago interurban to his transit empire. Despite the dismal
performance by the Chicago Lake Shore and South Bend Railway, Insull recognized the
potential in the interurban, which ran from Chicago’s South Side through Hammond, Gary,
Michigan City and South Bend, which were little or no competition. The line provided
service to some of the largest cities in Indiana and between 1907 and 1925, the population of
northwest Indiana more than doubled.
In 1925, Insull (through his utilities companies) purchased the ailing Lake Short Line and
renamed it the Chicago South Shore and South Bend Railroad. The new management
immediately set out on a massive modernization program that would place the South Shore
"above the competition". Within two months, up to five hundred men were at work
rehabilitating the railroads tracks and track bed. By December, 1, 1925, the workforce
reached nine hundred men. By October 1926, the entire line between Kensington station
(115th and Cottage Grove) on Chicago’s South Side and South Bend was resurfaced. Work
began on lengthen and double-end the sidings along the single-track portions of the line and
equip them with high-speed turnouts. New bridges were installed, new stations built, and all
the steel structures cleaned and repainted. Under Insull, the South Shore ordered its first new
passenger cars in years. Also, he helped the South Shore gain trackage rights into downtown
Chicago via the Illinois Central’s electric commuter line. The South Shore Line is still in
operation today and is the last remaining interurban in the United States.
Frankly, the CRT was not that much more adept at making money than the previous
companies, but it sure seemed like it on paper. The new company quickly embarked on an
extensive expansion and modernization program. But in fact, the company was being
propped up in many ways by Insull’s large utilities empire.
In 1925, Insull’s North Shore Line began construction on a bypass route of its Shore Line
route. The tracks left the main line at Howard and reconnected south of North Chicago,
Illinois, paralleling today’s Edens Expressway for much of the journey. The "L" benefited as
well, operating local service on the Skokie Valley Route between Howard and Dempster
Street, Skokie. The area was sparsely populated, but it was hoped rapid transit service would
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raise property values (which it did) and create development, which would (more
importantly) create a permanent demand for the electric power generated by Insull’s Public
Service Company of Northern Illinois. Other improvements made during the 1920s included
a new office for Insull’s North Shore Line at 223 South Adams, numerous "L" platform
lengthening, several new terra cotta beaux-arts stations (Wilson, Wells Street Terminal,
Halsted/63, Logan Square, to name but a few), new rolling stock (the 4000-series "plushes"),
construction of the Skokie Shops, the elevation of the Evanston line from University Place
to Central Avenue, and extension of Garfield Park service to Westchester. Everything
seemed to be coming up roses for the "L .
Then came October 1929.
The Great Depression had a devastating effect on the "L" and eventually brought down
Insull’s utilities and transportation empire, sometimes referred to as the House of Insull –
due to what became an overly leveraged financial position of his main holding company.
Due to radically reduced employment, the "L" ridership plummeted. The CRT had
accumulated a surplus of $3.6 million, which helped it ride out the early years of the
Depression with high hopes the setback would only be temporary. It was not.
Revenue ridership dropped from almost fourteen million from 1929 to 1930. Ridership for
1933 plunged by more than another thirty million and the CRT posted its first ever loss of
$1.5 million. Disaster was temporarily diverted by drawing on the surplus, but the CRT was
at the mercy of larger economic forces beyond its control. The surplus was quickly depleted
and the company was rendered insolvent. On June 6, 1932, Insull resigned as chairman and
director of the Chicago Rapid Transit Company, effective the next day. On June 27th, the
Westinghouse Electric and Manufacturing Company filed a creditor’s suit requesting the
appointment of a receiver. The court appointed Britton Budd and the Chicago Public Works
Commissioner Albert A. Sprague, though Budd would eventually retire. The CRT’s collapse
probably would have come sooner, had it not been propped up by Insull’s utilities empire,
which it also proceeded to drag down with it. The story was repeated several times at the
onset of the Depression: How the financial overextension of a holding company – in this
case Insull’s Middle West Utilities – can bring down its otherwise healthy subsidiaries – in
this case, the power companies.
With his empire in collapse, Insull’s fortunes were in ruins. He was badly overextended and
had failed to squirrel away a personal fortune separate from his corporate accounts, so when
his companies went bankrupt one by one, so did he. He ended up living out his years on a
small pension from his business interests. One of Insull’s chief business strategies had been
to solicit many small investments from people of modest means. When Middle West
Utilities, Insull’s chief holding company, entered receivership in 1932, many saw their life
savings wiped out and Insull became an intensely disliked individual. The former utilities
and transit magnate decided to retire to Europe and ride out the rest of his years in quiet
obscurity, but his final years would be anything but quiet.
In October 1932, Insull was indicted on charges of bankruptcy, embezzlement and using the
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mails to defraud investors. Thus began an eighteen month chase to extradite Insull back to
the United States.
Insull had settled in Greece and the Greek courts refused to honor the United States’
petitions to have him extradited. In 1934, Insull’s visa was about to run out and it was clear
it would not be renewed. In March, he quietly left Athens aboard a steamer, the S. S.
Maiotis, which had been chartered for Insull by an English friend. He tried to reach
Romania, but the Romanian authorities would not grant him permission to enter the country
and threatened to arrest him if he essayed a landing. Leaving Romania, the Maiotis was
halted by Turkish authorities who locked the former industrialist up in a small Istanbul jail
cell for several days and nights. The Turkish courts agreed to extradite Insull back to the
United States and he was released to the American authorities on April 13, 1934. He was
taken home aboard the American Export Line steamship Exilona, which entered New York
harbor on May 7th. From there, he was taken by motorcade across New Jersey to Princeton .
Junction, where he board a private Pennsylvania Railroad car bound for Union Station,
Chicago.
After all the effort, Insull was acquitted on all charges. Some felt he had been made the
scapegoat for the whole stock market debacle. He returned to Paris after his trial to live out
his remaining years. He died of a heart attack in a Paris subway on July 16, 1938, penniless
according to popular legend. He was, in fact, not without money. It is likely this rumor
started because his wallet was pilfered when he died on the subway platform.
The last of the Samuel Insull died on May 17, 1997, with the passing of Samuel Insull III,
the grandson of Samuel Insull. Samuel Insull, Jr. passed away in 1983. The youngest Insull,
unlike his father and grandfather, did not work in the utilities and transportation empire
assembled by the elder Insull.
Samuel Insull was involved in many entrepreneurial and philanthropic endeavors. A 1922
article in the Suburban Citizen reports one of those endeavors. See Samuel Insull - Local
Newspaper Articles.
The Insull archives are maintained at Loyola University, Chicago.
Sources:
The Arthur U. Gerber Homepage.
Cudahy, Brian J., Destination Loop, Brattleboro, VR: The Stephan Greene Press, 1982
Moffat, Bruce, The "L": The Development of Chicago’s Rapid Transit System, 1888-1932 (CERA Bulletin 131), Chicago: Central Electric Railfans Association, 1995
Young, David M. Chicago Transit: An Illustrated History, DeKalb, IL: Northern Illinois University Press, 1998
http://www.chicago-l.org/figures/insull/
11/17/2003