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Golden Rules: The Origins of California Water Law in the Gold Rush

Author(s):Kanazawa, Mark
Reviewer(s):Allen, Douglas W.

Published by EH.Net (October 2015)

Mark Kanazawa, Golden Rules: The Origins of California Water Law in the Gold Rush. Chicago: University of Chicago Press, 2015. xviii + 351 pp. $55 (cloth), ISBN: 978-0-226-25867-6.

Reviewed for EH.Net by Douglas W. Allen, Department of Economics, Simon Fraser University.

Mark Kanazawa, professor of economics at Carleton College, has been doing yeoman service in the study of water rights for a long time, especially in the context of nineteenth-century California. It is only fitting that he should bring his scholarship together in this well-written book, and explain the symbiotic origins of gold and water rights during the aftermath of the 1849 rush.

An overarching theme of the book is that scholars, particularly institutional economic historians, have had a general and broad explanation of the evolution of Californian gold and water rights during the 1850s, but that this general understanding cannot explain many specific historical details.  The major contribution of his book, therefore, is to provide a narrative of these details and to show how the evolution of rights (particularly water rights) contain an economic logic.  At the end of the day, Kanazawa’s more finely told story is generally consistent with the broad economic understanding.  Kanazawa’s contribution is to provide a detailed quantitative and qualitative account of events, and to link these events together in a cogent manner.

A crude reckoning would divide the book into four parts.  Chapter 2 provides an institutional economic framework with which Kanazawa navigates the historical details. Chapters 3 and 4 examine the history and evolution of mining, water, and ditching technologies from the discovery of gold in 1849 to about 1865. Chapters 5 and 6 examine the development of rights, both informally through mining camp agreements and formally through court decisions.  Finally, chapters 7 to 9 examine the origins of legal prior appropriation for water and the subsequent caveats based on problems of water degradation and bursting dams.

For those unfamiliar with gold mining, gold rushes, and the California gold rush, chapters 3 and 4 provide an excellent survey.   Kanazawa has deep knowledge and respect for presenting the material in a complete way. These are chapters of context, however, and scholars in this field will find little they don’t already know.

Things start to change with Kanazawa’s discussion of mining camp regulations and court decisions.  The general story is familiar, but Kanazawa provides a level of detail not found elsewhere. He notes, for example, that miners were digging on public lands, and were legally trespassers.  This fact plays a role in how the state was to deal with them, how miners dealt with private landowners, and how they dealt with each other.  Kanazawa examines the Mexican “alcalde” legal system that carried over and acted as an early constraint on behavior. Most significantly, he recognizes and examines the interaction of mining norms and codes with the decisions made by the state courts.  It is an interesting discussion, and the more Kanazawa scratches the surface, the more complications he finds.

Kanazawa’s best scholarship is demonstrated in the final three chapters where he goes to great lengths to describe the evolution of water rights from open access to first possession with restrictions.  He examines much of the case law in light of transaction costs that arise from establishing and maintaining rights to water in arid areas at a time when measuring water and water quality was extremely difficult.

Scholars interested in gold or water rights will find much to like in Kanazawa’s detailed analysis.  Economists and historians only familiar with the conventional Demsetzian understanding of the movement towards private rights in the context of increasing scarcity, and with only a peripheral interest in gold rushes, will probably find this book too much work for the payoff. I say this because of an irony in the book: the general Demsetz story still holds after an analysis of the legal, historical, and technical details.

Which brings me back to Chapter 2, the theoretical framework of the book. Kanazawa, in my opinion, is correct in viewing the evolution of rights as a process of maximizing wealth net of transaction costs.  In the simple Demsetz version of this hypothesis, transaction costs are generally treated as some simple monotonic cost that increases with the value of an asset. Hence, increases in asset value eventually lead to some form of private property, and that’s the end of the story.  However, in reality, transaction costs are seldom monotonic in asset value, nor are they independent of changing technologies.

Generally speaking, from 1849 to 1860, the gold fields were a place of increasing scarcity of gold-bearing land and water.  As miners moved from the easy pickings to dry areas far from water, and as more miners continued to move in, technologies changed.  These advances increased the gross values of land and water, but there were often associated increases in transaction costs. For example, dams and ditches allowed for the movement of water to arid lands, increasing their value, but they also broke, caused reductions in water quality, and often hurt downstream users.  Not surprisingly then, given the variety of different circumstances, water rights grew in complexity over time.  Kanazawa argues quite convincingly that this complexity has an economic logic, namely the rights were designed to maximize the total wealth subject to the specific transaction cost.  In this respect, this book is yet another detailed study confirming the general institutional model started by Coase fifty years ago.

I thoroughly enjoyed this book. Like Kanazawa, I’m two generations removed from an ancestor who rushed into the Klondike, and I grew up with stories of the rush for gold.  Golden Rules, for me, was a source of leisurely consumption.

Douglas Allen has written extensively on the economics of transaction costs, and has applied this methodology to contract choice and information sharing in the Klondike gold rush.  Recently he published The Institutional Revolution: Measurement and the Economic Emergence of the Modern World (University of Chicago Press, 2012).  He is the Burnaby Mountain Professor of Economics at Simon Fraser University, just outside of Vancouver.

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Subject(s):Agriculture, Natural Resources, and Extractive Industries
Government, Law and Regulation, Public Finance
Markets and Institutions
Geographic Area(s):North America
Time Period(s):19th Century