“The number of men on the payrolls of the Comstock mines increased from perhaps 1,500 in the 1860s to more than twice that in the 1870s, with possibly two-thirds of the men classified as ‘miners,’ the rest occupying nearly 40 categories of skilled and unskilled labour. One of the bigger mines might have 500 to 700 employees… The census of 1880 showed that while native Americans formed more than half of the total population, in the mining labour force they were greatly outnumbered, only 770 of 2,770 being American-born. Of the 1966 listed in the special category of ‘miners,’ 691 were Irish, 543 English (including Cornishmen but excluding Welshmen), 394 Americans, 132 Canadians and the rest scattered among very small national groups. By contrast, Americans had pre-empted jobs that required operating or maintaining machinery. … A ‘Miners Protective Association’ was formed at Virginia City in 1863 … to maintain the existing standard wage of $4 per day, in coin, for all work done underground.”
The unusually hot water encountered in the Comstock mines played an important role in pointing geologists and miners to the link between hot springs, hydrothermal fluids and mineralization. Similar hot water occurred in a large geyser field at Steamboat Springs, 11 kilometres northwest of Comstock and 16 kilometres south of Reno, Nevada. A period of intense fumarolic activity between 1984 and 1987, before the installation of a geothermal power plant, showed that up to 21 springs are present, making it either the fourth or fifth largest geyser field in the world. Whereas the geysers had reached heights of up to 15 metres previously, the power plant lowered the water table to about 10 metres below surface (GOSA, 1989).
The Steamboat Springs geyser field lies within a small northeast-trending belt of rhyolite domes and flows about eight kilometres long. Two of the domes are up to one kilometre in diameter, three others are smaller and a questionable dome underlies the hot springs. Hot spring activity may have started as long as 3 million years ago but two of the domes have been dated at only 1.21 and 1.14 Ma. The active sinter deposits include small quantities of gold, silver, mercury, antimony, arsenic, thallium, sulphur and boron (Stone, 1990). It was natural that early workers in the district would notice the similarities between the hot water in the Comstock Lode and Steamboat Springs.
The mines at Comstock and in the California gold districts made vital contributions to the emerging science of economic geology and to mining technology. Future advances in economic geology would be dependent on the discovery and development of new mines that would provide the field laboratories for studying the origin and occurrence of metals. In addition to systematic prospecting, future discoveries were also dependent on risk capital and better mining techniques to explore the new prospects at depth. Comstock and California gold created the excitement that ensured that the tools would be provided to achieve those aims. Those tools were mining stock exchanges for raising the risk capital and a modern mining equipment manufacturing industry, neither of which existed before. Both of these became centred in San Francisco, turning it into a world mining capital for about three decades.
The first U.S. paper currency (the ‘greenback’) was issued in 1862, near the start of the Civil War and just as the Comstock boom was starting. The paper dollar tended to trade at a substantial discount to gold because it was not directly exchangeable. Speculation in gold was transacted through an exchange in New York, where the value of the greenback fluctuated widely according to the war news and traded as low as 40 cents. The federal government had a strong incentive to support new mining developments in the West, since it needed to acquire substantial reserves of gold and silver to finance the war. Thus, the Civil War had a far-reaching influence on gold and silver mining in California and Nevada.
Public stock companies focused on mining had already appeared at the time of the California gold rush. Between 1850 and 1859, 432 companies were incorporated in California, three-quarters of which were mining or water companies (see CIM Magazine, Vol. 2, No. 7, p. 102). The number of incorporations skyrocketed during the Comstock rush; 2,933 were formed in 1863 alone, 84 per cent of them gold and silver mines (Jung, 1999). That was partly because these mines required relatively more capital for milling equipment than the California gold mines, but also because the public became far more involved in stock speculation. Eastern U.S. and European investors showed scant interest in California or Nevada until the rise of lode mining, which they recognized as a complex, capital-intensive activity that required sophisticated machinery and scientific processes. Promoters worked hard to convince the public that mining was no longer a reckless adventure but rather a modern industry conducted by sober businessmen with practical experience. They skilfully used the press to attract investors by contributing newspaper articles, writing letters to editors and serving as sources. The press responded with optimism. Some promoters began to produce elaborate stock prospectuses for investors to examine (Jung, 1999).
In contrast to stock exchanges in distant capital markets that focused on financing banks, insurance companies, railways, utilities and other major corporations, a large number of mining stock exchanges (also called stock boards or brokers boards) were formed in or near western gold and silver “boom towns,” beginning in 1861. One feature that distinguished the western mining markets was the close connection, some said far too close, between mining companies and banks. Ten exchanges opened in California between 1861 and 1864, eight of which were in San Francisco. In Nevada, seven opened in 1863 and four in 1864, five of which were in Virginia City and three at Gold Hill. Two more were opened in Portland in 1864 and 1865. Most of them (including the first one, called the San Francisco Board of Brokers) were short-lived, even “ephemeral,” partly because several were wiped out by a local depression in the Nevada market in 1864–1865. By 1870, San Francisco was established as a major financial centre.
Much has been written about the early California stock exchanges, which were characterized by gambling, manipulation and fraud long before the era of regulatory oversight. The motivation of the early organizers was largely self-interest. According to one 1861 anecdote, “it became customary for large stock owners to meet in the morning, pretend to make sales to one another and report their transactions to brokers, who then used these prices in making deals with their customers.” This gave legitimate brokers a strong incentive to start the San Francisco Stock and Exchange Board in 1862. It operated until 1967.
One particularly important function of specialized (mining) exchanges was their assistance in the growth of an industry of vital importance in the economic progress of the country and the direction and speed of settlement (Sears, 1973).
In spite of the improprieties and abuses, the better mining exchanges gradually became reputable and served a valuable, even crucial, role in generating the risk capital needed for exploration. At a time when the industrialization of the United States was in its early stages, the mining industry took the lead in the organization of limited liability companies and specialized stock exchanges to facilitate the flow of capital. The mining exchanges also played an important role in making the mining industry a leader in the widespread use of the corporate form of business organization and in the distribution of securities to the public.
San Francisco was also strategically positioned, with its large harbour and river access to the gold fields, to develop into an important manufacturing centre to serve the mining industry. The West Coast was relatively isolated from the great eastern industrial centres until the transcontinental railways were built across the mountains to the Pacific Coast, starting in 1869. Local entrepreneurs took advantage of this opportunity to develop a thriving industry producing custom-made and locally designed equipment. By 1864, 47 foundries and machine shops had been established, including names such as Union Iron Works, Pacific Iron Works, Risdon Iron and Locomotive Works, Fulton Foundry and Iron Works, Pelton Water-Wheel Company, Parke and Lacy, Vulcan Foundry and Iron Works, Joshua Hendy Iron Works, Aetna Iron Works, California Wire Rope Company and others. Their crushers, stamp mills, hoists, headframes, pumps, steam engines, dredges, aerial tramways and smelter equipment could soon be found at every mine site in western North America, as well as in Central and South America and throughout the Eastern Hemisphere. In 1876, 2,000 workers were employed in the San Francisco mining machinery industry, earning between $3 and $5 per day.
After the railroads reached the coast, the San Francisco firms began to face steadily increasing competition and, by 1892, much of the mining equipment used in the West was being supplied from Chicago and Milwaukee by companies like Allis-Chalmers and Ingersoll. By 1919, the transition was complete and the strongest of the San Francisco companies were only able to survive by switching to shipbuilding and other new fields.
All the information in this chapter on stock markets has been derived from Sears (1973) unless otherwise noted.