Fr 1-5 5 Dollar United States Demand Note

Many authorities contend that the Fr. 1-5 $5 U.S. Demand Note of 1861 were the first “circulating” paper money issued by the federal government, and this distinction -- although not without its flaws -- is certainly true enough if one considers that from that time to present our government has continuously issued paper currency for circulation. Small issues before that time, since repudiation of the Continental Currency or the Revolutionary era, were either sporadic as in the War of 1812 or with interest, more nearly investment paper than hand-to-hand circulating notes.

Specifications

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Background
The ante-bellum period before the Civil War was the great age of state-regulated bank note issue. From the 1790s down to the fife and drum roll, cannon and scatter shot age of the War Between the States, paper notes of state-regulated corporations supplemented gold, silver, and bronze coins issued by the general government, forming the bulk of the money stock of this nation.

On the eve of the Civil War, our country’s circulating paper currency consisted of approximately 200 million dollars of this bank paper from 1600 different banks. Bank specie reserves at the same time amounted to an estimated $87 million, meaning bank notes as a whole were backed roughly by about 43 percent coin. Of course reserves of notes of particular banks were all over the map. In fact, a large measure of the coin reserves were held by eastern banks with little to no circulation outstanding at all.

Thus redemption of state notes was problematical in some instances, and bank notes were discounted by brokers in all the major cities depending both on the reputation of the bank note issuer, and the cost of redeeming notes which was largely a measure of distance.

Bank note reporters and financial columns in all the major papers carried notices of these discounts. Often the spread was low, a percentage or two. More distant or less reliable issuers might be discounted several up to say 7 or 8 percent. Sometimes for banks under stress discounts could be 20-40%, or in cases of panic or default even more. . . 70, 80, 90 percent discounts.

History
When the Southern states seceded and war broke out with the firing on Fort Sumter in April 1861, the federal government found itself over a barrel financially. Prewar revenues from normal sources such as collections of customs fees and sales of public land were clearly insufficient to supply the men and materiél for the war effort.

Initially loans were arranged with eastern bankers, which were advantageous to them, and necessary for the war effort. But even after these bankers agreed to loan conspicuous amounts of specie, the yawning maw of an empty treasury clearly required additional revenues.

On July 1, 1861, the public debt of the United States was $90 million. Paper money was an answer, but not one embraced universally. Yet, what was the Lincoln administration and Congress to do? Taxation was too slow to meet the oppressive and immediate needs.

Congress responded with Acts of July 17th, and August 5th,1861. providing an authorization for $50 million in 6% 20-year bonds, nearly $140 million in 7.30% Treasury Notes, and $50 million in non-interest bearing paper money payable in gold on demand. These were our country’s first green backs, the famous Demand Notes of 1861. The July Act authorized notes $10-$50. The second Act okayed notes down to $5. The original authorization of Demand Notes was subsequently raised to $60 million by the Act of Feb. 12, 1862.

Without printing presses of its own to churn out its treasury paper, the feds contracted with the American Bank Note Company to produce the green backs, so-called to distinguish them from other classes of currency and printed with the ABNCo’s anti-photographic “counterfeit-proof” green tint ink, patented by Dr. Sterry Hunt, June 30, 1857.

Demand notes were issued in only three denominations, $5, $10 and $20. For years, the Friedberg catalog “Paper Money of the United States” has speculated that the date Aug. 10, 1861, which appears on the face of Demand Notes was the date they were first issued to the public. This author finds no confirmation for that speculation.

The principal features of the $5 denomination are an excellent likeness of first Treasury Secretary Alexander Hamilton at right, after a painting by Archibald Robertson, and a likeness of sculptor Thomas Crawford’s “Freedom” engraved by Owen G. Hanks at right. This statue was commissioned to adorn the top of the U.S. Capitol dome, which was finally completed during the Civil War.

Notes were payable by Assistant Treasurers of the United States at New York, Philadelphia, Boston, Cincinnati or St. Louis. Rushed into circulation without precedent, they do not bear a U.S. Treasury Seal, nor the names of the U.S. Treasurer nor Register of the Treasury.

Since Demand Notes were convertible to specie (gold and silver coins) “on demand” they could be used to pay customs duties. However on Dec. 28th, 1861, banks in New York resolved to suspend specie payments on Dec. 30th. Bankers in other cities did likewise.

The Federal Government followed suit on Jan. 3rd, 1862. “The suspension of the national Treasury was entailed as a consequence of the suspension of the banks,” financial historian Wesley Claire Mitchell affirmed. “Thus the first day of the new year 1862 saw the collapse of the whole scheme of national finance.”

On Jan. 13, 1862, following suspension of specie payments a gold market developed in New York City. A year later, Jan. 13, 1863, New York diarist Horatio Nelson Taft recorded that gold commanded a 40% premium over Treasury Notes.

After the Treasury suspended specie payments the Demand Notes were no longer convertible to gold “on demand,” but since they could still be used to pay customs they went at a premium to the legal tender notes of 1862 -- which as a truly fiat currency could not be used to pay customs.

Thus Demand Notes were hoarded. On Sept. 6, 1862, the gold value of Demand Notes reached its low point of 90.8 cents on the dollar. At the same time, the irredeemable United States Notes were quoted at 84 cents on the dollar and they would bottom out eventually at 39 cents.

Collecting
Five basic varieties exist depending on the location of the Assistant Treasurer of the United States printed on the face of the bill. Space was left for official signatures, but the chore soon proved overwhelming. Seventy clerks were hired to sign the notes, and they wrote “For the” before the official’s titles (Fr. 1a-5a). This too proved onerous, so additional notes were created with “For the” printed in front of the official’s offices (Fr. 1-5). Signers received a fine government wage for the time, $1,200/annum to sign notes.

Nearly four million of the $5 Demand Notes were issued. However, today, all Demand Notes are scarce. Fewer than 350 fives are known extant. Relatively speaking the most common varieties are for the three eastern banks. Catalog prices are $1,500 for very well circulated examples to $15,000 for examples exhibiting scant circulation. However prices for high grade Demand Notes are really speculative since so few of them exist. Examples with “For the” handwritten are prohibitively rare. An example with hand written “For the” on New York graded problem free Fine to Very Fine brought more than $60,000 at auction in 2006.