City Money vs. Country Money
Monday, October 12, 2015 Filed in: Book Reviews
A Nation of Counterfeiters: Capitalists, Con Men, and the Making of the United States
Stephen Mihm, 2007
Mihm’s argument is actually a little wider than the sensational title suggests. Basically, he says the monetary chaos of the antebellum years prevented Americans from feeling confident in their currency, and by extension, in their economy and nation. “The Civil War, and the search for national unity it fostered, compelled the federal government to secure the right to make money.” The nation’s fight against counterfeiters (including the establishment of the Secret Service by near-criminal William Patrick Wood) and nationalization of the currency were necessary steps in the United States becoming “a genuine nation...[with] confidence in both our country and its currency.” (374) In my opinion, this argument is anachronistic. I think it's nearly impossible for American historians to imagine an America without a single, national currency, and this shows in the way we talk about the period before the Lincoln administration consolidated the money supply. Most of Mihm's narrative, however, covers the colorful lives of the counterfeiters themselves, and doesn’t advance his thesis; which in the end seems like an afterthought, used to justify Mihm’s interest in the story of counterfeiting -- which is interesting enough on its own, it didn’t need justification.
For my purposes, the interesting bits are the glimpses into the chaotic but legally legitimate world of antebellum state banking -- although I have to admit, Waterman Ormsby, founder of the Continental Banknote Company, is a really attractive character that I’d love to read more about. By the 1850s, Mihm says, “with so many entities commissioning bank notes of their own design...the money supply became a great confluence of more than ten thousand different kinds of paper that continually changed hands, baffled the uninitiated, and fluctuated in value according to the whims of the market.” (3) Not only was some of the money phony, says Mihm; a lot of the paper circulating in remote areas was “the floating issue of broken banks.” (quoting Maine storekeeper John Neal from Wandering Recollections of a Somewhat Busy Life, 1869. 6) I think the situation was chaotic, but also an attempt by people in rural communities and even Western cities to achieve economic independence from the Eastern money center-- and that this self-determination was squashed by the Lincoln administration's banking and currency policy.
“It was a popular remark among men of business at this time,” Mihm quotes Allan Pinkerton saying in his 1884 memoir, “that they preferred a good counterfeit on a solid bank to any genuine bill upon [a] shyster institution.” (10) The Maine storekeeper agreed: “In our establishment, all such moneys, whether counterfeit, or only questionable, were always put back into the till.” (10) The willingness of people to pass on suspect notes reveals not only a decision not to be a martyr for the sake of “good” money, but what I see as an already well-developed, fairly sophisticated understanding that the money itself was only a symbol. Mihm quotes a Michigan resident’s recollection that “counterfeiting and issuing worthless ‘bank notes’...was not looked upon as a felony as it would be today. Of course it was taken for granted that it was a ‘little crooked,’ but the scarcity of real money, together with the necessity for a medium of exchange, made almost anything that looked like money answer the purpose.” (Mihm quotes from Mevis, Pioneer Recollections: Semi-Historic Side Lights on the Early Days of Lansing, 1911, 33-4. 159) “Money” doesn’t have to have intrinsic value, as long as it represents value -- which it would continue to do, until someone took it to a bank and had it refused. Not wanting to be that person, anyone who received a note would pass it on, and so bogus notes would tend to stay in circulation, boosting the money supply. An 1857 newspaper reported “it is a favorite maxim with some to ‘keep bad money in circulation,‘ for they say it makes no difference whether a bill is counterfeit or not, as long as it will pass around freely.” (from The Weekly Pantagraph, 233) I wonder to what degree shaky local banks benefited from the note reluctance of holders to find out their circulating currency was worthless?
Counterfeiting seemed to some critics to highlight the deficiency of paper money. To many hard-money enthusiasts, paper currency wasn’t payment, it was the “promise to pay, which, by universal understanding, is meant to signify the promise to pay on condition of not being required to do so.” (quoting United States Magazine and Democratic Review, 1839, emphasis in original. 9) Any paper issue not 100% backed by specie was in their opinion, a swindle on somebody. Of course, the biggest enthusiasts of hard money were the holders of specie. Paper money was just a little too…democratic.
Even in states with sophisticated regulatory arrangements, like New York (which had an insurance pool, but also had free banking), the authorities clearly recognized that even legitimate banks might be tempted to print more notes than they “should.” “In an attempt to prevent these ‘genuine counterfeiters,’ New York passed a law in 1843 requiring that banks deposit their plates with the state’s comptroller of the currency.” (283) By the time the guys I’m researching became bankers (in Western New York in the early 1860s), there was a semi-governmental printing office that they would write to, for more notes.
Another character who seems to demand a closer look is John Thompson. Originally a counterfeit detector, Thompson founded the First National Bank of New York in 1863, when other New York bankers were resisting LIncoln’s consolidation of National Banking. Thompson was forced out in 1873, but went on to found Chase National bank in 1878, named after his good friend Salmon P. Chase (Mihm quotes from Thompson's “Sixty Years in Wall Street,” in The American Banker, 25 April 1891) Thompson was born in 1802 on a farm in Peru, Berkshire County, Mass. So there's probably a good story to be found there. All in all, even though Mihm’s interest in the counterfeiters doesn’t line up completely with my interest in the “legitimate” but still quite sketchy free state banks, I got a lot out of A Nation of Counterfeiters.