A Counterfeiter's Paradise (15 page)

THE MECHANICS OF MONEYMAKING
had changed little in the almost sixty years between Noble’s capture in Vermont and Owen Sullivan’s first efforts in Boston. Both men inscribed copper sheets, and did it so well that they saw their workmanship praised by the same newspapers that demanded their arrest. But the financial universe that each engraver inhabited was completely different. Sullivan forged bills of credit printed by local governments. While a colony’s money often circulated outside its borders, there were only as many currencies as there were colonies: Massachusetts money, Rhode Island money, and so on.

The bills strewn on the floor of Noble’s cave in 1807, on the other hand, didn’t display government insignia; they carried names like Bank of Vermont, Bank of New York, and Bank of Columbia. In the first few decades of the Republic, these banknotes had become America’s de facto medium of exchange. They were denominated in dollars, the new nation’s official unit of currency, derived from the Spanish silver dollars that had circulated on the American continent for centuries. Foreign currency still
made up the bulk of the country’s supply of coins, and although the U.S. Mint in Philadelphia had begun striking federal coins, it couldn’t produce enough to meet the demand. Banknotes helped solve the problem by substituting paper dollars for hard dollars. In theory (although not always in practice), the bank’s paper could be exchanged for precious metals at the banks, and while not technically legal tender, they served the same purpose as colonial bills of credit had decades earlier. Far from discouraging these institutions, state legislatures granted them charters, eager to stimulate their markets with infusions of capital.

Local governments had a practical reason for favoring this arrangement. The framers of the Constitution had hoped to put an end to the use of paper money by expressly forbidding the states to produce it. By chartering banks that printed the notes instead of doing it themselves, the states circumvented this ban. But there was another, even bigger loophole that let Americans retain their dependence on paper money: the distinction between banknotes and bills of credit. While the difference might seem minor, it was crucially important for the nation’s first generation of leaders. When the delegates met in Philadelphia to draft the Constitution in 1787, the country had three banks—the Bank of North America, the Bank of New York, and the Bank of Boston. Their notes were considered highly reliable: unlike colonial bills or wartime continentals, they could always be redeemed for coin. As strident a critic of paper money as Thomas Paine enthusiastically endorsed the use of banknotes. While bills of credit substituted the shadow of paper for the substance of silver or gold, banknotes didn’t raise any thorny metaphysical issues: they weren’t money, Paine wrote, but “hostages to be exchanged for hard money.” Instead of hauling around gold and silver, people could trade these useful hostages to make payments—IOUs that eased the flow of commerce without unhinging value from its foundation in precious metals.

Most of the Constitution’s drafters shared Paine’s sentiments. Although some delegates remained wary of banking, their arguments revolved
around the constitutionality of granting bank charters, not on the potential effect of banknotes. No one on the convention floor seems to have seriously considered the possibility that banknotes would become a new form of paper currency even more volatile and complex than the colonial money it replaced. The final document to come out of Philadelphia, while strongly opposed to bills of credit, included not a single clause on banks or banknotes.

The silence was significant. It effectively postponed the debate over the nation’s financial future, although not for very long. The first controversy erupted in 1790, and while it didn’t deal with banknotes directly, it had serious implications for the fate of American banking. The argument centered on whether the federal government had the constitutional power to charter a national bank called the Bank of the United States. The Bank’s chief supporter was Alexander Hamilton, easily the country’s most sophisticated thinker on financial matters. He had been working on the idea for a while; in fact, he outlined it a decade earlier, as a twenty-four-year-old aide-de-camp to General Washington. In the winter of 1779–1780, when the British looked as if they would win the war, Hamilton was encamped in New Jersey with Washington and the ragged Continental army. The country was in an economic free fall: its soldiers poorly provisioned, unpaid, and close to mutiny; its citizens bankrupted by a glut of worthless continentals.

Hamilton’s recovery plan involved creating a kind of superbank that could bolster the nation’s finances, fund its flagging military, and restore public confidence. It would be a commercial bank owned partly by the government and partly by private investors, but also much more: it could borrow from foreign creditors, help collect taxes, and do anything else required to keep the state solvent. When Washington became president and appointed his old aide secretary of the treasury, Hamilton hoped to see his idea through.

As could be expected from the grumbling at the Constitutional Convention about the constitutionality of bank charters, Hamilton’s proposal prompted a fierce dispute. Each side imputed a different meaning to the Constitution’s silence on the issue. The Bank’s opponents—Thomas Jefferson and James Madison, among others—said the federal government couldn’t charter a bank, because its only powers were those specifically given by the Constitution; the states retained the rest. Hamilton disagreed, insisting that the federal government had the right to do whatever was necessary to govern effectively, so long as it wasn’t expressly forbidden by the Constitution. At issue wasn’t what the document said but what it left unsaid, and what the muteness meant. Hamilton submitted the bill in December 1790; Congress passed it the following February, and Washington, after much deliberation, signed it into law. The Bank’s charter lasted twenty years. The argument surrounding it, however, continued for decades, until the Civil War put a bloody end to the power struggle between the central government and the states.

Although Hamilton got his Bank, the federal government never had a monopoly on banking. States had already chartered their own banks, and they would soon charter many more. At first, these institutions tended to be conservative. Most were run by wealthy merchants with a passion for scrupulous bookkeeping: they didn’t issue more notes than they could redeem and lent money only on a limited, short-term basis. Someone who wanted a loan didn’t just walk in and fill out an application; the directors carefully reviewed every request before deciding whether to grant it. Rules were strictly observed and credit closely held.

In the last decade of the eighteenth century, the ground began to shift. Demand for more banks and looser regulations grew. Just as in colonial days, the pressure came partly from farmers, who resented the merchants’ monopoly on the money supply. But there were new voices as well: speculators, entrepreneurs, and investors who needed cheap credit to finance
their ventures in an expanding domestic economy. Foreign trade, which for years had dominated American business, gradually gave way to profitable industries at home. Rivers that had irrigated farms for centuries now powered manufacturing mills; a construction boom in roads, bridges, and canals connected people and markets as the country pushed west, spurred by an influx of immigrants looking for land. The scale of American ambition had greatly increased since Benjamin Franklin’s era. But one problem familiar to Franklin remained: initiative was abundant and available capital scarce. The solution was to print more money, which is exactly what the new banks did. As a result, the once stable relationship between banknotes and precious metals started to unravel as banks issued bills beyond what they could convert into coin. The new economy would be funded on faith, not silver and gold; on the hope that a series of risky undertakings—American independence, republican government, free markets, and the settlement of the West, among others—would pay off.

When Noble wrote his congressman about his gun barrel grinder in 1800, the United States had 29 banks. By the time Lewis broke out of jail during the bombardment of Fort George in 1812, the number exceeded 90, and within the next four years, reached almost 250. A key event in this financial explosion—contemporaries called it “bancomania”—was the closing of the Bank of the United States in 1811. As the nation’s largest bank, it acted as a creditor to the smaller institutions scattered throughout the country and held many of their notes. By pressuring the state banks to pay their debts and redeem their bills, it helped keep them in line. For that reason, the Bank had many enemies, and after a heated fight, Congress voted not to renew its charter. The Bank’s dissolution removed an important constraint on the nation’s financial craze and opened the door to more banks and more paper.

Noble’s experience as an engraver on the Canadian border gave him everything he needed to make the most of the money mania. It was a
good time to be a counterfeiter, and for Lewis, it was a good time to learn. Decades later, a seventy-nine-year-old James Madison was asked whether he thought the states had the right to create banks. Madison replied that they did, so long as the states didn’t make the banks’ bills legal tender. The Constitution’s authors, he explained, hadn’t predicted that banknotes would become such “a great evil” and, even if they had, faced so many other hurdles in drafting a document that everyone could accept that they might have avoided addressing the issue anyway.

IN 1813, AS AMERICA STRUGGLED
to finance a war against a vastly superior enemy without the benefit of a national bank, Noble and Lewis decided to head south to Pennsylvania. It’s not clear when the two men teamed up; they had probably begun their partnership in Canada shortly before returning to America together. Lewis knew the way, since he had made the trip before, presumably to pass bad bills. But this time the counterfeiters weren’t just looking for more markets for their notes; they needed a new headquarters for their operation. The northern border had become dangerous. As Lewis had learned at Niagara the previous fall, fleecing soldiers was a hazardous business: it risked provoking field commanders like Brock, whose summary justice made civilian courts look plodding and feeble in comparison. The trip to Pennsylvania required traveling hundreds of miles, from the lake-dotted landscape of Canada to the green hills and valley streams of the Allegheny country where Lewis grew up. Their destination was the town of Bellefonte, only one mountain ridge away from Lewis’s birthplace on Bald Eagle Creek. Lewis wanted to keep his visit a secret. If he and Noble were going to scout the area for potential moneymaking hideouts, they would have to maintain a very low profile.

Around midday in late March, Lewis’s older brother Thomas heard a knock on the door of his house in Bellefonte. Outside stood a heavyset
bald man who identified himself as Philander Noble and asked for a place to stay. Lewis must have sent word ahead of time; it’s hard to believe that Thomas would have let the shifty-looking stranger in otherwise. He arranged for Noble to stay with his mother, Jane, the twice-widowed Presbyterian, now in her sixties. As for Lewis, he came separately, after Noble. He lodged with Thomas or Jane but used an assumed name with others, hoping not to be discovered.

While a brilliant engraver, Noble was neither likable nor discreet. He lasted a week in Bellefonte before the locals hauled him before two justices of the peace on suspicion of being a British spy. The townsfolk’s fears weren’t unreasonable. They were fighting a war against an enemy who looked like them, who spoke the same language, and with whom they shared a long, porous border: the possibilities for infiltration, even in a community as strategically insignificant as Bellefonte, were enormous. The justices took the threat seriously. “[I]t is the duty of the Magistrates and Citizens of the United States to guard against the intrigues of the enemy,” read their report. A mysterious new arrival from British Canada in a rural town in central Pennsylvania seemed intriguing enough to investigate. The witnesses the justices called to testify, however, could offer no evidence other than a vague feeling that Noble was a shady character, furtively conspiring with Lewis on something they knew nothing about. Lewis had already acquired a bad reputation since fleeing to Canada—for “his capers,” as one witness put it, likely a reference to his counterfeiting—and his returning home with Noble in tow made people nervous. One man told the justices that Noble carried a gun; another said pointedly that he hadn’t revealed anything “about who he was or what he was about.” A third witness, summing up the general view, labeled Noble a “strange man.”

It’s doubtful that the citizens of Bellefonte even believed Noble was a spy. The likelier scenario is that they wanted to bring him in and used the espionage accusation as an excuse. But if they hoped to discover something else about Noble’s activities, they would be disappointed: the
inquiry produced nothing concrete. Thomas, for his part, cast doubt on the other witnesses by directly contradicting them when it came his turn to testify. “I do not know that this man has any connections with my brothers,” he said of Noble, “nor I never heard him say he had.” This was a blatant lie, uttered in the hopes of protecting his younger sibling.

Even though the justices had found no proof of his crimes, Noble, when called to speak, gave statements that sounded curiously like the nervous ramblings of a guilty man. Whoever transcribed them for the court’s records had to copy his words in brisk cursive, punctuating the phrases and fragments with hastily scribbled dashes to mark his many abrupt shifts. He scurried from one topic to the next, giving an erratic account of his past while carefully omitting anything about his counterfeiting career. He said he came to Pennsylvania to buy land and denied collaborating with Lewis—he thought they had once met, but didn’t remember being “particularly acquainted.”

The next day, however, Noble took a different tack. No longer scattered and incoherent, he now told a story intended to cast himself in a more sympathetic light. First he made an important confession: not only did he know Lewis, he had journeyed with him part of the way from Canada to Pennsylvania. The tale of their crossing began the previous February, as British and American soldiers watched each other warily from opposite sides of the frozen St. Lawrence River, the long waterway dividing Canada from New York. Into this war zone stepped Noble and Lewis, who managed to slip through the British lines and walk one and a half miles across the ice to the other side. They reached the town of Ogdensburg, where they met the American commander, a spirited southerner named Captain Benjamin Forsyth, and warned him of an impending British attack. Forsyth provided the men with passes to enter the States—which Noble had since lost, he hastened to add—and they continued southward across the countryside.