Not Entirely Phoney
In Mitford M. Mathewss magistral Dictionary of Americanisms, this rogue-elephant of a word, this phoney or, as American dictionaries seem to prefer, phony, is defined, the noun as a fake or pretender and the adjective as counterfeit, not genuine. The former is a very late comer, being unrecorded before 1905, whereas the latter was recorded  almost a century and a quarter earlier – in a different spelling – and in England; to be precise, in George Parker, A View of Society, 1781, a description of Londons underworld and its hangers-on. The pronunciation phon(e)y is American. It is in this form that the word was re-introduced into Britain by Edgar Wallace just after the First World War, originally as an underworld term. The general British public took it, not from the native underworld, but from those American journalists who, perhaps rather optimistically, described the early stages of the Second World War as the phoney war.
Basing their theories on the spellings phoney and phony, American and British lexicographers, during the years 1931-1936, put forward two different theories. In 1931, Godfrey Irwin, in his valuable and entertaining American Tramp and Underworld Slang, and in 1933 The Oxford English Dictionary (Supplement) supported, although not whole-heartedly, an opinion aired, in 1904, by New Yorks Evening Telegram, which stated that the word implies that ... a thing so qualified has no more substance than a telephone talk to a supposititious friend. In 1936, Websters New International Dictionary, in the magnificent recension embodied in the second edition, rather tentatively proposed an origin in the phrase funny business: trickery, dishonesty; dubious behaviour – as in No funny business, please. Earlier in the century, someone or other had declared that the source lay in Forney, the name of a well-known New York jeweller specializing in imitation jewellery. All three of these theories are not only inadequate but historically impossible. The Forney one, however, has two merits: it suggests that the earliest American pronunciation was forney or rather fawney, not phoney, and it accords with Josiah Flynts fawney man, a peddler of imitation jewellery, in his article The American Tramp published in an English periodical, August 1891, and recalling memories of the road valid for ten or more years before that date. In  Owen Kildares The Wisdom of the Simple, 1905, we find phoney guy in the same sense, and the illuminating words, an enormously large diamond pin of the phoney sort; phoney man and phoney appear soon after, still for this sort of peddler.
The spelling forney and pronunciation fawney should have put the lexicographers on the right track, especially as Pierce Egan, in Finish of Tom, Jerg, and Logic, 1828, very considerately provided a most serviceable key when he wrote, He sports a diamond forney on his little finger and as, in The Life of Samuel Denmore Hayward, the Modern Macheath, 1822, he used forney for a finger-ring. There, indeed, was the key: forney, a ring, should have reminded the scholars editing The Oxford and Webster that the fawney rig, a ring-dropping confidence trick beloved of the underworld, and fawney, a finger-ring, are, in sober fact, recorded in the former dictionary as fawney. That the fawney rig signified, literally, the ring trick might well have insinuated a suspicion that, Irishmen being masters of the art and Irish confidence tricksters having invaded England, especially London, long before 1781, the origin of fawney lay in Ireland. In Ireland it lies. As so often before and since, Ireland was notably contributing to the gaiety of nations. The Irish word - that is, an Erse, not an Anglo-Irish, word – for a finger-ring is fainne, pronounced, at least approximately, fawney. The great Irish potato famine of 1845 drove many honest Irish people to the United States during the decade immediately following; with them, doubtless, went a number of less honest persons, including confidence men. In E. Z. C. Judsons The Mysteries of New York, 1851, we notice fawney being used in New York exactly as it had been in London; A. H. Lewis, Confessions of a Detective, 1906, records it as still in use at the later date.