One Nation Under Gold

by James Ledbetter

  Even where paper money had been a relative boon—Pennsylvania is usually cited—it ran against the historical grain. The size and structure of the US government had been conceived by men with a strong desire to undo the taxation and government interference of British colonization. Under the original Articles of Confederation, for example, Congress was given no authority to levy taxes; only the states had that power, and many failed or declined to collect what was ostensibly owed to them. The Constitution did not create a central bank, and for more than half a century after the Constitution was ratified, many powerful Americans—notably Andrew Jackson—maintained that the document explicitly prohibited a national bank. That the Supreme Court in 1819 unanimously upheld the constitutionality of a national bank in McCulloch v. Maryland barely dented Jackson’s certitude that it was unconstitutional.8 Thus, for those who advocated a small federal government with limited power, the use of gold as currency not merely was deemed to be the only legally allowable nationwide currency but also served a specific political agenda: gold prevented any mechanism by which a federal government could grow, thus helping to guarantee the states’ rights ideal.

  This could be seen clearly in Jackson’s war against a central bank. During the relatively brief lifetime of the First (established in 1791) and Second (1816–1836) Banks of the United States, their managers did not help their cause with the American people through blatant use of bank funds for political purposes, or monetary policy that was at times destructive. But at its core, Jackson’s crusade was over a vision of government—whether the United States would mimic larger European nations with a central bank and a national paper currency, or whether it would remain a federation of states whose size and strength could be kept in check through a metallic-based currency.

  Jackson’s view on the Bank bordered on obsessive, but his distrust of a national bank and the political power that could adhere to it was widespread, and reflected an agrarian view that the concentration of businesses and financial power in the Northeast was probably corrupt and at a minimum rigged against the South and the West. (Not surprisingly, when the original law passed in 1791 to authorize the First Bank of the United States, only one member of Congress north of Maryland opposed it and only three south of Maryland favored it.)9 Even after Jackson left the White House, a strong notion prevailed in American law that government had to be kept separate from banks, and that the federal government could make its payments only in gold.10

  After engineering the 1832 presidential election as a referendum on the Bank, Jackson’s cunning and decisive blow came when he withdrew the government’s deposits from the central bank and placed the funds in a selected series of “pet” banks.11 He frequently couched his view not in economic terms, but in absolute moral ones; his opponents were misguided banking idolaters while he pursued the one true monetary path. In a somewhat inverted but nonetheless searing metaphor, Jackson declared, “Were all the worshippers of the golden Calf to memorialise me and request a restoration of the Deposits, I would cut my right hand from my body before I would do such an act. The golden calf may be worshipped by others but as for myself I will serve the Lord.”12

  This move to the pet banks destroyed the central bank; its charter expired in 1836. Politically, Jackson’s victory was total, and the Democratic Party became strongly identified for decades with a hard-money standard and a bias against any kind of centralized banking system. Nonetheless, Jackson’s war against the Bank made any efforts to rationalize the nation’s banking system extremely difficult. His successor, the more urbane Martin Van Buren, established an independent Treasury system, whereby the government had neither a central bank nor a set of favored private banks; instead, it simply kept its money in its own vaults. Most commercial banking was then conducted in state-chartered banks. These institutions were often barely regulated and all too keen to engage in land speculation, reckless railway expansion, and other dubious financial practices. Almost immediately after the Bank’s fate was sealed, the Panic of 1837 set in, and America entered a severe recession that lasted well into the next decade.13

  Within Jackson’s idealization of hard money can be glimpsed the ultimate American monetary argument—namely, that God wanted currency to be metallic, especially in America. As gold’s devotees throughout history have noted, the yellow metal has been associated with divinity and religious worship for as long as history has been recorded. Despite fairly explicit biblical condemnations of materialism in general and gold in particular, the dominant Christian ideology of America’s first century had little trouble equating gold and God’s will. Hugh McCulloch, treasury secretary in October 1865, declared in a speech in Fort Wayne: “By common consent of all nations, gold and silver are the only true measure of value . . . I have myself no more doubt that these metals were prepared by the Almighty for this very purpose, than I have that iron and coal were prepared for the very purposes for which they are being used.”14

  The idea that gold and silver reflect God’s will is probably easier to accept in a nation where they are found in relative abundance, and McCulloch’s straightforward assertion reflects the fact that the discovery of gold in California in 1848 had transformed the United States like nothing else the relatively young nation had before seen. People throughout California—from newspaper editors to army soldiers—abandoned their jobs en masse to pan in rivers. It upended the nation’s population, as tens of thousands flocked west in search of rapid wealth. The French consul in California remitted to a colleague, “Never, I think, has there been such excitement in any country of the world.”15

  And the boom was not only domestic: would-be miners came from Ireland, Scotland, Spain, China, Chile—what one transplanted southerner called a “heterogeneous comminglement of living souls . . . persons from almost all civilized parts of earth, judging from their acts, some from the uncivilized portions.”16 By 1860, a phenomenal 14 percent of California’s population was from Germany. The rush created a center of financial and political clout in the West that had not before existed. California’s population exploded from about 14,000 people in 1848 to nearly 100,000 by the end of 1849, then 223,000 by the end of 1852. San Francisco, with a population of under 1,000 residents as 1848 began, became the undisputed capital of this nation within a nation: as late as 1900, one out of every five people living between the Rocky Mountains and the Pacific Coast lived in the San Francisco–Oakland area. Sometimes overlooked are the secondary industries the gold rush created. In a very short period of time California became one of the largest grain producers in the world, thanks largely to wheat grown in the San Joaquin and Sacramento Valleys to feed those who had come west.

  And of course American gold transformed the nation’s—and the globe’s—economy. The United States went from being a negligible producer of gold in 1848 to, between the years 1851 and 1855, producing 45 percent of the world’s supply. The rapid and substantial increase in the amount of gold in circulation created worldwide economic ripples. San Francisco’s stock exchange quickly became the second-largest in the country (and briefly in the 1870s surpassed New York’s).17

  Yet as with many mass phenomena, it is important to separate out the effects. Accounts of the gold rush, then as now, understandably focus on the extraordinary luck and unimaginable riches of the early arrivers. In July 1848, mere months after the initial discovery of gold at Sutter’s Mill, an army colonel reported that “upwards of 4000 men were working in the gold district, of whom more than one-half were Indians, and that from 30,000 to 50,000 dollars’ worth of gold, if not more, were daily obtained.”18 Moreover, the fact that men with no resources or specialized skills could in minutes produce a month’s or year’s worth of wages led many contemporary commentators to proclaim that a new era of industrial relations had been born, one that upended the workingman’s long-standing dependency on wealthy landlords or lenders. A California newspaper declared, “From the fact that no capital is necessary, a fair competition in labor without the influence of capital, men wh
o were only able to procure one month’s provisions, have now thousands of dollars of the precious metal. The laboring class have now become the capitalists of the country.”19 Decades later, some theorists would lump California’s Gold Rush in with other New World discoveries and credit them with the very development of the modern Western economy.

  Such sweeping claims have fueled the mythology that surrounds the gold rush to this day, but they are in need of perspective. Perhaps even more impressive than the extent of the vast wealth unearthed in the middle of the century was just how evanescent its riches were. It is the nature of mineral discovery that a great deal is discovered early on, and then the rate of increase slows down; in many cases commodities are entirely depleted in a matter of months or years. Thus, overall gold production in California rose rapidly until it peaked in 1852 or 1853, and then began declining steadily into the Civil War period. Extremely high wages were even more fragile; while of course a handful of pioneering prospectors could make fortunes well through the 1850s (particularly if they branched out beyond California), the average gold worker after 1848 never made as much per day as during those first heady months. And while average wages of about $3 a day in the late 1850s were still higher than those on the East Coast, the cost of living in a place where the basic stuff of life had to be imported over great distances was about twice as high. Equally important for those who celebrated the gold rush as a triumph of the individual laborer is that the maturation of the mining industry meant that, by the mid-1850s, very few solo prospectors could succeed on their own; the gold readily available to surface miners was gone, and what remained required complex machinery—and therefore substantial capital—to profitably extract.

  Moreover, the discovery of valuable resources in an otherwise underdeveloped part of the country created a complex and often contradictory relationship between mineral wealth and the American state. Nearly all the gold discovered in California (and, later, other western territories) existed by default on land that belonged to the government. In theory, the riches discovered in this public space could have been allocated to benefit all Americans. And yet in the late 1840s and early 1850s, the idea that the United States had the authority, the resources, or the government infrastructure to take advantage of the gold windfall—let alone to distribute that wealth for the benefit of those outside the gold rush—was simply fanciful. Richard Barnes Mason, a military man dispatched to report on the gold mines, hit on the dilemma within a few months of the Sutter’s Mill discovery: “It was a matter of serious reflection to me, how I could secure to the Government certain rents or fees for the privilege of securing this gold.” But given the large expanse of land being mined, the character of the people who would need to be policed, and the nearly nonexistent forces available to the government, Mason decided not even to try. So new and feeble were public institutions in the American West before the Civil War that the resolution of fierce disputes among miners often determined the systems of law (by community consensus, and sometimes by lynch mob) rather than the other way around. It is understandable how “frontier justice” created a western-based political mindset that was resistant or even hostile to conceptions of government that prevailed in the East. At the same time, as the United States incorporated mineral-rich states like California (1850), Nevada (1864), and Colorado (1876), the politicians who represented mining wealth were hardly shy about demanding their slice of the federal pie.20

  It is also irresponsible to examine the effects of the gold rush without considering what historian Kevin Starr labels its “noir dimension.” For example, from the very beginning of the gold rush, Chinese immigrant miners were denied access to the more productive lodes; or hounded out of camps when they appeared to be prospering; or simply lynched in a quasi-legal fashion. In 1848, for example, miners in Mariposa County passed a resolution allowing that “Any Chinaman who tries to mine must leave on twenty-four hours notice, otherwise the miners will inflict such punishment as they deem proper.” Such incidents formed the basis for institutional discrimination in California later in the century.21 Hundreds of Chinese, Native American, and Mexican women were forced into prostitution to service the miners who had left women and children at home (the population of California measured in 1850 was 92 percent male; in mining towns it was 98 percent). Mining destroyed game and fish in El Dorado County, and with it the livelihood of Native Americans there. Debris from mining towns destroyed the drainage system of the lower Sacramento Valley, causing massive floods almost annually in the 1870s. The tremendous demand that mining placed on water and timber caused vast and irreversible environmental damage. Mercury was used to recover gold from the ground in such huge volume—hundreds of liquid pounds for a single sluice—that it was found contaminating water and fish more than 150 years later in both California and Nevada.22

  Yet these sobering truths do little to tarnish gold’s place in the American mythical self-image. The nineteenth century established and deepened a psychological identity between Americans and gold. No one would assert that every American would get rich quick; by the 1850s many of those who set out west in covered wagons with signs like “Pikes Peak or Bust” could attest to the sad prevalence of the latter option. But it was not wrong to think that, under the right circumstances, anyone could get rich, and it almost automatically followed that nearly everyone should want to do so. This was something new in the American psyche, a motivation for wealth quite apart from Calvinist notions of austerity, or that financial success could come only from sustained hard work and spiritual devotion. In the concise formulation of H. W. Brands, the new ideal held that “El Dorado, not some Puritan city on a hill, was the proper abode of the American people.”23 To the American conception of freedom, the possibility of instant wealth through gold added a new dimension, one that was philosophically not merely negative (such as the freedom from oppression, from government interference with speech or religion) but on its surface positive: the boundlessness of riches.

  The embrace of material wealth acquired with minimum suffering appears at odds with Christian teaching, and there were some who believed that the temptations of western metals led America down the wrong path. Certainly for nineteenth-century Christians who believed that gambling, alcohol, and prostitution were grave offenses to God, the early gold settlements of the West readily looked like epicenters of sin. Yet for most Americans, the material wealth associated with the gold rush was not cause to abandon any sense of being God’s chosen nation. On the contrary, it implied that gold and silver were a national birthright, at once proof that America is a divinely promised land—and the very means to realize the promise. It may sound strange to a modern secular ear, but Americans in the Third Great Awakening believed that gold and silver were deliberately placed beneath the Earth’s surface by a benevolent God. Many believed that the fact that precious mineral resources are located in some places—say, the Rocky Mountains—and not others was a form of divine choosing; it of course followed from that premise that mining and using those riches to create American wealth was part of His plan that Americans had an obligation to fulfill. And with God and gold on their side, many Americans in the 1850s felt blessed to the point of invulnerability. The sense of invulnerability did not last long.

  For the first half of the 1850s, America’s prosperity expanded and seemed indomitable. Gold production was most prominent among many other factors, including immigration (due in part to the Irish Potato Famine), railroad construction, and export growth thanks to the reduction of British import duties. And because the gold rush was completely unprecedented, it was easy to assume that daily infusions of domestic gold constituted a new normal.

  The logistical reality was far more complicated. Most or all of the economic boosters were subject to cyclical overreach: the financing of railroads, for example, could easily outpace the timetable of actually building them, leaving some investors in the lurch. And the heady advantage of a continual supply of domestic gold could be deceiving. One of the gold rush�
��s strangest side effects was to provide a rational justification for an endeavor that on its face seems anything but rational: the speculative long-distance sea voyage. In 1849 alone, more than five hundred sailing vessels left the East Coast seeking to land on the West, and the majority of these planned to sail around the perilous waters of Cape Horn—a journey of some 15,000 miles that would take at best five months and often quite longer. The ships were crowded, fetid, floating disease wards, on which seasickness, dysentery, and scurvy were common. The journals of those who survived tell stories of spoiled food and despotic captains commandeering leaky ships; some passengers went insane mid-voyage and had to be shackled in confinement. It is not coincidence that the first psychiatric hospital in California—dubbed the Insane Asylum of California at Stockton—was founded in 1853 after existing hospital facilities became overwhelmed with mentally ill gold seekers.

  A significant innovation involved using the Isthmus of Panama; would-be argonauts could sail down the Atlantic Coast, usually stopping in Havana or Kingston, and land on the east coast of Panama. There they would cross the 47 miles or so of the isthmus (after 1855, via railroad), and sail in a different ship up the Pacific side to San Francisco, with the whole journey typically requiring little more than one month. The trip was neither cheap (a steerage class ticket cost $200, plus a $30 fee for crossing the isthmus) nor easy: the Panamanian terrain was punishing, and the jungles were filled with mosquitoes and disease. But the thirst for gold had to be quenched, and by 1850 the Pacific Mail Company was providing trips every other week, with each steamship carrying hundreds of passengers.24 These steamships also carried tens of thousands of letters and, because the navy was interested in converting from sail power to steam, the carriers also received a subsidy from the federal government. In addition to the Pacific’s main rival, the United States Mail Steamship Company, a dozen competitors would soon emerge, including a line run by Cornelius Vanderbilt.