A Counterfeiter's Paradise (27 page)

WILLIAM LEWIS HERNDON HAD SPENT
nearly his whole life at sea. He had joined the navy at fifteen, cruised the Gulf of Mexico in the Mexican-American War, and at thirty-eight, became the first American to explore the Amazon River. So in September 1857, when his ship, the
Central America
, sailed into a hurricane on its way from Panama to New York, he reacted calmly. The
Central America
, equipped with three masts and steam-powered paddle wheels on the port and starboard sides, had made the trip dozens of times before. Now it careened through mountains of swirling water, trying to keep its balance as the hull started to flood.

Herndon, a slim man with a red beard and round glasses, could be seen
racing around the ship, raising his voice to be heard over the shrieking of the wind. He assembled bucket brigades to bail out the boat, but the water continued to rise, eventually extinguishing the fires in the steam engine’s boilers. Herndon tried raising the sails, but the wind shredded them. He was adrift in a hurricane with no power to maneuver, and on the night of September 12, he stood on deck in dress uniform while the
Central America
sank. Moments later, the sea submerged him and everyone else on board. Some clung to floating debris but most thrashed about helplessly, crying or praying. One survivor saw hundreds of “human beings floating out on the bosom of the ocean, with no hope but death.”

Four hundred and thirty-five people drowned in the wreck of the
Central America
. The story made headlines all over the country and inspired many artists’ renderings of the ship’s final moments.
Frank Leslie’s Illustrated Newspaper
ran an engraving showing the
Central America
’s frantic passengers buried by a cresting wave, an image that captured the horror of the scene. While the human tragedy was considerable, lives weren’t the only things lost. In the hold of the
Central America
was a large quantity of California gold, about $2 million worth, being transported to New York City banks. News of the disaster sent shock waves through Wall Street, and it couldn’t have come at a worse time. The banks, facing a crisis of confidence that had been building since late August, had hoped to fortify their reserves with a fresh infusion of specie. Wall Street had become precariously dependent on regular shipments of gold from California, and the incident underscored the fundamental fragility of the nation’s financial establishment. In the end, however, the banks weathered the disappointment fairly well, and the pangs of fear soon faded. But the sudden scare surrounding the
Central America
demonstrated how tense the situation was. And in the coming weeks, that tension would intensify into outright hysteria as the nation entered its next meltdown, the Panic of 1857.

To get from California to New York, the gold had sailed from San Francisco to Panama and crossed the isthmus before being loaded onto the
Central America
. This was the same route Upham had taken home seven years earlier, a trip that lasted only thirty-eight days, far shorter than his voyage around Cape Horn. His time in California had transformed him, and he kept thinking about it long after returning to Philadelphia’s comparatively tranquil cobblestone streets. Californians, he believed, were a “manly, vigorous, intelligent race of freemen” who lived independently, without the benefit of unfair privileges or monopolies. This ideal had a long history in American life, championed in some form from Thomas Jefferson to Andrew Jackson. By Upham’s time, however, it had become more of a fantasy than a reality for many people, as the economy grew more complex and interconnected. The most striking examples of the trend could be found in the industrializing cities, where workers did backbreaking labor for little pay and had no illusions about being “freemen.” By the middle of the nineteenth century, even the rural agrarians idolized by Jefferson felt their self-reliance slipping away. The economy had made them more vulnerable to forces beyond their control, a fact that became painfully evident in the Panic of 1857.

On August 24, 1857, one of New York City’s most respected financial institutions—the local branch of the Ohio Life Insurance and Trust Company—failed. While it didn’t issue notes, it had lent a lot of money and held large sums of deposits. It was also in debt to almost all the other New York banks, and its abrupt collapse frightened them. Then news emerged that most of the company’s capital had been embezzled by its cashier, which proved even more unsettling: if fraud could be committed at a place as reputable as Ohio Life, it could happen anywhere. Worse, people might lose faith in the New York banks and demand their deposits or redeem their notes, creating a specie drain that could lead to more bankruptcies. So New York’s bankers drastically curtailed their liabilities. They cut their lending, called in their loans, and pressed banks throughout the country to redeem notes that had accumulated in their coffers.

This contraction of credit, beginning in New York and radiating
outward, shuttered businesses, crippled commerce and industry, and eventually forced almost every bank in the nation to suspend specie payments. The scale of the crisis surprised most Americans, who didn’t expect a financial tremor in a faraway city to have much of an impact on their lives. Western farmers had an abundant harvest in 1857. But the crisis caused crop prices to plummet, so despite full granaries, they had a terrible season. Southern planters suffered a similar decline in demand for tobacco and cotton. Companies everywhere—New England textile mills, Wisconsin lumberyards, Pennsylvania coal mines—went bust or shed jobs. The pain was worst in New York City, where the number of unemployed reached as high as a hundred thousand. On November 5, 1857, four thousand people rallied at Tompkins Square near the East River to demand work. The crowds swelled in the following days, and after they marched through Wall Street and stormed City Hall, the mayor called in the police, the state militia, and federal troops. On the steps of the Merchants’ Exchange, a blacksmith named Bowles declared that workingmen didn’t intend to starve while millions of dollars’ worth of specie sat idle in bank vaults.

Decades of laissez-faire hadn’t produced a ruggedly egalitarian society of the kind Upham imagined in California. Instead, it had created a great scramble for wealth where some had power and others had none. As with previous panics, the Panic of 1857 capped an era of tremendous growth. The Mexican-American War from 1846 to 1848 had invigorated the economy and vastly increased the size of the country. The new territory came with significant natural resources—gold, most important—which further spurred the economy. At the same time, political instability in Europe caused a spike in immigration. The foreigners energized American industry with a flood of cheap labor. They also accelerated the migration westward, creating a booming real estate market and heightening demand for the railroads that had begun traversing the country. Railroad companies went deeply into debt to raise capital, borrowing from European creditors and issuing stocks and bonds that were traded on Wall Street.

Underwriting these ventures was a banking sector that almost doubled in size from 1850 to 1857. Paper money soared to perilous heights. By the 1850s, more than ten thousand different kinds of notes circulated, printed by incorporated and unincorporated banks, insurance firms, and railroad companies, among others. This made simple transactions mind-bogglingly complex. A baker selling a loaf of bread couldn’t be expected to recognize most of the bills a customer might present as payment. His best option would be to consult a periodical like
Thompson’s Bank Note Reporter
, which listed the latest values for different notes and catalogued known counterfeits. But the economy moved so fast that an edition of
Thompson’s
, which subscribers received twice a week, could become obsolete almost as soon as it appeared. A bank might have failed, rendering its bills worthless, or a new type of forgery might have eluded detection. Even the most reliable sources of information couldn’t keep up.

Counterfeiters had always exploited America’s financial disarray, and the surge in paper money benefited them in obvious ways. The principle remained the same as it had for Owen Sullivan and David Lewis: the more bills changing hands, the better the chances a counterfeit would slip through unnoticed. But mid-nineteenth-century moneymakers also dealt with new developments that transformed their trade: the changing technology of banknote printing. Rather than engraving an entire note on a sheet of metal and then running it through a printing press, the modern technique involved breaking the bill’s design down into interchangeable components—the name of the bank, for instance, or a picture of a bald eagle. These different parts were engraved on separate pieces of steel called dies and then assembled to print a banknote. The dies could be reused, swapped in or out as needed.

This made banknote printing faster and cheaper. Instead of hiring a skilled craftsman to carve a whole plate, a printer could pay him once to engrave the dies and then hire unskilled workers to manufacture the notes. It also made counterfeiting easier. When Owen Sullivan wanted to forge
money, he had to inscribe a sheet of copper; now all a criminal had to do was obtain a handful of dies, which could easily be bought from failed banks or printing firms. There was no shortage of disgruntled banknote engravers willing to collaborate with counterfeiters. As banknote printing became industrialized and smaller firms consolidated into corporations, an earlier generation of craftsmen lost their jobs or were forced into menial wage labor. Counterfeiting gave them a way to earn the money they needed to survive. They could print genuine bills by day and forgeries by night.

Since New York City was the heart of America’s banknote engraving industry, it had also become its counterfeiting capital by the 1850s. Many engravers lived in the working-class neighborhoods below Fourteenth Street, where they mingled with the crooks and con men who made up a thriving urban underworld centered in notorious slums like Five Points. Owen Sullivan and David Lewis had avoided cities, finding it easier to conceal their activities in the countryside. But as cities got bigger and denser in the nineteenth century, they became more conducive to crime. In 1857, New York had six hundred thousand people. Its alleyways, tenements, and vice dens provided moneymakers with countless places to hide, and the masses milling about Manhattan supplied plenty of potential victims. Passers targeted small establishments like oyster bars, bakeries, and -tobacconists—places where they could buy a cheap item with fake cash and receive genuine bills in change. Usually they would wait until evening before spending counterfeits, since the forgeries were harder to detect in the half-light of a candle or a gas lamp than during the day. Passers didn’t confine their activities to New York, however. Like legitimate banknotes, counterfeit bills were produced in Manhattan and then distributed throughout the country. Interstate networks of wholesalers and retailers channeled the paper into local markets, taking advantage of the nation’s growing rail network to push their product farther and faster than ever before.

While the 1850s were lucrative for counterfeiters, they also saw escalating sectional tensions that ignited a war—one that would eventually
threaten their livelihood. The strains between North and South had grown as the nation expanded. Tobacco and cotton, the South’s main crops, exhausted farmland quickly, and many slaveholders found it cheaper to move west into virgin soil rather than spend money on fertilizer and irrigation. This contributed to the westward spread of slavery into new territories, an issue that inflamed Northern antislavery advocates. The angry debates that took place in Congress concerned the sovereignty of the federal government versus that of the states: the abolitionist hard-liners believed Washington had the power to abolish slavery throughout the Union, while their opponents argued that slavery was left to each state to decide for itself. When the Civil War erupted, the federal government was forced to prove its sovereignty by putting down the rebellion. In order to do so, it would need to broaden the scope of its power. This included doing something about the nation’s chaotic money supply, with significant consequences for counterfeiters.

WHEN UPHAM RETURNED
to Philadelphia in the fall of 1850, he fathered two sons and started a newspaper. At their offices on South Third Street, in the heart of the downtown business district, he and his two co-publishers edited the first issue of the
Sunday Mercury
, which appeared on February 23, 1851. While Upham brought considerable experience to the job, the
Mercury
wasn’t at all like the papers he had worked for in California. As a Sunday weekly, it didn’t have to be as topical as Philadelphia’s dailies. Its stories could be livelier, more literary—a gripping account of a doctor trying to save a young woman who had stabbed herself (“A Night in the Life of a Physician”), for instance, or a travelogue from the Orient (“Interior of a Persian Harem”). There were also poems, concert reviews, and a regular feature called “Higgledy Piggledies” that ran jokes and curiosities. The
Mercury
’s opinion pieces were earnest but rarely self-righteous; while it mocked reform movements like women’s rights, it was never vicious.
A tone of reasonableness prevailed throughout, reflected in the crisp typography and the clean black lines dividing its columns.

Upham’s newspaper catered to Philadelphia’s middle class. It gave them entertaining weekend reading that didn’t stray too far from their conservative, mercantile sensibility. The
Mercury
’s back page printed ads from local businesses with names like Tams & Ingram Plumbers, Gray’s Typographical, and the Eighth Street Pie Bakery. These were Upham’s readers. Like him, they were neither rich nor poor but small-time capitalists, the kind Benjamin Franklin had been a century before. The city had changed a lot since Franklin’s era. While the colonial red brick could still be seen in the nicer neighborhoods, Philadelphia as a whole was becoming an industrial town like New York. Large factories sprang up on its outskirts, where workers made locomotives or umbrellas and lived in filthy shantytowns nearby. In the inner city, horse-drawn streetcars lined the roads, accelerating the pace of life and often colliding with pedestrians. As in New York, industry made some Philadelphians very wealthy and others destitute. In the middle were people like Upham. If they weren’t millionaires, at least they didn’t live in the slums. “[N]ever plead guilty of poverty,” advised an article in the
Sunday Mercury
. “So far as this world is concerned, you had better admit that you are a scoundrel.”