United States Fractional Currency
by Paul Taylor
I first came across United States Fractional Currency (also sometimes called Postal or Postage Currency) while digging through an otherwise uninteresting stamp collection I bought from a non-collector who had found the collection while cleaning an attic. The tattered 25 cent note, about 1/3 to 1/2 the size of a modern bill, instantly fascinated me. My first question – "What is this?" – was almost immediately followed by my second "How could I not have heard of this stuff before?" After several years, I have a pretty good handle on the answer to the first question. As to the second, I remain surprised that such an accessible and historically rich collecting area is so little known.
From August 21, 1862 through February 15, 1876 the United States government issued about $369 million in paper currency denominated at less than $1. During this time, there were five different series of notes printed, and a total of 24 different distinct varieties with values of 3, 5, 10, 15, 25 and 50 cents.
The United States introduced the use of paper money for fractional denominations during the Civil War because of a coin shortage. This coin shortage is often said to be due to the need for metal to conduct the war, but this reasoning is at best an understatement if not altogether incorrect. It is far more accurate to view the coin shortage of the Civil War in the larger context of the American public's chronic distrust of paper money – and a resistance to the use of paper money which extended from Colonial times until well into the 20th Century. This distrust was by no means unfounded; the public had suffered numerous losses in the government's experiments with paper money and privately issued bank notes – the end state of many such endeavors being paper notes worth either very little, or more often nothing at all.
At the time of the outbreak of the Civil War, paper money and coins made of non-precious metals routinely traded at a discount to gold and silver currency. In other words, a paper dollar was actually worth less than a silver dollar – when conducting business in paper currency it was customary and expected to pay more. It appears that initial hoarding of coins at the beginning of the war set off an inflationary spiral in which this gap between precious metal and paper values grew out of control. In a very short time, gold and silver were worth more than twice their supposed equivalents in paper. For reasons which I'll confess are not altogether clear to me, it became more profitable to export precious metals out of the country than to spend them here, and virtually overnight all coinage (except copper cents) disappeared.
It would be difficult to overstate the economic crisis brought on by the coin "shortage." Torn apart by war, the United States had now lost the mechanism for conducting daily commerce. Other than one-cent pieces, five-dollar notes were the only currency available. As is well known, the purchasing power of a dollar in the 19th century was great compared to modern times and most daily transactions for goods and services would be for well under five dollars.
Prior to the first production of Fractional Currency in August 1862, there were numerous efforts both public and private to combat the coin shortage including the cutting of paper currency into pieces to be used separately and the issuance of fractional scrip by merchants and other private interests. Among the most interesting of these schemes were those which involved the use of postage stamps in lieu of currency. Postage stamps were in some ways ideally suited for the purpose; they already existed in large quantities, in denominations appropriate for trade, and with security features in place to make counterfeiting difficult. However, their small size, gummed backs, and inherent fragility were significant drawbacks. Various workarounds were put into place. Stamps were affixed to card stock and velum paper. The most well known and ingenious method – known as encased postage – involved sealing a stamp in a brass coin-like holder behind a transparent piece of mica. Encased postage is highly sought after in today's collectibles marketplace.
Credit for the final form of the currency which is the subject of this article is typically given to General F.E. Spinner, then Treasurer of the United States. Spinner's first notes were created by affixing the correct amount of postage to a small piece of Government security paper. These notes were passed around as samples and Congress soon authorized the printing of postage stamp replicas on Treasury paper. The first series of Postage Currency, therefore depicted various multiples of the five-cent brown Thomas Jefferson and ten-cent green George Washington stamps from the series of 1861. Interestingly, so attached were all concerned to the notion of "postage" currency that a portion of the first printing was perforated for separation. It turned out that the perforated specimens did not travel well and the government soon abandoned this practice. Also soon abandoned was the depiction of postage stamp replicas. Later issues of fractional currency took on the appearance of miniature banknotes.
Despite some logistics issues and a continuation of the public's distrust of paper money, Spinner's notes effectively ended the crisis brought on by the coin shortage. The government continued to print the notes not only through the end of the war, but until 1876 when the Comstock Lode infused enough silver into global markets to drive down prices and discourage hording.
Congressional acts of 1875 and 1876 authorized the public to exchange their fractional notes for silver coins. Virtually all notes were redeemed except for about $1.8 million most of which were badly preserved and make up the entire stock which is available to collectors today. The notes were never demonetized and are therefore legal tender and could be used to buy goods and services to this day.