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 Mill.

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 stage.

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 hills.

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 and power.

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.