------------ EH.NET BOOK REVIEW --------------
Published by EH.NET (January 2008)

Stephen Mihm, _A Nation of Counterfeiters: Capitalists, Con Men, and 
the Making of the United States_. Cambridge, MA: Harvard University 
Press, 2007. ix + 457 pp. $30 (cloth), ISBN: 978-0-674-02657-5.

Reviewed for EH.NET by Jane Knodell, Department of Economics, 
University of Vermont.


Stephen Mihm, Assistant Professor of History at the University of 
Georgia, has written a fascinating and original history of bank note 
counterfeiting in the antebellum U.S. Mihm draws on a wealth of 
innovative primary historical materials to identify the names, 
locations, and business methods of those who made their livelihood 
within the "counterfeit economy." He has also written a cultural 
history of money during the "market revolution" of the antebellum 
period. Here, Mihm explores contemporary ideas, sharply contested at 
the time, about what kind of money was "real." Mihm argues that the 
line between lawful and illegal money was wide and blurry, as, 
indeed, was that between capitalism and the counterfeit economy 
itself. Economic historians are apt to be more satisfied with Mihm's 
history of the counterfeit economy than with his interpretation of 
its meaning and significance.

Counterfeiting flourished, according to Mihm, at the country's 
northern and western geographic and political borders, and during the 
years following the closures of the First and Second Banks of the 
United States in 1811 and 1836, events which triggered sharp 
increases in the number of state-chartered and unincorporated banks. 
State-chartered banks, and to a much lesser extent private banks, 
issued their own currency; barring the occasional issue of 
large-denomination Treasury notes that assumed some of the functions 
of money, none of the demand for money was met with fiat money. Mihm 
believes that counterfeit notes comprised a "significant" share of 
the bank currency in circulation, and that "every bank note had its 
counterfeit counterpart," quantitative claims that are hard to 
evaluate. The pervasive uncertainty about the value of a stock of 
bank currency that was issued by hundreds of different banks made 
counterfeiting possible and profitable. Counterfeiting subsided after 
the Civil War, stymied by the nationalization of the currency and the 
determined prosecution of counterfeiters by a new federal agency, the 
U.S. Secret Service.

Mihm shows that counterfeiting was organized along the same 
principles as legitimate business, and involved, like the circulation 
of legal bank money, networks connecting different cities and 
regions. In the 1810s and 1820s, the center of counterfeit production 
was the small town of Dunham, Quebec. The technology of bank note 
production in this early period allowed counterfeiters to manufacture 
their ware deep in the woods using technology accessible to 
wheelwrights and blacksmiths. Counterfeit notes were distributed 
using a network of couriers to wholesalers and dealers in eastern 
cities, with dealers typically paying $10 "real," meaning legal, 
money for $100 of counterfeit money. As the notes moved further down 
the retail chain, they finally ended up in the hands of "shovers," 
marginalized individuals who were expert in the art of passing 
counterfeit notes into the hands of retail merchants, restaurateurs, 
and petty entrepreneurs.

Local law enforcement efforts were generally ineffectual at shutting 
down the counterfeit economy. However, the theory of free banking as 
developed by Laurence White (1984) predicts that in a competitive 
money regime, banks will invest in assets that enhance their 
reputation, including the production of more intricately designed 
bank notes to frustrate counterfeiting. As Mihm carefully details in 
one of the book's strongest chapters, bank note production was 
mechanized in the 1840s and 1850s, resulting in more elaborate, 
finer-detail bank notes. However, the mechanization of bank note 
engraving actually facilitated counterfeiting by reducing the number 
of dies required to produce very many different varieties of bank 
currency. There were various ways that counterfeiters could get hold 
of the dies (such as buying them from failed banks' liquidators), and 
once they did, they could produce bank notes which were virtually 
identical to those commissioned by the banks themselves.

This is all original, well-documented historical research, and it is 
the solid core of Mihm's book. But sprinkled throughout Mihm's 
history of the counterfeit economy are some claims and 
interpretations that go too far, at least for this reviewer. At 
times, Mihm seems to agree with Hezekiah Niles, 
early-nineteenth-century banking journalist, that there was no "real 
difference ... between a set of bank directors ... and a gang of 
fair, open, honest counterfeiters" (p. 8). Niles's theses on money 
captured the views of many, such as the hard-money Jacksonians, that 
bankers' promises to pay "real money" (specie) in exchange for their 
bank notes were fraudulent, since they held only a fractional specie 
reserve against these notes. In such a world, the value of a bank 
note, counterfeit or legitimate, was purportedly nebulous, and 
ultimately depended on whether A, to whom a bank note was offered in 
exchange, had confidence in B, who offered it in exchange. 
Counterfeit detectors, according to Mihm, were not very helpful in 
discerning which notes were good and which were not. Mihm concludes 
that "at its core, capitalism was little more than a confidence game" 
(p. 11) -- hence the title.

This conclusion, that the acceptability of bank notes as "real money" 
boiled down to a highly contingent confidence game, places too much 
emphasis on the person-to-person circulation of bank notes. The 
acceptability of bank notes was also, and more significantly, 
established through their circulation in redemption networks 
organized by banks, discussed in Redenius (2007). Notes that fell 
outside of these networks were bought and sold in bank note markets 
organized by dealers, which Gorton (1996) argued were informationally 
efficient (work that Mihm cites but does not engage). That 
professional "shovers" generally avoided trying to pass counterfeit 
notes on banks and bank note dealers suggests that it was possible, 
at least for banks and dealers, to make and enforce meaningful 
distinctions between good, bad, and unknown bank notes.

Putting aside the analogy between capitalism and a confidence game, 
economic historians, particularly financial historians, will find 
much to learn from Mihm's beautifully written book. We have always 
known that counterfeiting was a problem in the antebellum economy, 
but we didn't know very much about who produced the notes, who 
circulated the notes, and why law enforcement was relatively 
ineffectual in bringing counterfeiters to justice. Mihm's book 
contributes significantly to our knowledge, and also challenges us to 
think differently about legitimate and illegitimate money issuance in 
nineteenth century U.S. economy and society.

References:

Gary Gorton, "Reputation Formation in Early Bank Note Markets," 
_Journal of Political Economy_, vol. 104, no. 2, 1996.

Scott Redenius, "Designing a National Currency: Antebellum Payment 
Networks and the Structure of the National Banking System," 
_Financial History Review_, vol. 14, no. 2, October 2007.

Lawrence H. White, _Free Banking in Britain: Theory, Experience, and 
Debate, 1800-1845 (Cambridge: Cambridge University Press), 1984.


Jane Knodell is an Associate Professor of Economics at the University 
of Vermont. She recently published "Rethinking the Jacksonian 
Economy: The Impact of the 1832 Bank Veto on Commercial Banking," 
_Journal of Economic History_, September 2006, pp. 541-74. Her new 
research explores the economic factors determining the growth and 
location of unincorporated banks in the U.S. between the closure of 
the Second Bank and the formation of the national banking system.

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