The contract with Toppan Carpenter for printing stamps was due to run out on the 10th June, 1861 a new contract needed to be made. The Postmaster-General, Montgomery Blair, had several challenges to deal with at the time, two of the most serious were that the Post Office Dept. was losing money and the other was the South. The two were connected. The new contract was to address both these challenges. The efficiency problem was partially addressed by the fact that the National Bank Note Company agreed to produce stamps at a cost that was 30% less than the old Toppan Carpenter contract.
In 1860 the Post Office Department’s revenue from all sources was $9,049,296, with a tiny profit. However $820,546 was from the South, with fixed costs that were hard to change, the Post Office anticipated that once they lost the revenue from the ‘disloyal’ states it would make a loss. A further problem is that during the course of 1861 letters to the South were not being delivered, the year of 1861 ended with 103,680 domestic dead letters, and dead letters were costly. Montgomery Blair, suggested that valuable dead letters, when returned to their owners, should be charged with treble the ordinary rate of postage, comprising one rate for return transportation to the dead letter office, one rate for registration there, and one rate for return transportation to the writers or owners.
With Blair being the member of the Lincoln cabinet taking the firmest stance against the south, it did not take much to force Montgomery Blair’s hands, his office was unable to collect the debt’s from the Southern States Post Offices and $270,000 worth of stamps were still in the Southern States hands. Faced with the prospect of losing another $270,000, plus the mounting cost of dead letters, he simply cut the rebel states off from deliveries and changed the stamps. In changing the stamps he demonetized all the current issue and requested that in the new contract that the National Bank Note Co. produce the new stamps with new designs. This had the side effect of depriving the rebel states of an alternative method of currency.
It was decided to keep the current denominations and for a while it was proposed to change the colors as well as the designs. However the colors were only changed slightly. The Post Office Dept. wanted the new designs to be issued as soon as possible and so the designs were based on the previous issue. Few issues have been put into production with greater speed and with fewer changes than the 1861 issue.