Q.David Bowers
The Monetary Situation
Early in 1848 coins in San Francisco comprised a wide variety of United States and foreign issues. Transactions were calculated in either American dollars or Mexican pesos. Virtually any silver coin approximately the size of a dollar would circulate at that value. The French 5-franc coin traded for $1 in the channels of commerce except at the Customs House, even though it had an intrinsic value of only 93 cents.
Indian silver rupees circulated at the value of a half dollar, and English shillings were freely traded for a quarter dollar. The latter denomination was usually referred to as "two bits." A bit, or 12 1/2 cents, originally referred to a fractional cut part of the silver Spanish or Mexican eight real coin. Trading at the value of 12 1/2 cents were the American dime, English sixpence, and French half franc. Silver coins were in special demand, for many imported goods came from China, where gold was not in favor and silver was demanded for payment. Interestingly enough, copper coins were virtually nonexistent. This situation prevailed for decades. By the turn of the 20th century it was reported that one-cent pieces were still unpopular in California and were rarely seen in banking and commercial channels.
The need for gold coins was mainly filled by English sovereigns. Spanish, Mexican, and other gold issues were occasionally seen as well.
As news of the Gold Rush spread, San Francisco became a bustling commercial center. As the main trading ground for mining supplies the city continually increased its need for circulating coins. While paper money issued by banks and others was plentiful in the East, paper notes were not used in California.
In the summer of 1848 a shortage of coins developed. The government required that customs duties on imports had to be paid in coins, but coins were not available for this purpose. Col. Richard B. Mason, Jr., was petitioned to supply a solution.
He instructed the collector of customs to receive gold dust at the rate of $16 per ounce, the valuation agreed to by local merchants and mining interests. He then realized that United States law specifically stated that customs duties could only be paid in coin, so he rescinded his earlier order. A compromise was worked out whereby merchants were allowed to deposit gold dust with the customs office at the rate of $10 per ounce on account, to be redeemed in coins within 60 days (if indeed coins could be found). If the gold dust was not redeemed it would be sold at auction. Coins were virtually unobtainable, so merchants were put in the position of seeing their gold dust, which was worth $16 an ounce in San Francisco (and $18 or more in Philadelphia) sold at auction at $6 to $8 an ounce to buyers who somehow had been able to obtain the required coins in order to bid.
There was a mass meeting on July 22, 1848, at which merchants sought to determine how to solve the problem and how to prevent catastrophic losses. They requested that Col. R. B. Mason, Jr. extend the redemption period to six months.
Mason countered with the suggestion that the customs collector could allow the gold dust owner to redeem half of it with silver or gold coins any time within 90 days and the other half within 180 days, such agreement to be temporary because of the coin shortage. He said he personally would be pleased to comply with the 180-day suggestion, but this would in effect end all receipts at customs for a period of six months, and this would be viewed with disfavor by higher authorities who expected him to rigorously follow his duty to collect customs payments in silver and gold coins. He went on to say:
You can readily perceive the situation in which I am placed. A large amount of duties will be received in San Francisco. Should some ten or twenty thousand dollars of this gold dust received at the customs house, reckoning at the rate per ounce at which it will be received, fail to be redeemed at the stipulated time, then I shall be forced by the want of funds to throw suddenly this large amount into the market to be sold for cash, and should it not bring this sum, I would be held personally and individually responsible and accountable to the Department at Washington for the loss sustained in consequence of departure of my orders and instructions.
I am very sure that none of the merchants of your town would desire to see me assume a risk of becoming pecuniarily involved by departing from my instructions for their accommodations; and therefore I feel, by departing from my orders in this instance, in permitting goods, wares, merchandise to go at once into the market, and waiting three to six months before the duties could be realized, that the precautions I take to guard both the public and myself from any loss are not unreasonable or greater then the occasion calls for.
I shall strongly recommend, in my first communication to the Department, the immediate establishment of a mint in Upper California.
On July 27, 1848, a number of prominent San Franciscans, Walter Colton, Talbot H. Green, J. S. Ruckle, Thomas O. Larkin, C. Wooster, Milton Little, J. Spence, and Jose Abrigo, wrote to Col. Mason to recommend that private assayers issue gold coins to remedy the situation. Mason responded favorably to the idea on July 28, 1848:
I have the honor to acknowledge the receipt of your communication of yesterday's date. Under the circumstances you mentioned, and which are so well known to me-the almost entire absence of gold and silver coin-I have no hesitation in saying that, if the California grain gold, now in such abundant quantities in the country, can be wrought into convenient shapes, so as to answer as a substitute for gold and silver coin, I will order it to be received at the Custom House in payment of duties, at its intrinsic value.
Before any action was taken under this suggestion, the governor realized that this was in contravention of prevailing law. He wrote again to the petitioners on August 8, 1848:
In my letter of the 28th of July, replying to yours of the day previous, you were informed that "if the California grain gold could be wrought into convenient shapes, so as to answer as a substitute for gold and silver coin, I would order it to be received at the Custom House in payment of duties, at its intrinsic value." By reference to the Act of Congress, August 6, 1846, you will see that it would be manifestly illegal to do. I was not aware of all the requirements and prohibitions of that Act, at the date of my letter above mentioned.
On September 9, 1848, a large public meeting was held in San Francisco for the purpose of establishing the value of an ounce of gold dust. This was the greatest public assembly ever held in the city up to that time. It was decided that $16 per ounce would be the valuation, although there were many dissenters, for in the East good quality unrefined California gold sold for $18 per ounce or more.
After mid-September 1848 the government submitted its own bid at the rate of $10 per ounce, thereby making for itself a large profit. An order from H. W. Halleck, lieutenant of engineers and secretary of state, Monterey, September 10, 1848 to Capt. J. L. Folsom of San Francisco states:
... As soon as the time of redemption of the gold dust in your hands received on deposit as security of the payment of duties expires, you will give due notice, and sell it at public auction. In order that there may be no loss to the revenue, you will bid it in at the value for which it was deposited. If it sells for more, the surplus, after the expenses of sale are deducted, will be paid over to the depositors. The gold dust received in payment of duties, with the privilege of redemption, of course becomes the property of the United States if not redeemed at the expiration of the time specified, without any sale.