USA > California > San Francisco County > San Francisco > San Francisco, a history of the Pacific coast metropolis, Volume I > Part 47
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Effects of Civil War on San Francisco Commerce
Senatorial Election Scandals
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not infrequently, as was the case in the Netherlands, when it revolted against Spain, emphasizes the tendency of men to adapt themselves to circumstances and to profit from conditions. That was true of the East, where the necessity of pro- curing revenue to carry on the war caused the imposition of a tariff which called into existence new industries and turned the adversities of the nation into a source of material prosperity.
San Francisco by no means escaped this influence. The hearts of her people were in the right place and their sympathies were easily stirred. They responded promptly to the call of duty and were not unmindful of the sufferings and the sacrifices made by those who bore the brunt of the conflict. But there were adven- titious circumstances which they were prompt to recognize and seek to turn to their advantage. The long delay in the construction of a transcontinental railroad prom- ised to end by the government actively assisting in the promotion of an enterprise which up to that time seemed impossible of accomplishment through individual exertion. This in itself seemed to the isolated Californians a boon whose value to the whole country, and to themselves in particular, could not be overestimated, but there was something immediately at hand which for the time being turned their attention from the achievement of the future to a present benefit which they were able to seize because their principal product was gold; the metal which the whole world was eagerly struggling to obtain and which California determined to retain as a monctary medium no matter what happened to the rest of the universe or to the Union.
Profiting Through Adherence to Gold
CHAPTER XXXVII
EFFECTS OF ADHERENCE TO GOLD MONEY DURING THE WAR
CHANGING COMMERCIAL CONDITIONS-THE PANIC OF 1857-INCREASING EXPORTS- TAXATION OF CONSIGNED GOODS-THE WAR TAX-EQUAL TAXATION DEMANDED- WAR INCREASES EMIGRATION TO CALIFORNIA-ADHERENCE TO THE USE OF GOLD MONEY- THE SPECIFIC CONTRACT ACT-MERCHANTS PROFIT THROUGH RETENTION OF GOLD MONEY SYSTEM-GREENBACKS NOT DISTRUSTED-SPECULATION IN GREEN- BACKS-HIGH RATES OF INTEREST-ILLIBERAL BANKING LAWS-LARGE GOLD PRO- DUCTION-RESULT OF BAD BANKING METHODS-FIRST SAVING AND LOAN SOCIETY- FEDERAL EMPLOYES ARE PAID IN DEPRECIATED CURRENCY-PAYING DEBTS IN GREEN- BACKS-ATTEMPTS TO INDUCE ABANDONMENT OF GOLD MONEY-MANUFACTURING DISCOURAGED BY SPECULATION IN MONEY-GREAT EXPECTATIONS OF THE PEOPLE -LOOKING FORWARD TO RAILROAD CONNECTION WITH THE EAST.
HE great depression of 1857, which continued until the activities promoted by the Civil war caused the revival of business, had extended to California and was severely felt by the merchants of San Francisco. Its effects were some- SEAL OF what different from those produced by previous panics OF SAN CO whose origins could be traced to local causes. There was no severe crash, but a steady liquidation which forced many out of business and compelled those well intrenched to exercise caution. The industries of the state were expanding with the exception of gold mining which, however, still contributed large sums to the circulating medium of the world even if the continued adverse trade balance operated to prevent its retention in the United States.
So far as California was concerned there was a constant improvement in this latter particular. In the earlier years of the decade 1850-60 the manifests of vessels entering the port of San Francisco were largely made up of such articles as flour, butter, barley, lumber, hams, bacon, pork, beef, candles; in 1861 the state had reached the stage of providing itself with most of the commodities mentioned and was beginning to prove its resourcefulness by exporting, not on a great scale, but in sufficient quantity to indicate future possibilities. There was also a disposi- tion shown to manufacture more extensively, and thus lessen the almost complete dependence on the East which had exhibited itself during the period when the dominating thought was that California was not of much account except as a min- ing and grazing country.
The result of this changing commercial condition was visible in the growing list of exports, the variety of which was increasing as greatly relatively as the aggre-
The Panic of 1857
Changing Commercial Conditions
Increasing Exports
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gate value of the things exported. In 1858 the total exports were valued at only $4,770,163; before the Civil war had fairly closed the shipments through the port of San Francisco were nearly three times as great, the custom house returns show- ing their value to be $14,554,496. Concurrently, however, there was an increase of imports by sea from $7,120,506 in 1858 to $15,271,104, but during the interval there was a decided change in the character of the imports, many commodities for- merly received in large quantities from the East and foreigners disappearing from the list of things imported, their places being taken by articles whose variety and quality advertised the growing opulence of the people of California.
Taxation of Consigned Goods
The large imports into San Francisco had at various times suggested to the legislature that they might be made to prove a source of revenue to the state. In 1852 an attempt was made to levy a tax on consigned goods, but its imposition was resisted. A grand jury found two hundred indictments against the violators of the law but no attention was paid to its action. In the following year Governor Bigler, in a message to the legislature, called attention to the resistance to the payment of the tax, and urged the enforcement of the law. At the same time he recommended that taxes should be collected from steamship companies trading to California ports even though their ownership was in other states. In the legisla- ture of 1861-62 an attempt was made to revive these schemes of taxation, but Gov- ernor Stanford interposed his veto and it was sustained.
State Short of ReveQue
It does not appear that these fruitless attempts to impose a burden on the commerce of the port of San Francisco were inspired by hostility to the City, or by a desire to promote domestic industry by giving its products an advantage over those shipped by outsiders. In the debates on the subject in the legislature allu- sions were made to the evils of the system of consigning goods, and there was also some talk which indicated a feeling of antagonism against the City, but in the later as in the earlier case the movement was due to the desire to find sources of revenue to meet the growing demands made upon the state government. In a message in 1862 in which Stanford dealt with the subject of taxation he called attention to the fact that while the excess of receipts over expenditures was a trifle over $91,000, the general fund was much behind and he recommended a state tax larger than the estimate required: 23 cents in addition to the 62 cents imposed by the revenue act of May 19, 1861, on each $100 of valuation.
The War Tax
Part of this large demand was due to the necessity of meeting the call of the federal government for a direct contribution of a quarter of a million dollars, but the chief cause was the disposition early manifested by the legislature to indulge in extravagant appropriations. In that particular the state authorities were as reckless as those of San Francisco had been until the curb of the Consolidation Act was applied. And if the vigorous denunciations of Governor Downey truthfully represented the situation, the legislature was no more scrupulous than the worst "boodling" boards of aldermen elected in San Francisco in the Fifties. The gov- ernor had no hesitation in asserting that funds obtained for the purpose of reclaim- ing swamp lands had been deliberately diverted, and were expended in the payment of salaries and wages instead of being employed in the construction of levees, a criticism which derived much force from the fact that the floods of 1861-2 com- pelled the legislature to desert Sacramento and repair to San Francisco.
Taxation Questions
It is during periods of depression that men's thoughts turn to questions of taxa- tion. In the boom years when a valuable product like gold was secured by methods
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which resembled those of the gambler rather than the well directed efforts of men forced to give their attention to the development of varied resources, little or no attention was paid to budgets or the means to be taken to meet them. But when the mines began steadily reducing their output soberer thoughts began to take pos- session of the public mind. There had been more or less discontent with the dis- tribution of the taxation burden of the state prior to 1861, but it had usually be- trayed sectional feeling. The miners sometimes protested that too much was de- manded of them, and the grazing, or "cow counties," as they were called, found fault with the treatment accorded them; but both were always ready to join in any plan which would force the City to pay as big a tribute as its assumedly grow- ing wealth would bear.
But in 1861 there was something like a fresh point of view introduced by an attempt to enforce the principle that all property should be taxed. A bill was introduced in the legislature in that year by James McM. Shafter which failed of passage, but the theory of which he sought to enforce later by promoting an action against the assessor of Marin county to have the claims to the possession of lands, the title to which was in the government, assessed and taxed like other property. His object was not to compel the government to pay taxes, but he sought to reach a class claiming lands which only required the patent of the government to complete the title to them. His purpose was achieved, as he secured a decision the chief value of which, however, did not consist in the amount of taxes derived, but in the arous- ing of attention to the drawbacks of large land holdings. The opposition to what later became known as land monopoly had its inception at this time, and it eventu- ally took hold of the people to such an extent, that the demand for a change in the organic law, which had been urged at various times after 1852, had finally to be complied with.
But meanwhile events were shaping which deferred the accomplishment of this reform. The outbreak of the war had brought about conditions at the East which tended to start anew the flow of population toward the Pacific coast. The effect of the new accessions was as beneficial to San Francisco as the rushes to the Fraser river country had been injurious. In a comparatively brief period the City recov- ered a good deal of the briskness it had parted with during the depression which followed the panic of 1857. This result was undoubtedly greatly contributed to by the opening of mines on the Comstock lode, and to operations in California which tended to increase the waning confidence in mining as an important industry. The merchants of San Francisco were also beginning to reap the advantages derived from the depreciation of the legal tender notes issued by the government which en- abled them to buy goods at greenback prices and sell them for gold.
There were many complications to grow out of the determination of California to adhere to the use of gold while the rest of the country was forced to resort to paper currency, but the majority of the people of the state, and more particularly the merchants of San Francisco, were profoundly convinced that it was the only safe course for them to adopt. Doubtless the possible advantage to be derived from an exchange which must always be in favor of the section with the most reliable currency had its influence in moulding public opinion, but the primary mo- tive must be sought for in the extraordinary conservatism begotten by distrust of paper currency, which manifested itself in so pronounced a fashion when the state
Demand for Equal Taxation
War Promotes Emigration to California
The Use of Goid Money
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constitution was framed, in which the issuance of paper money by banks was posi- tively prohibited.
The wisdom of this early action was never disputed in San Francisco, and by some it was held that it afforded ample corroboration of the theory so much expati- ated upon later, that the use of an inferior currency will drive out the superior. In the beginning, however, there was little evidence that this view was much con- sidered in determining upon a policy which at one time threatened to create un- friendly feeling between the section of the Union using the greenbacks and Cali- fornia. Apparently the only object was to guard against the possibility of substi- tuting for the money which had what was deemed fixity of value a variable cur- rency worth so much to-day and less to-morrow. Thus it happened that the people of California, practically by unanimous consent, refused to use the legal tender money of the government, and by the sheer force of public opinion deterred the unscrupulous who might wish to profit by the depreciation of greenbacks to pay their obligations in paper currency, from resorting to such a course.
The so-called specific contract act was not passed by the legislature until 1863. That measure gave a certain sanction to a custom which had crystallized long before its passage and which all classes of citizens felt themselves in honor bound to observe. Occasionally there was a case of disregard of the obligation, but such departures from the standard set up by the merchants of San Francisco were ex- tremely rare, as a resort to them procured for the offender business and social ostracism. But while there was little trouble on this score, there were other diffi- culties which arose to plague the law makers and to worry those who were appre- hensive that California's monetary policy might be misconstrued into lack of devo- tion to the Union cause.
It was some such fear that impelled Governor Stanford in a message sent to the legislature in 1862 to criticize the action of the state treasurer, who had paid the state's proportion of the direct war tax in legal tender notes, which were then nearly 8 per cent below par in California. By this operation the state saved $4,400, the difference between the gold and currency price of an installment of $68,839 on the tax. The governor expressed chagrin and characterized the action of the treasurer as unauthorized, but the Washington authorities assured him that the legal tender notes had been advisedly received, and that payment in coin would have resulted in California contributing more than its share under the levy. The difference of opinion was referred to the legislature, but before it took any action in the premises Ashley had paid the remainder of the tax in government paper money and saved nearly $25,000. In order to take away the appearance of desiring to profit by the depreciation of the federal money the amount thus saved was appropriated as a recruiting fund to fill up the regiments of California volunteers in the field.
Meanwhile, however, the mercantile element was not so considerate of the ef- fect of its action on the government credit. Merchants early began to take advan- tage of the difference in exchange, and before the close of 1862 the stock and exchange board organized in September, 1862, was actively dealing in currency, and continued to do so from that time forward until the resumption of specie pay- ments by the government. The business transacted was by no means insignificant. It was not unusual for brokers to make sales of from $10,000 to $20,000 of cur- rency on a single order, and while the operations of the board never reached the
Greenback Currency Discounte- nanced
The Specific Contract Act
Governor Stanford Advocates Use of Paper Money
Merchants Profit
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magnitude of those of the New York gold board, the fluctuations at times produced conditions as exciting as those which became common a few years later when min- ing stocks engrossed the attention of speculators.
One of the curious features of the trade in gold was the frequent exhibition of confidence in the ability of the government to redeem its obligations made by believers in the perpetuity of the Union. It was no uncommon occurrence for patriotic men to ostentatiously buy currency when it was greatly depreciated and put it away in their strong boxes. There was a period when greenbacks had fallen so low that $350 to $400 worth of gold would buy $1,000 worth of the govern- ment paper. At this time there were numerous transactions of the character men- tioned, and the vaults of the banks were filled with small boxes containing currency and other valuable papers. In the Sixties there were no safe deposit companies, but all the banks were in the habit of accommodating customers by permitting them to use their fire and assumedly burglar proof vaults to store their tin boxes.
It is safe to say, however, that cold calculation was as influential as patriotism in producing these manifestations of confidence. The speculative propensities of Californians could not resist the temptation presented by the chance of a 35 cent paper dollar being converted into one worth a hundred cents in gold. Doubtless faith in the ultimate triumph of the Union cause was a powerful factor in every instance, even in the case of the gambler who was quite ready to take a three to one chance with his money. But whatever motive prompted the investment in the discredited paper the surrender to it resulted in great profits to a very considerable number of San Franciscans, who had the sagacity to buy greenbacks when they were very low priced, and hold them until the success of the Union arms caused the government's credit to rise, not as rapidly as it had fallen, but slowly and surely.
Speculation in greenbacks was to some extent governed by interest rates. All those transactions of the sort involving the locking up of the purchased notes, and which were not prompted by purely patriotic motives, had to take this factor into consideration, for interest rates remained very high until well in the Seventies. Despite the enormous gold product of the state the rates charged for the use of money were abnormally high. In 1849 men were as willing to pay ten per cent a month as they were to pay ten per cent per annum a quarter of a century later. As late as 1859 mortgage loans on real estate were made in many cases at 2 per cent a month, and occasionally 3 per cent. These can hardly be described as rul- ing rates, for in 1859 mortgages were recorded ranging from 13/4 per cent a month, for $40,000, and as high as 3 per cent a month for smaller amounts ranging from $1,000 to $4,000.
In 1860 the Hibernia bank began loaning at 2 per cent a month, which seems to have been the maximum rate during that and three subsequent years. There were some long term loans made by foreign capitalists at a much lower rate, but in 1864 the rates generally recorded ranged between 11/4 and 11/2 per cent a month. There is a record of a loan in 1867 of $35,000 at two per cent a month, but it was exceptional. In the following year there was evidence of brisk competition in money lending, and for the first time in the history of San Francisco financial dealings interest rates were quoted per annum instead of per month.
How much of the blame for this anomalous condition of affairs is properly chargeable to the illiberal attitude of the framers of the state constitution in deal- ing with the matter of bank circulation it would be impossible to state. There had
Greenbacks Not Distrusted
Speculation in Currency
Greenbacks and Interest Rates
Interest Rates in 1860
Illiberal Banking Laws
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been great abuses of the privilege of emitting paper money in the Eastern states, and there was a wholesome dread that something of the same sort would occur in California if precautions were not taken to make such a result impossible by abso- lutely prohibiting the issuance of bank notes. It was assumed that the great out- put of gold would provide a sufficient quantity of metallic money to satisfy all the requirements of a growing community, and that adherence to its use would ward off all the perils attendant upon wildcat banking. The possibility of adequate reg- ulation received little recognition, nor does it appear that the difficulty of retaining gold in a country largely dependent on the outside world for consumable commodi- ties of all sorts received due consideration.
The belief that California would always have an abundance of metallic money was justified by the event. When the test came it was seen that gold could be re- tained in sufficient quantities for purposes of circulation, but while the determina- tion to adhere to gold accomplished that purpose there is a doubt whether the singular enjoyment was not dearly purchased. Although enough gold was pre- served for circulation the surplus was steadily drawn from the state, being sur- rendered in exchange for commodities which would have been produced at home, if the opportunity presented to merchants to profit by buying goods for greenbacks and selling them for gold had not existed.
Up to the close of the Civil war the mines of California had produced about $785,000,000 worth of gold. How much of this vast quantity remained in the state it would be impossible to tell with precision, but it is estimated that the coin in circulation during the Civil war in the United States did not exceed $25,000,000, the most of which was probably used in this state. The $760,000,000 had been drawn away to other countries. It may be true, as the economists assert, that the Californians in parting with their gold had received in exchange things which they desired and needed more than the metal, but nevertheless it is obvious that the withdrawal of what the world persists in regarding as the great fructifying agency of production and commerce must have affected California injuriously. Had it been possible to retain any considerable portion of this vast sum the effect of its retention must have been to stimulate industry; but it was impossible to hold it while the population persisted in buying more of the products of the outside world than they were able to pay for with products of their own other than gold.
So it happened that the extreme prudence of the argonauts failed to avert the consequences against which their precautions were taken. As related in the chapter dealing with the period between 1846 and 1861 San Francisco escaped from none of the disastrous consequences of bad banking except the issuance of the sort of cur- rency which required the constant use of a "bank note detector" to determine its value, or whether it possessed any at all. The other evils were all experienced at recurring intervals. There were failures which swept away the savings of deposit- ors and caused the bankruptcy of merchants, and there were business depressions as acute as those produced by the scandalous wildcat banking of the Middle West. And while the people were experiencing these drawbacks they found their troubles accentuated by high rates of interest, which could have been avoided by the adop- tion of a rational banking system which might safely have included among its functions the providing of a safe circulating medium based on such reserves of gold as could easily have been commanded.
Results of Bad Banking Methods
Dependence on Metallic Money
Gold Production
SCENE DOWN MARKET STREET IN 1865
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Habits of thrift did not assert themselves very early in San Francisco. It was not until 1857 that the first savings and loan society was established in the City, and it required several years of consideration by the law makers before they ven- tured to pass an act providing for the formation of corporations for the accumula- tion and investment of funds and the savings of depositors. Such a law was passed in 1862, and under its provisions the institutions already in existence, the Savings and Loan Society and the Hibernia Savings and Loan Society, which had been es- tablished January 23, 1857, and April 12, 1859, respectively, commanded an in- creased degree of confidence, and greatly stimulated the saving habit. These banks and those which were later founded were of great assistance to the community, and in course of time, to some extent, overcame the early drawbacks due to a lack of system which did not invite the formation of surpluses that could be advantageously employed in the promotion of enterprises.
Very few Californians were disposed to consider the subject of the currency from any other standpoint than that of circulation. They were proud that their system, which forbade the issue of bank notes differed from that of every other state of the Union, and they gloried in the fact that they were unique in steadfastly adhering to "sound money." Writers of the period of the Civil war boasted that the currency question had given them no trouble until United States notes found their way to the coast, and they regarded as a supreme distinction their ability to avoid the suspension of specie payments. It would have been difficult to convince any considerable number that they were making a mistake in putting themselves out of touch with the rest of the Union, and that they were doing much to maintain the condition of isolation which they were eager to overcome by establishing rail connection with the region east of the Rocky Mountains.
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