This article is adapted from the blog of Flexport, a Priceonomics customer. 

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On May 12, 1848, a store owner named Sam Brannan held a “one-man parade” to announce the start of the San Francisco Gold Rush.

“Gold! Gold from the American River!” Brannan shouted up and down Market Street in San Francisco. He held his hat in one hand and waved a bottle of gold dust in the other. San Franciscans had received false news of gold before. But by all accounts, Brannan’s performance sent residents running in search of riches. 

Brannan had a good reason for spreading the news rather than panning for gold himself. The canny entrepreneur owned a general store that served the workers at Sutter’s Mill, the site where gold was discovered. And in the week between learning about the discovery and yelling about it in San Francisco, he’d bought all the picks and shovels in the city. 

Brannan’s announcement helped spur a seminal event in California’s history. As Brannan raked in money selling mining supplies, his actions also, years later, led to the coining of a famous maxim: During a gold rush, sell shovels. 

It’s true that most miners fared poorly during the Gold Rush. But the men and women who prospered the most tended to ignore gold in favor of another resource: the hundreds of thousands of new arrivals who transformed an isolated frontier into a prosperous and industrialized population center in less than a decade. 

“California needed everything and had nothing,” Edward Dolnick writes of the gold rush economy in his book The Rush. Businessmen and women who grasped this profited enormously from trade and the flow of goods and people to the new promised land.

Rather than advising someone to sell shovels and pick axes during a gold rush, better advice from the San Francisco Gold Rush might be to trade shovels. Or speculate in real estate. Or paint houses. Really anything other than mine for gold. 


The San Francisco Bay Area has been so thoroughly tamed by highways, cities, and sprawl that it’s hard to appreciate how recently the area was wild frontier. 

When traders visited the area in the 1830s, they published descriptions of California in newspapers to satisfy Americans’ desire to learn about this far-off Eden. The Bay Area consisted mostly of ranches, missions, and the occasional fort; the dominant trade was of cow hides and animal fat in exchange for clothes, food, and household goods. Before the Gold Rush, the entire population of California was 14,000. San Francisco was a small settlement of some 500 people

The Bay Area simply had not had the time or density to develop infrastructure. There were no bridges across rivers or roads between towns. “The only wagons,” Dolnick writes in The Rush, “were carts with solid, wooden, Flintstone-style wheels a foot thick.”

This meant that the Bay Area was as hard to reach as a far-off island. Letters from the president to his representative in California took six months to arrive by ship. In the 1840s, explorers were still searching out good overland routes across the Sierras to California, and sailing from the East Coast around the tip of South America to San Francisco or Monterey was a dangerous, months-long voyage. In the mid 1850s, a petition to demand Congress build a highway from Missouri to the West Coast was signed by half the population of California. 

a group of buildings with a hill in the background

An image of San Francisco in 1851; via Wikipedia

In 1848, politicians and businessmen had no doubt that San Francisco had a grand future. America was in the grip of Manifest Destiny, going to war to wrest control of California from Mexico, and the natural port provided by the Bay made it a natural spot for development. 

They just expected it to take time due to San Francisco’s isolation and the scale of the unsettled West. When Mexico and Spain controlled the area, their governments had struggled to convince people to move to the Bay because better farmland was available closer to Mexico.

The Gold Rush, however, dramatically sped up this process.

Nearly 200,000 people arrived in California in 1849 and 1850. In just a few years, over 1% of America’s population made the trek in search of fortune, quickly turning San Francisco into a massive construction site and a swashbuckling city where barbers looked for gold flakes in their patrons trimmed whiskers. Excluding world wars, it was the largest migration of American men in history. 

And the people most involved in transporting these people and the goods they needed profited enormously.

A Monopoly on California

The American Transcontinental Railroad famous linked the Atlantic Ocean to the Pacific in 1869—well after the discovery of gold in California. But in 1855, a railway in Panama began running from sea to shining sea. 

The railway was the creation of three American businessmen, one of whom already ran steam ships to and from Panamanian ports on the Atlantic and Pacific. In his mind, building a railroad would allow him to link New York and California—and control the crucial link between the oceans.

It was an alluring thought, and in the late 1840s, the men raised one million dollars (perhaps $30 million in today’s dollars) to fund their idea. Although the Panama Canal would not be built until 1914, people already used Panama as a shortcut across the continent. Once the Gold Rush began, cutting through Panama became a common route from the East Coast to California. 

It was a dangerous journey. The path across Panama, where the railroad would be built, was dense jungle. In good conditions, people headed to California could cross in a week by taking a dugout canoe—pushed along by nearly naked boatmen who shocked Americans’ delicate sensibilities—followed by a 20 mile journey through the mountains on mules. 

An easy crossing was merely uncomfortable. During bad crossings, the way became a “river of mud” and diseases like malaria killed dozens of people. Historian David McCullough writes that Ulysses S. Grant, who made the crossing in 1852 to take up a military post in California, “would talk more of the horrors he had seen in Panama than of any battles he had known.”

a train travels down the tracks

The Panama Railway today. Photo by Nils Oberg.

The three men financing and constructing the Panama Railway knew very little about railroads, which is probably the only reason the railway was built. In the unfriendly Panamanian terrain, the men exhausted their capital in a year and laid only 7 miles of track. But the frenzied gold seekers saved the project.

The hundreds of thousands of people headed to California desired nothing more than speed. In 1851, a group of migrants asked to use the seven-mile track to speed their Panamanian crossing. The railroad owners realized they could profitably run trains on their unfinished railway, and the profits from the new passengers, along with new investment from Wall Street, paid for the $8 million construction project that still awes engineers to this day. 

When the engineers hammered the last spike to finish the railway in 1855, the company had already been profitable for years. Soon it became the most highly valued company on the New York Stock Exchange. It took a small cut of the value of all cargo, and people returning from California took $500 million worth of gold on the railway in just 10 years. 

When the railway opened, the office in Colon jokingly sent the head office in New York a rate card suggesting absurdly high prices. But as David McCullough writes in an authoritative profile, managers in New York took it seriously and charged passengers $300 (in today’s dollars).

“The explanation was obvious enough,” David McCullough writes of the railroad’s sky high profits. “The road had a total monopoly on the isthmian transit, and until the completion of the Union Pacific [Transcontinental Railroad] in 1869, it had no competition for the California traffic.”

They essentially had a monopoly on the road to El Dorado for 14 years.

Winning the Gold Rush

Although America’s “Wild West” period has been dramatized and romanticized, the insanity of the Gold Rush is no exaggeration. It really was bonkers. 

Many accounts describe how seemingly everyone ran toward the gold fields with or without tools and food. And it was literally everyone. Businessmen wrote letters noting that the wealthy had to do their own cooking and cleaning because the help all left. San Francisco’s port filled with ships whose crews abandoned them on reaching the city, so people just built wharfs that extended past them. One Census found that the Bay Area had 624 miners for every 1000 people. 

Yet among these adventure stories of people crossing continents, winning and losing fortunes in the course of days, many of the Californians who emerged as its richest denizens, like Thomas Larkin and Faxon Dean Atherton, were conservative businessmen. 

When Atherton heard about the discovery of gold in California, he reacted with skepticism and wrote that he hoped coal would be discovered. He was an American merchant in Chile who traded with California, and he did not move to California until 1860. (Although once he did, he moved to a town that ultimately took his name, Atherton, and became one of the wealthiest areas in Silicon Valley.) 

Atherton was friends and often business partners with Thomas Larkin, a businessman who had served as consul to Mexico before America assumed control of California. Larkin was an ambitious man, but he did not fall for gold fever even as his letters to D.C. helped spark the Gold Rush. He lamented that his workers left for the gold mines, and he wrote of the gold discovery, “The future consequence or prospect is not pleasant or moral.”

a person climbing a stone wall

Photo courtesy of the Western History Department of the Denver Public Library; via Wikipedia

But the Gold Rush made both of these humbugs rich. They made only modest investments in gold mining or selling mining equipment. Instead, as their biographers write, they recognized the business potential of serving tens of thousands of new settlers. 

One of Larkin’s first lucrative moves was financing voyages that brought clothes and food to San Francisco. Ship captains bought goods using tens of thousands of dollars on credit from Larkin in China, Mexico, and other Pacific ports, and Larkin also played middleman by buying entire ships’ cargoes when they arrived in San Francisco. A number of his ventures doubled his investment in a few months. 

Larkin and Atherton enjoyed a profitable friendship, so Atherton profited by using information from Larkin to arrange voyages from his perch in Chile to this new, lucrative market in San Francisco. By the time he moved to California in 1860, he, along with Larkin, had become one of the state’s richest men from this trade. 

“He had the dreamer’s eye; the realist’s wisdom,” a biographer wrote of Atherton. “He was one of those unsung men of business who labored to build an economic foundation on which the settler, gold miner, rancher, and shopkeeper were dependent for goods and capital investment.”

Even as men were digging up chunks of gold weighing as much as 195 pounds from California’s riverbeds, Atherton and Larkin became two of the state’s richest men by following a strategy “built on essential elements: foodstuffs, dependable commodities, and investment in land.”

A Rush (of People)

In 1849, California did not have the population to qualify for statehood, and the mining towns springing up consisted of tents and wooden shacks that burned down every few months. A few years later, San Francisco had stately streets and a soaring population.

In the early, mining-centric economy, selling shovels was a good business. Sam Brannan, the man who held the “one-man parade” shouting “gold!”, quickly made a killing selling picks and shovels and staking gold miners. Levi Strauss famously became rich by selling jeans, which appealed to miners because Strauss reinforced the pockets with rivets.

But the people who profited most from the Gold Rush didn’t necessarily “sell shovels”—literally or metaphorically. 

Although Brannan allegedly became California’s first millionaire, the real secret to his wealth was moving up from selling shovels to speculating in real estate (he bought much of modern-day Sacramento when it was still a “muddy landing at a river junction”) and banking (he lobbied furiously against a ban on commercial banking in California). 

Author Edward Dolnick notes that many would-be entrepreneurs arrived in San Francisco with invented mining tools, hoping to sell them for a fortune. “On arrival in San Francisco, the men found the shoreline littered with hundreds of similar contraptions” and abandoned them “in the crowded junkyard.”

The California Gold Rush led to such rapid growth and such ubiquitous demand that a determined person could make good money doing just about anything—except mining gold. “Everyone must do something, it matters but very little what it is,” one settler wrote. “If they stick to it, they are bound to make money.” 

While miners endured hardship for wages that were no better than those they’d earned at home—a condition they accepted for the chance of instant riches—49ers who abandoned their golden dreams steadily accumulated modest riches painting houses, stitching clothes and baking pies. In today’s money, a farmer selling onions made $160,000 in 1849; some deliverymen made six-figure salaries. 

a large area with many buildings and a body of water in the background

This photo was taken in 1906, after the San Francisco earthquake and fire. Just sixty years earlier, the population of San Francisco was a few hundred people. Photo courtesy of the Library of Congress via Wikipedia.

One historian has called the “American emphasis on the gold and silver rushes as adventures rather than economic industrialization” an “embarrassment”. Because while many new arrivals did frenetically seek fortune, the legacy of the Gold Rush was to create new industries and markets that impacted the entire world economy. 

Areas from China to Hawaii to Mexico experienced inflation and shortages as merchants rushed goods to this massive, new Californian market. During the rush, settlers created entire industries from scratch—in ironworks, lumber, and farming, among others—that served the Bay Area and (soon enough) the world. 

During this massive transformation of California from frontier to economic engine, there were fortunes to be made—big or small—in a million different ways. But most were made steadily, if quickly, rather than in a fortuitous choice of a spot to dig for gold. And the biggest tended to be made in real estate and trade.

That is why Thomas Larkin became one of (or perhaps the) richest man in California. It’s why Faxon Atherton became nearly as rich while living in Chile for the first 12 years of the Gold Rush. It’s why the financiers of the Panama Railway, and after them the financiers of the Transcontinental Railway, enjoyed some of the highest profits ever seen in their time. 

Connecting this new economic engine of California to the rest of the world—and breaking it out of its isolation—was incredibly profitable.

A gold rush is never really about the gold. It’s about the people it attracts. That is the real source of wealth: the ambitious, striving individuals lured by gold who ultimately turn their energies to creating civilization.

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