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This 1838 Smith and Ross note simultaneously says "12 1/2-cent" and "one shilling."

"Obsolete paper money" is a term collectors apply to nonfederal notes issued roughly from the end of the Revolutionary War through the beginning of the Civil War.

During that time period, federally issued paper money was, for all intents and purposes, not in wide public use.

That’s because the paper money issued by the Continental Congress during the Revolutionary War had steadily eroded in value. By the end of the war it was virtually worthless, and the phrase “Not worth a Continental” was applied to anything that had no value. The federal government abandoned the concept of a circulating paper money, issuing only several series of treasury notes — short-term promissory notes sold to investors to raise capital — between the end of the Revolution and the start of the Civil War.

So, to fill the vacuum, states, cities, counties, parishes, banks, insurance companies, railroads, corporations and private merchants issued their own paper money.

The diversity of the issues and the designs that were employed is breathtaking. The Schingoethe Collection of obsolete paper money, probably the most complete assemblage of its kind, contained more than 30,000 different examples.

Some obsolete notes were remarkable for their artistic merit; others were historically interesting; several appear to be unimportant and unattractive, but draw collectors to them for reasons that are not always immediately apparent.

The unusual note illustrated with this article falls into that final category.

All of us are familiar with the modern $20, $10, $5 and $1 bills in our wallets, and the quarter dollars, dimes, 5-cent coins and cents in our pockets. In fact, if George Washington, Thomas Jefferson or Benjamin Franklin were alive today they would not be surprised to see these denominations in use. After all, Continental Congress authorized the use of dollar-denominated paper money back in 1775, and the federal government based our coin denominations on the decimal system in 1792.

On the other hand, Washington, Jefferson, and Franklin probably would have been astonished to see the words “One Shilling” on a piece of American paper money that was issued nearly 60 years after the Declaration of Independence was signed. It is the appearance of “shilling” on the 1838 Port Byron note that deserves attention.

Port Byron is a small town located in Cayuga County in the central portion of the state. The community was initially known as King’s Settlement, in honor of Philip King, a Revolutionary War soldier who received bounty land for his military service and became the first white settler in the area in 1797.

In 1825, with the advent of the Erie Canal, the village became a port, and thus acquired the name Port Byron, perhaps named after the poet Lord Byron.

SMALL CHANGE

The firm of Smith and Ross, the signers and issuers of the 1838 Port Byron note, were business partners in a store in Port Byron that sold general merchandise.

If we were transported back in time to their store, we would find some U.S. large cents, a half cent or two, a couple of Bust dimes or half dimes, and an occasional Bust quarter dollar in their money drawer, but it might surprise noncollectors today to learn that many of the coins would have Spanish origins.

What we wouldn’t find in the drawer would be federally issued paper money. Instead, obsolete notes and checks from a variety of nonfederal issuers would be present, as well as notes issued by Smith and Ross.

Why wouldn’t the drawer be full of regular U.S. coins and paper money?

SPANISH INFLUENCE

It wasn’t until 1836 that the U.S. Mint first acquired steam-driven presses capable of producing large enough quantities of coins to meet the demands of America’s expanding economy.

Until that time, most of the coins in circulation were foreign in nature, mostly silver half-real, 1-real, 2-real and 4-real coins, and the well-known piece of eight or Mexican 8-real pieces (also referred to as the Spanish dollar). These coins were minted in Mexico, Peru and Spain.

Some British copper coins might be present in circulation in the United States, but British shillings were rarely encountered.

The paper money in Smith and Ross’s money drawer in 1838 would consist mostly of 1-, 2-, 3-, 4- 5-, 25- and 50-cent notes, along with notes denominated in 6 1/4 cents and 12 1/2 cents. Some might even be $1, $5, $10 or even $20 obsolete notes.

The unusual note from Port Byron has two different denominations — 12 1/2 cents and 1 shilling.

The reason for the use of 12 1/2-cent notes is well-known. The Mexican, Peruvian and Spanish silver 8-real coins circulated widely throughout the United States. They were roughly equivalent in value to the American dollar. The 1-real coin (or bit) was equivalent to 12 1/2 cents, and the 2-real piece was equivalent to 25 cents.

At times, some of the smaller Mexican silver coins were in such short supply that 8-real coins were actually cut up into fractional portions (“bits”). The issuance of low denomination paper money, such as the Port Byron 12 1/2-cent notes, helped ease the shortage of small change coins.

WHY SHILLING?

Why one shilling appears on this example of American paper money in 1838 is not immediately apparent, but some plausible explanations come to mind.

Since colonial times, a shilling was valued at 12 1/2 cents in the state of New York (the shilling’s value varied among the other states).

Throughout the Revolutionary War, all business accounting was done in pounds, shillings and pence. This tradition was handed down to the next generation after the war, and continued in many places for decades.

In order to reconcile a business account, transactions that involved U.S. dollars or Spanish dollars had to be converted into pounds, shillings and pence.

The customary use of the term “shilling” can be found in business advertisements as late as the 1880s in some parts of New York. For several decades after the Revolution, New Yorkers commonly used the term “two shillings” to indicate a quarter dollar. Americans also used the term “two bits” for the quarter dollar and continue to use that term today.

Why Smith and Ross decided to include the word “shilling” on the notes is not clear, and the use of the word “shilling” on paper money issued by other merchants during this time period is very rare. (The author is aware of no other examples.)

SMITH AND ROSS

Just who were Smith and Ross?

D.B. Smith founded his store in 1825. It remained in operation for 70 years. Smith was also the first treasurer of the village of Port Byron when it was chartered in 1837.

Smith served on the board of directors at the Bank of Auburn, a Safety Fund Bank located not far from Port Byron.

Safety Fund Banks were part of a system established in New York in 1829 that provided for the mutual insurance of banks. Initially, the system provided for the payment of all liabilities of failed banks (except where shareholders were concerned).

New York banks that belonged to the Safety Fund were entitled to use a special seal on their notes.

At the bottom of the Smith and Ross note is the imprint of Oliphant and Skinner, the printers of The Auburn Journal & Advertiser newspaper. Smith was also an agent with the Merchants and Manufacturers Bank.

In 1828, at the age of 19, Elmore P. Ross went to work for D.B. Smith as a clerk in Smith’s store. Ross was described as “… a natural merchant, a true gentleman, always courteous and obliging,…” according to an article in the May 20, 1879, Auburn Daily Bulletin newspaper.

Smith soon offered him an interest in the business. After many years the partnership was dissolved, and the partners went their own ways establishing separate stores.

According to the same 1879 Auburn Daily Bulletin newspaper article, a rivalry “grew up between the houses of Smith and Ross, a rivalry which entered every department of society and business, creating factions in the community, known as the Smith and Ross parties.”

Ross eventually went on to become the president of the Merchants Union Express Co., which subsequently merged with the American Express Co.

We may never know exactly what motivated Smith and Ross to use the term “shilling” on the firm’s paper money, but we have discovered some of the factors that may have influenced the owners.

The money we use everyday is one of the ties that binds all of us together as Americans. Our paper money has a rich and underappreciated history. Every note has a story to tell, and even the most inconspicuous note often proves to be interesting and informative.

Stephen Goldsmith is a senior vice president with Spink USA Inc. and may be contacted by email at sgoldsmith@Spink.com. He wrote this column with help from Port Byron historian Dawn L. Roe, who assisted with the biographical information on Smith and Ross, and pointed out the use of the term “shilling” in its business advertisements throughout most of the 19th century. This article originally appeared in the February 2012 issue of Coin World Magazine and was reprinted with their permission.

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Features editor for The Citizen.