A Monetary Innovation That Changed the Civil War’s CourseFranklin Noll
Aug. 29 (Bloomberg) -- In the summer of 1861, shortly after the start of the Civil War, U.S. Treasury Secretary Salmon P. Chase negotiated a loan of gold from northeastern banks.
Until that gold arrived in Washington, the government planned to issue $50 million in demand notes, a currency payable on demand in gold at any Treasury office, to fund the military effort. Because the Treasury Department had no facility for the production of paper money, a private business in New York, the American Bank Note Company, produced the notes in sheets of four. These sheets were then sent to the Treasury, where scores of workers cut them and trimmed the almost 7 million notes with scissors.
This unwieldy system would lead to a technological development that laid the foundation for the U.S. Bureau of Engraving and Printing -- the agency that now produces the billions of dollars in U.S. currency notes that are trusted worldwide. And 150 years ago today, the bureau’s humble beginnings helped change the course of the Civil War.
20 Million Notes
In early 1862, as the war dragged on and costs skyrocketed, it became clear that the government would soon need more money. On Feb. 25, 1862, with the Treasury facing bankruptcy, Congress authorized the issue of $150 million in a new currency: the U.S. note, also known as the greenback.
This issuance would require workers to process 20 million individual notes -- all by hand.
Working on the problem was an engineer named Spencer M. Clark. Born to an iron merchant in 1811 in Brattleboro, Vermont, Clark had spent his younger years pursuing a variety of careers, from mathematical-instrument manufacturer to grain merchant.
In the 1850s, Clark took his family to Washington and was appointed a clerk in the Treasury Department’s Bureau of Construction, which at the time oversaw all federal building programs. Clark rose through the ranks to become its acting head in 1860.
He soon faced a critical challenge: helping the cash-starved Treasury speed up the process of separating notes, so it could quickly pay its bills and the troops.
Clark’s great innovation was to mechanize the process. By March 1862, he had invented a hand-powered machine that separated and trimmed the notes. He soon modified the machines to run on steam power, greatly increasing their speed and productivity. In August of that year, Chase gave Clark permission to set up steam-powered operations on an experimental basis in the Treasury’s basement. This area became known as the “small-note room,” as Clark’s operations were devoted to the processing of small-denomination ($1 and $2) U.S. notes.
On Aug. 29, 1862, after a week of tinkering with the new equipment in the dim light of the southwest corner of the basement, Clark started up a steam engine that powered the machines. While the Second Battle of Manassas was raging some 30 miles away, Clark and his team took sheets bearing four greenbacks and fed them into the clattering machines, which divided the sheets into individual notes.
It was a success, and Clark was entrusted with ever-expanding tasks -- eventually creating a full-fledged Treasury-run banknote company. This new operation was soon producing fractional currency to replace the silver fractional coins that had been hoarded at the start of the war. Clark also produced many of the “Five-Twenty” bonds that raised $500 million for the war effort when private banknote companies proved unable to meet the Treasury’s demand.
A New Monopoly
By the end of the war, Clark and his operations had become a fixture in the Treasury, providing a dependable and low-cost source of currency notes and securities.
In 1877, Treasury Secretary John Sherman gave the Bureau of Engraving and Printing a monopoly on government currency and security production, which it holds to this day.
Clark’s innovation marked a new way of viewing the role of the government in the nation’s finances. With a new general currency printed by the Treasury, the federal government was now a part of everyday economic life in a new and enduring way. Today, the bureau prints billions of dollars of Federal Reserve notes. It delivers them to the Federal Reserve System -- and, ultimately, to pockets around the world.
(Franklin Noll is president of Noll Historical Consulting and serves as the historian for the U.S. Bureau of Engraving and Printing. The opinions expressed are his own.)
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To contact the writer of this post: Franklin Noll at Franklin.Noll@bep.gov
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