• J.J. Wheeling

Banking, the Economy and the Value of Money in 1849

In most of our lifetimes, we have had the benefit of the Federal Reserve System, created in 1913, to provide the United States with a more stable monetary and financial system. The National Banking Act of 1863 gave a level of security to citizens by providing nationally chartered banks, and notes backed by U.S. government securities during the Civil War.


But prior to either of these acts, the time from 1836-1865 was known as The Free Banking Era, in which state-chartered banks, and unchartered “free banks,” issued their own notes backed by gold or specie. Demand deposits, a deposit of money that can be withdrawn with no prior notice, were offered by these banks in order to enhance commerce. This practice continued to be popular for state banks, even though notes offered by the state banks were taxed by the government. The banking business was for those who were already rich and the government. The only leveling ground came in 1849 California, at the goldrush’s beginning, when anyone who had a safe could call himself a “banker.”


As I read diaries and first-hand accounts of the 1849 time period, I came across the costs of various things. Early on I learned the cost of outfitting a wagon for the trip west was around $600. The fare to sail around Cape Horn was between $250 and $500. Initially I thought, “Hmm, that seems pretty reasonable.”


Then I remembered I had to factor in inflation and the change of the value of a dollar between then and now. To help with all of this I found the website www.officialdata.org and learned the value of a $100 in 1849 is equal to $3,325.87 in 2019.


I also learned the inflation rate in 1849 was -2.53%. Not being an economist, or a financial person, I went to my husband for an explanation of what a negative inflation rate meant to the people of 1849. Here’s his simplified clarification:


"When inflation is 0%, $100.00 equals $100.00. When inflation goes negative, say -2.5%, it’s called deflation and $100 equals $97.50, the $2.50 difference becoming a savings to the consumer. So, if someone was considering the purchase a $100.00 wagon wheel, but the economy hinted that the wagon wheel’s price might drop to $97.50 because of deflation, why wouldn’t that consumer hold their money in hopes of the price dropping further? Deflation is a protectionist mode. It means employers are hesitant to hire anyone, consumers are hesitant to buy anything and everyone is going to hoard money until they feel more confident. In 1849 the economy was stagnant, everyone holding their money close and not spending while they waited to see what would happen to their spending power."


After the Panic of 1837, the inflation rate fluctuated between as deep as -9.76%, in 1843 to as high as 6.49% in 1847, which gave the actual value of $100 in 1849 as $80.21. Additionally, the average man made only $150.00 annually (approx. $5,000.00 in today’s money). I had always been puzzled by why so many men had rushed to the California goldfields when the risk was so high and the payback so uncertain. Many had suffered from losses due to the Panic of 1837, many were stuck in industries stalled by consumers not willing to spend their money due to a constantly shifting economy, and many simply couldn’t find jobs. Why not take a chance on fate and strike it rich?


But… all of that economic business was true in the United States. Once the gold seekers arrived in California, the men had another surprise waiting for them. Lucky to have survived the trip, many were shocked to find that, due to the scarcity of goods and services in San Francisco, they could hardly afford to stay too long in the city. A dozen eggs sold for the equivalent of $90 in today’s money. And, a young man had better have brought his mining equipment from the East because a shovel could cost $1,663 in today’s money. Boots? Around the equivalent of today’s $3,000.


And yet, even with those mind-boggling numbers, it was in California where the few women who had made the trip could earn real money for menial tasks no one would pay them a dime for at home. Laundry? $1 per shirt. A piece of pie or a slice of bread? $1.00. If you are interested in seeing some other prices, take a look here California Goldrush prices. But remember, as you look at the prices, $1 equals $33.25 in today’s money.


Many fortunes were made by humble souls who saw an opportunity and capitalized on it. And the goods didn’t have to be extravagant. Wheel barrows, studded canvas pants, old newspapers from home – all sold in California for prices that would have made an 1849 Easterner’s head swim. There were those who made their money “mining the miners” and diaries are filled with accounts of those who saw an opportunity and threw down their shovels and picks for work that needed to be done and were paid accordingly.


So, in my story, when the costs of things are mentioned, take a minute and do the math. And, on the subject of why so many young men were lured to the California goldfields, factor in the recession following the Panic of 1837, the pressure to recognize that there hadn’t been much economic opportunity in the preceding years so the “instant” wealth pamphlets the speculators printed and sold were really appealing.

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© 2020 by J.J. Wheeling

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