Gold Rush II
Recent experiences parallel the '49ers
by Harold Justman
In the last decade of the 20th century Palo Alto was at the center
of the longest economic expansion in United States history. From
1990 to 2000 the available amount of venture capital rose from $3.5
billion to more than $100 billion. An unimaginable amount of money
was waiting to be invested. The cost of capital was almost zero.
It was as if the California hills were full of gold for the daring
and independent to take.
Was a parallel to these times ever known? Anyone familiar with
California history would say "yes."
Many in Palo Alto would find that their recent experiences are
similar to the experiences of the California '49ers. In 1848 President
Polk said in his State of the Union Address that, "The accounts
of the abundance of gold in that territory are of such extraordinary
character as would scarcely command belief." An unimaginable amount
of gold was waiting for the taking.
In June 1849, Horace Greeley's New York Times sent a 24-year-old
reporter, Bayard Taylor, to San Francisco to report on this new
gold economy. Taylor's observations are available in a book called
"El Dorado." His reports would sound familiar to us today.
Taylor reported that a 15- by 25-foot tent in San Francisco rented
for $40,000 a year (these are unadjusted 1849 dollars). A ranch
owner near San Jose was offered $80,000 for a ranch that he had
purchased for $3,000 shortly before gold was discovered at Sutter's
There was gold to be found even in the streets of San Francisco.
People digging with knives in the streets in front of busy hotels
could gather the gold dust that others had spilled. Every day a
person could gather five dollars' worth of gold dust without leaving
San Francisco. Those who went into the California hills and dug
for gold nuggets became filthy rich.
Taylor reported that with gold in abundance new emigrants to San
Francisco became increasingly active and daring. Action was the
order of the day and activity was the prevailing state of being.
The rashest speculators were the most rewarded.
There were no limitations placed on daring and independent action.
The discovery of gold occurred in a little more than a year after
the treaty of Guadalupe Hidalgo had transferred California from
Mexico to the United States. The generally accepted view was that
every United States citizen had a right to take whatever gold was
in the ground. The United States was, in effect, providing free
gold mines to those who would dig in them. A miner did not have
to buy the land to claim the gold on it. No permits or licenses
were required to dig for gold. There were no fees or taxes to pay
on the gold that one unearthed. The only laws were the ones that
the miners enforced amongst themselves.
At first, there was no state government to regulate the gold economy.
The United States Congress failed to provide a territorial government.
A few bold individuals proposed an election of delegates to form
a convention to draft a state constitution. As a result of that
convention California went from newly captured lands to the 31st
State of the Union without passing through the usual territorial
Taylor reported that the greatest gains were made by those who
ran the gambling tables. Miners fresh from the gold fields with
bags of gold would wager their newfound wealth over and over again
for the chance to double or triple their holdings. The miners confidently
plunged into the gambling houses secure in the belief that if they
lost at games of chance, there was more gold waiting for them in
The miners' irrational exuberance was supported by the fact that
in one year following the discovery of gold, California had attracted
100,000 emigrants and created an extensive commerce with China,
Mexico and Australia. California had become a state of great wealth
Taylor was not so sanguine. He formed the opinion that there would
be a great crash in speculation. But no crash did or could undo
the structural changes in the State of California.
Today California is still attracting people with the prospect of
great wealth. Those who have grown up in California and know her
history understand that California has other attractions. A long
hike in Yosemite, a swim in the Pacific Ocean, a walk in a Redwood
grove, a bike ride in the Foothills, a sunset under the Golden Gate
Bridge, are all priceless. California is called the Golden State
for her sunshine as well as her wealth.
In California, wealth is the best defense for one's lifestyle,
but the best offense is the wisdom to enjoy California's beauty.
Those who enjoy California's natural treasures will never be disappointed
in living here. True Californians will watch with amusement the
occasional gold rush, which is as much of California as her sunshine.
California dreaming is such a way of life.
Harold Justman has lived in Palo Alto since 1964. He has specialized
in real estate law for more than 20 years and is often asked to
lecture on real estate law to attorneys and real estate brokers.
Send questions to Justman care of Palo Alto Weekly, P.O. Box 1610,
Palo Alto, CA 94302.