The Mark Inside

by Amy Reading

  The unraveling came quickly. Other wealthy investors thwarted Duer’s designs on the Bank of New York, in part by withdrawing gold and silver from their accounts, which forced banks to call in loans, drove up interest rates, and made it ruinously expensive for Duer to borrow money. At the same time, Duer was suddenly summoned to Philadelphia to answer nettlesome questions about a $240,000 gap in the Treasury books from the time of his tenure there. And then his debts fell due. Duer was arrested for insolvency the very day after the Bank of the United States, the bank he hoped to control, opened for business. He owed an astonishing $475,000 to his associate Walter Livingston, or about $11 million in today’s currency. And he owed far smaller amounts to dozens and dozens of New Yorkers. One contemporary calculated his total indebtedness at $3 million, or $70 million in today’s currency. The losses rippled out from there. Livingston, of course, declared bankruptcy, as did Macomb and about twenty-three other speculators. Soon the effects of Duer’s overreach spread beyond New York’s financial elite to the rest of the market. Real estate prices dropped, credit seized up, and about $5 million in shareholder value simply evaporated. Thomas Jefferson, for one, felt delicious vindication that the speculators had finally gotten their just due. He was confident that now people would return to “plain unsophisticated common sense.” Madison, too, believed the crash to be gratifyingly fatal: “The gambling system … is beginning to exhibit its explosions.”

  Jefferson’s vindication, though, was a deceptive one. Like Bell, Duer was not an exception to the rule of post-Revolutionary market relations. His career utterly exemplified early capitalism. In fact, Duer’s leveraged trading and subsequent bankruptcy, which represented the worst in eighteenth-century financial transgressions, would simply be considered ordinary business today, when bankruptcy is no longer a crime and business failure has lost much of its stigma. The panic Duer incited was sensational but shallow, and it prompted speculators not to reform their gambling impulses but to normalize them by founding the New York Stock Exchange.

  One way to describe the evolution of American capitalism in the nineteenth century is the steady domestication of gambling. By the end of the century, gaming had been outlawed, but speculation had been entirely institutionalized, codified, and tamed. It began just a few decades after Duer’s calamity, when New York State was hugely successful at raising capital to dig the Erie Canal from Albany to Buffalo, beginning with the Canal Act of 1817. The state paid for the construction through bonds sold not to the merchant elite, who scorned the project, but to ordinary savings bank clients in New York City, who realized fabulous returns when the canal opened in 1825, two years ahead of schedule. Wall Street princes took note, and when western land and railroad companies adopted the Erie Canal strategy, the money poured in. There was no turning back the stock ticker. America in the nineteenth century was speculating its way westward.

  In Melville’s Confidence-Man, an old man sits at a marble table as white as his own snowy hair. By the light of the single lamp in the gentleman’s cabin on the Mississippi steamboat, with the confidence man bending over his shoulder, the old man takes out two bills from his vest pocket and proceeds to compare them against the Counterfeit Detector, a guide to each of the denominations of currency printed by each of the hundreds of banks in existence by the mid-nineteenth century. The old man learns from the Detector that if his $3 bill from the Vicksburg Trust and Insurance Banking Company is legitimate, “it must have, thickened here and there into the substance of the paper, little wavy spots of red; and it says that they must have a kind of silky feel, being made by the lint of a red silk handkerchief stirred up in the paper-maker’s vat.” The confidence man asks him if his bill passes muster. “Stay,” says the old man, as he continues to read and scrutinize, “that sign is not always to be relied on; for some good bills get so worn, the red marks get rubbed out. And that’s the case with my bill here—see how old it is—or else it’s a counterfeit, or else—I don’t see right—or else—dear, dear me—I don’t know what else to think.” And so he tries again. “It says that, if the bill is good, it must have in one corner, mixed in with the vignette, the figure of a goose, very small, indeed, all but microscopic; and, for added precaution, like the figure of Napoleon outlined by the tree, not observable, even if magnified, unless the attention is directed to it.” The old man cries despairingly, “Now, pore over it as I will, I can’t see this goose.” The confidence man urges him to give up “a wild-goose-chase,” throw the Detector away, and simply spend the money as if it were good.

  “As if”: in those two small words lies much of the basis for market relations in the late eighteenth and early nineteenth centuries. Speculators like Duer frightened more conservative investors because their heedless stock manipulations laid bare the groundless nature of the growing economy that rose from nothing more than borrowing and leveraging. But the even more alarming truth was that it wasn’t only the “stock-jobbers,” “plungers,” and “jackals” who risked everything in the chase for future profits. Every last person who participated in the market was a speculator, simply by his use of paper currency. It wasn’t until surprisingly late in American history, with the passage of the National Bank Acts of 1863 and 1864, that the country had a national system of banking and a standardized national currency backed by U.S. Treasury securities. Before then, state-chartered banks purportedly guaranteed their notes with specie—metal money in the form of gold and silver resting undisturbed in their vaults—but most banks issued far more notes than they could back if every one of them were redeemed. Banknotes were thus speculative bills of exchange. One commentator in 1839 called them “credit-money, or confidence-money,” deriving their value solely from the “promise to pay, which, by universal understanding, is meant to signify a promise to pay on condition of not being required to do so.” And so it was up to the bearer or receiver to decide whether or not to extend confidence to the bank behind it. If, as frequently happened, the bank’s reputation softened or collapsed, all of its bills in wallets and cash registers would instantly depreciate. Most of the bills in circulation did not trade at their face value, and so newspapers published rates of exchange between different local and regional currencies. Buying goods required the discernment of an art historian and the numerical nimbleness of a mathematician. Sometimes it was easier—and more profitable—to turn off one’s doubts and simply pass money as if it were real.

  Paper money, for all its glaring flaws, was an absolute economic necessity. Before the discovery of native silver and gold mines, North America consistently found itself on the short end of a trade imbalance in specie with other nations, as the metal money flowed overseas to pay for the finished goods that could not yet be made in America. Colonists experimented with various mediums of exchange, such as wampum in New England, tobacco in the South, and playing cards in Canada. But as networks of trade expanded and thickened, especially at the ports, merchants needed something fungible across local regions to clear the path for their commodities. By the mid-nineteenth century, each of the colonies had issued its own paper currency. Pennsylvania, for instance, had issued about 45,000 pounds’ worth of currency in 1723 and 1724, backed not by specie but by the land assets of those who borrowed the currency from the government and by the future taxes that could be paid with the currency. But, like most such issuances, Pennsylvania’s currency was set to expire and be withdrawn from circulation in 1731. One of the most ardent supporters of continuing the paper money project was Benjamin Franklin.

  Though Poor Richard’s Almanack relentlessly warned against the enslavement of personal debt, Franklin also fervently believed that a tradesman’s good credit was essential to building his strong reputation, and that dependence was a necessary first step to independence. When he looked around at the stagnant state economy, dousing it with an influx of paper money seemed to him solid fiscal policy. In 1729, just twenty-three years old, he published an anonymous pamphlet titled A Modest Enquiry into the Nature and Necessity of a Paper
Currency. He argued that a greater amount of currency in circulation would drive down interest rates and encourage spending and building. He admitted that this policy would not be popular with moneylenders, land speculators, and the lawyers who profited from debt disputes, but surely all of the “Lovers of Trade” could see the benefits of inexpensive debt. Franklin’s view prevailed. In his Autobiography, he recalled that though the pamphlet did not bear his name, “My Friends there [at the Pennsylvania statehouse], who conceiv’d I had been of some Service, thought fit to reward me, by employing me in printing the Money, a very profitable Job, and a great Help to me.” Franklin would continue printing millions of dollars’ worth of currency for Pennsylvania, Delaware, and New Jersey until 1764. He implored his fellow citizens to have confidence in the state, then profited mightily from their investment.

  Franklin designed as well printed currency, inventing his own method of “nature printing” to transfer the imprint of a sage leaf to the paper bill via a copperplate press in order to guarantee the bill’s authenticity. Each of the banks that issued currency devised its own markers of validity, but the result was a disorienting array of denominations and designs—a situation practically calculated to encourage counterfeiting. It was up to the bearer to decipher the signs and ascertain the legitimacy of the notes in his or her wallet, or up to the shopkeeper to determine whether he or she would accept the note proffered across the counter. Purchases in dry goods stores and taverns often began with the same matchup between bill and Counterfeit Detector that engrossed Melville’s old man.

  Yet there were precisely as many ways to pass fake currency as there were ways to detect it, for each method devised to identify a counterfeit bill spawned a twin method for ensuring its smooth passage. For instance, pamphlets like the Counterfeit Detector reproduced the signatures of bank presidents and cashiers so that storekeepers could verify the signatures on banknotes. But those same pamphlets acted as primers for counterfeiters to practice their handwriting. Or counterfeiters would game the pamphlets: they would issue false notes with a noticeable flaw; then, after the next pamphlet had been published which mentioned the flaw, they’d correct that single detail for a new issue of notes, which would then pass scrutiny because that detail would be the only aspect that bearers would check. Best of all, counterfeiters could simply counterfeit counterfeit detectors, and substitute them in shops with sleight of hand. As Melville’s confidence man points out to the disquieted old man, the tools for increasing confidence in the money supply have exactly the opposite effect: “Proves what I’ve always thought, that much of the want of confidence, in these days, is owing to these Counterfeit Detectors you see on every desk and counter. Puts people up to suspecting good bills. Throw it away, I beg, if only because of the trouble it breeds you.”

  One counterfeiter in the late eighteenth century used the confusion around paper currency to justify his art. “Money, of itself,” he argued, “is of no consequence, only as we, by mutual agreement, annex it to a nominal value, as the representation of property. Anything else might answer the same purpose, equally with silver and gold, should mankind only agree to consider it as such, and carry that agreement into execution in their dealings with each other.” Value is not inherent in money because of the intrinsic worth of its materials. It is the product of a contract between bearer and receiver. In the hustle and bustle of the marketplace, it mattered little how full a given bank’s coffers were; what mattered was the interaction at the moment of exchange: Could the bill pass? The counterfeiter urbanely concluded that this rendered a false bill no less valuable than a real one. “Therefore, we find the only thing necessary to make a matter valuable, is to induce the world to deem it so.”

  The counterfeiter was Stephen Burroughs, a man who knew much about confidence and how to manipulate it, for he was an impostor cut from the same die as Tom Bell. He too was born to a respectable family in 1765—his father was a clergyman in Hanover, New Hampshire—and he too had a classical education at Dartmouth that ended in an early departure for youthful high jinks like stealing a watermelon and attending class without shoes. With boyish romanticism, he conceived the idea of setting off to sea, so he pretended to have medical training and set sail on a privateer as the ship’s physician. On the journey home, the captain locked him in irons for stealing wine, and he once again found himself in New England, thrust back upon his own resources. Stealing a page from Bell’s playbook, Burroughs boosted ten of his father’s sermons, acquired some ministerial garb from another clergyman, and descended upon Pelham, Massachusetts, in 1784 to give the weekly sermon, which was so successful the townspeople hired him as their preacher. Upon discovering his deception, the Pelhamites ran him out of town, but hardly had he gotten out of earshot of their invectives than he was caught passing counterfeit coin and sentenced to three years in “the Castle,” a jail on Castle Island in Boston Harbor. After his release, Burroughs tried his hand at respectable living, starting a family and a business, but he discovered his true genius only after moving to lower Canada, where he began forging American coins and bills with such skill that his reputation seeped back over the border and he became a kind of mythic outlaw hero. In the early nineteenth century, every instance of counterfeit immediately invoked Burroughs as its putative source.

  For Burroughs, the turn from imposture to counterfeiting was entirely natural. In fact, he might have said that the two practices are different sides of the same coin: both entail passing into circulation untrue representations whose authenticity is explicitly in question. For both, the success of the endeavor is determined at the moment of exchange. Unlike magicians and swindlers working the big con, Burroughs could not make use of the one-ahead by preparing his deception in advance. Any moment of commerce in the late eighteenth and early nineteenth centuries was already framed as an occasion for suspicion and enhanced scrutiny.

  And yet this structural parallel between imposture and counterfeit did not prevent early Americans from equating the face value of paper money with the public reputation of the men printing it. At the very close of his Autobiography, Franklin describes an instance when the Pennsylvania legislature came close to repealing 100,000 pounds of currency. Franklin was able to stop the repeal and buoy the value of all the currency in circulation by signing his name to a document promising the bearers that the new issuance would not detrimentally affect their investment. Franklin converted confidence in himself into confidence in the state, yet his signature was no less abstract than the state’s promise to redeem the note for specie.

  Magically, incredibly, the paper money handed from money belt to till to pocketbook around the colonies and states did what it was supposed to do. America between the Revolution and the Civil War experienced dramatic economic development as the frontier moved westward and the eastern cities commercialized. This development happened not despite but because of counterfeit. At a time when the appetite for development outstripped the available credit, the fake bills that inflated the money supply performed a public service, especially in the West. A Michigan citizen testified 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.”

  The historian Stephen Mihm in A Nation of Counterfeiters argues that this dimension of nineteenth-century history should rewrite economic theory. When the story of American capitalism is told from the perspective of imposture, speculation, and counterfeiting—from just below the surface of a vast deception—it looks not like Max Weber’s theory of the “plodding, methodical, gradual pursuit of wealth” described in The Protestant Ethic and the Spirit of Capitalism. Rather, it is “the get-rich-quick scheme, the confidence game, and the mania for speculation” that drove our nation into the modern age. Against a litany of reasons why it was foolish to do so, American
s simply decided to have confidence.

  CHAPTER THREE

  Cowboy Justice

  The sucker never squeals. The con is so cleverly designed, the theory goes, and the mark’s complicity so tightly secured that he will never report the crime. Even if the mark realizes the game was rigged, he cannot risk exposing himself to the contempt of his business colleagues or even prosecution, and so he merely sighs at his own expensive gullibility. Every swindler finds a way to mention this in every interview, article, and memoir, a boast disguised as a sociological principle. And like most things that swindlers say, it isn’t true. Suckers squeal all the time. One of Reno Hamlin’s marks, who’d been taken for $1,500, kicked just days after Hamlin posed as a mule buyer for Norfleet. While Spencer and Furey put Norfleet on the send and took off the touch, Hamlin found himself in jail for conspiracy to commit a felony.

  For Norfleet, the stakes were considerably higher than $1,500. In his autobiography, he described his mental anguish when he realized that all of his and his brother-in-law’s savings had vanished and he was deeply in debt for the ranch he’d just purchased: “Forty-five thousand dollars gone! Ninety thousand dollars in debt! Fifty-four years old! The three facts crashed on my brain. To all else I thought or spoke, these piercing realities were an overtone. Forty-five thousand dollars gone! Ninety thousand dollars in debt! Fifty-four years old! The knowledge paralyzed, then shook me like an earthquake, crumbling my castles into ashes about my feet.” The crowds in the hotel lobby twirled around him. He felt dizzy and disoriented. “My God! My God!” he cried out. When he noticed people staring at him and parents drawing their children to their sides, he hurried to his hotel room to wrest control of his mind.