A Counterfeiter's Paradise

by Ben Tarnoff

  Whatever his vices or virtues, Baker was an innovator. He pioneered new interrogation techniques, compiled the nation’s first police dossier, and kept photographs of criminals on file—an early example of the “mug shots” method attributed to Allan Pinkerton. He was also the first to confront counterfeiting on a national scale. In the summer of 1864, he broke up moneymaking enclaves in Missouri, Indiana, and Illinois, capturing ten forgers and several plates. A couple of months later, he struck again, this time in New York and New Jersey. Baker recognized the danger posed by counterfeiters—that they weren’t just criminals but enemies of the state. He also understood that any realistic strategy for dealing with them would have to come from Washington. Only a broadly empowered federal agency could claw through the maze of different jurisdictions that counterfeiters manipulated to their advantage. Local police couldn’t be trusted: their negligence over the last century had given forgers endless advantages. This was why Baker didn’t turn the people he arrested over to local authorities. He shipped them to Washington in chains and installed them somewhere he knew would be secure.

  When the prisoners emerged from the police van, they must have been surprised by what they saw. The Old Capitol Prison, where Baker kept his captives, looked shabby for a federal jail. It consisted of a row of ramshackle wooden structures tacked onto a blockish brick building, topped with a handful of chimneys standing stiffly at attention. The walls had been whitewashed, but the paint only came halfway up the facade, a pattern oddly reminiscent of the layered insides of a birthday cake. Its cells housed thousands of inmates, not only those swept up in Baker’s raids but also a host of others: blockade-runners, spies, crooked Union officers, and captured Confederate soldiers. Many high-profile detainees spent time there, like Rose O’Neal Greenhow, a stylish Washington socialite turned Confederate agent who had charmed Northern officials into surrendering state secrets.

  The prison’s superintendent, William Patrick Wood, occupied a large corner office on the ground floor. A small, sturdy man, he shared Baker’s appetite for intrigue. He used the Old Capitol as a launching site for clandestine actions in the South, often slipping across the front lines himself to snoop on the enemy, negotiate prisoner exchanges, and smuggle counterfeit Confederate money to Union hostages. It’s unclear whether he had the authority to engage in these escapades; like Baker, though, he didn’t mind stepping out-of-bounds. To his prisoners, Wood was something of a mystery. He could be gruff one moment, genial the next; a “strange compound, a perfect mass of contradictions” was how one inmate described him. Occasionally he erupted in anger, like when he beat a black man in the street for suggesting his gray suit looked like a Confederate uniform. While fickle and despotic, however, he wasn’t a cruel warden. He wrangled with his superiors to improve the food and living conditions at the Old Capitol, and for his efforts won the grudging respect of many of his charges.

  Wood liked to let people underestimate him. He dressed modestly and cultivated a folksy, unpretentious persona that masked cannier motives. In treating his prisoners humanely, he was earning their trust, softening them up for long, exhaustive interrogations. These sessions yielded useful scraps of intelligence that he would pass along to higher-ups at the War Department. Sometimes Wood and Baker would tag-team a suspect using a good cop–bad cop routine: the detective acting tough, the superintendent playing nice. While Wood had a lighter touch than the bullish Baker, he took a similarly dim view of due process. If a prisoner proved unwilling to talk, Wood would fabricate testimony incriminating him and read it aloud, browbeating him into confessing.

  By questioning the counterfeiters who ended up in his custody, Wood learned their trade. In the summer of 1864, he joined Baker’s raid on moneymaking gangs in the Midwest, and later embarked on several sweeps of his own, dragging the culprits back to the Old Capitol for rig-orous examinations. He began building an invaluable body of knowledge about one of the least understood elements of the American underworld. Wood’s growing expertise caught the attention of the Treasury Department, which in December 1864 hired him as an agent tasked with detecting forged government securities. He poured himself into the task, hiring a squad of detectives to help him. On July 5, 1865, the Treasury moved to make his posting more permanent, naming him the chief of a new departmental anticounterfeiting force called the U.S. Secret Service.

  THE CHALLENGES THAT WOOD faced weren’t new. Moneymakers had been dodging the law for a long time, and the ways they did it hadn’t changed much. In the eighteenth century, Owen Sullivan had exploited the lack of coordination among the several colonies where he operated. He installed himself in the Oblong, a rugged piece of land between New York and Connecticut—two colonies with a history of bickering over their borders that weren’t inclined to cooperate in flushing Sullivan out of his backwoods hideout. He traveled throughout the Northeast, distributing notes and plates, hopping jurisdictions before the authorities caught up. Law enforcement, in the eighteenth century as in the nineteenth, was mostly local, focused on policing individual communities, not dismantling broader criminal enterprises.

  This wouldn’t have been a problem if Wood had been allowed to bypass local authorities in pursuing counterfeiters wanted for federal crimes. But since the Treasury, not Congress, created the Secret Service, its operatives didn’t have the power to make arrests or obtain search warrants. They had to collaborate with local police and federal marshals, who were not only fiercely territorial, but often had an interest in preserving the status quo. Many city cops cut lucrative deals with counterfeiters. So Wood, always eager to exceed his mandate, came up with a way to circumvent the process. He would arrange for one of his men to buy a packet of counterfeit cash, and station other operatives nearby to watch the transaction. Then they would swoop in on the seller, making a citizen’s arrest on the basis of having observed a crime being committed. Other times Wood dispensed with this pretext altogether and seized suspects and evidence by force.

  If the obstacles to catching counterfeiters weren’t new, neither were the techniques for doing it. Wood’s background in espionage helped: bringing down moneymaking rings required infiltrating them, the same way Union agents infiltrated the Confederacy during the Civil War. This meant using informants, a strategy that dated at least as far back as the colonial era. In 1752, a Providence court convicted Sullivan after his former partner Nicholas Stephens turned king’s evidence against him. Informants like Stephens helped secure convictions by establishing intent: they could testify that the defendant knew the money was fake and intended to pass it. Informants also offered a way to gain access to the upper reaches of a counterfeiting operation. The authorities would arrest a passer, promise him money or immunity in exchange for cooperation, and then use him to burrow deeper into an organization, identifying distributors, manufacturers, and other principal players.

  Wood absorbed these lessons thoroughly. He didn’t just recruit counterfeiters as informants, he hired them as full-time employees. For a wage of $3 a day, they supplied information that led to arrests and convictions, and helped build cases against bigger targets further up the food chain. Criminals had various motives for collaborating with Wood. Sometimes they had no choice: they had been arrested and Wood gave them a chance to earn their freedom. Others wanted a regular paycheck to supplement their illicit income, or used the Secret Service to eliminate competitors while continuing to make fake money on the side. Wood didn’t shrink from colluding with unsavory characters; many of his own operatives came from the same milieu. Almost half of the original Secret Service team had criminal records. Their firsthand knowledge of the underground economy opened doors that would have been closed to more law-abiding men. The downside was that many of them still acted like crooks. With little oversight from Wood, Secret Service operatives made illegal arrests, solicited bribes in exchange for protecting criminals, and sold bad bills they seized from counterfeiters.

  Despite his men’s questionable methods, Wood delivered results. In its first
year, the Secret Service arrested more than two hundred counterfeiters. Wood’s army of informants enabled him to chart the complex web of relationships among the people who printed, transported, and passed fake money throughout the country. He identified four major production points for counterfeit cash—New York, Philadelphia, St. Louis, and Cincinnati—and deployed most of his detectives there, hoping to stem the flow of bad bills at the source. Taking a cue from Baker, he began keeping extensive files on the nation’s counterfeiters, documenting their criminal history, physical appearance, and known associations.

  Moneymakers had historically been an elusive lot. They hid their identity with aliases, and the facts surrounding their lives tended to be murky, clarified only by the occasional rumor or newspaper report. In Pennsylvania during the early part of the nineteenth century, David Lewis became a folk hero on the basis of stories that were probably false or exaggerated. These tales portrayed Lewis as a Robin Hood figure who, in punishing the rich and protecting the poor, appealed to Pennsylvanians reeling from the economic injustices underscored by the Panic of 1819. Lewis wasn’t the only counterfeiter to generate a mythology; the more enterprising criminals actively cultivated their mystique. By assembling a central database, Wood not only made it possible to track counterfeiters on a national level, he also helped demystify who they were and what they did.

  In 1867, Wood took down a key counterfeiting hub, arresting thirty-eight dealers in upstate New York responsible for running fake cash into communities from New England to the Midwest. He did it by converting members of the ring into informants, patiently gathering evidence until he was ready to hit all his targets at once. But even as he was putting moneymakers behind bars, his tactics were breeding a backlash that threatened to undermine his mission. With the Civil War over, people had less patience for Wood’s heavy-handed style. After years of exercising broad authority, the federal government was in retreat; while the balance of power remained in Washington’s favor, the courts pushed back against the excesses of the war era. As the chief of a federal law enforcement agency, Wood would have been unpopular just by virtue of what he represented. His behavior, however, made things considerably worse. Putting criminals on the payroll, and encouraging them to commit crimes in order to ensnare other, more important criminals, caused serious controversy. It involved subsidizing illegal activity with government money, a strategy that led to some memorable confrontations with outraged judges.

  That summer, Wood helped defend a counterfeiter named William Brockway in federal court, and even took the witness stand on his behalf, because the man had worked for the Secret Service. The presiding judge, William Davis Shipman, was appalled. “We have thus had the unseemly spectacle before this Court of an officer of the Treasury Department encouraging the defence of a prisoner, while the regular prosecuting officers were presenting proofs of his guilt,” he said. He took particular offense at the allegation that Wood had promised Brockway immunity from prosecution—no one but the president of the United States, Judge Shipman declared, had the power of pardon. Wood’s actions in court also prompted an indignant editorial from the New York Times, which recommended a congressional inquiry into the Secret Service’s shady dealings with counterfeiters.

  Wood made halfhearted attempts to rein in the agency, publishing a handbook in 1868 that set stricter rules for operatives, but his days were clearly numbered. When Ulysses S. Grant became president in 1869, he dismissed Wood, who by then was under indictment in New York for false imprisonment. In the following decades, the Secret Service gradually shed its scandalous reputation and became a well-respected part of the federal bureaucracy, waging a tremendously successful campaign against counterfeiters. At the end of the Civil War, counterfeit currency accounted for between one-third and one-half of the money in circulation; by 1911, the chief of the Secret Service announced that counterfeits made up less than one-thousandth of one percent of the paper money supply.

  Wood’s aggressive leadership laid the foundation for this dramatic decline. With the Secret Service safeguarding the nation’s currency, counterfeiting lost its allure. It was no longer “an easy Way of getting Money,” as Owen Sullivan once called it. Now a counterfeiter didn’t know whom to trust: his closest associates could be government informants. If captured, he faced prosecution in a federal court and an average of eight to fifteen years in prison. The risks simply weren’t worth it. While a few continued forging on a small scale, the national counterfeiting industry crumbled under the force of the federal assault.

  Counterfeiting was a casualty of the Civil War, a victim of the federal consolidation of power undertaken by the North to preserve the Union. Before the war, Washington was a distant, barely perceptible presence in most Americans’ lives. Afterward, people felt its power everywhere. Casting off the constraints imposed by Andrew Jackson and his disciples, the federal government thrust itself into the economic arena, becoming indispensable to everyday commerce. The pieces of paper printed under Washington’s exclusive authority gave America’s citizens a shared medium of exchange, uniting the currency as the war united the country. It was a belated victory for Alexander Hamilton and Nicholas Biddle, who had fought valiantly on behalf of their respective banks but never succeeded in fully nationalizing the money supply. The war accomplished what they couldn’t. Energized by a strong national currency, the country embarked on a period of massive economic growth, rapidly maturing into the industrial powerhouse that Samuel Upham and millions of others saw on display at the 1876 Centennial Exhibition in Philadelphia.

  The national notes were more than money. They were symbols of a new kind of nationhood, a common identity that transcended regional loyalties. People came to depend on their central government like never before, trusting Washington to regulate the country’s currency and secure its value. In 1881, the Secret Service confiscated toy money from various firms in Manhattan, claiming the merchandise too closely resembled genuine bills. “Securities and Coins of all countries should be held sacred,” the agency’s chief declared. “[P]eople, especially manufacturers, should not seek to transform them into curiosities.” As the one true moneymaker, the federal government would no longer tolerate even the slightest form of disrespect. Its notes had become sacrosanct, tokens of the nation-state’s power to metamorphose slips of paper into money.

  CONCLUSION

  THE DECLINE OF THE AMERICAN COUNTERFEITER meant the end of a special kind of criminal. There would always be swindlers and cheats, new scams and hustles. But counterfeiters were different—they had played a leading role in America’s long, fraught love affair with paper money. In a country where everyone wanted cash, they made it; they extracted wealth from thin air in a nation that had always lived beyond its means.

  Paper currency first appeared on the continent in 1690, when Massachusetts printed bills of credit to fund a failed campaign to take Quebec from the French. The colony didn’t have enough coin to pay the returning soldiers, so the legislature paid them in notes it promised to retire with future taxes. Soon bills of credit spread to other colonies, where they facilitated trade and financed more wars with the French. By the time the Revolution began, paper money had become a fixture of American life.

  By postponing the present in anticipation of the future, paper promises helped America grow. No one could have expected the thirteen Atlantic colonies to become a united continental power stretching to the Pacific coast. It took a leap of faith, and a cascade of paper credit. The notes came not only from authorized sources—governments and banks, among others—but also from counterfeiters. If counterfeiters didn’t intend to honor the promises printed on their bills, neither did many legal producers of money, who rarely had enough coin to back their paper. Counterfeiters acted as shadow financiers, contributing a significant portion of America’s money supply. While they adapted to changing circumstances over the years, the core of their business remained intact: a persistent appetite for cash in a country that never seemed to have enough.

 
Owen Sullivan, David Lewis, and Samuel Upham each lived through very different eras, yet all three built their fortunes on America’s addiction to paper money. Their careers mirrored the evolving confidence game of American capitalism, a machine that ran on various kinds of debt and deception, oscillating between manic exuberance and total collapse. In the decades after the Civil War, the rise of the Secret Service made the country’s counterfeiters an endangered species. But the moneymaking mentality had so thoroughly suffused America’s financial soul that even as counterfeiting declined, the spirit of Sullivan, Lewis, and Upham lived on. It could be seen on the trading floors where speculators bet money they didn’t have on a mercurial stock market; it pervaded an economy where people piled up imaginary riches on precarious pyramids of debt.

  While the federal government emerged from the Civil War with a stronger hand over the economy, national money and national banks wouldn’t be enough to tame the country’s financial madness. Panics still struck with relentless regularity: in 1873, 1884, 1890, 1893, and 1903. In 1907, an unsuccessful ploy by a Brooklyn-born mining tycoon to corner the stock of a copper company precipitated yet another crisis. The financier J. P. Morgan intervened, spearheading a bailout of struggling bankers and brokers that prevented the disaster from escalating—but not before the extent of the damage persuaded people that a more permanent solution to the problem needed to be found. In response, Congress created a commission to investigate the country’s banking and currency laws. The group’s findings ultimately led to the founding of America’s first central bank since the fall of the Second Bank of the United States in 1836: the Federal Reserve, established by Congress in 1913. It consisted of twelve regional reserve banks, overseen from Washington by a six-person board. All national banks were required to join the system, and any state bank had the option to become a member.