I left my heart in San Francisco
High on a hill it calls to me
To be where little cable cars climb halfway to the stars
The morning fog may chill the air, I don’t care
My love waits there in San Francisco
Above the blue and windy sea
When I come home to you, San Francisco
Your golden sun will shine for me
— Frank Sinatra
—
Today, we find ourselves in vibrant San Francisco, working, observing, and enjoying time with family. Our day includes riding the iconic cable cars along Powell Street, exploring diverse neighborhoods like Chinatown, North Beach, SoMa, and Fisherman’s Wharf, and indulging in delicious fresh crab and pasta. What follows are reflections on the city’s intriguing history, its golden beginnings, and much more.
<h3><strong>The First Day of the California Gold Rush</strong></h3>
<p>On January 24, 1848, James W. Marshall stepped out of Sutter’s Mill and gazed down at the American River in Coloma, California. In the distance, he noticed a sparkle shimmering along the riverbank. What could it be?</p>
<p>“I picked up one or two pieces and examined them attentively,” <a onclick="javascript:pageTracker._trackPageview('/outgoing/malakoff.com/marshall.htm');" href="http://malakoff.com/marshall.htm" target="_blank">Marshall recounted</a>. “I then collected four or five pieces and went to Mr. Scott (who was working at the carpenter's bench making the mill wheel) with the pieces in my hand and said, ‘I have found it.’”</p>
<p>“What is it?” Scott inquired.</p>
<p>“Gold,” I answered.</p>
<p>Little did Marshall know that this discovery marked the start of the California Gold Rush, permanently altering the landscape of California. Between 1846 and 1852, for instance, San Francisco’s population surged from just 200 residents to around 36,000.</p>
<p>However, not all adventurers found the fortunes they sought.</p>
<h3><strong>Wealth In, Not Out</strong></h3>
<p>As news of Marshall’s discovery spread, treasure hunters flocked to the region in search of riches. While billions worth of gold was unearthed, only a fraction significantly improved individual wealth. The real beneficiaries were the suppliers of goods and services.</p>
<p>Samuel Brannan, for example, recognized the opportunity as the gold rush began. He bought all the prospecting supplies in San Francisco and opened the first supply store in Coloma, cornering the market and selling the supplies at a handsome profit.</p>
<p>Likewise, Levi Strauss found success not by mining gold, but by selling denim overalls to miners. Others prospered by offering shipping, lodging, and saloon services. The Gold Rush also significantly boosted transportation infrastructure, with investments in the first transcontinental railroad, the Panama railway, and regular steamship routes from San Francisco to Panama.</p>
<p>While this influx of investment brought prosperity to California, the wealth generated was counterbalanced by the mass exodus of gold into the global economy, raising a question: did this truly create new wealth?</p>
<p>In 1884, 19th-century English economist William Stanley Jevons posed a thought-provoking question: “Have the Gold Discoveries added to the Wealth of the World?”</p>
<h3><strong>Violating the Promptings of the Economy</strong></h3>
<p>“If we take wealth to be that which is agreeable and useful to mankind, it may be safely said that the mere gold produced by Australia and California represents a great and almost dead loss of labor,” Jevons explained.</p>
<p>“A century or more ago, gold and silver were seen as the epitome of wealth because they were measures and vehicles of wealth. Today, it’s clearer that gold is among the last things that can be deemed wealth in itself. Its true value as money lies in its rarity, which enhances its worth and reduces the quantity needed to carry.”</p>
<p>“To over-estimate the indirect effects of these discoveries in creating new colonies, spreading the English language, and energizing commerce is challenging. Yet, gold-digging has consistently appeared to me a lost effort in terms of global labor—it’s similar to a government wronging its people by generating excessive and devalued currency.”</p>
<p>In essence, the introduction of this new currency, while demanding significant human effort for extraction, behaved similarly to today’s monetary stimulus. The money supply expanded rapidly; however, the overall wealth of the world did not see a corresponding rise. Instead, as will be evident in the coming years, prices adjusted upward in response to the influx of new money.</p>
<p>“One cannot violate the promptings of one’s nature without having that nature recoil upon itself,” wrote the San Francisco native Jack London in *White Fang*. London wasn't referring to the tendencies of central bankers to inflate the money supply, yet he identified a vital natural principle.</p>
<p>The Federal Reserve, in defiance of economic principles, has tripled its balance sheet over the past four years, creating nearly three times as much money as it did in its first 95 years. Yet, most of this money has remained trapped within the financial system, not circulating within the economy. At some point, possibly as the economy improves and bank lending increases, this accumulated money will begin to circulate more rapidly.</p>
<p>This means that over the next few years, we can anticipate a general upward adjustment in prices, which may distort the economy in ways we can hardly predict today. Rest assured, we will keep you informed as we witness this unfolding transformation.</p>
<p>Sincerely,</p>
<p><a href="https://economicprism.com/category/mn-gordon/">MN Gordon</a><br/>for Economic Prism</p>
<p><a href="https://economicprism.com/">Return from Violating the Promptings of the Economy to Economic Prism</a></p>
