Matthew Laflin (1803-1897) and the Network That Created Northern Trust and Illinois Tool Works

This biography is a companion to Ventureology Episode 1: The 82 Merchants Who Invented Modern Finance. That episode tells the story of how the Chicago Board of Trade was founded in 1848. This piece answers a question the episode doesn't have space to ask: how did a gunpowder merchant's partnership in 1840 produce a little-known dynastic network that still impacts Chicago's economy six generations later?

When Matthew Laflin drove a wagon loaded with twenty kegs of gunpowder into the town of Dover, New Hampshire, a lighted coal was thrown into the bed. He saw instantly that a detonation was inevitable. He turned his horses onto a road leading to the Dover River, lashed them into a run, and jumped clear.

The explosion that followed killed one or two bystanders. But Laflin's snap decision to aim the blast toward water rather than the town center meant Dover still stood.

He was in his twenties and already years into a career hauling volatile cargo through the back roads of New England. That career had already ended once before. His first year as a traveling salesman, a cargo explosion somewhere in western Massachusetts killed both his horses and destroyed his wagon, leaving him $800 in debt (roughly $26,000 today). He kept selling gunpowder anyway.

These were not accidents that happened to a passive man. They were the costs of a trade that taught him, before he ever reached Chicago, how to make decisions under pressure and how to start again with nothing.

Sixty years after Dover, a Chicago Tribune reporter arrived at Laflin's home at 2335 Michigan Avenue to profile the city's oldest living pioneer. The man was ninety-three. He had arrived in Chicago in 1837, sheltered in the abandoned barracks of Fort Dearborn because no better housing could be found in what he called the "embryo city," and watched the settlement grow from a few thousand souls to a metropolis of 1.7 million. He had bought 140 acres of Chicago real estate for $300 (roughly $10,300 today) and lived to see it valued in the millions. He had founded the city's first stockyards, built one of its earliest water distribution systems, laid one of its first paved roads, and operated its first public transit line. He was a founding member of the Chicago Board of Trade but never held an officer position there and apparently never sought one.

The Tribune described him this way: "The story of Mr. Laflin's life is the story of New England thrift and business sagacity grafted on Western energy, enterprise, and adventure."

The Laflin name does not appear in most histories of Chicago's founding. That obscurity conceals the most consequential family network in Chicago finance. Laflin's business partner, Solomon A. Smith, married Laflin's niece. Their son, Byron Laflin Smith, founded Northern Trust in 1889. Byron's sons founded Illinois Tool Works in 1912. Today Northern Trust administers $18.7 trillion in assets under custody, carries a market capitalization of $27.6 billion, and manages $1.8 trillion in assets. Illinois Tool Works generates $16 billion in annual revenue and has a market capitalization of nearly $90 billion. The combined enterprise value of companies traceable to the Laflin-Smith partnership exceeds $114 billion.

All of it grew from gunpowder, a partnership formed in 1840, and a man who never sought the spotlight. This is the story of how his network built Chicago.

Matthew Laflin was born on December 16, 1803, in Southwick, Massachusetts, into three generations of gunpowder manufacturing. His great-grandfather Charles had emigrated from Ulster in 1740 and built a powder mill during the Revolution. His father ran mills at Southwick and Canton, Connecticut. By the time the third Matthew was born, powder manufacturing was the family inheritance: not wealth exactly, but institutional knowledge of explosives, distribution logistics, and military supply chains.

His brother Roland taught him the rest. The two hauled kegs of black powder by wagon through New England, Roland as senior partner, Matthew as traveling salesman. The arrangement taught Matthew the mechanics of a family partnership: shared risk, divided territory, mutual dependence. When his cargo exploded and killed his horses, it was the partnership structure that allowed him to start again rather than face ruin alone.

In the world he operated in, money was scarce, and nearly all commercial transactions depended on barter. Laflin once sold a bill of powder and received half the payment in cash and the balance in buttons. He loaded the buttons onto his wagon and carried them until he found a buyer. When he sold the lot for half-cash, he informed the surprised purchaser he would take "the other half in buttons." For this kind of traffic, the Tribune concluded, Laflin possessed "a genius."

When he heard about the Illinois and Michigan Canal in 1837, he understood instinctively what three generations of powder sales had taught him. Canal construction required blasting. Blasting required gunpowder. Whoever controlled the supply chain at the point of maximum demand controlled the chokepoint. He headed west.

The timing was terrible. The Panic of 1837 had frozen credit markets across the country. The speculative land bubble that had drawn thousands to Chicago deflated overnight. Many merchants who had arrived during the boom left.

Laflin stayed. His second winter in Chicago, 1838-39, he secured quarters for himself and family in old Fort Dearborn. The population was perhaps four thousand. The streets were mud. He bet that the canal would be built, the demand would come, and he wanted to be positioned when it did.

In 1840, Laflin made the decision that would echo across 186 years of Chicago finance. He took a partner.

Solomon Albert Smith was a trader from Saugerties, New York, the same town where the powder works Laflin represented were based. Smith was not a Laflin by birth, but the families were deeply intertwined. Smith's second wife, Mari Loomis Laflin, was Matthew Laflin's niece. The partnership, initially called Laflin & Smith and later expanded to Laflin, Smith & Boles (Joseph M. Boles was a Laflin in-law), merged their separate gunpowder operations into a single western distribution business.

The structure mattered more than the product. Laflin didn't just sell gunpowder. He controlled the distribution infrastructure for explosives across the entire western frontier, from Wisconsin to Missouri, at the precise moment that frontier was about to industrialize. Railroad construction, mining, quarrying, urban building, and military supply all required powder. At Chicago, Laflin took charge of the western sales of the Saugerties powder works, establishing powder magazines at Chicago, Milwaukee, St. Louis, Springfield, and Janesville, Wisconsin. All of these depots operated under his supervision.

The Laflin-Smith partnership extended well beyond powder. The two families created what Northern Trust's institutional history later described as "a dizzying assortment of business partnerships and companies" over the next three decades. The web of enterprises connected manufacturing, finance, transportation, and real estate in ways that made the partners indispensable to each other and to the city.

Smith moved to Chicago around 1856, settling on Washington Street near the Laflin clan. He brought his young son Byron, then three years old, who carried his mother's maiden name as his middle name: Byron Laflin Smith. His twin brother, Addison Laflin Smith, had died four days after the twins' second birthday and was buried in Mountain View Cemetery in Saugerties before the family left New York. The younger Solomon, Smith's son from his first marriage, joined Laflin, Smith & Boles as a clerk and remained with the firm until his death in 1869 at age thirty-one.

Solomon the elder found his calling not in powder but in banking. Within eighteen months of arriving in Chicago, he became a trustee of Merchants' Savings, Loan and Trust Company, and by 1863, he was its president. He steered the bank through panics, fire, and depression with what the Chicago Daily Tribune called an imperturbable demeanor. He held the presidency until his death.

The Laflin-Smith partnership was not unique in frontier Chicago. What made it consequential was its duration and its structure. Most frontier partnerships dissolved when one partner died or when the original venture ran its course. Laflin and Smith built something different: a web of interlocking enterprises and family obligations that transmitted capital, knowledge, and social position across generations, whether or not anyone planned it that way.

This is worth naming, because it connects to a pattern that Chicago's history reveals. We call it Dynastic Infrastructure: in a frontier economy lacking formal institutions, the partnership structure becomes the institution. It substitutes for the banks, law firms, and professional networks that don't yet exist. When the formal institutions finally arrive, the families that built the informal ones become their founders and governors.

In 1849, twelve years after arriving in Chicago, Laflin sold his interest in the gunpowder business and severed his connection to the powder trade entirely. The timing was characteristically precise. The Illinois and Michigan Canal had finally opened in April 1848, the same month the CBOT was founded. Railroad construction was accelerating. Chicago's population, which had been 4,000 in 1837, reached nearly 30,000 by 1850.

Laflin read the transition. Gunpowder had been the binding constraint during the canal era. Now the constraints had shifted. The city needed stockyards to process livestock, roads to move goods, water to sustain a growing population, and transit to connect producers and markets.

He addressed all four.

With the proceeds from his powder sale, roughly $900, Laflin purchased land on Chicago's west side, extending eastward from Madison Street and Ogden Avenue. There he built the Bull's Head Hotel, a three-story resort for men in the cattle business, complete with barns, sheds, and cattle pens. This was Chicago's first organized stockyard. Before Laflin, cattle trading was ad hoc, scattered across open lots with no permanent facilities. After Laflin, it had a physical center. The Bull's Head, established in 1848 on West Madison Street near Ashland Avenue, established the pattern of centralized livestock processing that led directly to the Union Stock Yards in 1865. Charles Taylor's authoritative history of the Board of Trade independently confirms the site as "the first regular stock yards" in Chicago, corroborating the Tribune account.

He built the Blue Island Toll Road, one of Chicago's first plank roads, providing a reliable surface for wagon traffic that had previously been mired in the city's legendary mud. He operated the first omnibus line, carrying his hotel patrons between the stockyards and the State Street markets. And he built one of Chicago's earliest water distribution systems: a pine-log reservoir at Lake Street near the lake shore, with wooden pipes funneling water to the city. He controlled that system for thirteen years, until the public waterworks replaced it.

Each investment created a temporary monopoly. If you wanted to trade cattle in Chicago in 1849, you went to the Bull's Head. If you wanted water delivered to your home, you bought it from Laflin's wooden pipes. These weren't permanent advantages. The city outgrew each one. The Union Stock Yards replaced the Bull's Head. The public waterworks replaced the pine-log reservoir. Paved streets replaced the plank road. But each monopoly generated capital during its window, and Laflin redeployed that capital into the next constraint.

The sale price of his gunpowder interest deserves particular attention: roughly $900 (approximately $33,000 today). The business he walked away from continued evolving without him. The Laflin Powder Company incorporated in 1866, merged with Smith & Rand to form Laflin & Rand in 1869, and became one of the three largest explosives manufacturers in America. By the late 1880s, the company produced 20 million pounds of powder annually and captured 40% of the U.S. black powder market. DuPont purchased Laflin & Rand in 1902, five years after Matthew's death, in a $4 million transaction that made DuPont the nation's largest explosives manufacturer. Federal antitrust action later broke DuPont's powder trust into Hercules Powder Company and Atlas Powder Company.

The gunpowder that killed a young man's horses in Massachusetts became a pillar of the American munitions industry. And Laflin had sold his stake in it for $900.

Was this a mistake? By the logic of any single investment, yes. By the logic of network building, no. The $900 bought Chicago land, which funded the stockyards, which funded the water system, which funded the real estate empire that made him one of the city's wealthiest men. Laflin understood something his powder-company successors did not: the returns on controlling Chicago's infrastructure constraints were higher than the returns on any single product, no matter how explosive.

Laflin never ran a formal mentorship program. He didn't need to. Much like venture capital before the advent of $B mega-funds, the partnership structure itself was the transmission mechanism.

Byron Laflin Smith grew up in the shadow of the Laflin-Smith enterprise. He watched his father Solomon serve as president of Merchants' Savings, Loan & Trust. He witnessed the Great Fire of 1871 at age eighteen. He absorbed his father's banking instincts and his great-uncle Matthew's appetite for infrastructure.

After attending Chicago's public schools and Harvard School for Boys, Byron enrolled at what later became the University of Chicago, Class of 1874. His father wanted him to go to Harvard, but he preferred to stay in his hometown. Reputedly the first boy in Chicago to learn to throw a curveball, he was considered by classmates one of the best players on the university's baseball team. When not occupied with studies or the team, he worked after school and on Saturdays at various Chicago banks.

Byron joined his father at Merchants' Loan & Trust. But the family pattern held: he soon struck out on his own. When Illinois passed a new banking statute in December 1888, Byron recognized an opportunity to establish a bank dedicated to trust services, a niche largely undeveloped in the Midwest. Rather than rush, he instructed his lawyer, Noble B. Judah, to file a test lawsuit clarifying the statute's capital requirements. He waited for a court ruling before proceeding.

On August 12, 1889, Byron opened The Northern Trust Company in Room B on the second floor of the Rookery Building at 209 S. LaSalle Street. Staff of six. Seven accounts. $137,981 in deposits on the first day (~$5 million today). His original twenty-seven shareholders included Marshall Field, Martin A. Ryerson (grandson of CBOT founder Joseph Turner Ryerson), and Philip D. Armour, whose meatpacking fortune was built on the stockyard infrastructure that Laflin had pioneered. Byron contributed ~40% of the $1 million capitalization (~$35 million today) himself and worked without pay in the bank's early years.

By 1895, deposits totaled $10.5 million (~$390 million today). During the Panic of 1893, when banks failed across the country, Byron opened a temporary branch at the World's Columbian Exposition fairgrounds and grew deposits while competitors collapsed. Northern Trust declared its first dividend in July 1896.

The bank's conservative policies served it extraordinarily well across every subsequent crisis. When the Great Depression hit, Northern Trust held approximately $50 million in deposits (~$917 million today). By 1935, that figure had grown to $300 million (~$7 billion today). While other Chicago banks failed or required federal assistance, Byron's institution thrived by doing exactly what it was designed to do: protect wealth through discipline, not speculation. Northern Trust never required government assistance.

Byron died in March 1914. His son Solomon Albert Smith took over Northern Trust at age thirty-seven. Solomon led until 1963, when his sons Edward Byron Smith and Solomon Byron Smith continued the family stewardship. Four generations of Smith-Laflin descendants led Northern Trust through 1979, when Edward Byron Smith retired as chief executive.

But Byron had planted a second seed. In 1912, two years before his death, he placed an advertisement in The Economist seeking to provide capital to "a high-class business (manufacturing preferred) in or near Chicago." He turned down several proposals. Then a small group of tool inventors came forward with a concept for precision metal-cutting tools. Byron's sons Solomon, Harold C., Walter, and Bruce formed Illinois Tool Works on Huron and Franklin Streets in Chicago. Harold and Walter managed the new company. Solomon stayed at Northern Trust.

When Byron died, Harold C. Smith became ITW's president. He built the company from metal-cutting tools into truck transmissions, pumps, compressors, and automobile steering assemblies, insisting on the conservative financial approach (i.e., maintaining cash reserves and eschewing debt) that became the company's hallmark. Harold died in 1936. His son, Harold Byron Smith, succeeded him and introduced the decentralized operating structure that defined ITW for the next eight decades. ITW showed a profit every year of the Great Depression. The Smith family still holds approximately 9% of ITW's outstanding shares, and the company has raised its dividend for 62 consecutive years, a streak that traces back to Harold C. Smith's insistence on financial conservatism.

The capital transmission is clean and traceable: Matthew Laflin's gunpowder business funded the Laflin-Smith partnership in 1840. That partnership produced the family intermarriage with Solomon Smith's line. That family produced Byron Laflin Smith, who founded Northern Trust in 1889 and co-founded Illinois Tool Works in 1912. Four generations of Smith-Laflin descendants led Northern Trust. Three generations led ITW. The bank that began with seven accounts now administers $18.7 trillion. The manufacturer that began with a trade advertisement now operates in 51 countries.

Laflin's capital story inverts the usual sequence. Most Chicago dynasties began with capital and used it to build influence. Laflin began with knowledge, three generations of powder manufacturing, and converted that knowledge into a distribution monopoly, which he converted into real estate, which he converted into institutional founding capital.

The initial capital was small. The family powder mills at Southwick and Canton funded Matthew's first trading wagon. When that exploded, the partnership with Roland provided the second start. The Saugerties Powder Works provided the distribution franchise. During his ten years in the powder business through Canton and Saugerties, he earned roughly $1,000 per year. Enough for fair working capital, but nothing extraordinary. Each step was modest. Each step leveraged the previous one.

The pivot to real estate was the capital multiplier. When Laflin sold his powder interest for $900 and bought land, he was not speculating on prices. He was converting liquid capital into physical infrastructure that generated operating income: hotel receipts from the Bull's Head, tolls from the plank road, water fees from the pine-log pipes. The income funded additional land purchases. By the time he had assembled 140 acres within the city limits, the flywheel was self-sustaining.

His real estate ambitions were architectural as well as financial. In 1850, while living on Wabash Avenue south of Twelfth Street, Laflin erected what the Tribune called "the first block of brick buildings ever built in this city," six connected tenements at Michigan Avenue and Washington Street. He moved his own residence into the corner unit. The block was destroyed in the Great Fire.

In 1867, Laflin refinanced the Elgin National Watch Company when it was on the verge of failure, becoming one of its largest stockholders. The rescue was not charity. It was a bet on precision manufacturing. Elgin released pocket watches bearing Laflin's name starting in January 1868, and his family sat on Elgin's board for more than seventy years. He also invested heavily in American Express. The IRS publicly stated in 1863 that Chicago's richest man had no income, a claim that generated press attention but no lasting reputational damage.

The Great Fire of 1871 tested the capital structure. Laflin was sixty-seven. His real estate, assembled over three decades, was in the path of the fire. Many property owners sold at distressed prices rather than face reconstruction. Laflin rebuilt. He hired W.W. Boyington, the architect of the Water Tower (one of the few structures to survive) and the Wigwam where Lincoln received the 1860 Republican nomination. The decision to rebuild with a prominent architect signaled confidence in Chicago's future at a moment when that confidence was far from universal.

A buggy accident roughly ten years before his death prompted Laflin to make a partial distribution of his estate. He gave each of his two surviving sons approximately $1 million and retained $2 million for himself. At the time of his death, his property consisted largely of real estate scattered across the city, a large interest in American Express, and approximately 1,000 shares in the Elgin Watch Company.

Matthew Laflin lived to be ninety-three, the longest-lived of all eighty-two CBOT founders. He died on May 20, 1897, at his residence at 2335 Michigan Avenue. He had been prostrated for a week and, though sitting up in a chair, was almost too feeble to speak. When the end came, it was painless. He was buried at Rosehill Cemetery, with his four grandsons and Byron L. Smith and Luther Laflin Mills serving as pallbearers.

In 1894, the city dedicated the Laflin Memorial Building in Lincoln Park. On opening night, every window was agleam with light, the doors were open, and on the clear air strains of music from a hidden orchestra floated out. Laflin himself never entered the building. On one or two occasions he was driven past it.

The Laflin-Smith partnership of 1840 was worth whatever gunpowder they sold that year. Fifty years later, it was worth Northern Trust. Seventy years later, it was worth Illinois Tool Works. One hundred and eighty-six years later, the Smith family still operates through Briar Hall, a single-family office formalized in 2020 and now headquartered at 333 W. Wacker Drive, named after Byron L. Smith's Lake Forest summer home. Briar Hall moved from 200 W. Madison Street to its current 20,000-square-foot offices in 2024. Today, the family wealth totals approximately $19.8 billion across roughly 60 members. Briar Hall manages a $5B+ portfolio rooted in Northern Trust and ITW holdings, the two institutions Byron Laflin Smith created from the capital his great-uncle's partnership generated. Crain's Chicago Business has described the Smith family's business dealings as possessing "Masonic secrecy," a characterization that would have suited Matthew Laflin perfectly. He never sought the spotlight either.

In June 2025, BNY Mellon expressed merger interest in Northern Trust. Northern Trust reaffirmed its independence. The institution that Byron Laflin Smith built with seven accounts and $137,981 in deposits, using capital generated by his great-uncle's gunpowder partnership, is now a $27.6 billion company that Wall Street wants to acquire. And the family said no. One hundred and thirty-six years after its founding, the dynasty's influence still extends to corporate governance. The partnership structure is still the institution.

The philanthropy follows the same pattern. Northern Trust committed $70 million to its charitable foundation in 2024. The Harold B. Smith Family Cancer Research Center at Rush MD Anderson was funded after Harold B. Smith, a longtime Rush board member, passed away in 2022. The gift was the largest in Rush MD Anderson's history. None of it was announced as spectacle.

Laflin Street runs from 356 North to 12258 South, nearly the full length of the city's grid. It crosses twenty-three neighborhoods. Most Chicagoans who drive it have no idea whose name they are traveling under.

The Tribune, summing him up at death, called him "the solitary living link that bound Chicago to Fort Dearborn." He never held an officer's position at the institution he helped found. He never wrote a memoir or sat for a painted portrait. What he left was not a story but a structure: a network of partnerships and family obligations that outlasted him by more than a century and that, through Northern Trust and Illinois Tool Works alone, today employs over 60,000 people and stewards trillions of dollars.