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Robert Whaples, Wake Forest University

The gold rush beginning in 1849 brought a flood of workers to California and played an important role in integrating California’s economy into that of the eastern United States.

The California Gold Rush began with the discovery of significant gold deposits near Sacramento in 1848. As accounts of the discovery spread, residents of the thinly-populated West Coast poured into the gold fields and migrants swarmed in from the Far East, Mexico, South America, and the East Coast – which provided about 80 percent of the newcomers. The rush occurred because the gold mining industry was very labor intensive and was easy to enter due to modest capital requirements and laws which made acquiring a claim stake fairly simple. Many easterners went overland in wagon trains through undeveloped territory – a trip that took from April or May until September and cost around $200 at a time when laborers earned somewhat less than one dollar per day in the East. Others came by ship – either sailing around South America or sailing to Panama, crossing the isthmus, and then boarding another ship to San Francisco. The trip via Central America took six to eight weeks, but was very dangerous due to disease, an issue that abated when Cornelius Vanderbilt forged a path through Nicaragua in 1851 and William Henry Aspinwall completed a railroad across the Panamian isthmus in 1855. Sailing around Cape Horn could take from three to eight months depending on winds. After the arduous trip miners faced shockingly high prices for food, supplies, rent and other goods and services and endured mining camps that lacked basic sanitation.

Despite these costs, the population of California (excluding non-Christianized Indians) soared from about eight thousand on the eve of the rush to 93,000 – 77 percent of whom were males aged fifteen to forty – in 1850. By 1852, population reached about 250,000 – more than one percent of the nation’s population had moved to California in just four years. Although the rush slowed down after 1850, California’s population reached 380,000 by 1860.

In 1850 there were 624 miners for every 1000 people in the state, but many soon realized that they could do just as well or better by supplying services to miners. San Francisco developed most rapidly. As a port in close proximity to the gold fields it became a booming market where imported supplies were unloaded and sold to miners.

Because of the mining opportunities the demand for labor in California was the highest in the world and the supply of common labor in other jobs fell as workers turned to mining. This combination, according to the estimates of Robert Margo (2000), pushed up real (i.e. inflation-adjusted) wages of common laborers in California by an astonishing 515 percent between late 1847 and 1849. As the influx of settlers continued, real wages fell but even after the arrival of hundreds of thousands in 1860 laborers’ wages were almost four times higher than they had originally been. The transitory shock of the gold rush, Margo concludes, had integrated California into the U.S. economy. These real wages could not have remained so high – well above the national average – without the existence of a range of untapped natural resources in California (including fertile land) and the simultaneous influx of investment capital – including funds to build the first transcontinental railroad to California in the 1860s.

The early mines were placer deposits of pure gold mixed with sand and gravel and could be recovered by agitating water and debris in a pan. As these deposits were exhausted attention turned to lode mining, which required capital-intensive industrial methods for crushing the ore and the adoption of new technologies like compressed-air drills and chemical processes – especially the cyanide process – which eventually allowed recovery of gold from low-grade ores.

From 1792 until 1847 cumulative U.S. production of gold was only about 37 tons. California’s production in 1849 alone exceeded this figure, and annual production from 1848 to 1857 averaged 76 tons. During this decade California’s gold production equaled $550 million – about 1.8% of American GDP.

The two other gold rushes of the nineteenth century that rival California’s in size and impact began in Australia in 1851 and South Africa in 1886. (Smaller gold rushes include those in British Columbia (1858), Nevada and Colorado (1859), South Dakota (1876) and Canada’s Yukon (1898).) The Australian gold rush triggered a tripling of population to 1.1 million in the following ten years. This gold rush seems to have reduced Australia’s industrialization – at least in the short term – because high returns from mining pulled workers out of other sectors. Australians began importing goods which they had previously manufactured.

An additional impact of gold rushes of the nineteenth century was on prices. Because precious metals were at the base of the monetary system, rushes increased the money supply which resulted in inflation. Soaring gold output from the California and Australia gold rushes is linked with a thirty percent increase in wholesale prices between 1850 and 1855. Likewise, right at the end of the nineteenth century a surge in gold production reversed a decades-long deflationary trend and is often credited with aiding indebted farmers and helping to end the Populist Party’s strength and its call for a bimetallic (gold and silver) money standard.

Eichengreen, Barry and Ian McLean. “The Supply of Gold under the Pre-1914 Gold Standard.” Economic History Review 47, no. 2 (1994): 288-309.

Maddock, Rodney and Ian McLean. “Supply-Side Shocks: The Case of Australian Gold.” Journal of Economic History 44, no. 4 (1984): 1047-67.

Robert A. Margo, Wages and Labor Markets in the United States, 1820-1860. Chicago: University of Chicago Press, 2000.

Citation: Whaples, Robert. “California Gold Rush”. EH.Net Encyclopedia, edited by Robert Whaples. March 16, 2008. URL https://eh.net/encyclopedia/california-gold-rush/