Gold Rushes

Gold Rushes

Nineteenth-century gold discoveries sparked gold rushes—manias that rival, if not eclipse, the major speculative crazes that periodically rock financial markets. England adopted the gold standard following the Napoleonic Wars, and the United States was on a de facto gold standard after 1834. The discovery of gold in California in 1848 and in Australia in 1851 increased the world’s monetary gold reserves from 144 million pounds sterling in 1851 to 376 million pounds sterling in 1861, a increase of 161 percent over a 10-year period. The gold discoveries enabled the United States to become an official gold standard country, and supplied the monetary reserves for the world to adopt the gold standard in the last quarter of the nineteenth century. Following the gold discoveries, a silver monetary standard became the mark of a low-income country.

On 4 January 1848 James W. Marshal found gold on land in California owned by a Swiss man named Sutter. The discovery occurred nine days before the United States signed a treaty with Mexico making California, New Mexico, Arizona, Nevada, and Utah part of United States territory. The secret soon leaked out—not in time to prevent the signing of the treaty—and gold fever infected the residents of San Francisco and Monterey, most of whom went straight to the gold mines, leaving their houses empty. Workers left employers and employers decided to join their workers mining for gold. Soldiers deserted and ship captains were afraid to make port for fear that sailors would leave for the gold mines. Some ships lay stranded in harbors, deserted by sailors who took up prospecting. The population of California had increased to 92,560 by June 1850, a sixfold increase. By November 1852 the population stood at 269,000 and by 1856 the population had topped half a million. Wages at unheard-of levels lured immigrants, who were content to leave the actual mining to others and take jobs as cooks or fill other skilled positions. Of course, the price of life’s necessities also soared.

The repercussions of the Australian gold discoveries were a bit mild compared to the California experience. An emigrant who had already prospected in California began in 1851 searching for gold in the Northern Bathurst region of Australia, an area geologists believed to contain gold. Gold was discovered, but the mines were scattered, a factor that—coupled with a well-established sheep industry—blunted the demographic effects of the strike.

Something of the effect of these gold discoveries can be gleaned from the words of Karl Marx, who in 1859 mentioned in the preface to his Contribution to the Critique of Political Economy that the gold discoveries were a factor encouraging him to continue his studies of capitalism. He wrote:

The enormous material on the history of political economy which is accumulated in the British Museum; the favorable view which London offers for the observation of bourgeois society; finally, the new stage of development upon which the latter seemed to have entered with the discovery of gold in California and Australia, led me to the decision to resume my studies from the very beginning and work up critically new material.

(Vilar, 1976)

The late 1890s saw another round of gold discoveries. America’s monetary gold stock more than doubled between 1890 and 1900, thanks to discoveries in Alaska and northeast Canada, South Africa, and Australia. A new cyanide process for extracting gold from low-grade ores also added to gold production.

In 1896 gold was discovered in the Klondike area of Canada, along the Yukon River, on a scale comparable to the California gold discoveries. Twelve dollars worth of gold could be separated in a dish full of sand. Thirty thousand prospectors, crossing a mountain range in Arctic conditions, arrived after a heroic trial of endurance that could match the hardships of any expedition or human migration in history. Dawson City was born, where miners held out against disease and starvation, and salt fetched its weight in gold. Gold was found in other provinces, and Canada became the world’s third-largest gold producer.

Under the gold standard a shortage of monetary gold stocks led to falling prices between 1875 and 1895, making gold that much more valuable. As prices fell the scramble for gold increased in intensity. Gold discoveries eased monetary tightness, allowing prices to rise, reducing the value of gold and the intensity of the search for gold.