Why banking in 19th century America was like crypto today | The Story of Money

ELI5 / TLDR

For roughly forty years in 19th-century America, there was no national currency and no central bank. Anyone who could fill out a form got a license to print their own paper money, so thousands of banks did — and so did outright crooks. The episode follows one charismatic con man, James Brown, who counterfeited notes and even invented whole fake banks, and argues that the line between a “real” banker and a forger was almost invisible. The point being drawn: today’s crypto and stablecoin boom is the same experiment running again, just on the internet instead of the frontier.

The Full Story

A world before the dollar

Picture money the way you know it today — one currency, one issuer, the Federal Reserve standing behind every note. Now delete all of it. Between roughly the 1830s and the 1860s, the United States had no central bank at all. Alexander Hamilton had set one up (the Bank of the United States), but it was allowed to die in the 1830s, and nothing replaced it for decades.

Into that vacuum rushed the banks. Any state could hand out a banking charter — a license — and that license let you print your own paper money. Notes were just IOUs the bank promised to honour, handed out mostly as loans. The barrier to entry was almost nothing. As one historian put it:

“It was about as difficult to become a banker as it was to become a bricklayer.”

This is the period that got named the free banking era — “free” not because the money was free, but because you basically filled out a form and got a charter. No exams, no economics degree, no gatekeepers. The result was thousands of banks, each issuing money that looked completely different, in whatever denominations they fancied. Three-dollar bills were common and often genuine. So were seven-dollar bills and dollar-and-25-cent bills.

Now imagine being a shopkeeper in that world, trying to remember what every legitimate note is supposed to look like. You can’t. And that gap — between what’s real and what nobody can verify — is exactly where the counterfeiters lived.

The hardest-working man in counterfeiting

The episode’s guest, historian Stephen Mihm (author of A Nation of Counterfeiters), uses one man to embody the whole era: James Brown, of Boston, Ohio — not the Massachusetts one, a frontier town near Cleveland. He enters the story, literally, by being struck by lightning on his own porch in 1829, blasted off the steps with his boots thrown over a neighbour’s sawmill. He survived. The reputation for being unkillable stuck.

Brown printed fake notes of real banks. But he also did something cleverer: he invented banks that never existed.

“Why should you go to the bother of imitating another bank? Why not just create a bank out of whole cloth?”

He’d dream up a plausible name, commission a beautiful banknote — sometimes from genuine, reputable New York engraving firms — and start spending it. This raises a genuinely slippery question. A note printed by a real engraver, for a bank that doesn’t exist, isn’t quite a forgery. It’s a real note of a fake institution, which is a different animal from a fake note of a real one. Mihm calls men like Brown “accidental philosophers of money.”

Why did people accept this stuff, sometimes knowing it was dodgy? Two reasons. First, the frontier was starved of cash — there were few banks, and hard coins (called specie) drained eastward and vanished into private hoards. People needed something to transact with, and fake money did the job money is supposed to do. Second, the legitimate banks weren’t much better. Many real banks issued far more notes than they had reserves to back. A contemporary, Hezekiah Niles, summed it up:

“One speculates by law and the other against the law.”

One is a banker, the other a counterfeiter, and the damage to the economy is roughly the same. Mihm’s line: legitimate bankers of the era enjoyed the reputation Wall Street had after 2008. So when a charming rogue robbed them, locals were not exactly heartbroken.

Wildcat banks and anti-banking banks

The free banking era had a sleazier cousin: the wildcat banks. These had real charters but no intention of honouring their notes. The trick was simple — issue lots of paper, then physically move the bank somewhere remote (the “wilderness,” hence wildcat) so nobody could ever turn up to redeem the notes for coin.

And because note-issuing privileges could be bolted onto almost any corporate charter, you got absurdities: people founding an “orphanage,” attaching money-printing rights to it, then quietly dropping the orphans and just issuing currency. When the state refused a charter to a Mormon group near Boston, Ohio, they printed their notes anyway — stamping “anti-banking” over “banking” and circulating them as a kind of monetary middle finger. The hosts compare it to online trolling.

The slow, sad ending — and the Secret Service

Brown got arrested constantly, but counterfeiting banknotes was only a state crime, and states had no extradition deals with each other. Cross a state line and you were free. Counties effectively turned his bail into an informal tax: pay up, disappear for a while, come back, carry on.

His luck turned when the economy did. The Panic of 1837 wiped out the wildcat banks and poisoned trust in paper money altogether, so people wanted coin. Brown pivoted to counterfeiting coin — but that was a federal crime, a different game. Convicted in federal court, he landed in the Ohio State Penitentiary, where a cholera epidemic broke out. Brown, ever charismatic, was put in charge of the prison hospital, nursed inmates through it, and got officials to petition the President for a pardon. He walked free in 1849, promised to go straight, and immediately didn’t. He drifted back into counterfeiting, started drinking, lost his wife and his shine, and died in 1866 falling off a canal boat — probably drunk.

He died just as his whole world was being dismantled. During the Civil War the federal government finally issued a true national paper currency and taxed state banknotes out of existence. To protect that new money from forgers, it created an agency — the Secret Service, founded not to guard presidents but to hunt counterfeiters. (Protecting presidents came later, after several assassinations.)

Why this rhymes with crypto

The hosts and Mihm land the analogy plainly. Back then, a collapse of trust in institutions plus near-zero barriers to entry produced an explosion of privately created money. Today the frontier is digital — meme coins, cryptocurrencies, stablecoins — and the same logic applies: anyone can create money, with little central control, and the same anxious question returns about what’s real and what’s fake. They note the word credit comes from the Latin credere, to trust.

Even the rhetoric repeats. Crypto enthusiasts argue they’re building alternatives because fiat money can’t be trusted — some calling governments “legal counterfeiters” printing money with nothing behind it. That’s almost word-for-word how Brown defended himself: it’s all about confidence, so what’s the difference?

The historian’s framing is an oscillation — Niall Ferguson’s “tower and the square,” authority versus people-power, ebbing back and forth. The free banking era was people-power, decentralised and chaotic. The warning from history: that chaos eventually exhausts trust, and trust is what markets actually run on. Sooner or later the state wakes up and reasserts control. The open question is what watershed event — what loss of belief — triggers the next swing back.

Key Takeaways

From roughly the 1830s to the 1860s the US had no central bank and no single national currency; the first Bank of the United States expired in the 1830s and nothing replaced it.
Free banking era: any state could grant a banking charter, and the charter let the bank print its own paper money. Barriers to entry were trivially low.
Money was a patchwork — thousands of banks, all-different notes, odd denominations ($3, $7, $1.25 bills). This visual chaos is precisely what made counterfeiting easy.
Specie (gold/silver coin) was scarce on the frontier, so people accepted fake notes because they needed a medium of exchange — function mattered more than authenticity.
Counterfeiting banknotes was a state crime (easy to dodge via bribery and crossing state lines); counterfeiting coin was a federal crime (much harder to escape).
Wildcat banks: chartered banks that issued notes then relocated to remote areas specifically to avoid ever redeeming them.
Note-issuing rights could be attached to almost any corporate charter, producing fake “orphanages” and protest “anti-banking” notes.
A genuine note from a fake bank is legally distinct from a fake note of a real bank — counterfeiting blurred into something philosophically murkier.
The Secret Service was created during the Civil War to fight counterfeiting; presidential protection came only later.
The Civil War ended the era: the federal government issued national paper currency and taxed state banknotes out of existence.
The drawn parallel: crypto/stablecoins replay free banking — decentralised private money, low barriers, distrust of official currency, and recurring “what is real money?” anxiety.

Claude’s Take

This is a well-told history episode with a clean through-line, and the central historical facts check out: the free banking era, wildcat banks, the Secret Service’s anti-counterfeiting origins, the Panic of 1837, and Mihm’s book are all real and accurately described. The James Brown story is good narrative scaffolding — entertaining, and used honestly to illustrate structural points rather than smuggle in a thesis.

The crypto analogy is where I’d add a chaperone. It’s a genuine and useful rhyme — decentralised private money, collapsed barriers to entry, distrust of the sovereign issuer — and the hosts are careful to frame it as “echoes,” not equivalence. But the analogy has limits they mostly let slide. Free-banking notes were redeemable claims on a specific issuer’s reserves; most crypto isn’t a claim on anyone. Stablecoins are the closest real parallel, and the strongest part of the argument. The “government is a legal counterfeiter” line is presented as a clever provocation, which it is, but it’s also the kind of rhetoric that sounds sharper than it is — fiat’s value rests on tax demand and legal tender status, not just vibes. The episode gestures at this (trust, credere) without quite pinning it down.

Two ad placements for Nuveen sit awkwardly inside a show about monetary trust, but that’s podcasts. Score 7: solid, accurate, genuinely interesting history with a smart-but-loose contemporary hook. Not essential, but a pleasant and substantive listen, and the wildcat-banking material is the kind of thing most people have never encountered.