[NYTr] Fw: [toeslist] 'A Nation of Counterfeiters' hints that everything old is new again - Cogniacking trade

[All the News That Doesn't Fit]

sent by Riaz K Tayob


"A Nation of Counterfeiters" hints that everything old is new again

The New Yok Times - Jan 6, 2008
http://www.nytimes.com/2008/01/06/business/06shelf.html


Book Review: The Deluge Before the Dollar

By Stephen Kotkin

In "A Nation of Counterfeiters" (Harvard University Press, $29.95), 
Stephen Mihm takes us back to the screwball days between the American 
Revolution and the Civil War, when the dollar did not exist.

No U.S. dollar? That's right, at least not as we know it, in the form
of paper money. America's currency, such as it was, was issued by
hundreds of private banks. They put out notes after supposedly
depositing bonds or other assets with the banks of the states. But
19th-century America abounded in phony banks issuing bogus notes. And
often even the chartered banks circulated paper way beyond what they
could even partly back up, acting as legal counterfeiters.

"Bank notes, which put the 'capital' in capitalism, were nothing more 
than glorified IOUs," asserts Mr. Mihm, an assistant professor of 
history at the University of Georgia. In other words, they were mere 
promises to pay in gold or silver at the issuing bank, if such a demand 
were made. Legitimate notes were discounted in third-party transactions 
if their bearers looked suspicious, while notes of nonexistent banks 
could pass at par if people took them at face value.

"Bills could function whether counterfeit or not," the author writes.
It was literally confidence money.

This is a fun book. Mr. Mihm has a tendency to opt for entertainment 
over explanation. Unfortunately, he fails to provide enough context to 
follow his delightful narrative, or sustained international comparisons 
to help judge the American story. And he blithely asserts that 
establishment of a dollar backed by the federal government in the 1860s 
and 1870s finally turned America into a "genuine nation." What was the 
United States before then -- under Washington, under Jefferson? A
knockoff?

Still, Mr. Mihm's creative account of the early American economy
shines, spotlighting the on-the-edge inventiveness, and over-the-edge
cons, that have made the United States so rich in risk, reward and
redemption.

In Britain at the time, counterfeiting was a treasonable act,
punishable by death without access to clergy (for absolution). But the
United States had precious little precious metal like silver -- try
minting coins out of buffalo chips. "Americans' faith in paper
currency," Mr. Mihm asserts, "was less a choice than a necessity."
Dubious currency too, he says, helped meet an insatiable demand for
capital and credit.

Much of the outright counterfeit money -- aside from those notes that 
banks issued way beyond prudent limits -- originated in the border
areas between the United States and Canada. The epicenter became a dirt
road known as Cogniac Street, in the Quebec village of Dunham, whence
the fakes circulated thanks to the new Champlain and Erie Canals.

Fraud's benefits, Mr. Mihm suggests, bypassed the South's economy. 
Forgers on the Canadian and then the Ohio frontiers tended not to 
venture down the Mississippi because the South had a dearth of top 
engravers, as well as vigilante experience in tracking down fugitives 
(that runaway slave problem).

The Cogniackers were rarely jailed. Bail was routinely skipped, making 
it a kind of business tax. Convictions were overturned via bribes. If 
anything, law enforcement became an unwitting instrument of rival gangs.

Meanwhile, Mr. Mihm writes, "many of the families involved in the 
selling and shoving of notes intermarried, creating new criminal 
alliances." Ace counterfeiters like Seneca Paige, Ebenezer Gleason, and 
Stephen Burroughs acquired mythic status as romantic outlaws who outdid 
those "speculators" at real banks as well as the authorities.

Horse thieves doubled as distributors until special carriers arose to 
deliver packages of counterfeits (called "boodle"). Small-time
"passers" also joined the Cogniacking trade, as it was called, cradling
babies while trying to pass phony notes. Some dipped the counterfeits
in oil to give them the appearance of having already circulated widely.
Thus was money made.

Clerks at shops and banks consulted detection aids, like the 
often-updated Thompson's Bank Note Reporter. But the sale of 
signature-comparison pamphlets mostly helped counterfeiters to improve 
their imitations. Predictably, Thompson's detection aids themselves 
became a target of counterfeiters.

Forget about the victims of the swindling -- Mr. Mihm does. "The United 
States," he argues, "was hardly held back by these illicit additions to 
the money supply." Bank panics, even the serial private-bank failures 
(their notes lived on as "paper corpses," backed by nothing) provided 
only grist for the mills of the forgers.

"Though often a nuisance," Mr. Mihm argues, "counterfeiters performed a 
public service," stepping into the breach.

He points out that private banks of the conservative Boston 
establishment attacked sham notes with some success. But efforts to 
reinforce Alexander Hamilton's original hopes for a federal bank to 
provide oversight were subverted in the 1830s by President Andrew 
Jackson, who opposed "concentration of power."

The Civil War brought federal government action. To finance the Union's 
cause, the Treasury introduced a federal greenback, the Secret Service 
ruthlessly pursued forgeries, and legislation taxed the prewar notes of 
private banks into history's dustbin. By contrast, the Confederacy's 
wartime graybacks failed, lacking the backing of a strong central 
government. (The slave states had revolted in part against centralized 
power.) Even before war's end, paper greenbacks dominated in Dixie, too.

Moneymakers had to find realms other than the currency in which to 
flourish, like Ponzi schemes and, more recently, sliced-and-diced 
mortgages. As the "Working Man's Advocate," a labor newspaper, huffed 
back in 1833 about America's apparent national ethos, "Make money -- 
honestly, if you can, but at all events, make money."

And on that rests today's global financial system.