5.3: Economic Growth in a Time of National Crisis

As the hundreds of gold seekers in early 1848 became tens of thousands in 1849 and after, the vast majority hoped to make their fortunes by finding gold. Some, however, sought wealth by selling goods to the miners or by investing in other ventures. Thus, the Gold Rush prompted the rapid development of other aspects of the new state’s economy, from merchandising to agriculture to lumbering. Civil war in 1861 failed to slow the state’s growth, and the new Republican Party quickly took action to subsidize a railroad to tie California to the Union. These developments, like the military and political events of the period, also helped to integrate California more closely with the rest of the nation.

The Transformation of Mining

The first miners found their gold by placer mining—panning or using sluices. The easily available gold was soon gone, however. By 1852 or so, it was often Chinese miners who remained to mine the less productive diggings, rework tailings, and work for wages in the increasingly capital-intensive mining industry. By 1860, 35,000 Chinese immigrants had come to California, most from Guangdong province in southern China, a region that had suffered from war with Great Britain in the early 1840s, from economic depression and internal strife in the 1850s, then again from war with Britain and France in the late 1850s. By 1860, nearly three-quarters of all Chinese Californians worked in mining, accounting for nearly a third of all those making their living by mining in California. By 1870, more than half of California’s miners were Chinese.

New forms of mining were also coming into use, including hydraulic mining (see p. 116) and quartz mining. By 1870, quartz mining produced 42 percent of all gold mined in California. Quartz mining involved digging quartz out of rock, often through the sinking of shafts into the face of a mountain, pulverizing the quartz, and then extracting the gold through chemical reactions. Like hydraulic mining, quartz mining was expensive, involving deep-shaft mines and powerful stamping mills to crush the quartz. By 1858, California’s stamping mills alone were estimated to be worth more than $3 million. Within another 10 years, some mine shafts had reached more than 1000 feet in length, requiring elaborate timbering to stabilize the shafts, artificial lighting, cable systems to haul out the ore, and sometimes powerful air pumps to force fresh air to the depths.

Throughout much of the 1850s, California had produced about $50 million in gold each year, even more in 1851 and 1852, with 1852 the high point of more than $80 million (equivalent in purchasing power to more than $2 billion in 2010). Gold production declined in the 1860s, to about $24 million in 1864 and some $7million by 1870, but gold continued to be mined for many years afterward. Some gold seekers in the 1880s and 1890s showed great ingenuity. They built dredging boats that plied the rivers of the Central Valley, scooping up the sand from the bottom and separating out whatever gold it contained. Other gold seekers even diverted the course of rivers, enabling them to mine the riverbed directly.

By the early 1860s, many miners had abandoned California for the newest mining region—the Washoe region of Nevada, 20 miles east of the California border. There, in 1859, gold seekers found a silver bonanza. The discovery was called the Comstock Lode, after Henry Comstock, who had established an early claim. Just as the news of gold had spurred a great rush of prospectors into the Sierra Nevada foothills in 1848 and 1849, so news of silver discoveries brought thousands into the dry mountains east of Lake Tahoe. But Comstock silver, like gold quartz, required the expensive, up-to-date technology of deep-shaft mining and crushing mills.

Deep-shaft mining, hydraulic mining, and crushing mills necessitated capital investment on a massive scale, transforming mining into a big business. Companies sought to raise the necessary capital by selling shares (stock) in the company. In 1862, the San Francisco Stock Exchange opened to formalize the process of selling stock, nearly all of it in mining companies, many in the Washoe. Within a year, nearly 3000 mining companies were issuing stock as a way to raise capital. Speculation in mining stocks soon came to rival mining as a source of quick wealth—or financial disaster.

Most of the wealth of the Washoe, like that of California mines, flowed as if through a giant funnel to the banks in San Francisco. This made the economic development of California unlike that in almost any part of the United States to that time. As Americans had moved west with dreams of economic development—farming, ranching, lumbering, mining—their enterprises had usually been dependent on capital from more developed areas to the east and across the Atlantic. Many California enterprises were also dependent on eastern and foreign capital, but the enormous amount of gold and silver meant that California’s economic development was different from most other frontier experiences—it soon became, as one historian aptly put it, “a self-financing frontier.”

Economic Diversification

The large numbers of gold seekers in 1849 and later stimulated a wide range of other economic developments, for they needed shirts and biscuits, tents and transportation. From the beginning, some made their fortunes by mining the miners—trading hardware, dry goods, and food for gold dust. One woman, in 1852, claimed to have earned $11,000 by baking pies in a skillet over a campfire and selling them to hungry miners. Levi Strauss earned lasting fame when he realized that trousers made of canvas would hold up better than those worn by most miners. By 1870, the durability of Levi’s pants—soon dubbed Levis—had made their inventor a millionaire.

The miners were hungry for meat, and the ranchers of southern California rapidly expanded their cattle herds to meet the huge demand. By 1860, California stood third among the states in the number of cattle being raised for meat. Cattle raising expanded too fast, however, and supply soon exceeded demand. During the extremely wet winter of 1861 to 1862, many cattle drowned in flooding in the San Joaquin Valley, and more died during a drought in 1863 and 1864. The number of beef cattle fell by half between 1860 and 1870.

Production of other agricultural goods also expanded. During the early 1850s, flour had been the largest single import into California. By the late 1850s, Californians were producing a surplus of wheat and flour and began to export it. In 1860, California stood second among the states in winemaking and by 1870 held first place, producing well over half of the nation’s wine. Sheep raising also boomed, and by 1870 California ranked second in the production of wool.

Much of this early agricultural development was not in the central valleys that eventually became crucial to California agriculture. Most of the leading wheat-growing counties in 1860 were around San Francisco Bay, and the leading wool-producing and cattle-raising counties were mostly along the coast between Monterey and Los Angeles. Los Angeles was the leading wineproducing county in 1860. By then, however, Agoston Haraszthy, an immigrant from Hungary, had begun to experiment with viticulture (the growing of grapes for winemaking) in the Sonoma Valley. In 1861, he traveled to Europe and returned with 100,000 grapevine cuttings representing more than 300 varietals.

California agriculture was distinctive by the size of its farms and ranches, a holdover in part from the days of the huge ranchos. Throughout the 1850s and 1860s, the average farm in California was in excess of 450 acres, more than double the national average.

The Gold Rush and the expansion of agriculture stimulated the development of manufacturing. Californians developed new forms of mining equipment, some of which were among the most technologically sophisticated in the world. By the 1860s, foundries and machine shops in the Bay Area, especially in San Francisco, were producing not only technologically advanced mining equipment but also farm machinery, ships, and locomotives. As wheat farming expanded, so did flour milling. By 1870, flour ranked as the state’s most valuable single product. Mining, agriculture, and the growing cities all needed construction material, and lumbering soon became an important industry. Loggers quickly cut the redwoods along the central coast and began to move into the larger stands of trees along the northern coast. By the mid- 1850s, Humboldt County was emerging as a major source of lumber.

San Francisco rapidly developed as a commercial center, based on its port and on the federal customhouse and mint. By 1860, the city had become the nation’s sixth largest port and a major center for banking and finance.

Transportation

Throughout the 1850s and early 1860s, California remained remote from the eastern half of the nation, accessible only by difficult and dangerous routes. The major overland routes soon became well-beaten roads. By the late 1850s, the firm of Russell, Majors, and Waddell dominated freighting along the Platte River route to Salt Lake City and the Pacific coast, eventually operating 3,500 wagons drawn by 40,000 oxen. When traveled by oxen, however, the overland route could occupy most of a summer. When Congress offered to subsidize any company that could deliver mail between the Mississippi River and San Francisco in 25 days or less, Butterfield Overland Mail secured the subsidy and in 1858 ran its first stagecoaches along a southern route, carrying both mail and up to nine passengers on a bouncing, three-week-long journey. Eventually, a few other stage routes were added, also with federal subsidies for carrying mail. Though faster than ox trains, stagecoaches were prohibitively expensive for most. Freighting operations and stagecoaches required regular stations along the route, staffed by company agents, where stagecoaches could change their teams and travelers could get a meal. In 1860, Russell, Majors, and Waddell launched the Pony Express, a mail delivery system based on relays of individual riders, each of whom was to ride at full speed, with changes of horses every 10 miles and changes of riders every 70 miles. The first Pony Express riders left San Francisco and St. Joseph, Missouri, on April 3, 1860, and the mail arrived at the other end 10 days later. This fast mail service became obsolete 18 months later, when the first transcontinental telegraph line was completed.

The other route to California was by sea, either around Cape Horn, at the tip of South America, or to Panama, over the isthmus, and then up the Pacific coast. Fast clipper ships could make the journey from New York around Cape Horn to San Francisco in 130 days or less. The trip over the isthmus was faster. By the late 1850s, a rickety railroad was completed over the isthmus, and the trip to New York via Panama took about the same time as the Butterfield stage and its rail connections to the Atlantic coast. Nearly everyone agreed that only a direct railroad connection could improve transportation between California and the eastern half of the nation.

Nearly everyone agreed, too, that the cost of building a rail route was so astronomical that only massive federal subsidies could tempt entrepreneurs to undertake the construction. Such agreement, however, ended over the proper route for the rails. Stephen Douglas, senator from Illinois, led a group who wanted to connect San Francisco to Chicago. Senator Thomas Hart Benton of Missouri, father-in-law of John Frémont, thundered his support for a route west from St. Louis. Southerners pointed to New Orleans as the logical terminus for a route through Texas and New Mexico Territory. Gwin tried to satisfy everyone by proposing a railroad with three eastern branches, for Chicago, St. Louis, and New Orleans, but the costs were prohibitive. The issue remained deadlocked throughout the 1850s.

Tying Together the Union With Iron

When Republicans took power in Washington in 1861, they faced secession and then war. As Lincoln and his party raised troops and amassed supplies, Republicans moved quickly to use the power of the federal government to encourage economic growth and development. Among the development measures they passed was the Pacific Railroad Act of 1862.

As the new, Republican Congress assembled late in 1861, Theodore Judah arrived in Washington with plans for a railroad over the Sierra Nevada. Judah’s experience and abilities as an engineer had combined with his enthusiasm for a transcontinental line to attract support from several Sacramento merchants, all Republicans: Leland Stanford, Collis P. Huntington, Mark Hopkins, and Charles Crocker (whose brother, Edwin, was a prominent abolitionist as well as a leading Republican). As merchants, they may have been persuaded less by a vision of a railroad to the east coast than by the prospect of a railroad to the silver-mining regions of Nevada. Regardless of their motives, they joined Judah in mid-1861 and put up the initial capital to create the Central Pacific Railroad Company. By then, Stanford was the Republican candidate for governor.

With crucial support from the California congressional delegation, Judah tirelessly lobbied for federal support. Signed into law on July 1, 1862, the Pacific Railroad Act incorporated the Union Pacific Railroad Company (UP) to build and run a railroad from Nebraska Territory to the western boundary of Nevada, and authorized the Central Pacific Company (CP) to build track to meet the UP. The companies were to receive federal land for their tracks, stations, and other buildings, and, as a subsidy, every other square mile of land for 10 miles (later increased to 20) on each side of the tracks. The remaining land within this checkerboard pattern was to be offered for sale by the federal government at double its usual price, so that the land grant, in the long run, would cost the government almost nothing. Finally, the act provided for a loan of $16,000—later increased substantially—for every mile of track completed.

A symbolic first shovelful of earth was dug early in 1863 by Stanford, now both president of the railroad and governor of the state. Initial preparations got underway that summer. By the fall, however, Judah had fallen out with his partners and returned to the East to seek financial support against them, but he contracted a fever en route and died shortly after reaching New York. Huntington took over as the railroad’s chief lobbyist. Amendments to the

Map \(5.1\) This map shows the route of teh Central Pacific from Sacramento to Promontory Summit, Utah, and also the outer boundaries of the land grant that the company received from the federal government. Land was awarded in a checkerboard pattern, 10 square miles (later increased to 20) for each mile of track completed. Note how long it took for the railroad to be build from Sacramento across the Sierra Nevadas, and then how quickly construction proceeded across Nevada and Utah.

original act in 1864 substantially increased both the amount of land and the amount of loan funds provided by the federal government.

Even with generous subsidies, the CP faced huge difficulties, beginning with finding a sufficient labor force. The Civil War had drained males from the work force, and the lure of Nevada silver took many more. Charles Crocker—in charge of construction—employed a few Chinese laborers as an experiment. The Chinese crews proved to be so capable that Crocker quickly hired more. From then on, the construction crews, including the foremen, were almost all Chinese, though supervisory jobs were held by whites. By mid-1866, 6000 Chinese laborers were at work on CP construction, and their numbers reached nearly 10,000 before the job was done.

The construction crews faced formidable obstacles as they entered the Sierra Nevada. The CP was anxious to build as rapidly as possible, because subsidies were awarded for track actually in place and because the UP was competing for those subsidies. The sooner the CP crews could reach Nevada and begin to build across relatively flat regions, the more of the subsidy would go to the CP. The winters of 1866–1867 and 1867–1868 were severe, but Crocker pushed his crews to work despite the ice and snow. The solid granite of the mountains also slowed progress; one tunnel took an entire year to build, as construction crews chipped out only eight inches of rock per day. In other places, Chinese laborers were lowered down sheer cliffs in baskets to chip away at the rock or to drill holes for blasting powder. Such work was highly dangerous, and many died in falls, explosions, avalanches, and accidents.

Not until June 1868 did the tracks reach Nevada. Though the UP started well after the CP, its initial construction had been through the flatlands of Nebraska and eastern Wyoming. By June 1868, the UP had built twice as many miles of tracks as the CP. Desperate to push their tracks to eastern Utah to capture the business to and from Salt Lake City, the CP partners pushed their crews even harder. In the last year of building through the mountains, the crews completed only 40 miles of track. In 1868, building through Nevada, they completed 362 miles. Competition between the CP and UP grew ever more intense, as both sought to maximize their tracks as a way to maximize their federal subsidies. UP construction crews, by then, were largely Irish, and ethnic rivalry also became frenzied. In the end, however, Crocker’s Chinese crews set the record of 10 miles of track in a single day.

A grand ceremony was organized to dramatize the joining of the Union Pacific and Central Pacific rails at Promontory Summit, Utah, just outside the city of Ogden. On May 10, 1869, two giant locomotives from each line moved forward to face each other. Ceremonial spikes of precious metal from western territories and states were tapped into place, and Stanford used a silver mallet to drive in a final spike of California gold as telegraph lines carried the blows to the nation.

The driving of the golden spike did not unite California with the rest of the nation by rail, as the UP section of the track had some gaps and the Missouri River was still unbridged. Much of the track had been laid so rapidly that it required almost immediate repairs. Nonetheless, the nation celebrated with fireworks and flowery speeches from Boston to San Francisco. The Liberty Bell was rung in Philadelphia. New York City heard a 100-gun salute. The nation, so recently divided by a bloody war, seemed determined to celebrate a new symbolic unity. The long trip between California and the Missouri valley had been cut to six days.