by Ben Tarnoff
The architects of the Federal Reserve hoped to avert future financial disasters by providing the economy with a lender of last resort, as Morgan had done during the Panic of 1907. They spoke of a lack of “elasticity” in the nation’s currency—when demand for cash soared during a panic, the money supply couldn’t grow to meet the need for liquidity. The Fed addressed this dilemma by giving the government a valve for regulating the flow of money into the economy. If the country required more currency, the Fed could lower the interest rate at which it lent money, easing credit by encouraging member banks to borrow. If it wanted to shrink the amount of currency in circulation, the Fed could raise the interest rate, curbing the growth of the money supply by making credit more expensive.
The formation of a central bank fortified federal control of America’s money, accelerating the Hamiltonian trend put in motion by the Civil War. Even with the government taking a more active role, however, booms and busts persisted. Sixteen years after the creation of the Federal Reserve, the country suffered its worst financial meltdown in history: the crash of 1929, followed by the Great Depression. Like the Panic of 1907, the cataclysm prompted an overhaul of America’s financial institutions. It also inaugurated a new chapter in the centuries-old saga surrounding the relationship between paper money and precious metals.
The United States had officially adopted the gold standard in 1900, after decades of furious wrangling over the currency regime inherited from the Civil War. Beginning in the 1870s, a populist coalition of workers and farmers urged the government to print more legal tender greenbacks, called United States Notes, without exchanging the bills for gold. They wanted an inflationary currency, which would devalue their debts and make cash more widely available. Their hopes were defeated when the government capped the quantity of greenbacks in circulation and, in 1879, made the notes freely convertible into gold. A new kind of federal currency appeared in 1914—Federal Reserve Notes—and these, too, were redeemable in gold, payable on demand at any reserve bank.
The Depression severed this link between the paper dollar and coin. Soon after assuming office in March 1933, President Franklin D. Roo-sevelt effectively took the nation off the gold standard, hoping to boost the price of American goods by driving down the dollar’s value. The government withdrew gold from circulation, nationalized the country’s gold reserves, and halted the convertibility of most federal money into precious metals. Roosevelt’s radical move marked an important first step in the gradual transformation of the dollar into a purely faith-based currency. The deathblow came in 1971, when President Richard M. Nixon finished off the gold standard by closing the “gold window” that enabled foreign governments to exchange dollars for gold through the Treasury. Almost three hundred years since its first appearance in colonial Massachusetts, paper money had permanently liberated itself from precious metals. The worst fears of Thomas Hutchinson, Thomas Paine, and generations of hard-money Americans had been realized.
By 1971, the government had stopped printing greenbacks and national banknotes. Only Federal Reserve Notes remained, which are still the only paper dollars in use today. In the twentieth century, they spread throughout the world, taking on the role that gold had served for centuries: a secure store of value in countries where the domestic currency is too volatile to be trusted. Most Federal Reserve Notes are now held overseas—about $450 billion by the end of 2005, as much as 60 percent of the total amount in circulation.
As the dollar has become global, so has the counterfeiting of American currency. For decades, Colombia produced most of the fake money coming into the United States, supplying up to 70 percent of the counterfeit bills passed every year. A crackdown begun in the late 1990s by the Secret Service and the Colombian government brought this number down to 5 percent, but moneymaking hubs have sprung up elsewhere—notably Peru, which is now the region’s major producer of counterfeit American cash. Like drug traffickers, Latin American counterfeiters have built underground networks for smuggling their product into the United States. While these bills are capable of fooling most people, experts can easily identify them as forgeries.
The most deceptive counterfeits on the market come from North Korea, whose government covertly forges American bills and then launders or wholesales them abroad. Printed with highly sophisticated intaglio presses—most likely at a secret factory about twenty miles from Pyongyang, the capital—the North Korean fakes are so difficult to detect they are known as supernotes. While North Korea officially denies involvement, the American government has openly accused the regime of counterfeiting, and continues to use both law enforcement and diplomacy to combat the spread of the supernotes. Nonetheless, the volume of supernotes in circulation is relatively small: about $45 million, according to a recent government estimate, not nearly enough to pose a serious threat to the American economy.
Overall, counterfeit currency accounts for a minuscule amount of the money in circulation: approximately one per ten thousand notes, both at home and abroad. This is partly due to the Secret Service, which pro-jects a sizable international presence through its many overseas offices. But American money has also become much harder to forge. Today’s printers embed notes with high-tech components that are considerably more effective at foiling counterfeiters than the complex leaf patterns Benjamin Franklin used to deter colonial forgers. The new designs for Federal Reserve Notes introduced in 1996 include a security thread that glows in ultraviolet light and a special kind of ink that changes colors when viewed from different angles. The next generation of the $100 bill will feature another cutting-edge anticounterfeiting device: a strip composed of thousands of small lenses, which display three-dimensional images that change from bells to 100s as the viewer moves the note. A similar motion makes a larger bell to the right of the strip appear to vanish within a copper inkwell.
As the gadgets the government uses to secure the national currency improve, counterfeiting will become more expensive and time-consuming. Only those with the resources to devote to such an undertaking will be able to continue producing passable fakes, employing expert technicians who bear little resemblance to the charismatic engravers of counterfeiting’s golden age. Forging notes may even become obsolete, as criminals turn to more profitable swindles.
Perhaps the largest threat to counterfeiting is the uncertain future of paper money itself. In the twentieth century, paper definitively displaced precious metals; in Thomas Paine’s words, “an apparition” took “the place of a man,” an outcome he had warned against a decade after the Declaration of Independence. In this century, paper is being displaced by something even more ethereal. As financial institutions have grown more global and more intricate, money has become ghostlier than Paine could have imagined: traded as intangible signals, beams of light coursing through the filaments of the world’s data network. With new technology come new ways to get rich quick, new schemes for creating wealth by cultivating confidence.
The counterfeiters from America’s past understood the power of confidence better than anyone. They manufactured money backed by nothing but belief, using craftsmanship and charisma to earn their victims’ trust. Today, their legacy can be felt on Wall Street, where people wield complex financial instruments like magic wands, spinning false fortunes out of the ether of global capitalism. These modern moneymakers probably don’t realize they belong to an ancient American tradition—that centuries ago, their forefathers hunched over copperplates with inky fingers, trying to instill inanimate paper with the spark of faith that sustains the nation’s economy to this day.
ACKNOWLEDGMENTS
The idea for this book came from Stephen Mihm’s fascinating history of American counterfeiting, A Nation of Counterfeiters: Capitalists, Con Men, and the Making of the United States. After reading it I called Stephen, who graciously took the time to speak with me. Our conversation made me want to read everything I could find on the topic, and set in motion the research that eventually produced a book proposal. Without him, this book wouldn�
��t have been written. At the time, I was working at a magazine called Lapham’s Quarterly, helping to put together an issue about the history of money. It was a wonderful way to begin learning about America’s financial past, and I’m grateful to the editor, Lewis Lapham, for letting me take part in such a worthwhile project.
When I first began researching this book, I wasn’t sure what to expect. I cast a wide net, writing to archives, historical societies, and libraries around the country, and eventually visiting many of them in person. Everywhere I went I found people who were enormously generous with their time and their resources, and I’m deeply grateful to them for making my research possible. Thanks to Linda August and Nicole Joniec at the Library Company of Philadelphia, Christine Bertoni at the Peabody Essex Museum, Elizabeth Bouvier at the Massachusetts Supreme Judicial Court, Jeff Brueggeman of the Society of Paper Money Collectors, James W. Campbell at the New Haven Museum & Historical Society, Kathleen A. Carrara at the Rutland Superior Court in Vermont, Don Carter of the Library and Archives Canada, Debbe Causey at the Daniel Library at the Citadel, Edward Dacey at the U.S. Military Academy Library at West Point, Richard Doty at the Smithsonian Institution’s National Museum of American History, Elizabeth Hahn and Elena Stolyarik at the American Numismatic Society, John Hannigan at the Massachusetts Archives, Bonnie L. Hess at the Bedford County Archives, Cara Holtry at the Cumberland County Historical Society, Tab Lewis at the National Archives and Records Administration, Tanya Marshall and Catherine Sherman at the Vermont State Archives and Records Administration, Rhiannon McClintock at the Centre County Historical Society, Aaron McWilliams at the Pennsylvania State Archives, Jonah Parsons at F+W Media, Jaclyn Penny at the American Antiquarian Society, Benoît Pelletier Shoja of the New Hampshire State Archives, Andrew Smith at the Rhode Island Judicial Records Center, Mel E. Smith of the Connecticut State Library, Susan Snyder and Lorna Kirwan at the Bancroft Library, Abigail Thompson and the staff of the Baker Library Historical Collections at Harvard Business School, Malinda Triller at the Waidner-Spahr Library at Dickinson College, Dennis Tucker at Whitman Publishing, Abby Yochelson at the Library of Congress, the staff of the New York County Clerk’s Office, the staff of the New York State Archives, and the staff of the Philadelphia City Archives. I’m especially grateful to Kitty Wunderly and the staff of the Centre County Library and Historical Museum in Bellefonte, Pennsylvania. Thanks also to Eric P. Newman, Elizabeth Sinclair, Q. David Bowers, Marc D. Weidenmier, Tom Carson, and Gladys Murray, who each made important contributions to my research.
Of the many authors whose work I relied on, three deserve special mention: Mark Dugan, Ned Frear, and George B. Tremmel. I’m indebted to them for sharing the results of their research and patiently pointing me in the right direction.
The New York Public Library’s Frederick Lewis Allen Room gave me an ideal place to work. Thanks to Jay Barksdale and David Smith for letting me through the door; I can’t imagine writing the book anywhere else. During my time at the library I made extensive use of the Irma and Paul Milstein Division of U.S. History, Local History and Genealogy and the Microforms Reading Room. Both collections were indispensable. Thomas Lannon of the Manuscripts and Archives Division provided expert research help.
My agent Joy Harris believed in this book from the beginning, and without her tireless enthusiasm and guidance, I couldn’t have written it. My editors Laura Stickney and Vanessa Mobley improved the manuscript immeasurably. I’m grateful for their patience, dedication, and incisive editing. Rachel Nolan read a draft of the manuscript and made excellent suggestions that helped strengthen it. Patty O’Toole provided ideas and moral support at a crucial early stage. Mark Danner gave invaluable advice and encouragement throughout, as he always has in the past. Finally, I thank my parents, whose contributions are too significant to summarize in a couple of sentences. Their love, counsel, and eagle-eyed editing are present in every page of this book.
NOTES
The notes are organized by paragraph. For each note I’ve listed the page number, followed by the first few words of the paragraph.
INTRODUCTION
1, On a November night
The tomb raiders assaulted Lincoln’s grave on November 7, 1876. The raid and arrest: New York Times, November 9, 1876; November 10, 1876; November 18, 1876; and November 22, 1876. See also the Inter Ocean, November 20, 1876.
3, American counterfeiters had
Early colonial currency: David R. Johnson, “Foreword,” Kenneth Scott, Coun-terfeiting in Colonial America (Philadelphia: University of Pennsylvania Press, 2000 [1957]), pp. xi–xv; Scott, Counterfeiting in Colonial America, pp. 4–16; Richard Sylla, “Monetary Innovation in America,” Journal of Economic History 42.1 (March 1982), pp. 21–26; Stephen Mihm, A Nation of Counterfeiters: Capitalists, Con Men, and the Making of the United States (Cambridge, MA: Harvard University Press, 2007), pp. 26–28.
3, Coins would have
British closing the Massachusetts mint: Sylla, “Monetary Innovation in America,” p. 24.
3–4, A growing colonial
Spread of paper currency and tensions with the Crown: ibid., pp. 23–26, and Mihm, A Nation of Counterfeiters, pp. 31–33. Bills of credit: Robert E. Wright, One Nation Under Debt: Hamilton, Jefferson, and the History of What We Owe (New York: McGraw-Hill, 2008), pp. 43–45.
4–5, Paper money had other
Crude quality of colonial currency and counterfeits: Scott, Counterfeiting in Colonial America, pp. 7–8.
5, When the Continental Congress
More than ten thousand kinds of notes: Mihm, A Nation of Counterfeiters, p. 3. Mihm computed his estimate by examining Hodges’ American Bank Note Safe-Guard, an annual catalog of all circulating bills.
5–6, Paper helped entrepreneurs
Mary Peck Butterworth: Scott, Counterfeiting in Colonial America, pp. 64–67. Scene with Peter McCartney and “I merely wished…”: George Pickering Burnham, Memoirs of the United States Secret Service (Boston: Lee & Shepard, 1872), pp. 56–57. “He was not an ordinary…”: Allan Pinkerton, Thirty Years a Detective (New York: G. W. Dillingham, 1900 [1884]), p. 550. For more on McCartney’s life, see Lynn Glaser, Counterfeiting in America: The History of an American Way to Wealth (Philadelphia: Clarkson N. Potter, 1968), pp. 132–143.
CHAPTER ONE
11, If you had spent
Colonial newspapers were full of sensational reports about weird or tragic events, and a single incident often inspired a handful of different accounts. Report of the twenty-eight-pound melon, the mulatto boy bitten by a rattlesnake, and the Irishman in yellow buckskin breeches: Boston Gazette, or Weekly Journal, August 15, 1749. Newspapers also served as a kind of bulletin board for merchants to advertise their wares. Choice Lisbon Salt and the Best Burlington Pork: Boston Weekly News-Letter, August 17, 1749; a Good Brick House: Boston Gazette, or Weekly Journal, August 1, 1749; a Healthy Strong Negro Man: Boston Post Boy, July 3, 1749; the pamphlet by Jonathan Edwards: Boston Post Boy, August 14, 1749.
12, One day in late August
The story of Sullivan’s quarrel with his wife was well known; in particular, the phrase “forty-thousand-pound moneymaker” became closely linked to the counterfeiter, and in later newspaper reports accompanies his name as a kind of epithet. The best account of the incident: Connecticut Gazette, April 13, 1756, reproduced in Kenneth Scott, Counterfeiting in Colonial Connecticut (New York: American Numismatic Society, 1957), pp. 137–139. Sullivan also mentions the fight on p. 8 of his posthumously published confession, A Short Account of the Life, of John——Alias Owen Syllavan…, first printed in New York in 1756. The only available version is the reprint published by Green & Russell in Boston the same year; a copy is held by the American Antiquarian Society and available online through Readex Early American Imprints, Series I: Evans, 1639–1800; in quoting the confession, I use the pagination from the Boston reprint. Sullivan’s occupation as a silversmith: from the record of his 1750 trial, found in the Massachusetts Supreme Court of Judicature Rec
ord Book, vol. 1750–1751, pp. 100–101, available on microfilm at the Massachusetts Archives.
12, The silversmith’s name
Even by the standards of his time, Sullivan was a serious drinker. In A Short Account, p. 7, he blames his wife for his drinking: “she was given to take a Cup too much, and I for my Part took to the same.” Later testimony from his criminal accomplices suggests the counterfeiter was rarely sober. Sullivan flaunting his fortune: Connecticut Gazette, April 13, 1756: “always flush of Money, tho’ he lived in an expensive Manner, above his visable Income [sic].” The details of Sullivan’s arrest on August 28, 1749: Boston Weekly News-Letter, August 31, 1749, and the Massachusetts SCJ Record Book, vol. 1750–1751, pp. 100–101.
12, They carried Sullivan
Relationship with Fairservice: Kenneth Scott, Counterfeiting in Colonial America (Philadelphia: University of Pennsylvania Press, 2000 [1957]), p. 187, and “Coun-terfeiting in Colonial New Hampshire,” Historical New Hampshire 13.1 (December 1957), pp. 17–18. In his confession, Sullivan doesn’t mention Fairservice by name but does boast that he engraved three plates in jail (two for forging New Hampshire money, and a third for Massachusetts bills) and struck off forged notes by hand, which he smuggled out to his accomplices. For more on the lax conditions of colonial jails, see Lawrence Friedman, Crime and Punishment in American History (New York: Basic Books, 1993), pp. 48–50.
