A Counterfeiter's Paradise (24 page)

More paper, of course, also meant more opportunities for criminal moneymaking. Although the Bank had suffered from counterfeiters, it had the advantage of being able to coordinate a centralized strategy for dealing with them. Now that the money supply was in the hands of a rapidly growing number of banks—almost six hundred by 1836—it became impossible to organize a coherent plan for confronting the nation’s thriving banknote forgers. It certainly didn’t help that many of those who had cut their teeth counterfeiting the Bank’s well-designed bills had been released by Jackson, who pardoned more of them than any preceding president—presumably on the principle that since the Bank was unconstitutional, forging its notes shouldn’t be illegal.

The great irony is that the man most responsible for inaugurating an era of unregulated paper currency held the same hard-money views that had descended in a straight line from Thomas Hutchinson to the authors of the Constitution. In his farewell address in March 1837, Jackson made arguments that echoed the Massachusetts money war almost a century earlier, when Hutchinson tried to eradicate colonial bills of credit. Paper money had infected Americans with an “eager desire to amass wealth without labor,” Jackson asserted, threatening not only to undermine economic stability but to endanger the nation’s democratic institutions. Until paper had been replaced with precious metals, the “moneyed interest” would keep using it to exploit the “millions of freemen” who formed “the bone and sinew of the country.” Before he left office, Jackson put these hard-money beliefs into practice with an executive order called the Specie Circular. A major source of government revenue came from the sale of public lands, mostly in the Mississippi and Ohio River valleys, and since the Bank’s demise, speculation in those lands had greatly increased. In the hopes of dissuading speculators, the circular required that all payments for these purchases be in gold and silver, not paper notes.

Rather than strengthening the currency, the Specie Circular contributed to a catastrophe that highlighted the fragility of the economy Jackson
had created. It heightened the demand for coin in the West, draining the banks of New York City, which in the aftermath of the Bank War had emerged as the country’s new financial center of gravity. At the same time, the Treasury Department carried out a disorderly series of specie transfers among the state banks that held the government’s deposits as part of an effort to distribute the federal surplus to the states. This produced an even greater outflow of precious metals from New York and other banking hubs, resulting in a credit crunch that culminated in the Panic of 1837.

In May, runs on New York’s banks forced them to suspend payment of coin, and as the hysteria grew, the rest of the nation’s banks did the same. Confidence plummeted and more than a quarter of America’s banks went bust. Just as it had during the last Panic eighteen years earlier, the financial collapse inflicted a harsh human toll, especially in the cities where unemployment was acute. In the winter of 1836–1837, a mob of almost a thousand people gathered outside New York’s City Hall and, enraged by skyrocketing food costs, went on a rampage through Manhattan. They ransacked stores and hurled barrels of flour and wheat into the street; when the mayor tried to intervene, they pelted him with rocks. The riot terrified the city’s conservatives, reminding them of the French Revolution. But the real architect of the unrest was Jackson, whose laissez-faire legacy had made the economy vulnerable to the booms and busts of a violently mercurial market. When crisis struck, as it inevitably did, there was no national bank to restore order.

By the time Jackson left the White House, the country included twice as many states as it did when he first became president, and over the course of the next decade, it would extend across the continent to the Pacific coast. Some of the new states took laissez-faire to an extreme, enacting so-called free banking laws that enabled anyone who met certain conditions to start a bank immediately without obtaining a charter from the legislature. This radical democratization of finance reflected the idea that banking, as a trade like any other, should be open to everyone; it
also meant the number of note-issuing banks could be essentially infinite. While some free bankers turned out to be responsible businessmen, the system created endless opportunities for fraud. In Michigan, the first state to pass such laws soon after its admission to statehood in 1837, stories circulated about “wildcat” banks built on remote patches of wilderness—on the theory that people couldn’t redeem the banknotes if they couldn’t find the bank—whose reserves consisted of kegs full of broken glass with a handful of coins sprinkled on top.

The uninhibited flow of paper credit that prevailed under free banking represented a triumph for the entrepreneurs who had helped kill the Bank. But they didn’t succeed everywhere. While some states deregulated banking, others banned it entirely. In places like California and Oregon, where precious metals were plentiful, the prohibition didn’t produce a currency shortage. But in the vast midwestern interior, settled by farmers whose distaste for finance dated at least as far back as Thomas Jefferson, the absence of legal banks deprived people of a medium of exchange. Despite these states’ antibanking bias, they desperately needed money to trade goods and fund development. So paper currency found a way to flourish even where it wasn’t permitted, as it always had in the past. Across the Mississippi in the territory of Wisconsin, the legislature, while firmly opposed to banks, chartered the Wisconsin Marine and Fire Insurance Company to receive deposits and make loans. The company gave its depositors certificates that passed like money: the bills enjoyed an excellent reputation and worked just as well as those of a chartered bank. When the legislators angrily responded by repealing the charter, the Wisconsin Marine and Fire Insurance Company decided to stay in business anyway, becoming one of the country’s most important banks. It wasn’t alone. Unincorporated banks sprang up across the country and printed notes that, while illegal, sometimes held their value better than those of their competitors.

Then there were the counterfeiters. Compared to the hundreds of free, wildcat, and unchartered banks sprouting across the countryside,
counterfeiting was a straightforward swindle, the black margin to the various shades of gray that made up the financial spectrum. With so many kinds of paper money to forge, moneymakers thrived. They forged notes of existing banks, invented fictitious ones, or stole plates from defunct banks and resurrected their bills. As Americans surged west, they followed. In frontier towns they scammed pioneers who couldn’t tell fake money from genuine; in cash-strapped settlements they put currency into the hands of people who didn’t care if it was fake so long as it could circulate. Just as Owen Sullivan holed up in New York’s swamps and David Lewis hid in Pennsylvania’s mountains, so the next wave of counterfeiters found terrain that fit their trade, setting up shop in the wilder recesses of an expanding nation. There, far from the authorities’ limited reach, they made money and distributed it to communities across America.

By the middle of the nineteenth century, the American economy was powered in large part by promises that couldn’t be kept. These came from legitimate and illicit moneymakers—counterfeiters, chartered institutions, and unincorporated banks—that together financed the transformation of the country. Belief buttressed the currency, and it proved a powerful tool. Americans willed a nation into existence on an immense, unfamiliar continent, and this act of faith was made possible by a million smaller ones: the confidence that pieces of paper had value.

O
N FEBRUARY 22, 1862,
damp flags fluttered along Pennsylvania Avenue as thousands of citizens walked toward the Capitol to commemorate the 130th anniversary of George Washington’s birth. They passed beneath its unfinished dome in the wet, gloomy weather and joined the throng of people trying to get inside. Seated in the House of Representatives were the government’s most powerful men: congressmen and senators, generals and commodores, cabinet members and Supreme Court justices. They had come to hear the secretary of the Senate read Washington’s Farewell Address, the day’s main event. In his final message as president, Washington had urged Americans to put aside their regional loyalties and unite as a nation—advice that, ten months into the Civil War, must have seemed powerfully prophetic to the sea of solemn faces gathered in the crowded hall.

Not all celebrations were as somber as the scene at the Capitol. In Philadelphia, a shopkeeper named Samuel Curtis Upham watched lively crowds surging through the streets to the celebratory sounds of cannon fire. He stood about five feet eight inches tall, with a high forehead and a square chin. His frank, alert face exuded common sense and sobriety, qualities that set him apart from the merrymaking mob. Women wore old dresses they didn’t mind getting dirty and young toughs pushed strangers
for fun, provoking good-natured shoving matches. When night fell, specially prepared lights illuminated the city. Merchants on Chestnut Street competed for the brightest, best-decorated storefront, adorning their windows with silk and satin banners dyed red, white, and blue. Upham was one of them: his shop stood at the intersection of Chestnut and Fourth, across from the Greek Revival building that had housed the Second Bank of the United States in its final years. He lit his store’s narrow facade so brilliantly that it caught the eye of a passing journalist, and when Philadelphia’s weary residents picked up the
North American and United States Gazette
that Monday, they found a description of it on the front page. Upham’s facade featured one of the night’s most impressive displays, the journalist wrote, “a blaze of glory from basement to apex.”

On Monday morning, Upham woke up and went to work. He lived on the south side of town, about a mile and a half from his store at 403 Chestnut Street, where he sold stationery, newspapers, and cosmetics with names like Upham’s Hair Dye. Perhaps in part because of the
Gazette
’s favorable report, business that day was brisk. One customer after another came in, and they all wanted the same thing: not the
Gazette
but its competitor, the
Philadelphia Inquirer
. Even after Upham ran out of copies, people kept stopping by to look for it. The
Inquirer
had attracted many new readers with its war coverage, which was so exhaustive that the Union government commissioned special editions to distribute to soldiers. Still, demand for the February 24, 1862, issue struck Upham as unusually high. Puzzled, he asked one of his patrons what made that day’s
Inquirer
so sought-after.

The answer was on page 1. Just below the Gothic type of the newspaper’s title, the editors had printed a copy of a $5 Confederate note. The
Inquirer
’s reproduction was primitive: the original had been beautifully executed in red and black ink, with finely textured etching that disappeared in the transfer to newsprint. But people didn’t care: they had never seen rebel money before and were fascinated by it. Like the continental
currency printed by American revolutionaries almost a century earlier, the Confederate bill was more than money: it was also propaganda. The design’s dignified imagery and elaborate artistry were intended to give the new Southern nation an aura of legitimacy. It included the Roman goddess Minerva on one end and a robed statue of Washington on the other; in the center sat five cherubic women representing Agriculture, Commerce, Industry, Justice, and Liberty, right above the emblazoned words “Confederate States of America.”

The note promised its redemption for coin “Six Months after the Ratification of a Treaty of peace between the Confederate States and the United States.” This explicitly staked the money’s value on a Southern victory—if the Confederacy didn’t sign a treaty with the Union securing its independence, the note wouldn’t be redeemed, which made everyone who used the money a stakeholder in the Confederate cause. The note could also be used to pay public debts like taxes. The
Inquirer
’s strongly pro-Union editors weren’t impressed. Below their crude replica they remarked that the day’s issue of the
Inquirer
, which cost two cents, was worth more than the $5 Confederate bill. “Those who entertain a contrary opinion,” they added, “may hand us the small balance of $4.98, due after purchasing each copy of the paper.”