🟪 How fake money built America

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🟪 How fake money built America<br>Counterfeiters were the original shadow bankers

Byron Gilliam<br>June 03, 2026

How fake money built America

In A Nation of Counterfeiters, Stephen Mihm tells the story of American banking, capitalism, and nation-building through the lens of counterfeit money.

There are lots of surprises.

In the first half of the 19th century, for example, the Midwest was so short of authentic banknotes that people knowingly accepted counterfeit ones. “This was a region that needed money,” Mihm writes, “and counterfeiters provided it.”

California, by contrast, was comparatively hostile to faked notes. Miners expected to exchange the gold they dug up for notes that were at least partly backed by precious metal. When $100,000 of Bank of Missouri notes were found to be counterfeit, an avenging group of miners chased the counterfeiter all the way to New York.

Counterfeiters avoided the South entirely, likely in fear of the vigilante violence that passed for justice there.

By the 1830s, though, counterfeit bank notes were common across most of the US — and ubiquitous in big cities where the high concentration of banks meant that shopkeepers had little hope of discerning genuine notes from fake ones.

New York State alone had more than 300 banks, each issuing its own notes, each with unique designs, and in arbitrary denominations.

What New York City shopkeeper could say whether the $13 note from the Commercial Bank of the City of New York was really meant to feature a naked lady and a sailing ship? Or whether the bank had ample reserves to back their notes. Or whether it even existed. Counterfeiters sometimes printed notes of fictitious banks.

Can a note from a non-existent bank be called counterfeit?

To stay in business, big-city shopkeepers resigned themselves to accepting whatever notes looked reasonably likely to be accepted by others, irrespective of their authenticity. “From a storekeeper’s perspective,” Mihm writes, “counterfeits on reputable banks were easier to dispose of than genuine notes of disreputable banks.” Reputable counterfeits were therefore welcome.

In the 1790s, only a few banks issued notes in the US. By 1850, nearly a thousand did.

In all, Mihm estimates there were over 10,000 types of bank note in circulation in the US, plus countless counterfeits.

The distinction between the two was often thin.

After the Farmers Exchange Bank of Gloucester failed in 1807, for example, auditors found they had close to a million dollars in outstanding bank notes — and just forty-five dollars in specie available to redeem them.

It’s perhaps understandable then that many believed fractional reserve banking was itself a form of counterfeiting.

The difference between bankers and counterfeiters was that “One speculates by law, and the other against the law,” a journalist wrote in 1837, “but both are speculators.”

For others, it was a matter of where you stood. “While a banker in the East might be compared to a counterfeiter,” Mihm writes, “it was not uncommon for a counterfeiter in the West to be likened to a banker.”

In parts of the West where genuine money was especially scarce, providing anything that could serve as a medium of exchange was considered a public service.

In some of these areas, as much as half of the money in circulation was believed to be counterfeit.

Little was done about it.

The federal government did not issue money, so it did not feel responsible for policing the nation’s money supply. “Congress instead ceded responsibility for counterfeiting to the individual state legislatures,” Mihm writes, “few of which showed much initiative in combating the problem.”

Even where counterfeiters were unwelcome, the local government rarely had the means to do much about it. As a result, enforcement was so lax that banks sometimes hired bounty hunters to bring counterfeiters to justice.

But Mihm explains that this was an exception to the rule. “Many people in the business of banking viewed counterfeiting as a small price to pay for a system of money creation governed not by the edicts of a central bank or the fiscal arm of the state, but by insatiable private demand for credit in the form of bank notes.”

Even the courts sometimes sided with the counterfeiters.

In 1831, an Ohio county court acquitted a counterfeiter who had forged the “branch notes” issued by the Second Bank of the United States on the technicality that the notes were signed by branch officers of the bank rather than the bank's president in Washington DC. This, the defense argued, meant they were not covered by Ohio's counterfeiting laws. The court agreed.

A newspaper reported that the court's ruling meant that the legitimate notes issued by the Second Bank were themselves “illegal.”

Compare this to England where even just passing counterfeit notes could get you sent to the gallows. “Death penalty as monetary...