First issued in August 21st 1862, Fractional Currency, was ‘paper coins’ that served as a stand in for the shortage of silver and gold coins of the time. The causes of this unusual issue of official Fractional Currency at a time when people still preferred coins of high intrinsic value can only be found in looking at cases of cause and effects of war and life during the time of the Civil War.
A commonly stated reason for the fractional currency is that during the Civil War all of the gold, silver and copper coins in circulation disappeared due to the desire to save money and hoard coins because of their precious metal content. While this is certainly a factor and the most stated reason for Civil War Tokens, this only acted as one trigger for the manufacturing of the Fractional Currency.
It would appear that the initial hoarding of hard money was caused by little more than an ingrained distrust of paper money. For example, a Yankee worker, whose livelihood was completely bound to the money of the North, would feel more secure when his paper wages had been converted to gold and silver. Often referred to as “faith paper” because one was never sure of the actual value of the paper money they were being given.
This expressed preference for coins inevitably depreciated Greenbacks. Gold coins commanded a premium of three percent over U.S. and state paper money in January, 1862. Thereafter the depreciation of Greenbacks accelerated, until at one point in 1864 it required $285 in paper to purchase $100 in gold. The distrust of the Government was also maintained by the national debt, which reached its high-point during the war in 1865 at $ 2.8 billion.
A monetary situation whereby gold commanded a substantial premium over a like face value of paper dollars swiftly drove gold coins from commercial channels, effectively removing the United States from a gold standard. It also created a favorable condition for the exporting of silver coins.
In 1858 Canada unofficially adopted the coinage of the United States and used it widely in domestic trade. The West Indies and many Latin American countries also imported large quantities of U.S. silver coinage for domestic use. During June and July of 1862, more than $25 million in subsidiary coins vanished from circulation in the North. The shortage of silver coins, particularly in the eastern United States, would not be relieved until the summer of 1876. The Philadelphia Mint continued a small production of silver coins; bullion dealers obtained them directly from the Mint and exported them abroad. By 1863, nearly the entire production of silver coins was exported.
The withdrawal of subsidiary silver coins in 1862 stopped the practice of everyday commerce. The smallest denominations of official money available were discounted $5 Legal Tender Notes and the copper-nickel cents which had been fed into circulation in great quantities to retire demonetized Spanish silver coins and the large copper cents.
When first forced upon the public in 1857, the copper-nickel cent, was intrinsically worth about 60 percent of face value and was considered a nuisance. But with the disappearance of silver coins the copper-nickel became the only alternative. Cents were bundled in bags of 25, 50 and 100 in an attempt to equal 1-cent piece and $5 bills.
The disappearance of nearly all official coinage resulted in an outpouring of private emergency money. State bank notes of $1 and $2 denominations were cut into fractional parts. Other banks issued notes in denominations of $1.25, $1.50, and $1.75. Eastern cities issued their own fractional notes. Merchants, reviving a practice prevalent during the coin shortages of 1837 and 1857, made change in their own promissory notes, which were notes of small value, redeemable in merchandise at the issuer’s place of business. In like manner, private issues of the collectible Civil War tokens began.
First issued by the Federal Government in 1847, the adhesive postage stamp had become a well-established part of the public routine. They were of official origin, had a constant value, and were easily obtained. In early July, 1862, Horace Greeley, publisher of the New York Tribune, suggested that stamps pasted on a half sheet of paper, with the other half folded over the stamps to protect from wear, would work as a coin substitute.
Methods of protecting the stamps were quickly developed. They were pasted on sheets of light vellum paper or encased in small envelopes. Pasting the stamps on sheets of paper still did not provide them sufficient protection from wear and those enclosed in envelopes were better protected, but the method of protection provided an opportunity for petty theft because few recipients had the time to check the contents of each envelope.
The method of stamp packaging which best satisfied the requirements of visibility and protection was patented on August 12th, 1862, by a New England inventor named John Gault. Gault encased a single postage stamp in a round brass frame with a clear mica front piece. The reverse of this case displayed advertising messages. But for the eventual authorization of Postage and Fractional Currency, Gault’s encased postage stamps would probably have become the go-to means of “spending” postage stamps. The timing of Gault’s encased stamps also worked against their quantity distribution, the Postmaster General, Montgomery Blair, was still not on board with the idea of using postage stamps for money, and was doing everything in his power to prevent quantity sales of stamps. All methods of using stamps for money that had been employed prior to July 17th, 1862, suffered the ultimate disadvantage of being illegal.
On July 17th 1862, President Lincoln signed into law, providing that “postage and other stamps of the United States” were to be received for all dues to the U.S. and were to be redeemable at any “designated depository” in sums less than $5. The law also prohibited the issue by “any private corporation, banking association, firm, or individual” of any note or token for a sum less than $5. But there was the problem of who would redeem nearly exhausted specimens of stamps which had been circulating for some time. Postmaster Blair refused to take them in trade for new stamps and the Treasury would not exchange them for paper money because they hadn’t issued them in the first place.
A further decision was then made to distinguish the stamps by issuing them in a larger, more convenient size, and to print them on a heavier, un-gummed paper. Credit for the final form in which Postage Currency appeared is given to General Francis Spinner, Treasurer of the United States. Spinner pasted unused postage stamps on small sheets of Treasury security paper, signed his name on them and passed them out to his friends as samples of currency.
Congress responded to Spinner’s suggestion by authorizing the printing of reproductions of postage stamps on Treasury paper in arrangements patterned after Spinner’s models. In this form, the “stamps” ceased to be stamps; they became, fractional Government promissory notes. The notes would be issued without legal authorization until passage of the Act of March 3rd, 1863, which provided for the issuing of fractional notes by the Federal Government.
Five issues of Postage and Fractional Currency in the total amounted to $369 million were printed and released to circulation between Aug. 21, 1862, and Feb. 15th, 1876. Congressional Acts of January 14th, 1875, and April 17th, 1876, provided for the redemption of Postage and Fractional Currency in silver coins, and all but about $1.8 million worth was returned to the Treasury for redemption. The remaining notes are still deemed legal tender and can purchase their face value equivalent in goods and services today.