1862, "having a delusive appearance of high quality," a Northern word from the American Civil War in reference to the quality of government supplies for the armies, from earlier noun meaning "rag-wool, wool made of woolen waste and old rags" (1832), perhaps a Yorkshire provincial word, of uncertain origin; according to Watkins from the same Old English source as shed (v.).
Originally used for padding, English manufacturers began making coarse wearing clothes from it, and when new it looked like broad-cloth but the gloss quickly wore off, giving the stuff a bad reputation as a cheat. The 1860 U.S. census of manufactures notes import of more than 6 million pounds of it, which was "much used in the manufacture of army and navy cloths and blankets in the United States" according to an 1865 government report.
The Days of Shoddy, as the reader will readily anticipate, are the opening months of the present war, at which time the opprobrious name first came into general use as a designation for swindling and humbug of every character; and nothing more need be said to indicate the scope of this novel. [Henry Morford, "The Days of Shoddy: A Novel of the Great Rebellion in 1861," Philadelphia, 1863]
Related: Shoddily; shoddiness.