New American Currency and Counterfeiting

Federal authority and power expanded greatly during and after the Civil War, in many areas of civilian life. Much of it was in response to the exigencies of the war and its after-effects. Some policies, however, were instituted because of the opportunity provided by the war, specifically, because of the absence of seceded congressmen from the South who had wielded enough political power to block many of the reforms old Whigs and new Republicans wanted. One of these areas where the federal government stepped up its influence and authority was the nation’s money supply. Before the war, state-chartered banks issued their own paper money, backed by their own assets, with very little oversight. This money could be redeemed for full value in gold only at the issuing bank. Other banks may redeem the certificates, but at a discount, and the further away from the issuing bank the certificate floated, the deeper the discount. (Gold was necessary for certain payments, like taxes and customs duties — basically any payment to government entities; but sometimes people just wanted gold, or ‘hard money’.) Because there were so many different issues of paper money, counterfeiting was easy and rampant, especially in isolated areas where a bank’s issue may not be familiar.

During the war, the Lincoln administration needed a solid, uniform method of paying Union troops and honoring other financial commitments. (The Davis administration in the Confederacy faced the same problem.) The economy also needed to be stabilized and that required a monetary system grounded in dependable banks. Andrew Jackson’s successful war against a centralized bank during his presidency (1829-1837) still resonated with the American public, so the Lincoln administration deconstructed the idea of a central bank by authorizing certain, qualified banks already in existence throughout the nation to issue banknotes. Qualifications required these banks to buy federal government bonds from the Treasury (thus creating the necessary assets to back the banknotes issued by the banks) and to submit to federal oversight. There were still state-chartered banks, but these would eventually bow under the weight of the emerging national banking system. State-chartered banks were more susceptible to failure because they were isolated entities and did not have access to the deep assets that federally-chartered banks did, to head off runs during financial panics. Despite the entrenched fear Americans held of federal control of the banking system, it simply became a matter of self-interest to pass-up the dubious stability of state-chartered banks for the better-funded national banks, and state banks faded away.

The first issues of federal money were called green-backs (printed with green ink on the backs). These notes were not backed by gold or silver, but by “the full faith and credit of the United States” government; they were by law to be accepted for any debt as legal tender. This paper money proved successful, but more importantly, necessary to the national economy — business could be conducted in all regions, exchanging money using the same notes. It should be noted that there were all different types of federally issued money besides dollar bills of different face values: postal money, fractional money (paper money with face values less than one dollar — later replaced by coins), interest-bearing notes, notes that could be redeemed in gold or silver, even paper money acceptable for paying taxes. All these different instruments were subject to counterfeiting.

Counterfeiting is simply fabricating money without legal authority, but there is nothing simple in the process or in the circulation of the bogus currency. Before the establishment of the Bureau of Printing and Engraving and all the other divisions of the Treasury that safeguard the integrity of American currency, the work was contracted out to private banknote companies who coincidentally also created and printed the banknotes for state-chartered banks as well as certificates for railroads, canals, and other investor-backed corporations. The process of engraving the plates from which money, notes, and certificates were printed was painstaking and slow, and these banknote companies employed the most skilled of these engravers. It is not surprising that a few of these engravers found it more profitable to engage in counterfeiting in their off hours.

Engraving was certainly the most labor-intensive step in counterfeiting, but there was also the printing. Printing was costly, at least initially. Special printing presses were needed, as well as the usual supplies like paper and ink. The engraver, the printers, and the supplies all cost money. There was usually a group of counterfeiters who pooled together their money to fund the operation; sometimes, capital came from other sources. Once the counterfeits were printed, it was time to circulate them. Boodle (slang for counterfeit; “the queer” was also used) carriers moved the counterfeits in bundles (boodles) from the point of production to the points of distribution, where the boodles were distributed to ‘shovers’. Shoving entailed buying the cheapest item in a store or spending the least amount possible, using the counterfeit to pay, then receiving legitimate money in change. This was all well and good unless the merchant recognized the counterfeit, at which point the shover would face arrest. Shovers, then, were the street face of counterfeiting, the ones who were paid the least and risked the most. If all went well, however, at the end of the day all the legitimate money was brought to a manager of sorts, who then paid the pushers a small percentage of the ill-gotten gains.

Sometimes the counterfeit went undetected through several transactions, and then it was the burden of the last person to pass the counterfeit to prove that he or she had done so in innocent ignorance. This was often the case — a counterfeit accepted at a store was then given to a customer as change, which was then used later at another store or place of business and so on, until finally detected — but sometimes a merchant discovered too late he had been duped and he was all too happy to pass the counterfeit on to someone as unsuspecting and ignorant as he. To help both the average citizen and the merchant escape the sting of counterfeiting, publications called counterfeit detectors were issued, among them Peterson’s Counterfeit Detector and Heath’s Counterfeit Detector. These publications gave in minute detail the differences between genuine notes and bills (from both state-chartered banks and the federal government) and their counterfeit counterparts. To avoid being cheated, people would need to have committed to memory all the different types of money circulating as well as all the differences found in the counterfeits, or carry with them their counterfeit detectors to consult at each transaction. Surprisingly, it took some time before the obvious strategy of simply knowing, in detail, legitimate money took root. The Secret Service began its own campaign to this end, entitled “Know Your Money,” that is, don’t memorize all the myriad counterfeits, memorize your one true currency.

Note:
‘Counterfeit’ was applied to more than money. Drugs, patent medicines and beauty supplies were also frequent targets and customers were constantly admonished in newspaper advertisements to ‘Accept no counterfeits’ and ‘Beware of counterfeits.’ The word counterfeit was also used in the same manner that today the word ‘fake’ is used — emotions, sentiments, and values could be counterfeited (faked), a person could be a counterfeit (pretending to be something he or she is not; not to be confused with impersonating someone else).