Welcome author Ben Tarnoff, and host Elias Altman, Associate Editor, Lapham’s Quarterly.
[As a courtesy to our guests, please keep comments to the book. Please take other conversations to a previous thread. - bev]
Elias Altman, Host:
Massachusetts issued the New World’s first paper currency in 1690. With poor soldiers returning from a failed campaign against the French in Quebec, the colony found itself short on silver and copper coins to pay the men for their service. To solve the problem, the government printed bills of credit—promises of payment once the colony had collected more taxes. These slips of inked paper, deeds to a future fortune, quickly spread, offering a convenient medium of exchange for all thirteen colonies, whose reserves of precious metals were scanty and often concentrated only in the hands of the rich.
The bills of credit began to function almost as if they were the hard currency that they were standing in for, and it didn’t take long for the two to grow dangerously disproportionate. The first attempt to convert all bills of credit back into silver or copper coins in 1750–1751 proved impossible: the Massachusetts treasury simply ran out of hard currency. To make up for the shortfall, they printed more bills. The gulf between the demand for paper currency and the supply of precious metals widened. The only thing that could bridge the gap was confidence—a confidence in both the promise of the paper and in the reliability of the person handing it to you. This confidence proved to be a lucrative belief to exploit—if you were the right sort of man. The three counterfeiters Ben Tarnoff tracks in Moneymakers were such men par excellence.
The first counterfeiter Tarnoff deals with is Owen Sullivan (c. 1720-1756), a liquor-loving Irish immigrant whose life unfolds like a Thackeray novel: he ran away from home at the age of thirteen; sold himself into servitude to pay his way to America; learned engraving while fighting the French in Maine; began printing bills in Boston around 1749; and became a highly successful counterfeiter for seven years, as he crisscrossed the colonies, each of which had their own distinct bills, printing paper money in the woods and disseminating them in taverns. When he died in 1756, the French and Indian War had begun, necessitating more bills of credit to fund the effort. Matters only got more complex after the Revolution.
The drafting of the Constitution in 1787 marked a turning point in American financial history: the document stipulated that only Congress should “coin Money, regulate the Value thereof, and of foreign Coin.” It disallowed individual states from printing paper bills; they could only mint hard currency, silver and copper coins. The fact remained, however, that there was not enough hard currency to go around, and so the de facto medium of exchange in the first decades of the republic became banknotes, pieces of paper issued by state-approved banks that could be exchanged for the hard currency that the banks supposedly had in their vaults. There was little regulation. The number of state banks grew from 29 in 1800 to 250 in 1816.
In this chaotic environment, the charming and roguish David Lewis (1788-1820) thrived as a counterfeiter. In Sullivan’s day, a counterfeiter could copy only thirteen types of bills; Lewis on the other hand had hundreds to choose from, so he printed bills from banks across state lines, banks no one had ever heard of, even banks he made up. Amid the Panic of 1819—a repercussion of the government’s attempt to re-regulate the currency, thereby creating a credit crunch—Lewis, traipsing across Pennsylvania, emerged as a Robin Hood figure. If a bank could print money that had no intrinsic worth, why couldn’t he?
Finally there was Samuel Upham (1819-1885), an enterprising New Englander who become a profitable (and essentially legal) counterfeiter in Philadelphia at the start of the Civil War. Upham began printing facsimiles of Southern currency in his newspaper as souvenirs, keepsakes of the little war, but soon enough poorly paid Northern soldiers were bringing them to the South as a way to buy food and lodging from townspeople. The effect was unmistakable: the fledgling Southern economy was being undermined, inundated by a flood of false bills. A diarist in New Orleans remarked that the Union soldiers were just a bunch of “speculators and thieves” who went “to battles with their pockets stuffed with counterfeit Confederate money.”
In the summer of 1861, Lincoln’s Secretary of the Treasury, Salmon Portland Chase, drew up a plan to raise funds for the war effort: the Treasury would borrow around $250 million from both Wall Street financiers and average Americans by issuing a series of twenty-year bonds, interest-bearing notes exchangeable in three years, and lastly “demand” notes that could be redeemed at any time. These last notes came in small denominations, and they quickly became a medium of exchange. The following year Congress passed a law that gave legal tender status to all “demand” notes in circulation, plus another newly minted $100 million. These “greenbacks” were no longer promises of money, they were money. Why? Because the U.S. government said so. No longer necessarily backed by gold or silver, “greenbacks” were imbued with value by being the credit of the U.S. The decisive move came with some opposition—after all the Constitution was vague on the legality of such federal power—but since defending states rights’ at the time was about as wise as speaking German fluently during World War II, the plan went ahead. The greenbacks and other national currency gradually displaced the state bank bills, eventually becoming the only paper money in the U.S., paving the way for the modern American dollar.
With each counterfeiter working during a different period of American history, Tarnoff tells not only of their fascinating and devious lives but also of how the country has always, to a certain extent, operated on a faith-based economy, one in which the demand for money exceeds the reserves on hand, resulting in huge booms and equally large busts. The Industrial Revolution and Westward expansion floated on a sea of debt—new railways, new land, and new factories were built with money borrowed on the confidence that the enterprises would inevitably succeed, and that debts would be honored. This doesn’t always happen, a fact in which we’ve recently been painfully schooled. And as Tarnoff in Moneymakers makes clear, it’s also a lesson we’ve been taught a great many times.