The Gold Rush out West and its Economic Effects
The California Gold Rush is today’s Bullion TP topic as it had a material effect on both the gold supply in the United States and the monetary policy as well. In 1848 a man named James Marshall discovered flakes of gold in the American river in the Sacramento valley. James Marshall was the contractor for John Sutter in constructing a mill on his farm. The two men attempted to keep the find secret but news of it quickly spread. The price of gold in 1848 was pegged at $18.93.
The first arrivals to the area to prospect for gold were from the California cities. Businesses quickly developed around the prospectors needs and in many cases these businesses did better than most of the prospectors themselves. By 1849, the rest of the United States had heard of the gold discoveries in California and over 300,000 people migrated to the State.
While most of the prospectors did not get fabulously wealthy prospecting for gold, the men who typically did the best were those who aggregated claims purchased from other prospectors. These entrepreneurs then utilized new technologies and processes for mining to achieve more output with less input. Panning itself was inefficient when working large claims and did not yield a large amount of gold output. Placer mining and then diverting a river into a sluice were the initial tactics utilized. Hydraulic gold mining that knocked apart ancient riverbeds to find large deposits produced over $15 billion in gold based on 2020 prices.
The California Gold Rush resulted in one of the longest running economic expansions in U.S. history, lasting from 1841–1856. The majority of this economic growth came through the transportation of goods and people and related materials needed to accomplish this as the Gold Rush morphed into the development of agriculture and resource extraction in California.
Analysis: The California Gold Rush led to innovation in gold extraction, the mass settlement of California, one of the longest running economic expansions in U.S. history, and produced vast amounts of wealth badly needed to help develop a growing nation. While not technically on the gold standard at the time, gold was a primary medium of exchange at time, so the expansion of more gold in the money supply was overall a net positive for the United States and for California.
