What do animal pelts, tobacco, fake wampum, gold, and cotton-paper bank notes have in common? At one point or another, they've all stood for the same thing: U.S. currency.
Before independence, America's disparate colonial economies struggled with a very material financial hang-up: there just wasn't enough money to go around. Colonial governments attempted to solve this problem by using tobacco, nails, and animal pelts for currency, assigning them a set amount of shillings or pennies so that they could intermix with the existing system.
The most successful ad hoc currency was wampum, a particular kind of bead made from the shells of ocean critters. But eventually the value of this currency, like that of other alternative currencies of the day, was undermined by oversupply and counterfeiting. (That's right: counterfeit wampum. They were produced by dyeing like-shaped shells with berry juice, mimicking the purple color of the real thing.)
It was a crew of Puritans from Boston who first put their faith in paper. Initially, the Massachusetts Bay Colony tried to issue colonial coinage. The pieces themselves, struck in 1652, were made from a mash-up of poor-quality silver and were soon outlawed by the Brits. Less than a decade later the colonists tried again. They were forced to, really, because they owed money to the crown to help fund Britain's war against France, yet lacked any currency with which to pay up. They called the paper "bills of credit." The local government essentially said to the people: Here, just use this. It's real money. We'll sort out redeemability later.
There were endless debates, from prairie farmlands to the floor of Congress, about whether this paper was real money or just a smoke-and-mirrors scheme destined to end badly. In the United States that dispute, between the fear of paper and the advantages of national currency, would rage for more than a century, and it is even front and center in the Constitution.
During the Continental Congress, the founding fathers deliberately forbid the nascent federal government from issuing "bills of credit." Paper money, one delegate noted, was "as alarming as the Mark of the Beast." The federal government was, however, granted authority "to coin money, regulate the value thereof ... and fit the standard of weights and measure."
THE RISE AND FALL OF PAPER
But paper issued by the federal government would get its chance, thanks to the Civil War and its economic fallout. To foot the bill of the Union Army's campaign, the government had to issue $450 million in greenbacks (about $8.1 billion in 2011 dollars). They may have been un-constitutional, but they worked, making it possible to buy equipment and pay soldiers. War has a habit of quieting concerns about currency's backing.
The end of the war, however, brought with it inflation and renewed attention to the constitutionality of paper money. It was Salmon P. Chase who, first as the secretary of the Treasury Department, made the greenbacks possible. Then, as a Supreme Court justice less than a decade later, he made one of history's most famous flip-flops, ruling that currency notes were illegal. He made this determination despite the fact that the face printed on them was none other than his own.
A reshuffled Supreme Court--two new justices were appointed by President Ulysses Grant the same day of that initial verdict against paper money--would quickly reverse the ruling. Two subsequent decisions in what became known as the Legal Tender Cases sealed the deal: the Constitution may not explicitly grant the federal government power to issue bills of credit, but it had the implicit right to do so be- cause governing over a country, or at least this one, would be flat-out impossible without it.
Before the advent of a single circulating national currency, though, thousands of private banks issued their own notes, sometimes backed by bullion or coinage in a safe, but just as often backed by nothing at all. This was a monetary free-for-all, and--considering the greenback's universal acceptability now--it's strange to imagine how, less than 150 years ago, money in America was a smorgasbord. Countless varieties of paper money circulated throughout the land, most issued by unchartered "Wildcat" banks, and much of it of questionable authenticity and unstable value.