Paper Pandemonium

The outbreak of the Civil War in 1861 brought about one predictable result—coins disappeared from circulation as people, uncertain about the future, hoarded them. Throughout 1861 and into 1862, many localities on both sides of the Mason-Dixon line did not have sufficient coins on hand and found it increasingly difficult to make change in day-to-day commerce.  

Postage Stamps 

One of the earliest approaches to solving the problem, primarily in the North, was the use of postage stamps. Merchants and other money handlers purchased stamps at the post office and used them to make change. Several problems quickly emerged. It became more difficult to find stamps at the post office to use for postage as supplies were depleted. Post offices were not inclined to buy back stamps from users who had received them in commerce. One of the biggest problems was that stamps had gummed backs, and they quickly turned into sticky piles of unusable bits of paper that no one wanted.  

Several solutions were attempted. Stamps were placed in small, specially printed paper envelopes. Each envelope contained a set amount of stamps equal to a “denomination,” which was printed on the outside. Often, the issuer had room to include a brief advertising message or address. The problem with this solution was that someone could accidentally or intentionally put the incorrect amount of stamps in the envelope. If the envelope was sealed, the amount inside could not be verified. If the envelope was unsealed, it was easy to remove a stamp or two. This approach ultimately proved unworkable.

In a few cases, stamps were pasted on cardstock in combinations that created denominations. A 5-cent and two 10-cent stamps, for example, could be pasted on a card to make a 25-cent “note.” This again proved not to be a widespread or long-term solution.

Private Scrip

By 1862 a widespread solution, which had been used in previous periods of economic instability like the Panic of 1837, was to issue private scrip notes with printed denominations. The notes only circulated locally and were redeemable in several ways. Some could be redeemed for goods, while others could be redeemed in goods or other current notes if presented in sums of even dollars. Some notes were redeemable directly by the issuer, while others were redeemable at a local bank where the issuer had an account. In the latter case, the issuer usually made a special deposit with the bank and then issued scrip notes against that deposit. The bank treated the scrip like denominated checks, paying out current funds when a customer presented the scrip in the indicated even-dollar sums. Thousands of issuers, including municipalities, merchants, businesses, and transportation companies, took this approach as one of the most cost-effective ways to make change. 

Private and state-issued fractional notes were also widely used in the South. Unlike the North, state-issued scrip was more widely used by far, which tended to limit the number of private issues made.

By the summer of 1862, the situation in the North looked like this: thousands of private scrip  notes and large numbers of Civil War tokens (cent-size pieces valued at 1 cent) had been thrown into the mix to facilitate transactions in day-to-day commerce. This rather chaotic situation led Congress to take action.

Postage Currency

On July 17, 1862, Congress passed a vaguely worded Stamp Payment Act, which, among other things, directed the Secretary of the Treasury to:

furnish to the Assistant Treasurers, and such designated depositaries of the United States as may be by him selected, in such sums as he may deem expedient, the postage and other [author’s emphasis] stamps of the United States, to be exchanged by them, on application, for United States notes; and from and after the first day of August next such stamps shall be receivable in payment  of all dues to the United States less than five dollars and shall be received in exchange for United States notes when presented to any Assistant Treasurer or any designated depositary selected as aforesaid in sums of not less than five dollars.

Taken literally, this section of the law appeared to be a step back to using postage stamps. However, the key words “and other” were all that was needed for the government to introduce the so-called postage currency emission.  

The design of postage currency was evolutionary in that images of current U.S. postage stamps were used on the face of each note and were keyed to the denomination. In the case of the 25-cent and 50-cent denominations, images of five overlapping stamps were used. The language on the backs of postage currency closely mirrored that of the July 17 legislation. The ties to postage stamps even extended to the perforated edges, making some notes look like oversized postage stamps..

Private Issuers

Section 2 of the act focused on private issuers of both paper scrip and tokens:

And be it further enacted, That from and after the first day of August, eighteen hundred and sixty two, no private corporation, banking association, firm, or individual shall make, issue, circulate, or pay any note, check, memorandum, token, or other obligation, for a less sum than one dollar, intended to circulate as money or to be received or used in lieu of lawful money of the United States; and every person so offending shall, on conviction thereof in any district or circuit court of the United States, be punished by fine not exceeding five hundred dollars, or by imprisonment not exceeding six months, or by both, at the option of the court.

The federal government was clearly intent on outlawing any fractional-denomination private issues of any kind that had been intended to circulate as money. The reaction to this is rather interesting. The notes, some of which are dated into 1863, show us that they continued to be issued after this law was passed. After early January 1863, the volume of privately issued notes contracted significantly, and they were almost nonexistent by the following year. A few notes issued later have language suggesting that they were a “Memorandum Check when out of Change,” perhaps in an attempt to steer clear of any litigation or enforcement. 

A Natural Conversion

Interestingly, although large numbers of private scrip continued to circulate and be newly issued after the August 1, 1862, deadline, I am unable to find any records of violations that resulted in criminal proceedings. History says that subsequent issues of the so-called fractional currency that replaced postage currency totaled nearly $369 million by the time the last fractional currency notes were issued in 1876. So perhaps there was a natural conversion from private to federal issues as the supply of the latter increased by 1863-64. The issuance of private scrip was, after all, an activity that took time and attention away from running a business.

All the types of notes discussed in this article are readily available in the marketplace today. They make interesting artifacts of a time when the federal government changed the landscape forever of who had the right to issue paper money. 

A version of this article appears in the January 2025 issue of The Numismatist (money.org)