Paper Money

There was a time when 50-cent notes circulated

In the summer of 1862 a grim mood gripped the northern portion of the United States. The southern half of the nation was in armed rebellion. Americans were killing Americans on the battlefield in increasing numbers in one bloody battle after another. While the Union forces were experiencing some success in the western theater, in the East the Army of the Northern Virginia was proving to be more than a match for the Army of the Potomac.

Citizens on both sides of the conflict, seeing no quick end to the bloodshed, were worried, and their concerns were felt in the economy. In December 1861, the banks had suspended specie payments for paper money. The banks’ decision meant they would no longer redeem paper money — those notes issued by state-chartered banks and the first issues of the federal government — with silver or gold coin. Gold and silver coinage, bearing an intrinsic value not found in paper notes, quickly developed a premium over paper money and what coinage was in circulation quickly disappeared, hoarded by a fearful populace seeking to preserve their wealth. 

Even copper-nickel Flying Eagle and Indian Head cents, each with an intrinsic value of less than their face value, were pulled from circulation. By the summer of 1862, the North was in the midst of a coinage shortage as an estimated $25 million in small change had disappeared, according to numismatist Fred L. Reed III. Something had to be done.

Private ‘money’ issues

Lack of small change in commerce in 1862 was no minor hardship. As Reed explains in his book Civil War Encased Stamps, “A quarter was a good deal of money,” adding, “Three cents would buy a newspaper or a stage ride. Five cents would buy a glass of beer and a lunch.”

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The Philadelphia Mint, the only facility striking cents, devoted most of its production to that denomination, nearly tripling its output compared to 1861 (10,100,000 cents in 1861, and 28,075,000 cents in 1862). However, the public still had to turn to several alternative forms of money as government coinage disappeared: 

??Postage stamps, already bearing denominational markings, became a go-to alternative, to the point that the Post Office could not meet the demand. Of small size and flimsy nature, the stamps were easily crumpled, and their glue made them sticky and easily soiled, Reed explains. 

Entrepreneurs introduced novel ways to protect the stamps during their use as currency. Small envelopes were used for housing the stamps as they went from transaction to transaction; and late in the summer of 1862, John Gault’s small holders made of brass with a mica window were pressed into service (creating the encased postage stamps that are the focus of Reed’s book).

??Local municipalities and merchants alike issued local scrip notes in various denominations.

??In the autumn of 1862, first in Cincinnati and then elsewhere throughout the north, private cent-sized tokens with patriotic themes and merchant advertising — the famed Civil War tokens — began to circulate. 

However, a government response was needed beyond increased production of cents. That response, the results of which would probably astonish noncollectors today, was to print notes in denominations of less than a dollar — first the postage currency and then fractional currency notes.

Stamps monetized

From 1862 to 1876, the federal government released five separate issues of notes bearing denominations of less than a dollar. These notes became the primary small change in use in the United States for about 14 years, through the Civil War and the Reconstruction period that followed. While these notes were in use, an individual could go into any business and pay for a purchase using small notes in denominations as small as 3 cents and as high as 50 cents. Even today, technically, one could legally attempt to spend these notes in commerce, though doing so might draw a displeased reaction from tellers and cash register operators and unwanted attention from local law enforcement unfamiliar with the fractional notes.

Notes in the first of the fractional issues are officially called “postage currency,” so named because they were essentially stamp designs printed on security paper with additional inscriptions identifying them as legal currency. Congress reacted to the acute small change shortage on July 17, 1862, by authorizing payments in stamps, officially sanctioning a practice already occurring. The Post Office Department was required to supply stamps to the Treasury Department, which would then issue them to the public. The Treasury secretary asked that the stamps for this purpose be issued without glue, because of the problems already resulting from the sticky traditional stamps. 

The Post Office worked with one of the private security printers that it used, and the result were “small fractional notes” in denominations of 5, 10, 25 and 50 cents, each bearing the imprints of the stamps in daily use. The 5-cent notes bore a 5-cent Thomas Jefferson stamp, with the 25-cent notes bearing five overlapping imprints of the same stamp; the 10-cent note bore a single George Washington stamp, the 50-cent note five of the Washington stamps. All of the notes also bore inscriptions identifying them as POSTAGE CURRENCY and defining how they could be used. Some of these small notes were even perforated, just like the individual stamps.

Four more series

The postage currency and subsequent four issues of fractional currency became one of the standard forms of small change for nearly 15 years. Congress also authorized a bronze 2-cent coin and copper-nickel 3-cent and 5-cent coins, introduced in 1864, 1865, and 1866, respectively, which allowed reduced production of the cent after 1865 (more than 35.4 million 1865 cents were struck; in contrast, mintage of 1866 cents dropped to 9.8 million pieces).

Since the postage currency issues were essentially an emergency issue, the expedient use of stamp images as the primary design feature made sense. However, when the Second Issue of fractional notes was issued in the fall 1863, the designs were made a little more elaborate. Though the central device remained a portrait of the type used on stamps, it was now within an engraved oval frame; use of actual stamp dies was ended. Beginning with the Third Issue (released in December 1864), some of the fractional notes bore designs that borrowed elements from the $1 and higher denomination notes in circulation, including larger portraits in vignette style (no surrounding frame). Fourth Issue notes (issued from July 1869 to February 1875) gained elaborate Treasury Department seals, just like the notes in denominations of $1 and higher, and several bore nonportrait vignettes. The Fifth Issue, which circulated from February 1874 to February 1876, was the most elaborate yet in terms of designs. 

In their dimensions, the first two series generated notes the same size regardless of denomination (approximately 44 millimeters by 66 millimeters), but different sizes were used for each denomination starting in the Third Issue.

As for the subjects of the portraits of actual persons used, the first notes bore depictions of Founding Fathers Washington and Jefferson. Later issues would bear portraits of momentarily important early 19th century political figures destined for future obscurity, and some of the notes portrayed living politicians, such as Edwin Stanton, Lincoln’s secretary of war, and F.E. Spinner, treasurer of the United States during the Civil War and Reconstruction era.

One portrait generated a fair deal of controversy and directly led to passage of legislation that has since made it illegal to depict a living person on a piece of U.S. paper money. The Third Issue 5-cent note depicts Spencer M. Clark, first superintendent of the National Currency Bureau (later the Bureau of Engraving and Printing), the agency formed in 1862 to coordinate the printing of paper money. It is unclear why Clark felt he was authorized to place his own portrait on some of the notes he was charged with printing, though several stories are told to explain how it came about. Whatever Clark’s reasoning, his use of his own portrait drew political condemnation, and in 1866, Congress made it illegal to depict a living person on a note, a law still in enforcement today.

Some of the printing of the notes was done by contracted private printers, notably the National Banknote Company and the American Bank Note Company, which produced the First Issue postage currency. For added security, the faces and backs of some First Issue notes were printed at different firms; on the same sheets, one company would printing the faces and another would print the backs. When the National Currency Bureau began operations, printing of the fractionals was moved there, starting with the Second Issue.

Collecting fractionals

How should you collect fractionals? It is up to you.

You might, for example, focus on a single denomination, such as the 3-cent note or 5-cent note. You could collect one of each major design in each series of your chosen denomination, and, if want a particular challenge, you might pursue all of the many varieties identified for a particular issue (varieties can be distinguished by inscriptions, overprinted elements and even the kind of paper used).

Another focus could be a particular issue, collecting each of the denominations or types in, say, the Fourth Issue series.

You could also seek to acquire one note of each denomination with no emphasis placed on a particular issue. Such a collection would comprise a single example each of the 3-, 5-, 10-, 15-, 25- and 50-cent notes. 

The most challenging approach would be to collect everything — every denomination and every major type in all five issues. Such a collection would, at minimum, contain two dozen notes, and if you were to pursue varieties, would total dozens of additional notes. That is a challenge few have undertaken, the most famous collectors who went the whole route being F.C.C. Boyd and John J. Ford Jr. (who acquired the Boyd Collection after Boyd’s death). 

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