Colorful and Decorative, but Not Worth Much (Oct 29, 2023)
by Scott Sosebee
Who doesn’t like money? It is the medium of exchange in our world and allows people fluidity and, yes, often to acquire things they would probably be better off without. We take the value of our money for granted in this country; we are confident that when we present a “note,” which is what paper currency actually is, someone will accept it as an exchange for goods or services. However, in many nations, even today, that is not always the case, primarily because merchants or other purveyors of services cannot be sure that the currency is worth what the holder hopes it is. We think of nations where such things happen as exotic, faraway locales that most cannot find on a map. Many might be surprised to know that at one time in the past, however, one of those “exotic locales” was Texas.
When Texas became an independent republic in 1836, it found itself in a tenuous position. Texas never wanted to be “independent;” the Texas Revolution may have been fought to separate the province from Mexico, but the intention of the majority of Texans of the day was that they would almost immediately become a part of the United States. That did not happen for a number of reasons, so Texas had to embark on a perilous and meager existence as an independent republic for nine years before political realities in the United States could shift enough to allow Texas to join the Union.
The most pressing problem present in the new Republic was that the nation’s government was broke, its economy was not mature, and there was little prospect, in the near future, of either becoming any better. Texas, like almost all southern states, had no banks. Banks were the primary issuer of notes, or paper currency. Also, imports greatly exceeded exports, and that balance meant that more gold and silver—“hard money”—left Texas than remained within the nation. Texas merchants and other purveyors of services, out of necessity, accepted American and Mexican currency as a medium of exchange—the Mexican Peso was the most circulated form of money during the entire breadth of the Republic—but that, too, was limited.
The Republic’s Constitution did not help matters when it came to the circulation of currency. It specifically gave Congress the power to only “. . .coin money, regulate the value thereof and of foreign coins,’ [and] “nothing but gold and silver coins shall me made a lawful tender.” Such a tight money policy was made even more restrictive when you consider that the Republic of Texas never minted any coins, primarily because it lacked the vital gold and silver resources. Such a lack of circulation led the Republic to enter the paper currency market when, in June of 1837, the Republic Congress passed legislation authorizing the issuance of $500,000 of promissory notes. Congress took the action at the behest of President Sam Houston primarily because the Republic’s government couldn’t pay its debts.
The first notes were printed in October 1837, bore ten percent interest, and were payable in a year from the date of first circulation. They came in denominations of $1, $2, $3, $5, $10, $20, $50, $100, and $500 (brave was the soul who bought a $100 or $500 promissory note from the Republic of Texas). They had a five-point star in the center of the upper portion of the note, which caused them to be referred to as “state money,” although they were not, really, currency. The scheme to raise money, however, failed because few people took interest since almost all understood that Texas would never be able to redeem the notes. They quickly depreciated and, by January 1838, were worth as little as thirty cents to the dollar.
When Mirabeau Lamar became president in 1838, Texas once again embarked on a currency scheme. An act of the Texas Congress in January 1839 called for the printing of promissory notes payable to the bearer without an interest component. They were called “red backs” because of the distinctive red star design on the back of the bill. The front bore the denomination, which came in values of $5, $10, $20, $100, and $500 (there were also “change notes” in denominations $1, $2, and $3). They were issued from January 1839 to September 1840; almost $3,000,000 worth of notes were printed and placed in circulation. $3,000,000 was much more than the Republic had in real assets, and they also greatly depreciated. By 1841, “red backs” were worth as little as two cents on the dollar. They became so worthless that even the government itself began to refuse to accept them as payment.
Texas did not learn its lesson, and when Sam Houston came back to the presidency, paper currency circulation revived for the third and last time. Congress, in January 1842, approved the issuance of $5, $10, $20, $50, and $100 notes, with “change notes” in denominations of twelve-and-a-half cents, on up to $3. Houston’s administration tried to limit depreciation by limiting the printing of only $200,000, but the faith in the financial health of the Republic was so low that they became discounted from the moment they rolled off the presses. Within months, the value of the notes had sunk below twenty cents on the dollar, and the only way they could be used was to pay taxes. Once again, the paper currency of the Republic had failed.
Texas did not have the financial foundation to issue paper currency, and only annexation improved the state’s economic and money circulation fortunes. Texas’ currency was decorative and pleasing to the eye but virtually worthless. Ironically, an authentic Texas “red back” is worth thousands of dollars today to collectors. Do beware, however, that these bills have been widely printed as novelty items, and certified “red backs” are quite rare. Still, it might be worth checking your attic…
The East Texas Historical Association provides this column as a public service. Scott Sosebee is a Professor of History at Stephen F. Austin State University and the Executive Director of the Association. He can be contacted at sosebeem@sfasu.edu; www.easttexashistorical.org.