California suffered its first painful economic readjustment in the mid-1850s, although the many reasons for it were not readily apparent to the multitudes who refused to believe that the years of frenzied growth couldn’t last forever. After all, wages were high, crops were abundant; the local manufacture of goods had increased, and consumer demand had grown. Yet, steamship revenues were slacking off, and in San Francisco—the economic center of the state—a third of the business houses stood empty.
Gold was the engine that ran the economy, and in past years production of it had seemed inexhaustible: $41 million in 1850, $76 million in 1851, $81 million for the state’s fiscal year July 1852 to June 30, 1853. But then . . . gold production suddenly declined for the fiscal year ended June 1854, and thereafter dropped to $44 million yearly, little more than half of what it had been at its peak in 1852-53.
In the same period, immigration slumped. Although more families were coming as settlers, the numbers of men who had swarmed into California in a mad rush for riches by the thousands, during the first three years after the gold discovery, declined; and the departures of many of those same men, now disillusioned, increased. The state’s net population gain in 1854 was 24,000, but only 6,000 for 1855.
Wages for unskilled labor, down from the exorbitant $16 a day demanded in the early days of gold mania, had settled at $3 per day, as thousands of impoverished miners from the hills came looking for employment in the cities. This wage was still high compared to the $1 per day paid in other parts of America, but barely adequate for covering the inflated costs of living in San Francisco, San Jose, Sacramento, Marysville, Stockton, or any of the newer towns springing into existence. Real estate prices, which had rocketed, now fell to half their previous values—but mortgages, some with interest as high as 36 percent per year, remained as contracted obligations.
California’s geographic isolation, and the absence of coast-to-coast telegraph service, contributed to the problem. East coast merchants, rapacious in their designs to profit from the fantastic gold phenomena, sent shiploads—on speculation—of goods of all descriptions. Commodity prices surged or fell wildly. Insufficient storage facilities, market gluts when several ships came into port simultaneously, and the interruption of shipments and travel to the mines caused by rain or snow played their part. Tons of goods were auctioned off for next to nothing, or thrown down in the streets of San Francisco as infrastructure for walks and crossings. Ruin spread and so did confusion. The crowning disaster was the failure of the prestigious Page, Bacon and Company Bank in February 1855, when their assets in real estate shrunk to insignificant proportions.
The financial crisis righted itself in the next decade. Although gold continued to be a major economic factor for many more years, the Golden Bubble had burst; the turbulent days of the Gold Rush were over.