Early Paper Money: History and the Marketplace : Maine Antique Digest, April 2004

Early Paper Money: History and the Marketplace

by Q. David Bowers and David M. Sundman

Paper Money Everywhere

Today, few things in American life are as omnipresent as paper money. Dollar bills are everywhere. The $100 bill (the highest value currently produced) is a staple in international commerce, and news about money always attracts attention. When it is said that the value of an American dollar is declining, it is a paper dollar or a clad-metal Sacajawea (since 2000) or Susan B. Anthony dollar (1979-89). No "hard money" dollars, made of silver, have been struck for circulation since 1935. Today, bills from $1 to $100 have no solid backing save for the "faith and credit" of the government.

In 1690 the Massachusetts Colony issued the first bills to achieve general circulation in what is now the United States. Soon, other colonies issued their own versions of paper money, generally redeemable in current silver coins. The theory was that paper money could be easily printed and used, and that upon demand it could be exchanged for "hard money," typically silver coins of Spanish America, minted in Mexico, Peru, and other silver-mining possessions of Spain. In time, the United States government would mint its own coins, but that did not happen until 1792.

In today's marketplace for antiques and collectibles, old paper money is very actively traded. Scarcely an antiques group shop or mall exists without having at least a few bills on display for sale. Most dealers can relate experiences in which interesting and sometimes valuable old bills have been discovered in long-forgotten collections and estates. So many valuable old bills are in hiding that every week or two a find is announced, sometimes involving many thousands of dollars.

Different Types of Early Currency

—Colonial Notes

In the colonial era, prior to the Revolution (1775-83), paper money was essential to commerce, perhaps even more so than today, for at that time checks, credit cards, wire transfers, personal bank accounts, and other conveniences did not exist. Travelers seeking to buy merchandise carried bills or coins with them. Such currency was good only in the district in which it was issued—Massachusetts bills could be spent in Boston, Maryland bills in Baltimore. At a distance, such bills were only received at a discount by merchants or brokers who then returned them to the place of origin, making a profit in the exchange.

Ships departing from Salem, Wiscasset, Portsmouth, New York City, or Baltimore and headed for Batavia in the East Indies, or a whaling expedition of a year or more in the northern Pacific, or to France would carry only "hard money," nearly always in the form of Spanish-American silver dollars, these being used worldwide.

Historian and collector Eric P. Newman authored a comprehensive book on currency of the colonies, The Early Paper Money of America, in 1967. Since that time it has undergone several revisions and updates, and today it remains the standard work.

—Continental Currency

Beginning in 1775, the Continental Congress authorized bills, eventually produced in denominations including $1, $2, $3, $4, $5, $6, $7, $8, $10, $20, $30, $40, $50, $60, $70, and $80. Continental paper money, as it came to be called, was denominated in Spanish silver dollars. The fledgling government, however, had no vaults filled with such silver dollars to exchange, and in practice, bills could only be exchanged for other bills—a $10 bill for two $5 bills, etc.

As more and more bills were printed to finance the Revolution, to pay soldiers, and take care of other debts, their value depreciated rapidly. By 1791, they were virtually worthless, as it took over $1000 in Continental paper money to obtain a silver dollar. The expression "not worth a Continental," or its variant, "not worth a Continental damn [or dam]," became part of the American language.

So worthless did Continental paper money become that the public placed little faith in the Treasury Department, and it was not until many years later, in 1861, that the government dared to issue paper money on a wide scale. Today, the Continental bills of the Revolution remain repudiated by the government and cannot be redeemed, a sorry and rather embarrassing situation for anyone caring to study the matter. Salvation occurs inadvertently inasmuch as most choice examples of Continental currency are now worth more than face value to collectors.

A popular theme with collectors today is to acquire one of each bill from the original 13 colonies, a fine set of which can be assembled for, perhaps, $2000 to $3000, much less if poor-quality or ragged bills are included. The zinger is Vermont, which was not a colony and did not become a state until 1791. Vermont bills are often collected along with those of the colonies but are extremely rare. Any reader of this article who can find a high-grade Vermont government bill from the era before 1791 has an item worth thousands of dollars.

Bills Issued by State-Chartered Banks

—Banks in Various States

This brings us to paper money issued by various banks chartered under state laws, these being produced from the 1780's through and including 1866. The different states granted charters to individuals and corporations who desired to set up banking institutions. In some areas, Vermont for instance, the states themselves set up banks but without lasting success. (The state of Massachusetts set up its own mint to coin copper cents and half cents in the late 1780's. After an audit revealed that each cent cost two cents to produce, the mint was shut down.) In the early days banks did best when run by well-intentioned, knowledgeable entrepreneurs and financiers, not by government employees.

Banking was as essential to commerce then as it is now, but even more so in the early era when communication was difficult and trade tended to be local or regional. Just about every medium-sized town in the United States had one or more banks. Although state laws varied, under a typical arrangement a bank would be chartered for a set amount, say $100,000, and stock sold to make up this capital. Paper money could then be issued up to the amount of the capital, with the proviso that if bills were presented at the bank for redemption, they would be paid in current coins, American dollars, or their equivalent, such as Spanish-American dollars.

As might be expected, men (few women were involved) who formed state-chartered banks were of various stripes, colors, persuasions, and ethics. While many banks, particularly in the New England states, flourished and were a credit to everyone involved, others were out-and-out frauds. It was a popular caper to obtain a charter for a bank in Michigan (which had very loose laws), Indiana, or some other western state, order paper bills from one of the bank note printers in New York, Boston, Philadelphia, or Cincinnati (the main centers), affix the signatures of the cashier and president, and pass them into circulation.

This was often done at a distance from the bank itself, with the hope that the bills would not be returned for redemption. Aiding in such schemes were brokers in large cities who bought bundles of such bills at a discount and sold them to traveling salesmen and others who passed them out. If bills were returned, to keep up appearances some banks would pay out coins in exchange, but if too many came in all at once the bank would fail. This was called a "run" on the bank—more about this later.

Among the early records of many banks studied, only a few seemed to have had fully paid in capital in terms of actual cash. Typically, if a bank was chartered at $100,000, the entrepreneurs would pay in a few thousand dollars in "hard money" or coins and simply borrow the balance from the bank by giving IOUs. Under such an arrangement, a bank could be chartered for $100,000, issue $100,000 in paper money, but only have $5000 to $10,000 in hard assets, the rest being IOUs for stock. In one instance, a bank examiner found that the cash assets of a bank with over $50,000 in bills in circulation had cash on hand of less than $20.

In the same vein, the cash reserves of certain banks in Michigan "were sometimes kegs of nails and broken glass with a layer of coin on top," as related by Bray Hammond in his book Banks and Politics in America. Moreover, coins exhibited to the examiners at one bank were whisked off to be exhibited at another bank the next day.

To obviate this, certain states passed laws providing that paper money could not be issued until at least half of the capital was paid in cash. Later, restrictions became even tougher, and currency could be issued only to the amount of fully paid capital.

—Popular Denominations

Although other denominations were produced by state-chartered banks, the most often used by a typical state-chartered bank in the early 19th century were $1, $2, $3, $5, and $10. Although today the term "phony as a three-dollar bill" is part of the American idiom, at one time these were very common in circulation. In fact, in 1862 when the government issued its first legal tender notes, it intended to include a $3 denomination, but among the lower values only used the $1, $2, $5, and $10, omitting the $3—after which the saying arose.

During the early 19th century, small denomination bills furnished the sinews of commerce, since typical wages were apt to be $1 per day or less, and very few people possessed large sums of money. Currency from a given bank tended to circulate most actively in its own area, but bills also were distributed far and wide, sometimes 1000 or more miles distant, as noted earlier. It was not unusual for a bank in New England to sell $1000 face value of its bills at a sharp discount to an agent in the West, with the expectation that many bills would never find their way back home, and a profit would be made on those missing.

Often, bills would be accepted by merchants far from the area of the issuing bank for a discount from face value, then sent to brokers in Boston, New York, and other large cities in exchange for payment in other funds. The brokers would eventually redeem the bills with the issuing banks.

In time, certain clearing houses were set up, including the Suffolk Bank in Boston and the Bank of Mutual Redemption in the same city, both of which took care of bills for many banks that had signed for the service and had furnished deposits. Still, it was the hope of most banks that their bills would stay "out there" and not be redeemed.

During the Civil War, the government again issued paper money in various series known as demand notes (1861), legal tender notes (1862), and National Bank notes (1863), among others. The flood of state bank notes was considered a nuisance, and as only the government can do, a federal tax of 10% was placed on all transactions involving state notes that might take place after July 1, 1866. Accordingly, such bills were quickly drawn into the banks that issued them and were no longer seen in circulation. Taking their place was federal paper money.

Collecting Paper Money

—Aspects of Collecting

Today, the collecting of early paper money is a fascinating pursuit. Colonial bills and Continental currency bills are eagerly collected, and, as noted, nearly all are worth more than face value now, if they are in choice condition. A particularly rare or popular issue bill that was once worthless can command thousands of dollars. Some examples are the previously mentioned Vermont bills or a Massachusetts bill from a plate engraved by Paul Revere and featuring a standing man with a sword in his hand, to mention just a few of many.

The field of state-chartered bank notes covering the years 1784-1866 comprises the issues of hundreds of different banks and thousands of different varieties of designs and denominations. Even the once-worthless bills of certain banks in Michigan now have value to collectors, and all of the more popular denominations, $1 to $10, sell for more than face value, often much more.

After that, over 10,000 National Banks in the United States issued currency in denominations of $1 to $1000, from 1863 to 1935. Federal notes can be easily divided into large-sized National Bank bills, made from 1863 to 1929, and small-sized bills (the same size used today), made from 1929 through 1935. During the 1863-1935 era, a bank desiring to issue currency with its own imprint would purchase bonds or other securities from the government and place them in escrow, against which 90% of the value could be obtained in paper money with the bank's imprint, until 1900, when the full 100% of the bonds' value could be obtained.

Such bills bore the name of the bank, its location, signatures of treasury officials in office when the printing plate was made, and the signatures of two bank officials: the cashier and the president. For all banks the cashier was the chief operating officer, while the president was often primarily an honorary position. These, too, all have value.

—Paradoxes of Grading

While a rare coin is generally most valuable if it is in Uncirculated or New condition—and this is also the case with National Bank bills—it is not relevant to state bank notes. These were printed in large quantities, and shipments were delivered to the banks themselves, to be filled out in ink with the date of issue, serial number, and the signatures of the cashier and president. Typically, a bank would order many thousands of dollars in face value of bills, often in sheets of four bills per sheet, put them in the safe, and then sign and issue them as needed. When banks failed, or after the early 1860's when many state-chartered banks converted to National Banks under the federal government, vast quantities of unsigned bills were often left over.

Many of these exist today, creating the unusual situation in which a crisp Uncirculated bill, unsigned and just like new, might be worth, say, $30 for a certain bank issued in Vermont in the 1850's, while the same note, if signed in ink and placed in circulation and now appearing slightly worn, might be worth several times the price. In New Hampshire, the bills of the Salmon Falls Bank in Rollinsford are very plentiful in choice, new condition and worth, say, $20 to $50 or so each, but one that has been signed and placed into circulation would be worth several times that much.

Among the bills of National Banks, however, grading and value are related similar to rare coins: the higher the grade, the higher the value. A $20 bill issued by the First National Bank of Wolfeboro, New Hampshire, in the 1920's, if in somewhat soiled and wrinkled Fine grade, might be worth, say, $200, but one in crisp like-new condition would command the best part of $1000.

If anything, this shows that one rule does not fit all.

—Collecting State Bank Bills of the Early 19th Century

There are many ways to collect currency from the state bank era, but most collectors desire issues from their home state. The quantity available and value of such notes depends on the state and town involved. Generally, eastern and midwestern states with large populations, such as New York, Pennsylvania, Massachusetts, New Jersey, and Illinois, among others, had hundreds of banks and issued notes in very large quantities. While notes of specific towns and banks within those states can be scarce, obtaining a representative note from the state itself is no problem.

A great rarity among early bank bills are issues of the Miners' Bank, San Francisco, some of which were distributed in 1849. In 1850 the California state legislature prohibited the further distribution of paper money, and the few Miners' Bank bills that reached circulation were soon redeemed. Today, an example is valued into the thousands of dollars.

Not many bills were distributed in Colorado Territory during the early days, but those of Clark, Gruber & Co., Denver bankers and operators of a private mint, were once popular in the district. Where they all went, no one knows, but today these too are worth thousands of dollars apiece.

—Collecting by Town

A popular way to begin collecting is to acquire bills from one's hometown. For those who live in New York City, Chicago, or Boston, hundreds of varieties were made, and a fine specialty can be built. For most of us, however, the bills of one's hometown are few in number. Once the readily available bills are obtained, it is natural to expand horizons, so there is the possibility of buying something new every few weeks or every few months. Otherwise, a specialist in bills from Sanford, Maine, for example, would be able to buy a modest assortment of specimens within a few months, as a hoard of old bills from this town was distributed long ago, but after that, perhaps a year would go by without anything being added. Accordingly, most collectors of paper money keep increasing their goals.

Within any town, the availability of state-chartered bank bills can be learned quickly by consulting published guides or consulting dealers and collectors. In general, for state-chartered banks, the more banks there were in a town and the more currency they issued, the more available the bills will be today. In instances in which a bank failed or large numbers of canceled bills were kept on hand, bills of a town, even a small town, can be common. These, however, are the exception, not the rule.

As an example, take the Carroll County Bank of Sandwich, New Hampshire, which issued its own paper money from 1850 through 1865. Today, only a few dozen bills exist from this bank, if indeed that many, and an example is apt to be worth several hundred dollars or more. On the other hand, bills of the Exeter Bank and the Claremont Bank, both in New Hampshire, are exceedingly common, and worn examples can be bought for $10 to $20 each.

Among state bank notes, while the denominations of $1, $2, $3, $5, $10, and even $20 are seen with some frequency, higher denominations are apt to be elusive, with $50 and $100 bills being very scarce except for just a few instances, and $500 and $1000 bills being almost unheard of. For the state of New Hampshire, an authentic $500 or $1000 bill, signed by officers of the bank and actually used in circulation, would today be worth more than face value. The same is true of banks from many other localities.

Beyond that, some banks issued odd denominations such as $4 and $6, or even $1.50 and $2.75. Such are usually scarce and command a premium.

Topics illustrated on state bank notes are varied and include agricultural scenes, railroads, ships, bank buildings, state capitols, rivers, Indians, cattle, goddesses, cupids, and other allegorical figures, and more. Particularly popular is a motif featuring Santa Claus and his sleigh and reindeer, used by several different banks, including on a $2 note of the White Mountain Bank of Lancaster, New Hampshire. Although the Lancaster notes are not particularly rare, a lightly worn one with all of the design crisp and clear is worth into the hundreds of dollars.

Although many bills from state-chartered banks were redeemed at face value by the banks in later times, including when some of them converted to National Banks, many others became worthless as the institution failed. As a class, these have been called "broken bank notes," although today numismatists prefer the term "obsolete bank notes."

—Collecting National Bank Notes 1863-1935

Bills issued by National Banks from 1863 to 1929 in large format and small-sized bills issued from 1929 to 1935 are collected even more intensely than are those of state-chartered banks. As each bill was backed by bonds on deposit with the Treasury Department, if a particular bank failed, its bills were still worth face value. Today, without exception, each and every National Bank bill now has a numismatic premium value, perhaps nominal in the instance of a small-sized note from a large city but high if from a remote or "rare" location.

The first series of National Bank notes commenced in 1863 and continued for about two decades afterward, although some of the earlier plates were used beyond that time. Most popular were $5 bills, but beginning in 1865 the denominations of $1 and $2 were produced, these being printed in sheets of four subjects, $1-$1-$1-$2. The $2 bills in particular have attracted a lot of attention as they feature the large numeral 2 on its size, the famous "Lazy 2" note. Hundreds of different banks issued these notes, but they are so popular today that any nice example in, say, Very Fine grade, not damaged, is worth in the hundreds of dollars, and any Uncirculated bill handily crosses the $1000 mark. National Bank notes are often collected by state.

Similar to bills from the state-chartered bank era, the later National Bank notes of certain western states can be elusive. A large-size National Bank note distributed in Montana Territory or Colorado Territory in the late 19th century can be worth thousands of dollars. One of the writers of this article (Bowers) has been looking for a $1 National Bank bill from Wyoming Territory issued in the 1870's but has not been able to track one down. The few that exist are valued in the tens of thousands of dollars each.

Collecting by town and city is also popular, but the banks are typically so few and the issues so scarce that there is not much challenge, except perhaps for places such as New York, Chicago, and Philadelphia. Accordingly, collecting bills of one's hometown is often a jumping-off spot leading to wider vistas.

Regarding rarity of bills from certain towns, the situation is somewhat similar to that for state-chartered notes. The Carroll County National Bank, formed in Sandwich as a successor to the Carroll County Bank (state chartered), operated from 1865 to 1872 and issued tens of thousands of dollars in currency. Today, however, these have achieved the ultimate rarity—not a single National Bank bill is known to exist. And yet, there is the distinct possibility that someone sometime will find one (perhaps a reader of this article) and pocket thousands of dollars as a reward.

In Littleton, New Hampshire, the Littleton National Bank issued $1 and $2 bills in the late 19th century, followed by many others later, down to small-sized issues after 1929. Today, however, not a single $1 or $2 bill can be traced. Again, a reward into the thousands of dollars awaits the finder of a nice example, this from one of the writers or this article (Sundman).

For National Bank bills issued within a town, the more bills issued, the more available they are today. For early National Bank bills, however, those issued from about 1863 to 1882, the vast majority were called in as they became worn and tattered. There are many instances in which bills that were once issued by the thousands are extremely rare or even unknown today, this being true even for banks in large urban centers.

Where to Find It

As is true of the old saying for gold, old currency is where you find it—and that can be almost anywhere.

As paper money was used almost everywhere in the United States, today it turns up in just about every location imaginable—in safe deposit boxes, among the leaves of an old book, hidden in a wall, or long forgotten among family papers. Scarcely a week goes by in the collecting community without a valuable and hitherto unknown specimen surfacing, much to the delight of the finder, who can always receive some sort of a premium, and often a great one if the note is rare.

Out in the prairie, a large and valuable group of bills was found hidden in an oat bin. In another instance, a very rare and quite valuable $1000 bill fell to the floor when an old Bible was opened. In Indiana, a man had a scrapbook assembled by his father, who put in a few bills signed by an ancestor who had been president of a National Bank. When seen by a numismatist, three of the bills were determined to be worth more than $5000 each. Stories abound.

Unlike many other areas of antiques and collectibles, the serious study and pursuit of old currency by a wide community of collectors is a relatively recent phenomenon. A few decades ago, relatively few were interested. As more publicity is given to rare, unusual, and interesting bills, more come out of the woodwork. Accordingly, for collectors and dealers of other things, a stray piece of currency can be quite valuable if found and placed on the market.

Getting Involved

The nonprofit Society of Paper Money Collectors (SPMC) includes several thousand enthusiasts and publishes a bimonthly magazine, Paper Money, under the direction of editor Fred L. Reed III. Each issue contains news, advertisements, and feature articles. Dues are $30 per year in U.S. funds (Frank Clark, SPMC Membership Director, PO Box 117060, Carrollton, TX 75011). Say that Dave Bowers and David Sundman recommended you.

The Professional Currency Dealers Association (PCDA) is composed of dealers who specialize in paper money, including Thomas Denly (Denly's of Boston, PO Box 51010, Boston, MA 02205), who kindly furnished many bills for illustration in this article.

For a collector interested in a new avenue of pursuit, one with many challenges and also the possibility of finding treasures, paper money beckons. For anyone who comes across an obsolete bank bill or an old National Bank bill but is not interested in collecting it, a very active community of collectors and dealers stands ready to buy it.

The New Hampshire Project

Focusing on the interest of the authors of this article, the New Hampshire Currency Study Project, being conducted by Q. David Bowers and David M. Sundman, has been gathering not only examples of New Hampshire bills themselves for study or purchase but also old correspondence, historical data, ledgers, and more. The New Hampshire State Historical Society has been an important contributor to the research, as have state and local societies and libraries and many individual collectors. The Smithsonian Institution and the National Archives have made available their data.

It is anticipated that the work will be published in a few years under the imprint of the Society of Paper Money Collectors and will include just about everything anyone ever wanted to know on obsolete paper money and National Bank bills of New Hampshire, plus a lot of esoterica no one ever dreamed about.

If you have New Hampshire currency information or items and would like to correspond about them, simply contact Bowers and Sundman at the New Hampshire Currency Study Project, Bowers and Sundman, PO Box 539, Wolfeboro Falls, NH 03896, or by e-mail qdbarchive@metrocast.net. It is our objective to learn as much as possible about the bills issued by the state of New Hampshire. In addition, for a long time both of us have been interested in other paper money as well.

We hope that you've enjoyed this overview of American paper money—certainly a field worth investigating.