Gold Frenzy Inflation

Portsmouth Square, San Francisco

For certain, those thousands of young men infected with gold fever suffered from culture shock when they swarmed into California in 1849. Everything, even the simplest item, had an exorbitant price tag compared to the cost of the same article “back in the States.” Furthermore, they were in need of everything: food, blankets, clothing, fry pans and coffee pots, mining tools. Transportation to the gold fields.

·  They needed boots to replace the pair(s) they had worn out on the overland trek west. Coarse work boots, available on the east coast for $3 to $15 a pair, cost $30 to $40 per pair in California.

·  Supplies of mining tools were scarce; the demand for them great. A year ago, the simple pans gold miners needed had cost 20 cents, but now sold for $8.00 apiece.

  ·  Stage transportation service (notwithstanding the absence of genuine stagecoaches) began in July 1849, from Sacramento City to Coloma and Mormon Island, a distance of some 40 miles. The cost? Thirty dollars each way, even though the conveyance was a rude open wagon, which passengers sometimes had to help push over rough spots on the road.

The harsh, though localized, financial predicament arose in an era when ordinary laborers in America earned $1.00 a day, six days a week, or about $313 a year. But what could they do? Eighteen forty-nine was the first year, after the electrifying gold discovery of ’48, that treasure-seekers from America’s eastern seaboard were able to travel overland, though plenty came by sea, too. If 1848 had drawn an estimated 10,000 prospectors from around the Pacific Rim, 1849 drew tens of thousands from the US and western Europe. 

A hoard had invaded California, a recent American territorial acquisition, formerly a sparsely-populated, remote province of Mexico. It had no industrial production. The California system was a barter economy—although that was certainly changing now, with abundant gold in circulation. Its citizens kept kitchen gardens and fruit orchards for their own use, but there was no commercial-scale agriculture. Moreover, bytthe fall of 1848, the energy and ambition of the miners had expanded the known gold regions a distance of 400 miles, from the Trinity River in the north to the Tuolumne River in the south. Meanwhile, certain foodstuffs and other items were only available from the merchant ships that cruised the coastline trading for cowhides and tallow, or were specially ordered from Hawaii—the world’s international marketplace—thirty days away by ship. 

·  The cost of eggs rose from $1, to $2, to $3 per egg ... when they could be had.

·  Potatoes, available for one-half a cent per pound in New York, cost one whole dollar a pound in the mines and elsewhere. Dried apples, which cost 4 cents per pound in New York, went for $2 per pound on the Pacific Coast. In the mines, a packet of saleratus (a leavening agent for biscuits) might cost $6, and a bottle of vinegar might bring $5. Fresh fruit or vegetables, seldom available, were extravagantly priced.

·  A small loaf of bread, which might cost 4 to 6 cents in the Atlantic States, sold for 50 cents or more in the new El Dorado.

·  The price of coffee—in those days sold as raw green beans the user had to roast and grind themselves—soared to $40 per pound, or about $1,200 in 21st century dollars.

Services charged inflated prices in proportion. When the mining season ended and miners moved into the cities for the winter, thirty dollars a week, or $8 per day, was the price of “good” boarding; that is, a bedroom, basic housekeeping services, and two meals a day. The cost of laundry was so high—$12 to $20 for washing a dozen items, whether each item in the dozen was large or small—that it was just as sensible to throw certain soiled garments away and buy new ones. Freight charges of $40 and more per ton from San Francisco to Sacramento City exceeded the cost of shipping the same goods from New York to the Pacific.

No doubt those young men, who had come to California driven by wild expectations of near-instantaneous wealth, regularly and anxiously re-counted the coins in their pockets. Most of them had mortgaged homes and/or farms, borrowed from relatives, or spent their life savings, to take advantage of an opportunity they never dreamed possible. The majority of them, on average, mined $10 - $15 dollars a day. A lucky few realized a bonanza strike: In the aggregate, ten million in gold was extracted from the ground in 1849.

California experienced a classic supply-demand crisis in 1849. The merchants were the ones who benefited, able to charge whatever they wanted, racking up 300 to 500 percent in profits. But by the end of 1851, the inflationary situation had eased. Small farms were producing fresh vegetables at moderate prices; millers had erected more, and more efficient, mills to grind flour. Other entrepreneurs established manufacturing facilities, such as iron foundries and steam-engine works. By 1853, the glut of clothing and other consumer goods that had been shipped westward—on sheer speculation—by east coast merchants, finally exceeded the demand, reducing those prices.  

Other circumstances were simultaneously changing, too. A number of factors contributed to California’s first economic depression in the 1850s, a painful economic readjustment when the years of wild speculation and inflation coincident with the flush days in the gold mines came to an end.