Pike’s Peak, California 49ers, Montana, North Carolina, Georgia, Klondike 98ers, Fairbanks, Nome, Iditarod, Hope, Nation, Fortymile, Ruby, Cariboo, Mexico, South Africa, Venezuela, Siberia, Arizona, Australia, the Black Hills.
All these areas experienced gold or silver rushes. Some were global in scope, and were true history makers, while others were localized events, which nevertheless created small stampedes. With it came the attendant boom-and-bust towns erupted with their rowdy saloons, gambling and bawdy houses, gunfights and fist-fights. But they also brought jobs, prosperity, families, schools, and churches. Some became charming ghost-towns, others capital cities.
So, why don’t they happen anymore?
Fiat currency. Lincoln’s Secretary of the Treasury Salmon Chase could not have saved the union without financing the colossal cost of the Civil War with paper IOUs, the so-called “greenback.” The first greenbacks were backed by specie (precious minerals, such as gold and silver) but later could not be. They carried varying promises of eventual payment in coin, but were not backed by existing gold or silver reserves. But they were convenient, and because the North won the war, unlike Confederate money, the greenbacks were worth something.
But why is specie so valuable?
Gold unquestionably has an undefinable and mystical property. Some people believe it’s of divine origin. Others consider that almost blasphemous in light of Christian teachings of the ideal of poverty. That the material world, pronounced “Good” by the Creator in Genesis, would need a medium of exchange after its Fall from Eden, is usually accepted by most theologians.
Let us review what makes gold valuable:
— Universal acceptance. Gold has been called valuable since the dawn of civilization.
— Luster. It makes beautiful jewelry, crowns, scepters.
— Non-corrosive and durable. After centuries in sunken ships, gold lies unblemished in the salt water. It cannot rust.
— Rarity. The value of gold lies with the thousands of man-hours required to locate, excavate, transport, refine and craft it.
— Practical applications. It has electrical conductivity, dental and precision instrument uses.
— Malleable. A single ounce of gold, roughly the size of a quarter, can be shaped into a continuous sheet of approximately 100 feet. “Gold plated” materials last for centuries.
— Low boiling point. A goldsmith finds his work much easier than a blacksmith.
— Conducive to alloys. Pure gold coins cannot exist due to its softness, but coins that are 90% gold last for centuries.
When gold and silver are in short supply, something wonderful happens.
So, why were there gold rushes?
Imagine you have 1,000 people living in an isolated valley. Some have livestock, some farm, some make clothing, some process food, some create tools, others keep the peace. Bartering can work, but money is more convenient. There is only a limited amount of coinage in which to trade for these goods and services. One activity might prove more valuable than another, and thus accumulate the most wealth. Resentments begin to grow.
Suddenly, in a nearby creek, gold is discovered. Those who are willing to perform the labor, and accept the risks, now have an opportunity not to seize or plunder someone else’s wealth, but make their own.
The food and tool processors never dig for gold, but their wealth increases. As it circulates, new goods and services become available, perhaps from other valleys, but some from the innovations now made possible by experiments that otherwise would not have occurred without an increase in the economic wealth of the valley.
Gold and silver possess many of the same qualities, but silver is more available, and hence less valuable. But precious metals are not the only things that create wealth. The sea, rivers and lakes create wealth: whaling (in its day) and fisheries. But water transportation is always more efficient for the lifeblood of an economy. Thus, it creates wealth.
I can’t tell you how prices might shake out if – and when – we return to a specie-based currency, but I can guarantee one thing: Gold rushes would return as part of Alaskan – and human – history!
And, of course, land. Control of the land not only provides the source of precious minerals, but is the obvious source of our three meals a day.
None of us want to revert to a barter or in-kind economy, but it does work. My own grandfather, proving up his Montana homestead on the Front Range in 1915, not only worked his own land, but swapped labor hours with neighbors. My grandmother wrote in their diary, quite often, “Frank was gone today, helping the Carlsons prove up their land.” He was not avoiding his own duties, because the Carlsons had also helped him with fencing, discing or whatever else he needed.
In those days, a person’s paper money had “silver certificate” printed on its top banner. Although I have never seen one, you can find online a Twenty-Dollar bill from 1928 that says, on its top-banner headline, “This certifies that there have been deposited in the United States Treasury TWENTY DOLLARS.”
You could have gone down to any bank and redeemed both for specie, but why bother? Paper fits more conveniently into a wallet.
In those days, the phrase “Sound as a dollar” was not a public joke, but was the known security of the honesty of paper money.
ALASKA WATCHMAN DIRECT TO YOUR INBOX
Would there be enough specie today to provide for a properly gold-and-silver backed currency? Unquestionably not.
But stop panicking. When gold and silver are in short supply, something wonderful happens. Because specie is so rare, its value in even the smallest amounts would increase, and therefore [drum roll, please!] – PRICES DROP!
Did you know that a middle-class family could survive on a yearly income of $400 in the early 1900s? Henry Ford was considered overly generous when he guaranteed entry-level workers $5 a day, and a restaurant diner would serve you steak, potatoes, a hot vegetable and a shot of whiskey for less than a dollar.
In the mid-1950s, my seven-day passage to Italy from New York on an ocean liner was $45. I have seen the receipts.
I can’t tell you how prices might shake out if – and when – we return to a specie-based currency, but I can guarantee one thing: Gold rushes would return as part of Alaskan – and human – history!
To read part one of this series, click here.
The views expressed here are those of the author.
