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Wall Street History
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10/26/2001
Gold Rush
Last week I took advantage of my recent travels to the Black
Hills of South Dakota and wrote of the discovery of gold there in
the 1870s. Of course the first gold strike in America really took
place in 1848 at Sutter''s Mill in California near present-day
Sacramento. And it came not a moment too soon, as the nation''s
mistrust of banks and credit was so deep that some states were
outlawing banks altogether. Gold represented much-needed
capital.
The boom created by the gold rush, which followed the
discovery of the precious metal, is unprecedented in American
history. But let me get one item out of the way before
continuing; if you are already confused and wondering why we
say "Forty-niners" instead of "Forty-eighters," it''s because
formal announcement of the discovery wasn''t made until
December 5, 1848, when President Polk gave his farewell
address and mentioned the development, thus sparking the
incredible rush the following year.
California was mostly a land of trappers, pre-1849, one of whom
was named Johann (John) Sutter. Sutter was born in Switzerland
in 1803, but, hounded by creditors and facing debtor''s prison, he
was forced to flee in 1834. Eventually he found his way to
California (via Oregon, Hawaii and Alaska), settling in the
Sacramento Valley after persuading the Mexican governor to
give him land on which he sought to create a colony of Swiss
emigres.
The site was at the juncture of the Sacramento and American
Rivers and Sutter called it New Helvetia. He built an enormous
enclosure that guarded an entire village of settlers and shops.
Also called Sutter''s Fort it was completed in 1843, and while no
Swiss colony actually materialized (after all, it was kind of a
long trip), the estate was comprised of 60 buildings, including a
bakery, barracks, a blanket factory, 12,000 head of cattle, over
10,000 sheep, 2,000 horses and mules, and fields producing
40,000 bushels of wheat. New Helvetia became a mecca for
Americans bent on settling the area as it was also at the end of
the most traveled route through the Sierras and the California
Trail (which forked off the Oregon Trail near Lake Tahoe).
Nonetheless, by 1846 there were perhaps just 800 Americans in
California along with 8-12,000 Californios'' of Spanish descent.
Sutter''s goal was to become the wealthiest man on the Pacific
Coast, but, as Peter Bernstein writes in "The Power of Gold," he
would later recall that "My best days were just before the
discovery of gold."
Sutter felt like he needed a sawmill to most effectively expand
his compound and with no timber in the valley, he looked for a
site in the mountains. Chief mechanic John Marshall was put on
the task. As author Bernstein describes:
"On January 24, 1848, Marshall appeared at Sutter''s office back
at headquarters and asked to see him alone, insisting that the
door be locked. Marshall pulled a white cotton rag out of his
trousers. He opened the cloth and held it before Sutter, who saw
about 1.5 ounces of gold dust in flakes and grains. ''I believe this
is gold,'' said Marshall, ''but the people at the mill laughed at me
and called me crazy.''"
Sutter recalled in his 1876 interview, from which we receive
much of our knowledge, that he took a dim view of events.
"During the night the thought burst upon my mind that a curse
might rest upon this discovery.From the very beginning I knew
what the outcome would be, and it was a very melancholy ride
on which I started the next morning."
Sutter asked his workers to keep the discovery secret until
another mill he was building at the compound was complete. He
knew that as soon as word became widespread, every worker
would leave and flock to the hills, meaning Sutter''s other
projects would never be completed. Unfortunately, as he put it,
"Women and whiskey let the secret out."
He was, however, able to confine the news to the valley until
May when a neighbor, doing his best impersonation of Paul
Revere, ran through the streets of the village of San Francisco
shouting, "Gold! Gold! Gold from the American River!"
Within weeks, even a new school in San Francisco had to be
closed because both teachers and pupils were running off to find
gold. And imagine how every kind of adventurer squatted on
Sutter''s property, stealing his stone, taking his livestock. In four
years he was ruined, forced to petition the government
(California was granted statehood in 1850) for damages. Sutter
died in 1880 while the bill he sought was still being debated in
the House of Representatives.
As noted, word of the discovery did travel slowly outside
California. It wasn''t until August 19, 1848 that the New York
Herald ran its first story. By September, though, all of the
newspapers were running articles telling of "nuggets collected at
random and without any trouble." Then President Polk fanned
the flames and the gold fever became a contagion. Word of
limitless gold deposits in California, he said, "would scarcely
command belief were they not corroborated by authentic
reports."
Throughout America men began to quit their jobs, sold their
taverns, and headed west in 1849. Historians George Brown
Tindall and David Shi write of the "Forty-niners" also being
called "Argonauts," after "the band of adventurers in Greek
mythology who went in search of the Golden Fleece."
Influential editor Horace Greeley of the New York Daily Tribune
added at the time, "We are on the brink of an Age of Gold.(In
California), fortune lies abroad upon the surface of the earth as
plentiful as mud in our streets." Interestingly, however, was the
opinion of Henry David Thoreau (best known for his rejection of
all things of a material nature, having found fulfillment, himself,
in observing plants), who commented that California was "three
thousand miles nearer to hell."
During the single year 1849 it is estimated that some 80,000
made their way to California; 55,000 by land and 25,000 by sea
(including many Australians, British, Hawaiians, Irish, French,
and Chinese). San Francisco grew from a village of 459 to
20,000 in a few months. Another 5,000 who were traveling
overland died of an Asiatic cholera outbreak before getting to the
valley. [An additional tragedy of this era was the decimation of
the Indians of the Sierra Nevada foothills by both disease and the
gun.]
And as the thousands panned for gold, historian Paul Johnson
relates a little ditty that was the song of the day. "Oh California /
That''s the land for me / I''m off for Sacramento / With my
washbowl on my knee." But while $10 million worth of gold
was mined in 1849, and some $550 million in the first decade,
the hype outweighed the actual success for a vast majority of the
miners, and in a few years there was a sorrowful trek back home.
Many did stay, however, because California offered prospects for
more than gold. By 1852 the non-Indian population of California
had soared an additional 170,000.to 250,000. [Other sources
list the total population figure as 100,000.]
Peter Bernstein notes another sidelight to the gold rush story, that
being the fact that it hastened the impetus for the first revolution
in telecom - the establishment of the Western Union Co. and the
wiring of the entire U.S. for telegraphy. Plus, as noted at the
start, the discovery of gold added to the development of
America''s securities markets. The speculative fever that took
hold impacted both the railroads and the banks, particularly new
ones opening up in the west. Which makes this a good point to
break off our tale and pick it up next week with the story of Jay
Gould.
Sources:
"The Power of Gold," Peter Bernstein
"America: A Narrative History," Tindall and Shi
"American Heritage: The Presidents," ed. Michael Beschloss
"A History of the American People," Paul Johnson
"The Presidents," ed. Henry Graff
"Wall Street: A History," Charles Geisst
"The Encyclopedia of American Facts and Dates," ed. Gorton
Carruth
Brian Trumbore
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