A Brief History of the California Economy

The Gold Rush Plants the Seed 

On January 24, 1848, California was changed forever.  Following James Marshall’s discovery of gold at Sutter’s Mill in Coloma, thousands of people rushed into California.  For the most part, only those miners who arrived in 1848 found the success they were seeking.  After 1848, merchants such as Sam Brannan—California’s first millionaire—were the main beneficiaries of the boom. 

Most people arrived in California with the bonanza mentality—intending to get rich quick and go back home with their money.  These people had no desire to put down roots.  In fact, only about 10 percent of the people who came to California during the Gold Rush chose to settle in the state.  Among the fortune seekers who stayed were several well-known Californians, such as Leland Stanford and James Lick who were to make significant contributions to the state.

As commerce expanded, transportation became an increasingly important issue throughout the Gold Rush era.  The state’s dirt roads were often so muddy that they were unusable.  Steamships and riverboats ferried miners and freight between the port of San Francisco, Sacramento, and the mining camps.  There were three ways to travel and transport goods from the Midwest and eastern parts of the U.S. to California.  The first was the six-month voyage around the horn of South America.  Another was to cross the Isthmus of Panama.  The third route was the long overland journey from Missouri.

The dramatic growth of commerce and farming prompted Californians to demand a better connection with the rest of the United States.  Throughout the 1850s the State asked Congress for a transcontinental railroad to provide passenger service and to ship goods to and from the Midwest and the East Coast.  The growing split between northern and southern states in the 1850s prevented Congress from choosing which route the railroad would take.  Southerners such as Jefferson Davis wanted a southern route through Arizona and New Mexico.  Northerners such as Abraham Lincoln wanted a northern route through the Midwest. 

Californians made several attempts to build a transcontinental line themselves.  The most successful was the Sacramento Valley Railroad. Completed in 1854, its builders had planned to go from

Sacramento to Folsom then Marysville then over Beckworth Pass in present day Plumas County.  They wanted to build the railroad across the country, but lacking Federal support, only got as far as Folsom.

The needed Federal backing came in 1862 with the passage of the Pacific Railroad Act. This act authorized two companies to build the first transcontinental railroad: the Central Pacific would start building in Sacramento, and the Union Pacific would start from Omaha.  This northern route was adopted because nearly all Southern Congressmen were absent from Washington D.C. during the Civil War.  The Central Pacific—which became the Southern Pacific in 1884—was run by four notable Californians.  Leland Stanford served as the railroad’s president. As governor of California from 1861-1863 he maintained strong state support for the railroad.  Collis P. Huntington served as vice-president, spending most of his time in the east procuring supplies.  Mark Hopkins served as bookkeeper.  Charles Crocker was in charge of construction.  At the height of their success, the “Big Four” lived atop San Francisco’s Nob Hill—their home sites are now the Stanford Court, Huntington and Mark Hopkins hotels, with Grace Cathedral occupying the original Crocker parcel.

The Central Pacific received $16,000 per mile over flat terrain, $32,000 for foothill areas and $48,000 for mountainous terrain.  It was also granted 10 sections of land per mile (this was increased to 20 in 1864).  The transcontinental railroad was completed in May of 1869 linking California with the rest of the nation and giving Californians a practical way to ship goods to eastern population centers. 

By enabling California’s farmers to feed the United States and much of the rest of the world, the railroad helped agriculture to become the state’s leading industry in the late 19th and throughout much of the 20th centuries.  Before the railroad link was established, California agriculture had been stimulated by exploding demand for food from the Gold Rush population boom.  The state’s remoteness from the nation’s main food-producing regions led to a rapid expansion of cultivated acreage.  Initially, the focus was on basic feed crops and cattle.

By 1850 California agriculture was dominated by wheat.   In 1870, a bushel of wheat sold for $1.82 and California was the nation’s second largest wheat producer.  By 1894, however, a glut drove the market price of a bushel down to $0.64.  Many wheat growers sold their land to farmers who wanted to grow specialty crops such as oranges and lemons.  By the end of the 1890s, California was dominated by specialty crops.  Wheat would not be prominent in California again until exports to Northern China began in the 1970s.

The last half of the 19th Century completely transformed California.  The Gold Rush sparked a population boom, which led to rapid commercial and agricultural development.  These changes then prompted dramatic transportation improvements—most dramatically in the railroad field.  When the transcontinental railroad established a practical conduit to the eastern U.S., California agriculture became a national force.  

Return to Beginning The Gold Rush Plants the Seed 1848-1860  20th Century Industries    1900-1929 Adversity Beget Prosperity 1925-1945 A Modern Economy is Born    1946-1975       Leading the Way   1976-1999