Follow the money: the origins of the Secret Service

Today’s post is by National Archives Volunteer Bill Nigh. This is the sequel to his earlier post.
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In my first post, I briefly described the volunteer project based on the records of the U.S. Secret Service  (Record Group 87).  I stated that this organization began its presidential security mission following a presidential assassination, but its initial mission was about money.  Presidential security came an amazing 42 years later.

“Nation of Counterfeiters”, Hezekiah Niles, 1818¹

Prior to the Civil War, it is estimated that more than 1/3 of the currency in circulation was counterfeit, a number that would probably turn our present economic environment into ruin.  Over 1600 state-chartered banks printed their own currency (bank notes); it is estimated that there were more than ten thousand kinds of paper².  That’s a number hard to conceive with our present system operating with essentially four paper denominations ($1, $5, $10, and $20).  Obviously, the common businessman could not reliably determine whether or not the paper he held in his hand was counterfeit.

Bleached Notes

Counterfeit bills permeated the entire currency system.  How did this happen?  Each bank hired engraving firms to produce their own printing plates, dies, and currency.  The counterfeiters would move in and work both sides of this business relationship.  They would bribe the engravers for the plates or pay the engraver to produce a plate for their benefit.  The counterfeiters would also acquire plates from the many failed banks or bribe bank officials to look the other way while confiscating the needed printing materials.  As William Sumner in his 1896 classic book on the history of banking said: “a person receiving a bank note would inevitably turn to a counterfeit detector (a publication of known counterfeit bills) and scrutinize the worn and dirty scrap for two or three minutes, regarding it as more probably ‘good’ if it was worn and dirty than if it was clean, because those features were proof of long and successful circulation”³.

One folder consists of cases dealing only with “bleached notes”.  The term “bleached note” is counterfeit paper defined simply as low denomination money that is chemically processed to remove the ink, which is then reprinted with images of a higher denomination.  Why do this?  U.S. currency paper has a distinct appearance and texture that’s different from many other types of paper⁴, and this method excluded this discriminator.

An interesting case of bleached notes reads like a television police show.  A Dr. Joe Johnson from Connecticut had supposedly perfected a bleaching process and wanted to produce counterfeit $100 bills.  Learning about this, the Secret Service used two informants to convince Dr. Johnson that they could provide him an engraver’s plate for the $100 bill.  The plan was to show Dr. Johnson the plate, produce a couple of bills for examination, and then arrest the doctor with the goods (the classic sting operation).  The reports did not address the operation’s final outcome.  (Report in “Bleached Notes” folder from ARC Identifier 1661969).

A question to consider is where was law enforcement?  First, there was no national police force.  Secondly, the federal government had the only constitutional authority to print money but there was never a challenge to the states’ rights to charter banks and print its own currency.  Monitoring the state’s banking industry was sporadic at best.  Thirdly, enforcement of counterfeiting laws was entirely local; many times local police looked the other way.  Lastly, our economic system worked.  We were a nation poor in gold and silver but desperate for credit and capital to satisfy our dreams and speculative nature.  Counterfeit money picked up the slack⁵.  However, big events frequently compel change and the next one found the federal government wanting money and lots of it.

The Civil War — We Need Money, Fast

To fund the enormously costly war, the federal government needed lots of money to pay its bills and its gold and silver reserves were quickly depleting.  The Legal Tender Act of 1862 authorized Congress to print money ($150 million) and stipulated that the new currency (greenbacks) did not have to be backed by gold or silver.  And just as significant, the legal tender status of the greenbacks required creditor acceptance, whereas creditors did not have to accept state bank notes.  The greenbacks were popular, hailed as “patriotism of the people” by the New York Herald, but problems still remained for the Lincoln administration.  More money was needed.  The state bank notes still remained the primary medium of exchange, burdened with the counterfeiting issue.

Enter Senator John Sherman from Ohio, the younger brother of General William Tecumseh Sherman.  Senator Sherman believed the existing circulation of state bank notes must be replaced with a uniform national currency issued by national banks⁶.  Senator Sherman was one of the major proponents and activists of the National Banking Act of 1863 followed by another Banking Act in 1864.  Together they granted the federal government the power to charter a new system of national banks, issue a new national currency, impose a tax on state bank notes (which forced state-chartered banks to sign up as a national bank), and punish counterfeiters.  States’ rights were defeated; state bank notes went into decline.  These series of events profoundly transformed our country’s economic order.

With the war coming to an end, the government now faced a direct threat to federal sovereignty: how to protect the integrity of the new national currency.  A national police apparatus transcending state lines was seriously considered for the first time.

RESOURCES

¹ Stephen Mihm,  A Nation of Counterfeiters (Harvard University Press 2007), 6.

² Mihm 3.

³ Mihm 360.

⁴ Joel Zlotnick, “Counterfeits Made with Bleached U.S. Currency”, <http://www.counterfeitforensics.com/public/Counterfeits_Made_with_Bleached_US_Currency.cfm.

⁵ Mihm 15.

⁶ Mihm 315.