Early Bank Notes Reveal a History of Our Country

QUESTION: My dad collected old currency and coins. Some of the currency is quite old and doesn’t look anything like today’s money. What can you tell me about this bill? And why is it so different from the currency we use today?

ANSWER: American banknotes have not always been green. In the mid-19th century, banknotes contained a rainbow of colors. By examining these paper artifacts, Collectors can take a tour of America circa 1800.

Prior to the Civil War. the U.S. government didn't regularly issue paper money. But people still needed to use some form of currency, so banks issued their own paper money—bank notes.



Many types of notes circulated during this era, known as the golden age of U.S. currency, which generally began in the late 18th century and lasted until the Civil War. The most common type of note, the "demand note," entitled the bearer to a certain monetary amount. Individuals would deposit something of value in the bank (usually herd current stock), and the bank would issue to the individual on-demand notes that he or she could use as a vehicle of exchange to purchase items from a merchant who could then redeem the note with the bank, that "on demand" would exchange the bank for gold or silver coins issued by the federal government.



A bank's capital, which often appears on the banknote, (capital $1,000,000), guaranteed the value of these notes, and for this reason, two officials often signed each note to ensure that a greater amount in banknotes was nut issued than the bank could cover. Private hanks and public banks, which obtained a charter to operate, and savings banks, which operated under a different set of rules, all issued the demand note. Some demand noted contained a space in which a bank official wrote a payee's name and thus allowed a bank to specify the identity of the hearer, who would endorse the note by signing its often blank reverse as one would endorse a modern cheek. Other types of notes circulated as well. Post notes worked like bonds and were redeemable only after a predetermined time noted on the bill (e.g. "redeemable after six months").



Private merchants also issued notes, sometimes referred to as scrip, which they used to pay employees. Some laborers were paid only in scrip, which was generally redeemable only at company 'stores. This often led to the economic enslavement of laborers who "owed their soul to the company store." Railroads, shipping lines and many other type, of merchants issued notes to their employees.

While the bank note system worked, poor or dubious business practices threatened the integrity of the private and state banking system that ran amok in the first half of the 19th century.

Most of the time, banks were honest. But stories of fraud were rampant. banks that issued more money than their capital guaranteed and banks with a phantom capital, or no money to guarantee their notes.

This led to the distrust of unfamiliar hanks, and as a result, the notes did not work well for inter-state banking. A merchant in one state wouldn’t honor a bank note from an unfamiliar bank in another.

With so many different bank notes circulating, the proliferation of fakes or counterfeit notes was inevitable. The sheer number of issuers and varieties of notes issued—more  than 1,600 banks in 34 states collectively issued more than 10,000 varieties—provided the hungry counterfeiter with a virtual smorgasbord.

The word counterfeit refers to an illegally replicated note. Some genuine notes had their denominations altered; consequently, the alteration raised the value of the note, hence the name "raised note." A variation on this theme, the "altered" note also appeared. An altered note was a genuine note altered to look like another bank's product. The more artistically inclined produced original designs and added a legitimate hank's name on the notes, thus creating a spurious note.

In fact, so many counterfeit notes circulated—some 55.000 varieties—that bank officials began to stamp or handwrote the word “counterfeit” across the surface of the note.

During the Civil War, the U.S.Congress took action to end private issuance of banknotes. Congress passed legislation that forbade the private issuance of currency, and the federal government began issuing its own notes. Banks could still issue currency bearing their own name, but to do so, they needed to obtain a charter from the federal government, which entitled them to issue notes, known as National Bank Notes, supplied by the federal government.



The new notes led to the modern association of money with the color green. This relative lack of variety could make the counterfeiter's job much harder, though, and the number of attempted counterfeits dwindled.



The most interesting aspect of obsolete banknotes is the detailed and often colorful vignettes they contain, which collectively offer a lithographic history of American culture. Each bank note told a story. A $1 note from The Merchants and Planters Bank f Savannah. Ga., for examplel, contained the image of a covered wagon. When the note was issued in the 1830s, the covered wagon would have been the preeminent mode of transportation taken by settlers traveling to the Western territories.



Scrip from the Delaware Mine on Michigan's Upper Peninsula features the image or a copper finer wielding a pickax. A $5 note from the. Bank of the Commonwealth in Richmond, 'a., contain, the image of planters standing next to the barrel of tobacco—one of the crops that drove Virginia's economy in the antebellum era. Moments frozen in time, dense images offer the closest thing possible to a photograph of 19th century life.

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