It was April 1861, and patriotic fever was running high in the Lehigh Valley. Lehigh County men flocked into Allentown to join up with Allen Infantry, bound for Washington at President Lincoln’s request to save the nation’s capital from falling into the hands of the Confederates.
Nothing was too good for the local men. One Allentown banker even showed his generosity in a tangible way. Underneath the plate of each soldier at their farewell dinner at Zion’s Reformed Church was a crisp, new five dollar bill.
But the next day the men were in for something of a shock. When they got to Harrisburg to muster with the other Pennsylvania troops now known as the First Defenders, they unfortunately discovered no one was interested in their “fivers” They were paper money of a Lehigh County bank and therefore worthless in the state capitol.
This little anecdote of local history is by way of introduction to an interesting new at the Lehigh County Historical Society. It opened on November 12 and features paper money like many people may have never seen before.
There are large banknotes from Catasauqua, thin little gray tissue paper wisps of cash from Allentown, and dingy much-handled currency from around the region. Donated by one local collector the display tells a tale of how American currency emerged into what we know today.
Paper money in America was created to solve a very real problem that businessmen in the 13 colonies had, the need for a circulating medium that would encourage commerce. All kinds of coinage from a variety of places circulated around British North America.
A merchant could be expected to be paid in everything from English gold pounds to the coins of Spain, France or Portugal. Since the best money--gold and silver coins--flowed back to the mother country, there was very little cash for internal commerce.
So the colony of Pennsylvania issued its own paper currency. Among its supporters was Major General Patrick Gordon, a retired military officer selected by the Penn’s to be governor of the colony from 1725 to 1735 and for whom Allentown’s Gordon Street was named.
But when James Hamilton, a governor in the 1750s who was William Allen’s brother-in-law, and for whom Hamilton Street is named, tried, on orders from the British government to restrict paper money, he was met by a revolt of the colonial Assembly. They refused to pass any legislation, Hamilton wrote, “until they have their beloved paper money.”
By the time of the American Revolution the colonies were used to dealing with paper money. So when the Continental Congress issued its first paper money, it was readily accepted.
But for huge landowners like the Allen family, this was a disaster. In 1777, from his Trout Hall mansion, James Allen, William Allen’s third son and owner of 3,300 acres of property in the surrounding area that he was trying to rent or sell, expressed his fury in his diary when local folks who owned as much as 6 years back rent would arrive at his door with piles of nearly worthless Continental currency instead of shillings. “I dare not object” wrote Allen, who many suspected of Tory sympathies, “but am as much robbed… as if they put their hand in my (cash) Drawer.”
The U.S. Constitution gave the federal government the right to coin money. But the creation of paper currency was left to banks. Although not legal tender these notes passed among people who saw almost no gold or silver but needed to have some way to pay for the goods they had to purchase.
At first banks were few. The Northampton Bank, Lehigh County’s first, opened in 1814 with a total capital of $123,365.00. Its leaders were conservative Pennsylvania Germans who proudly, as one local newspaper noted would “look before they leaped,” before speculating with the depositor’s money.
But in the 1830s the growth of speculation overtook this system. The $8 million paper notes in circulation in 1821 had increased to $149.2 million by 1837. Banking historian Edward Passen notes that getting a bank charter from a state legislature was literally a license to print money and make “large and quick profits.” To do this they would “invest as little capital as possible, issue as much paper money as they could get away with, and speculate ceaselessly.”
Passen’s description fits almost perfectly John Rice, the Bethlehem native who took over the Northampton Bank in the 1830s. The bank notes he issued by the hundreds of thousands, some of which are on display at the LCHS, were used in speculation on the creations of canals and lumber mills. He and his brother Owen were even speculating with the funds of the Moravian Church and Lehigh County’s tax revenue. Widows rushed to put their money into the hands of the Rice brothers.
A series of natural disasters like floods on the Lehigh began the process of the collapse of the Northampton Bank until finally the balls the Rice brothers were juggling fell. When the bank closed for good in July 1843, the investigators found only some $2.19 worth of securities and 69 cents in its safe. Heirs of the holders of Northampton Bank, bank notes were still in Lehigh County court seeking restitution in the 1870s.
Despite this bank collapse of the 1830s,it took the Civil War to finally motivate the passage of the National Banking Acts of 1863 and 1864 that led to the creation of national banks. They received their charter from the federal government that now had the sole right to issue paper currency. The green ink used on the back of them led to their nickname of “greenbacks” for paper currency.
So go over to the Lehigh County Historical Society and take a look at the big bucks of the past.