The Power of Gold: The History of an Obsession
Page 26
True, the Spanish discoveries of gold in the New World lifted world output of precious metals-gold plus silver-in the course of the 1600s to over seven tons a year, about double what it had been before those discoveries. By 1700, the total world stock of precious metals was five times as large as it had been in 1492. Then, thanks to Portuguese discoveries in Brazil, production doubled again in the eighteenth century.'
By 1859, with California, Australia, and Siberia all going strong, total world output of gold alone was 275 tons a year, which was more than ten times the average annual output during the eighteenth century. At that rate, the amount of gold produced in ten years matched the production from all sources over the entire 356 years from Columbus to 1848.2 And that was before the Klondike, Colorado, and South Africa opened up at the turn of the century. World gold production by 1908 was over one hundred times what it had been in 1848 and 4.5 times the levels of just twenty years earlier.3 By 1908, the total amount of gold in all forms-coinage, hoards, adornment, and decoration-could have been fashioned into a cube ten meters in each direction-an enormous expansion from the two-meter cube of 1500 that represented three thousand years of developing civilization (see page 110).4
Quite aside from the contrast in supplies, the character of the entire affair bore little resemblance to the gold strikes of the 1600s. The gold of the New World was found by adventurers who led the king's armies and employed military power to lay claim to entire nations in the name of the newfound wealth and plunder. The gold in California and Australia was discovered by independent prospectors panning in the rivers and working for themselves in a full expression of pioneering spirit, followed by businessmen who replaced the individual prospector with heavy capital equipment such as dredges and drills. The gold then traveled to banks and national treasuries on railroads and steamships whose high speeds and black smoke obliterated the memories of the romance and perils of the Spanish Main or the camels of the Sahara. Little of the nineteenth-century gold production ended up in Asia, although silver continued to move eastward.
In the 1500s, the gold discoveries were accompanied by even more important new supplies of silver in both Peru and Mexico, so silver continued to be the primary form of money in Europe and America until well into the nineteenth century. The influence of all the imports of gold from America did not even begin to dislodge silver in England until 1717, in Isaac Newton's time, and another one hundred years had to pass before Britain's Parliament established the official gold standard. But the deluge of new gold supplies in the 1800s finally established gold's dominance over silver in the world's monetary system. By 1900, the gold standard had been adopted almost everywhere; in many countries, silver was demonetized (ceased to be acceptable as money) except for small-coin transactions.
Finally, although there were constant warnings about the glut of gold and the inevitability of higher prices, inflation did not take hold until the very end of the nineteenth century except for very brief periods of time. This experience was a dramatic contrast to the Price Revolution of the Sixteenth Century. Indeed, the behavior of the price level was in many ways the most startling and interesting of the consequences of the nineteenth-century discoveries of gold.
Tradition paints the nineteenth-century gold rushes as historical accidents of some kind, with unsuspecting individuals stumbling onto sudden riches and the word spreading like wildfire. That tradition contains an important element of truth, but it is incomplete. The gold rushes of the nineteenth century were something more than bursts from the blue. People had been aware of gold-bearing areas in California, Canada, Australia, Alaska, and South Africa before the excitement turned hot in those areas. But the rapidly expanding world economy and financial system made the role of gold as money and as a standard even more important than it had been up to that point. Enormous prizes were to be won by the lucky individuals who beat the odds and managed to emerge with some gold from the turmoil and struggle of daily life in the gold rushes.
Although one could hardly describe the situation in the early 1800s as a bullion famine, the copious flow of gold from Latin America had peaked out during the 1790s as Brazilian supplies began to dry up. Then in 1810-the year the Bullion Committee held its hearings-Mexico rose up in a revolution against Spain that ignited a series of wars of independence in Latin America, disrupting the production of precious metals for nearly twenty years. This turbulence in Latin America was one of the reasons that Great Britain postponed restoring convertibility of Bank notes for six years after the defeat of Napoleon in 1815.
A dire world gold shortage was postponed, however, even before gold was found in California, as a result of discoveries in the land of the first and least famous of the nineteenth-century gold rushes-Russia. Gold had first been discovered in the Urals in 1744, but output remained modest until 1823, when, sensing opportunity, Czar Alexander I mounted a major effort to develop the country's bounteous gold resources. Annual production in the Urals rose from less than two tons in 1823 to more than five tons by 1830 and kept on climbing. The explorers were even more successful when they moved eastward into Siberia; production in that area had reached eleven tons a year by 1842. By 1847, the Russians were supplying over 60 percent of world gold production. As a result of the discoveries in other countries, the Russian share of the total declined after that date, but the Russians found so much gold over the years that their output was all the way up to sixty tons when World War I broke out in 1914.5 By the time Stalin's prisoners were working the notorious mines in the Ural mountains and in Siberia, Russia had been turning out enormous amounts of gold for over one hundred years.
The development of Russian gold production bore no resemblance to the Wild West and the entrepreneurial character of the gold rushes that would stir the imagination of adventurers in North America and Australia. Most of those prospectors went home empty-handed, but at least they had had the opportunity to hit the jackpot and enough of them succeeded to keep the crowds pouring in. Not so in Russia. Digging into the freezing tundra, the tsar's miners were essentially serfs who lived and worked for pitiful wages from 5 AM to 8 PM, six days a week, in rough and marshy terrains. None of the gold they dug up would be theirs. The whole affair was either under the direct control of the crown or of a small number of rich landlords whose gold revenues were taxed by the tsars.
The contrast was striking between the downtrodden workers and their bosses, who lived in high style despite the inclement climate and forbidding landscape. A nineteenth-century visitor to Siberia dining in the home of one of these moguls described a repast as fine as anything served in the palaces of Saint Petersburg. The dinner began with oranges from the French Riviera, served on a plate of Japanese porcelain; the sumptuous meal that followed was accompanied by wines from Spain, the Rhine, and Bordeaux, and finished off with Arabian coffee and Havana cigars.6
In California, the discovery of gold in 1848 took place two years before the territory was admitted to statehood and even before a peace treaty had been signed in the Mexican War. The news about Sutter's Mill spread through the neighboring communities in short order and almost emptied out San Francisco within a few weeks. With no radios, television, or Internet, however, word reached the rest of the country more slowly. The first deposit of gold from California at the U.S. Mint did not arrive until December 8, 1848, at which point it was greeted by one periodical as "the new mistress."'
The big rush did not begin until 1849, after President Polk mentioned it in his State of the Union address to Congress, which is why the prospectors (and the San Francisco football team) came to be known as the Forty-Niners rather than the Forty-Eighters. The long delay between the discovery and Polk's announcement was the primary impetus for the first revolution in telecom-the establishment of the Western Union Company and the wiring of the entire United States for telegraphy. By 1853, over one hundred thousand people had swarmed into California, including 25,000 Frenchmen and twenty thousand Chinese, and annual gold production approached eighty metric tons;
production would peak as early as 1853 at around 95 tons.'
The name Sutter's Mill has always been associated with the onset of the California gold rush. Poor Johann Sutter! In essence a good man, not a greedy man, Sutter was grieved rather than thrilled to hear about the golden nuggets in the stream on his property. He was so far out of step that he ultimately landed in deep trouble and came to a sad end.
In 1876, when he was 67 years old, Sutter received a visitor named H. H. Bancroft, a historian who persuaded him to dictate his memoirs about his null and the gold rush. Sutter had also kept a diary. Edwin Gudde, a member of the faculty at the University of California, put all this material together in 1936 and edited it for publication. The result is a charming volume, much of it in Sutter's own words, that provides a vivid picture of every aspect of life, politics, and military activity in the 1840s. The summary that follows in no way does it justice.
Sutter was born in western Switzerland in 1803 and fled his homeland in 1834, hounded by creditors and facing a term in debtor's prison. He took himself to the United States, where, after brief sojourns in New York, Saint Louis, and Santa Fe, he set out for California by way of Oregon, Vancouver, Hawaii, and Sitka in the Aleutians, before proceeding to Yerba Buena, as San Francisco was known in the 1830s. In August 1839, about eighteen months after his departure from Santa Fe, he chose his spot in the Sacramento valley, not far from where the state capitol is located today, after firing a salute from his boats on the Sacramento River that frightened away the deer, elk, timberwolves, and coyotes in the area. Sutter named his domain New Helvetia, and he had to become a Mexican citizen in order to formalize his claim there.
Sutter managed New Helvetia as a small empire, including a bell that rang each morning like reveille at an army post, and insisted on elegant manners by all workers, white and Indian alike. By 1846, there were sixty buildings in New Helvetia, including a bakery, a barracks, a tannery, and a blanket factory, plus twelve thousand head of cattle, over ten thousand sheep, two thousand horses and mules, and fields producing over forty thousand bushels of wheat." Sutter believed he had every chance of becoming the wealthiest man on the Pacific Coast. "My best days were just before the discovery of gold," he recalled."'
The need arose for a large sawmill. As the valley had no timber, Sutter decided to look for a site in the mountains and settled on Coloma on the south fork of the American River. He assigned the job of building the mill to his chief mechanic, James Marshall. On January 24, 1848, Marshall appeared at Sutter's office back at headquarters and asked to see Sutter 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 %? ounces of gold dust in flakes and grains. "I believe this is gold," said Marshall, "but the people at the null laughed at me and called me crazy.""
Sutter took a dim view of the consequences: "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 morn- ing."12 Sutter went up to the mill and told all the working men that they must keep the discovery a secret for six weeks until the flour mill he was building down below could be finished. "But this was not to be. Women and whiskey let the secret out."" Nevertheless, Sutter suc ceeded in keeping the discovery within a limited area around Fort Helvetia for over three months.
On May 4, everything changed when a neighbor who had visited the site ran through the streets of San Francisco with a bottle of gold dust, shouting, "Gold! Gold! Gold from the American River!"14 Within a few weeks, the surrounding area went crazy. Even the recently opened school in San Francisco had to be closed because both teachers and pupils had gone off to the mines.
And so begins Sutter's lament: "All my plans and projects came to naught. One after another, all my people disappeared in the direction of the gold fields.... Only the sick and the crippled remained behind. ... The damage which I suffered in 1848 is inestimable." Squatters settled everywhere: "My property was entirely exposed and at the mercy of the rabble.... I was alone and there was no law."15 The gristmill was never finished; even the stones were stolen, along with cattle and horses, the bells from the fort, hides, and barrels.
Sutter spent years of frustrating efforts in the law courts attempting to reclaim his land from the squatters. After five years in Washington, trying without success to adjudicate his claims, he retired to the little Pennsylvania town of Lititz. In 1880, he was back in Washington, trying for the sixteenth time to have his claim confirmed by Congress, but Congress adjourned without taking action. Two days later, at the age of 77, Sutter was dead. The memory of his sawmill, however, remains very much alive.
When the news of the discovery of Sutter's Mill reached Australia at the end of 1848, a crowd of Australians took off at once across the Pacific to join in the fun. Among them was an English-born man who had scraped together a living for some years in the Wellington district of New South Wales, about 170 miles west of Sydney. His name was Edward Hammond Hargraves, described by the historian Richard Hughes as "a corpulent bull-calf of a man."" After two years of panning and scrambling in California, with nothing to show for his efforts, Hargraves spent his last dollars to head back to Australia. He was still hopeful, however: he took his panning equipment back home with him, because he was struck by the geological similarities between the gold area in California and the Wellington area in Australia.
On February 12, 1851, Hargraves and his guide were poking on horseback along a tributary of the Macquarie River when, as Hargraves described it, he felt "surrounded by gold." Gold came up in four of the first five pans they dipped into the river. Hargraves exclaimed to the guide, "This is a memorable day in the history of New South Wales. I shall be a baronet, you will be knighted, and my old horse will be stuffed, put in a glass case, and sent to the British Museum!"" None of those things happened, but it was indeed a memorable day. As the news spread, Hughes relates, "It was as though a plug had been pulled and the male population of New South Wales had emptied like a cistern, in a rush toward the diggings." One of the Sydney newspapers reported, "A complete mental madness appears to have been seized by almost every member of the community." Within six months, fifty thousand people were digging for gold."It is interesting to note that ice from Thoreau's Walden Pond in Massachusetts, loaded in sawdust, was shipped fifteen thousand miles to Melbourne, unloaded onto carts, and dragged by horses several hundred miles to the goldfields so that the miners who had won out could enjoy cold drinks!"
By November, bags of gold were pouring in a great flood to waiting ships. The first shipment to London at the end of 1851 was 253 ounces. Six months later, weekly shipments were averaging half a ton. Gold was soon turning the crudest workmen into pretentious gentlemen. "It is not what you were, but what you are that is the criterion," as one contemporary observer wrote.20 Miners were heard to say, "We be the aristocracy now and the aristocracy be we."21
As newcomers poured into Australia, they transformed a minorleague penal colony of 45,000 men into what would turn out to be a flourishing and well-diversified nation. Hughes summarizes these turbulent times well: "Gold disturbed the order of Anglo-Australian societyfrom pastoral aristocrat to convict-with shudders of democracy."22 Indeed, the most remarkable consequence of the Australian gold rush was the end of "transportation"-the forcible exile of English criminals to the horrors of Van Diemen's Land on the island of Tasmania. No terror clung any longer to the name of Australia when a man could find the riches of his dreams there. With a quarter of Britain's men clamoring for tickets to Australia, the Governor-General had to admit that "Few English criminals ... would not regard a free passage to the gold-fields ... as a great boon."23 In medieval times, gold had saved lives by serving as ransoms; in nineteenth-century Australia, gold led to the end of the barbarous conditions on Tasmania in December 1852, less than two years after Hargraves felt "surrounded by gold."
A
lthough the rush to the Klondike was dramatic and colorful because of its location and its hostile terrain, the Klondike was relatively unimportant in the long history of gold. In this instance, a couple of fishermen prospecting for salmon in a tributary of the Yukon called the Thron-diuck River-later transformed to Klondike-spotted gold in the waters one August afternoon in 1897. The advance guard of the rush came from Circle City, which was down the Yukon, a bustling center of gold prospectors with the usual complement of dance halls and saloons. It took until the following spring before the first shipments of Klondike gold sailed south to California. Fifteen hundred people in Seattle, including the mayor, sailed north within ten days of the first news.
Before it was all over, one hundred thousand people had set out for Dawson City, less than half of whom were able and willing to hang in during the rugged trip and actually made it to the gold-bearing areas. Four thousand found gold and about four hundred struck it rich. The most abundant areas were few in number and had been pretty much used up by 1900. For all the hoopla, all the gold mined in Alaska since 1880 has amounted to less than 10 percent of the gold mined in all the other parts of the United States over the same period of time.24