A Counterfeiter's Paradise

by Ben Tarnoff

  Hilton had been good at counterfeiting but not much else. Upham proved more versatile, hardened by a lifetime of hustling. If he could make a living peddling to the scrappy gold diggers of early San Francisco, he could do it anywhere. As Upham got older, he thought more and more about California. His memories of his time there were vivid, “so indelibly photographed upon the retina of the mind,” he told a crowd of fellow forty-niners, “that nothing but death will efface them.” He began writing about it: poems, songs, articles, and in 1878 a book, Notes of a Voyage to California via Cape Horn, Together with Scenes in El Dorado, in the Years 1849–’50. Upham didn’t sentimentalize his days in California. He remembered how difficult it was to get rich, how many had left disappointed or had died in the effort. But he couldn’t suppress his nostalgia for the most remarkable period of his life.

  In 1876, America celebrated the hundredth anniversary of the Declaration of Independence by hosting its first world’s fair in the city where the document was signed. From May to November, millions of visitors descended on Philadelphia’s Fairmount Park to see the Centennial Exhibition. On the afternoon of September 9, Upham and the other members of the Associated Pioneers of the Territorial Days of California occupied one of the fair’s pavilions to commemorate another, smaller anniversary: the twenty-six years since California’s admission to the Union. Seven hundred people gathered in the wooden hall to hear songs, speeches, and letters of regret from absent dignitaries like President Ulysses S. Grant and General William Tecumseh Sherman. Upham wrote something special for the occasion: “Song of the Argonauts; or, the Days of’Forty-nine.” An opera singer performed it, intoning the wistful lyrics in a rumbling basso voice to a delighted crowd.

  While Upham and his friends dwelt on the past, others at the exhibi-tion focused on the future. Not far from the forty-niners’ festivities was the show’s most popular attraction: the Corliss steam engine, a machine that stood almost forty feet tall. Its giant flywheel, churning pistons, and fluttering valves powered the other exhibits in Machinery Hall, and made quite an impression on those who saw them. Elsewhere in the exhibition were other dazzling examples of American ingenuity. Thomas Edison demonstrated a telegraph capable of sending many messages simultaneously; Alexander Graham Bell unveiled an early version of the telephone; E. Remington and Sons displayed the first modern typewriter. These marvels drew many fascinated foreigners, who came away with a new respect for American engineering. Eleven years after the conclusion of the conflict that nearly cut the nation in two, the United States was a rising power on the world stage.

  To Upham, the whirring gears and gadgetry must have been breathtaking. America in 1876 didn’t look at all like the country he knew from his childhood in Montpelier or his adventures in California. Complex machines were changing how people lived and worked; a rising class of industrial tycoons were redefining what it meant to be an entrepreneur. Less than a decade later, on June 29, 1885, Upham passed away. Sixty-six years old, he died neither rich nor poor but somewhere in between, solidly middle class to the end. His brief obituary in the Philadelphia Inquirer didn’t include a word about his moneymaking career: he wasn’t remembered as a counterfeiter, but as a merchant, a writer, and a pioneer. He was killed by stomach cancer, in the privacy of his own home—a quiet, undramatic end for a man who had masterminded one of the most extra-ordinary counterfeiting schemes in American history.

  UPHAM FOUND SUCCESS as a counterfeiter just as the golden age of American counterfeiting was coming to a close. While the Civil War made his enterprise possible, its effect on other moneymakers would be disastrous. The same government that let him forge Southern money used the war to tighten its control over Northern currency. For more than a century, criminals like Owen Sullivan and David Lewis had taken advantage of America’s monetary chaos to make fake cash. Their ranks grew as the number of banks and the volume of paper money soared. Meanwhile, the federal government kept out of it, leaving the burden of policing the money supply to individual banks or states. With the arrival of the Civil War, however, Washington decided to enter the fray, putting counterfeiters on the defensive for the first time.

  Initially the federal government shied away from taking a strong regulatory role. Its first steps, like the Legal Tender Act of 1862, strengthened national authority but didn’t touch the heart of American finance, the approximately sixteen hundred state banks whose bills made up the circulating medium of the country. These banks had influential representatives in Congress, not to mention decades of precedent and a Supreme Court decision from the Andrew Jackson era, Briscoe v. Bank of Kentucky, protecting their right to print money. Now that the greenbacks in their vaults were considered as good as gold or silver, they could issue even more notes, stoking inflation.

  Treasury Secretary Salmon Chase had a radical solution to the problem: a total overhaul of the banking establishment. He wanted Congress to create a system of federally chartered banks that printed a uniform national currency similar to the modern dollar. The banks would be required to buy government bonds to secure the notes, which would have the added benefit of fortifying the federal government’s credit by providing a permanent market for its securities. The real appeal of the plan for Chase, however, had less to do with its usefulness than with his principles. He had opposed the Legal Tender Act because it violated his hard-money views; now he promoted national banking because he believed the Constitution demanded it. According to Chase, the Constitution empowered the federal government to regulate the currency, a responsibility that the states had unjustly usurped by granting charters to note-issuing banks. Bringing paper money under national control, Chase argued, would fulfill the Constitution’s original intention.

  The secretary’s stubbornness had made him many enemies over the years. But it would prove an asset in his crusade for banking reform, a bruising fight that needed someone as headstrong as Chase to see it through. He had introduced the idea of a national bank system to Congress as early as December 1861, but didn’t make a serious push for it until a year later, in December 1862. President Lincoln, who had long believed in the benefit of a national currency, gave his full support. Many Republicans, however, rejected Chase’s plan—even those who otherwise advocated a strong federal government. Two of Congress’s most outspoken proponents of the Legal Tender Act, Thaddeus Stevens of Pennsylvania and Elbridge Spaulding of New York, were particularly vocal in their opposition. Not coincidentally, they came from states with powerful banking interests.

  To get the legislation passed, Chase campaigned ferociously. He courted congressmen, bankers, and journalists—anyone whose endorsement might tilt the balance in his favor. He insisted that the national banking bill was essential for winning the war. “Without it there may be success,” he wrote the publisher of the Chicago Tribune, “but I don’t see it.” Actually, the plan would do little for the Treasury right away; its effect would mostly be felt in the long term. But by tying the national banking system to the Northern war effort, Chase hoped to make it harder to oppose him.

  Chase’s persistence could only take him so far. He needed a more persuasive spokesman, someone who could change minds. The man who rose to the occasion was John Sherman, the senator who occupied the Ohio seat vacated by Chase after his appointment to the Treasury. Nicknamed the “Ohio Icicle” for his frosty disposition, Sherman had a passion for finance. He also happened to be the younger brother of William Tecumseh Sherman, the great Union general, and he brought a comparable degree of strategic skill to the Senate floor on behalf of Chase’s plan. In a series of incisive speeches in January and February 1863, he denounced the state banking system as volatile and inefficient, a haven for speculators and counterfeiters. “You cannot prevent the people from suffering largely from counterfeiting,” he pointed out, “when you have sixteen hundred different banks, issuing each of them several different kinds of bills, under the laws of twenty-eight different States.”

  The disadvantages of the current system were obvious enough. B
ut Sherman didn’t stop there: he invoked the Founders. This wasn’t in itself an unusual tactic. Among the famous names he cited for support, however, one in particular stood out: Thomas Jefferson. Jefferson seemed like an odd choice. He had upheld states’ rights, fought Alexander Hamilton’s Bank of the United States, and, along with most of his revolutionary colleagues, distrusted paper money. But he was also a nuanced thinker and, toward the end of his life, had reconsidered his financial views. During the War of 1812, when banks suspended specie payments, Jefferson conceded that bills printed by the federal government would be preferable to the paper of state banks. Sherman seized on this, quoting the statesman at length to recast the national banking proposal as a Jeffersonian idea.

  Sherman’s use of Jefferson was shrewd. It appealed to western agrarians, who worshipped Jefferson, as well as to current and former Democrats in Congress. Decades earlier, Andrew Jackson had exploited western antibanking sentiment to kill the Second Bank of the United States. Instead of eliminating all banks, as Jefferson would have wished, this removed one big bank and created many smaller, less scrupulous ones, particularly in the West. By the 1860s, the westerners who had supported Jackson were ready for change. Armed with Jefferson’s words, Sherman helped them overcome their fear of paper money and the federal government and realize the benefits of a national currency. It was a masterpiece of political alchemy, using the language of Jefferson to help destroy the legacy of Jackson. On top of it all was a Hamiltonian twist: a federal government that protected its citizens by subduing the power of the individual states.

  The Civil War gave Sherman valuable ammunition and, like Chase, he didn’t hesitate to use it. He linked both state banks and secession to the “accursed heresy of State Sovereignty,” and urged national banking as a necessary war measure. It wouldn’t just help beat the South, he asserted, it would also ensure the future of the Union. A national currency would make people more dependent on the federal government, giving them a stake in its stability—Americans would “become inseparably united and consolidated” with the national leadership in Washington, and thus less likely to revolt against it. “The policy of this country ought to be to make everything national as far as possible,” Sherman declared, “to nationalize our country so that we shall love our country.”

  Between Sherman’s rhetoric and Chase’s maneuvering, the national banking bill gradually gained traction in Congress. It passed narrowly: by two votes in the Senate and fourteen in the House. On February 25, 1863, Lincoln signed the National Currency Act into law. After the heat of the battle, what followed was anticlimactic. Sherman’s desire to eliminate state banknotes didn’t make it into the final legislation, so the new national banks were forced to compete with older, better-established rivals. By the end of 1863, only sixty-six banks had applied for federal charters. National banks scored a crucial victory in March 1865, when Congress, at Sherman’s urging, levied a 10 percent tax on all state banknotes. State banks had no choice but to stop printing money, with national banknotes and greenbacks filling the vacuum. A month later, Confederate general Robert E. Lee surrendered at Appomattox Court House in Virginia, essentially ending the Civil War.

  The United States emerged from the conflict completely transformed. The war had produced something that seemed unimaginable: a federal monopoly on paper currency. Although each national banknote carried the name of the institution that issued it, Chase commissioned private engravers to create uniform designs and print the actual bills. He insisted on including scenes from the country’s common past on the notes, like the arrival of the Pilgrims and the Battle of Lexington, to underscore the national character of the new money. Never before in American history had the power to make paper money been held by a single authority. Colonies, states, and banks had all printed currency. Paper was irresistible, a magical surrogate for precious metals. Its abrupt oscillations in value had sparked furious showdowns in eighteenth-century Massachusetts, aggravated relations between colonial Americans and Parliament, and jeopardized the Revolution by inundating the young country with inflationary continentals. In the nineteenth century, paper credit helped kindle both booms and busts, speeding the nation along its haphazard, collision-filled path to prosperity. Now the federal government was finally taking the reins, hoping to steady the economy and reaffirm its sovereignty at the same time.

  Counterfeiters felt the effects right away. A national currency meant people could distinguish between genuine and fake money much more easily. They no longer had to recognize thousands of different bills, only the standardized designs of greenbacks and national banknotes. Simplifying the money supply put countless small-time swindlers out of business—gone were the days of banknote reporters with rambling inventories of arcane counterfeits. But it would take more than that to wipe out one of America’s oldest criminal professions. Hard-core moneymakers wouldn’t give up so easily. If the new currency made their jobs harder, it also made them potentially more lucrative. Greenbacks and national banknotes passed everywhere and held their value; forging them would be more profitable than counterfeiting the ratty bills of provincial banks.

  This was evidently lost on Washington’s lawmakers, who in the course of creating national banks and national money had somehow neglected to create a national agency to stop counterfeiting. For once the Constitution presented no problems: it explicitly empowered Congress to “provide for the Punishment of counterfeiting the Securities and current Coin of the United States.” Instead, Congress chose to leave the task to existing law enforcement agencies. These included local authorities, who had neither the resources nor the motivation to tackle counterfeiting on a large scale, and federal marshals, who had fewer excuses but didn’t do much better. Since marshals earned their living mostly from fees for making arrests and delivering warrants, they had little incentive to build cases against counterfeiters. Counterfeiting was a notoriously tough crime to prosecute. It required mapping distribution networks, recruiting informers—real detective work, in other words. The nation’s lawmen weren’t sophisticated or well-organized enough to meet the challenge. But something needed to be done: the credit of the United States was on the line. Without a coordinated campaign to protect the currency, counterfeiters had the capacity to disrupt the new monetary regime.

  In the absence of a congressional mandate, the -anticounterfeiting offensive emerged more or less spontaneously from the turmoil of the Civil War. It was spearheaded by a band of ambitious, adventurous men—-opportunists who carved out roles for themselves in the Union war machine by going after counterfeiters with unrivaled zeal. They believed the ends justified the means and, under the banner of an invigorated wartime government, broke the law almost as often as the people they put away. In the process they penetrated the counterfeiters’ world, illuminating the hidden workings of a centuries-old institution.

  LAFAYETTE CURRY BAKER LOVED learning secrets. An intense man with a brambly red beard and probing gray eyes, he first started prying into other people’s affairs in San Francisco, where he went in 1853, three years after Upham’s departure. He joined the Committee of Vigilance, a group of armed citizens that seized control of the city in response to rising lawlessness and corruption. They lynched criminals and spied on residents, giving Baker valuable espionage training. When the Civil War broke out, he put his skills to use by traveling South as a secret agent, disguising himself as an itinerant photographer to gather information about Confederate troop deployments. His daring impressed Secretary of State William H. Seward, who hired him as a detective when he returned to Washington.

  Northern intelligence was an uncoordinated cluster of “secret services” staffed by a motley cast of characters. Seward oversaw a spy network made up of informers, federal marshals, and city police. Other cabinet departments fielded their own detectives, as did individual generals—in the first year of the war, the famous private investigator Allan Pinkerton ran covert operations in Virginia for General George B. McClellan. Faced with this daunting tangle of
agencies, Baker might have ended up as just another cog in the Union’s unwieldy espionage machine. Instead, he broke through the bureaucracy and rose rapidly to the top, becoming the government’s de facto intelligence czar. With a ruthlessness inherited from the San Francisco vigilantes, Baker went to extreme lengths to neutralize anything he perceived as a threat to national security.

  In early 1862, about the same time Upham began printing his facsimiles, Seward transferred Baker to the War Department. It was there that he built his base of power, assembling an outfit called the National Detective Police. His team, which grew to include twenty-five agents and a whole cavalry regiment, didn’t limit themselves to spying on the South. They became an all-purpose investigative unit, ferreting out corruption and disloyalty in the military, hunting down smugglers and traitors, even raiding Washington’s brothels and gambling dens. They also kept an eye on the federal bureaucracy. In December 1863, allegations of impropriety at the Treasury led Secretary Chase to enlist Baker’s services. The detective not only found workers pocketing money but, to Chase’s chagrin, exposed a seedy sex scandal that rocked the capital. Baker accused Spencer M. Clark, the superintendent of the bureau that oversaw the national currency, of seducing his female employees. Chase suspended the man, but restored him when it came to light that Baker had coerced the women’s testimony.

  Baker had no scruples about violating people’s civil liberties. He plucked suspects from their beds in the middle of the night and hauled them away in coaches with curtained windows, interrogating them for days on end. “Baker became a law unto himself,” observed one Treasury official. “He instituted a veritable Reign of Terror.” But he did his job remarkably well—almost too well, earning the enmity of the many people who profited from the graft he crusaded against. If Baker saw enemies everywhere, he wasn’t entirely wrong: rampant fraud in the government and the military sapped urgently needed resources, and the country’s innumerable Southern sympathizers could easily become a fifth column for the Confederacy. In Baker’s mind, the gravity of the threat justified taking the gloves off, for as long as the national interest required it.