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January 24 is Gold’s Birthday in America

By Gary Alexander January 24, 2016

On January 24, 1848, James Marshall discovered gold on John Sutter’s mill, at the junction of the American and Sacramento rivers in California.  Alas, Sutter and Marshall were unable to profit from the gold they found after thousands of 49ers filled their land, making claims.  Both men died in poverty.

Gold fever was not born in America, or even in Europe. Gold is the first element mentioned in the Bible (Genesis 2), where it is the centerpiece in the Garden of Eden.  Gold is also the last element mentioned in the Bible (Revelation 21), in which the heavenly city is painted entirely in gold.  Gold was used by rulers to amass stores wealth as far back as 4000 BC, by the Egyptians.  Gold was a universal symbol of wealth in ancient civilizations far removed from each other. In Greek mythology, Jason and his Argonauts sought gold to establish their dynasty. A world away, Inca palaces in the New World were bathed in gold as the symbol of royalty.  These rulers never met each other, but they knew gold was the symbol of royalty.

Columbus sailed west from Spain in search of gold, as did most of the explorers in his wake. Many of them searched for legendary cities made of gold. Our Constitution stipulates that states may only use gold or silver when minting coins. That formula also held true for our first national coins minted in 1792, all the way to 1934 (for gold) and 1965 (for silver). We like to think we have outgrown “the barbarous relic” (John Maynard Keynes’ term for gold) but we still talk of “gold medals” as the pinnacle of achievement.

The total U.S. production of gold was only 43,000 ounces in 1847, and most of that was found as a by-product of base metal mining.  Under the gold standard, the monetary history of the young nation, to a great extent, was a story of deflationary panics interrupted by inflationary gold rushes.  The panic of 1837 lasted nearly a decade. It was ended by the Mexican War and the California Gold Rush.  1848 saw a 1,000% rise in new gold, to 484,000 ounces.  That total quadrupled in 1849 to 1,935,000 ounces, and it peaked in 1853, at 3,144,000 ounces. This sudden influx of gold brought prosperity, but it also brought inflation and bigger government.  Federal revenues in 1844 were $29 million.  A decade later, in 1854, they were $73 million, up 151%. (The federal government spends $73 million every 10 minutes now.)

It is well-known that the Gold Rush of 1849 brought many Americans west, laying the foundation for the Statehood of California and U.S. domination of the West Coast in the 1850s.  About 100,000 able-bodied male Americans answered the gold call in 1849.  Another 90,000 made the difficult trek West in 1850. This represented about 1% of all Americans in the 1850 Census, and since they were mostly adult males, the Argonauts comprised about 3% of all adult American males heading west via three very dangerous routes – via disease-ridden Panama, the dangerous Cape or the long and dangerous overland route.  (After California became a state in 1850, its first official census showed that 92% of its population was male.)

The foreign army was larger: Over 2.5 million immigrants came to America in the 1850s.  Nearly a million came from German states.  Gold also lured 66,000 Chinese and 86,000 Canadians to California and the Northwest.   Most failed to find gold and had to form new businesses or explore new lands to settle, mostly in the Pacific Northwest.  Seattle was founded in 1851 as “New York Alki” (“we’ll be as big as New York, bye and bye”). The settlers later named it after a misspelling of a native chief, Sealth.

The financial Panic of 1857 was caused in part by the September 1857 sinking of the SS Central America, which was weighed down by tons of newly-minted California gold coins.  The eastern merchants were awaiting that gold to fund their overdrawn accounts, but that gold was lost (for 130 years anyway, until the ship was found and the coins were rescued), fueling a deflationary panic among the Eastern banks.

Another gold rush took place in the Northwest in 1858, the year Oregon became the 33rd state (while Washington remained a territory for another 30 years, until 1889).  This event, like the Klondike rush to come, lured many California settlers, frustrated at the lack of gold in that region, to the Pacific Northwest.

Very little gold was found in 1858, so many broke Argonauts couldn’t afford the fare back to California.  They stopped in the San Juan Islands – my current home base – and squatted on established British farms.  In June 1859, tensions between a growing number of American settlers and the Hudson’s Bay Company peaked when Lyman Cutler, an American settler on San Juan Island, killed a Hudson Bay-owned pig that was rooting for potatoes in his garden. When British authorities attempted to arrest Cutler, they were met by armed Americans. Both nations responded by sending troops to the island, including future Civil War general George Pickett, ushering in 12 years of joint military occupation. Not a shot was fired except the initial pig kill, so it was called The Pig War, and it was decided in favor of America by a German Kaisar.

“[A] growing army of gold-seekers streamed through the Puget Sound country on their way to the Thompson and Fraser Rivers, scenes of the latest gold discoveries.  Estimates are that upwards of 100,000 hopeful Argonauts came north in that summer of 1858.… In a few months the gold rush of 1858 provided a fizzle and traffic through the islands began flowing southward again; and Indians or no, some who drifted down to the San Juans, grumbling over the ‘Frazer River humbug’ decided to stay – either because they were genuinely attracted to the islands, or because they were too discouraged, or broke, to go further.”

– Pig War Islands, p. 45

Similar Gold Panics Struck in 1894, 1934 and 1974-80

 By the 1890s, the nation was badly in need of more gold. On January 24, 1894 – the 45th anniversary of the California gold discovery – the Treasury’s gold reserve dipped dangerously below $100 million, the warning bell for the upcoming Panic of 1894.  Wall Street investment banks underwrote a $50 million issue of gold bonds, selling them to the public and restocking gold in the Treasury back to $107 million.  Later in 1894, another $50 million bond issue was underwritten by Drexel Morgan, but then, on January 24, 1895 – there’s that date again – gold reserves hit a low of $68 million, then $45 million the next week.

While the nation was in the midst of this looming financial Panic and gold shortage, the Democratic presidential hopeful William Jennings Bryan warned the nation against crucifixion on a cross of gold, at the Chicago Democratic convention of July, 1896.  The next month (August 12, 1896), however, the first big vein of gold was discovered in the Klondike, effectively ending the Panic and the gold shortage. Once again, Seattle became the favorite jumping-off point for gold miners, boosting that city’s economy.

Forty years later, on January 30, 1934, Congress passed the Gold Reserve Act, giving President Roosevelt a birthday present – the full authority to set the new price of gold.  The next day, he unilaterally raised the price of gold 69%, from $20.67 to $35.00 per ounce, thereby devaluing the dollar 41%. The previous May, FDR had nationalized circulating gold, including coins, bullion and gold certificates.  For the next 41 years, it was a crime punishable by up to 10 years in prison to hold pieces of inert gold metal.

On January 21, 1974, gold hit a record $161.31 and silver hit a record $3.97 an ounce in London, but Americans could not legally buy the metal until the last day of the year, when gold had risen to over $190.  During the course of the 1970s, gold rose from $35 in mid-1971 to $850 in early 1980, a 2,329% gain.

Gary Alexander’s grandparents moved to Seattle in 1909, the year of the Alaska Yukon and Pacific (AYP) exposition. His parents and uncles lived in Seattle and the San Juan Islands.  In this way, his family destiny was shaped by the discovery of gold in California (1848), British Columbia (1858) and the Yukon (1896). Later on, Gary was managing editor of Jim Blanchard’s “Gold Newsletter” from 1983 to 1989.