A Counterfeiter's Paradise (30 page)

Such a dramatic step provoked sharp opposition, and the debate in Congress had been fierce. The belief that gold and silver were God-given measures of value, irreplaceable by a man-made material like paper, ran deep. It had a long history in American life, exerting a remarkably persis-tent power over people’s minds even as the country shed its other superstitions. Some of the arguments made in Congress against legal tender were at least a century old. A representative from Illinois, Owen Lovejoy, compared the new notes to the Catholic doctrine of transubstantiation, a parallel that had been drawn 141 years earlier by a Protestant minister in Massachusetts denouncing colonial bills of credit. The point was the same in 1721 as in 1862: faith couldn’t transform paper into gold any more than it could change bread into the body of Christ.

The strongest case against the Legal Tender Act of 1862 wasn’t metaphysical but constitutional. The Constitution had a few things to say about money: it gave Congress the power to mint coins and explicitly
forbade the states to issue bills of credit or designate anything other than gold and silver as legal tender. But it was silent on a range of issues, like whether the federal government could legislate a bank, print paper money, or make paper legal tender. This silence had been at the center of the country’s most bitter constitutional struggles since the fight over Alexander Hamilton’s first Bank of the United States in 1790–1791. Hamilton and his allies argued that the authority to create a bank was implied by the Constitution, which broadly empowered Congress to pass any laws “necessary and proper” for fulfilling its other duties. His enemies countered that the national government didn’t possess any rights it wasn’t specifically granted, those being reserved for the states. This latter interpretation eventually prevailed under the reign of Andrew Jackson, who used it to justify killing the Bank of the United States and curbing federal involvement in the economy. By 1862, however, the political climate had shifted. The principle of states’ rights, which had long been a bulwark against federal power, was harder to defend now that it carried the taint of secessionism. Northern lawmakers were prepared to give the government what it needed to win the war. In order to do so, they abandoned Jackson’s reading of the Constitution in favor of Hamilton’s.

While Hamilton had encouraged a more robust federal role, making paper legal tender went much further than anything he proposed. It illustrated the impact of the Civil War, a conflict in which both sides radically departed from tradition while claiming to be faithful to the nation’s founding vision. Southerners saw the right to secede as implicit in the Constitution, which they defined as a voluntary compact among sovereign states. This was no more extreme a view than the belief that the Constitution granted the federal government virtually unlimited power in wartime, a proposition that guided the Union’s most drastic measures, like the suspension of habeas corpus and the use of military tribunals to try civilians.

To adapt the Constitution to the present emergency would require a more elastic approach to its language, even if this meant contradicting its
original intentions. The delegates to the Constitutional Convention in 1787 didn’t want the government printing paper money, much less making it legal tender. The catastrophe with the continentals had convinced them of the dangers of paper currency, and they were committed to putting the nation on a hard-money basis. But in the crisis brought on by the Civil War, the survival of the nation outweighed all other considerations. “If no other means were left to save the Republic from destruction,” declared Pennsylvania congressman Thaddeus Stevens, a leading advocate of the Legal Tender Act, “I believe we have power, under the Constitution and according to its express provision, to declare a dictator.”

Among the many Americans who didn’t share Stevens’s views was the man charged with implementing the law, Treasury Secretary Salmon Chase. As the war escalated, he overcame his earlier reservations about federal power, and in December 1861, he even called for a national paper currency; his demand notes certainly marked a step in that direction. But Chase stubbornly stuck by the notion that gold and silver provided the only sound basis for money, which naturally made him hostile to the idea of paper notes severed from specie. The Legal Tender Act was endorsed by leaders of his party, approved by Congress, and signed into law by Lincoln. So Chase accepted it, however reluctantly. Ironically, he probably bore more responsibility for the measure than anyone else in Washington: his actions over the last year had made it inevitable. To raise money for the war, Chase had borrowed from Northern banks. But rather than letting the banks credit the amount to the Treasury on their books, he insisted on being paid in gold. So the banks kept delivering shipments of specie at regular intervals, which Chase used to settle the government’s debts and redeem its demand notes.

The qualities that made Chase a great antislavery lawyer—an indomitable will, unwavering faith in his own judgment—also made him an exasperating treasury secretary. As the bankers protested his policies, watching their coffers hemorrhage gold, Chase remained obstinate. He
used his fiery courtroom rhetoric to bludgeon them into submission, famously saying that if they didn’t agree to his proposals, he would return to Washington and print inflationary paper until it took “a thousand dollars to buy a breakfast.” By December 1861, the disaster long predicted had arrived. The gold paid out by the government had vanished into the hands of hoarders and speculators. Faced with perilously low reserves, both the Northern banks and the Treasury suspended specie payments. Soldiers stopped receiving their wages; the military couldn’t buy supplies. The financial foundation for the war effort was crumbling, and the Legal Tender Act offered the only way out.

Christopher Memminger, the Confederate treasury secretary, was a more sensible man than Chase but inherited a situation far more desperate. Not only was the South poorer than the North, its central government was much weaker. Marshaling the meager resources of a nation as deliberately decentralized as the Confederacy wouldn’t be easy. As might be expected, Southerners had no sympathy for Hamilton’s reading of the Constitution. Their heroes were Jefferson and Jackson, sworn enemies of the Bank of the United States. But, just as Hamilton’s Northern disciples took his teachings to an extreme he couldn’t have anticipated, so Southerners championed states’ rights with a zeal surpassing that of their predecessors. The Confederate Constitution, adopted in March 1861, copied much of the original Constitution verbatim but made a few revolutionary changes, like removing the prohibition on states from issuing bills of credit. This meant Memminger’s Treasury notes, the graybacks, had to compete not only with notes printed by banks and other companies but also with the circulating obligations of state governments. As if that weren’t enough, the shortage of coin in the South produced another source of paper money in the form of fractional notes printed by individuals and businesses. A butcher or a baker might issue shinplasters worth a certain amount of beef or bread, and these bills, denominated in cents, functioned as a kind of currency. Shinplasters were so coarsely designed
that almost any piece of paper could circulate; in 1862, residents of New Orleans joked that the label from an olive oil bottle would pass because it was “greasy, smelt bad, and bore an autograph.”

None of these notes could be legal tender, not even the graybacks printed by Memminger at the Treasury. The Confederate Congress refused to enact legislation to that effect, since it would vest too much authority in the Richmond government and challenge the deeply entrenched belief that specie was the foundation for all money, even though the Confederacy had very little of it. The North had overcome its hard-money bias to meet the necessities of the war, but the South couldn’t put aside its principles. So Memminger’s bills, like everyone else’s, could be refused without consequences. The Confederacy had seriously imperiled its survival by making it easier for everyone to print paper money and harder for its central government’s notes to have value.

Memminger also dealt with daunting logistical problems. Since the North had most of the banks, it had most of the banknote engravers he needed to produce his notes. Before the bombardment of Fort Sumter in April 1861, the Confederacy contracted one of the North’s largest engraving firms, the National Bank Note Company of New York, to print the first round of Confederate bills. But when the war began, the Union seized the plates and Memminger had to find a Southern source for the notes. Southern printers were less sophisticated than their Northern counterparts. Most of them used a faster, cruder process than the engraved-steel technique preferred in the North. Known as stone lithography, it satisfied Memminger’s demand for high-volume production but produced lower-quality bills with serious design flaws. A careless lithographer could introduce changes by mistake, so that notes reproduced from an original would all be slightly different. To manufacture enough notes, Memminger had to employ a total of nine firms and a range of different designs. As a result, a single denomination could have hundreds of distinct varieties: the $20 bill of the September 2, 1861, issue, for instance, had 229.

Counterfeiters exploited the Confederacy’s disorganized approach to making money. No Southerner could hope to remember what the hundreds of authorized notes looked like. Even judging a bill’s authenticity by its craftsmanship was misleading, since the forgeries produced by skilled Northern moneymakers were often better executed than the originals. Memminger tried his best to address these problems, but there wasn’t much he could do. The exigencies of war required escalating sums of paper money, no matter how poorly printed. “[W]e are well aware of the difficulty,” he wrote in response to a Georgia judge who had complained about widespread counterfeiting, “but unfortunately are entirely unable to prevent it. . . . All that we could do,” he explained, “was to put a death penalty upon the crime of counterfeiting,” referring to a law from August 1861 that made forging Treasury notes punishable by death. Memminger must have felt discouraged. As a state legislator in South Carolina before the war, he had railed against banks for refusing to exchange their bills for coin. Now he produced more notes than they ever had, with no hope of redeeming them all and no power to prevent their being forged.

NEARLY A THOUSAND PEOPLE
appeared outside the Richmond jail to get a glimpse of the condemned man, eager for a little entertainment on an otherwise dull day. On August 22, 1862, the war felt far away: no train or telegram brought news from the front, now more than a hundred miles north. The once imminent threat of Yankee invasion had passed, thanks to a string of Southern victories, and the sense of dread was slowly receding. At a quarter to eleven in the morning, the doors of the jailhouse swung open. The prisoner was Italian, about thirty years old, and handsome. He stepped calmly into the sunlight, removing his hat and bowing politely to the crowd before taking his seat on the wagon that carried his coffin. Soldiers formed a perimeter around the cart, and the procession set off, inching its way up Valley Street along the tracks of the Virginia
Central Railroad, a crucial Confederate supply line. Among the spectators who followed, a reporter noted in the next day’s paper, were “a number of painted and overdressed females of doubtful respectability.” When the cavalcade reached the gallows on the northern end of town, the prisoner ascended the scaffold and, at exactly noon, dropped four feet with the noose around his neck.

John Richardson, alias John Richards, alias Louis Napoleon, was the first and probably the only person executed for counterfeiting under the law Memminger mentioned in his letter. He was a Richmond resident of uncertain occupation: some said he sold fruit, others claimed he trafficked in illegal liquors. According to Richardson’s own confession, his friend George Elam had convinced him to break into the offices of Hoyer and Ludwig, one of the companies that printed Confederate money. Elam used to work for the firm, so he knew his way around; once inside, the two men stole uncut sheets of $10 bills and printed hundreds of dollars of fake cash. Both were arrested for passing the notes, but the authorities settled on Richardson as the ringleader, sparing Elam’s life. It would be easier to convict a foreigner of a capital crime than a native Southerner. Sure enough, the jury at Richardson’s trial only took a few minutes to return a guilty verdict.

Executing an immigrant for counterfeiting suited the prevailing Southern view that moneymaking was a foreign plot. The
Richmond Daily Dispatch
made much of Richardson’s origins, scolding the Italian for “skulking out of the service of the only land that ever gave him more than enough to keep life in him” by “striking at the very vitals of the Confederacy.” Richardson’s birthplace wasn’t the only thing working against him, however: timing also played a role. August 1862 was a particularly ripe moment for a public display of justice to bolster people’s flagging faith in Confederate currency. The counterfeiting epidemic had spread in recent months. Forged notes were found far from the Union border, in Atlanta, Savannah, Montgomery, and other cities of the Deep South.
At the Treasury’s headquarters in Richmond, Memminger read alarming reports from agents throughout the country warning about the deteriorating situation. His assistant treasurer in Charleston, B. C. Pressley, described the city’s frantic mood: “The panic and excitement here on the subject of the counterfeit bills is so great that I have not found time to write you without a crowd around asking my decision on bills which they hold.” Fake cash contaminated the money supply to such a degree that Charleston’s bank tellers had refused to accept certain denominations of Treasury notes. “Nearly all the money I have on hand is of the class which has been counterfeited,” Pressley complained.

Memminger responded by withdrawing from circulation three kinds of Confederate currency that had been particularly widely forged. This affected three and a half million notes. It was a desperate act, solving Memminger’s immediate problem while raising grave doubts about the government’s ability to protect its currency. For the many Southerners who believed counterfeiting was a Northern conspiracy, the enemy had succeeded in decimating a significant portion of the money supply.