May 7, 2000

Of Forty-Niners, Oilmen and the Dot-Com Boom

Issue in Depth
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    Most financial writers, groping for historic precedents to explain the dot-com boom, cite foreign events, like the tulip mania and the South Sea Bubble. But the most important precursors are those episodes in American history that exemplify our passion for seeking fortune and adventure in new territory. Mining and drilling, in particular, have set a mood that has never disappeared from the West. It is the attitude of extractive industry -- get in, get rich, get out.

    The distinctions between mining or panning for gold, drilling for oil and founding or investing in a dot-com are great. Founding a modern technology company, especially, may depend on expertise of a sort alien to the earlier venturers. They trusted luck and intuition. But the parallels remain striking.

    Like the Internet boom, the California Gold Rush of 1849 was also a huge media event. It dominated national attention, and it fixed certain expectations in the American mind-set: fortunes for the finding, riches waiting for men with the right pluck to come seize them.

    Guidebooks, newspapers and rumor all publicized, and often exaggerated, the riches to be made out West. Susan Lee Johnson, in "Roaring Camp: The Social World of the California Gold Rush" (New York: W.W. Norton, 1999), recounts how men left the familiar bricks and mortar, or at least the wooden logs and shingles, of home, family and farm, for a world turned upside down, where few of the old norms applied.

    Many were disappointed, and many disgusted. "All are here for money," the forty-niner Peter Decker wrote in "The Diaries of Peter Decker: Overland to California in 1849 and Life in the Mines, 1850-51," edited by Helen S. Giffen (Talisman Press, 1966). "The importance of the dollar and the might of an ounce are studied, sought for in every possible way. In short the sociable man is lost in the money-seeking gold-hunting selfish acquisitive miser and conniving millionaire."

    Henry David Thoreau dismissed arguments that the extreme exertions of many gold prospectors gave them a moral right to their riches. "It is not enough to tell me that you worked hard to get your gold," he wrote. "So does the Devil work hard."

    The California mining boom provided the occasion for a national debate about wealth, as the historian David Goodman demonstrated in "Gold Seeking: Victoria and California in the 1850s" (Stanford University Press, 1994). Ministers warned that the explosion of riches would corrupt the national character (warnings that appear to be muted or absent today).

    Ten years later, the spirit of the California rush ruled over the petroleum boom in western Pennsylvania. There, one well returned $15,000 for each dollar invested, as Daniel Yergin recounts in "The Prize: The Epic Quest for Oil, Money and Power" (Simon & Schuster, 1991). "The oil and land excitement in this section has already become an epidemic," according to an 1865 citation from one local editor. "Land, leases, contracts, refusals, deeds, agreements, interests and all that sort of talk is all they can comprehend. All our habits, and notions, and associations for half a century are turned topsy-turvy in the headlong rush for riches." But, he predicted, "the big bubble will burst sooner or later." This painful lesson was learned by many investors in the hundreds of oil companies that went public.

    In Texas, the Spindletop gusher of 1901 set off such a frenzy of exploration and trading in shares that the discovery also became known as "Swindletop." In two years, land prices rose from $10 an acre to as much as $900,000. But the inevitable glut lowered a barrel of oil to 3 cents.

    Succeeding Texas booms enshrined the wildcatter in history and novels, television and film. But even into the 1980s, a collapse in oil prices could cause personal bankruptcies and a deep regional recession.

    To test my notions about the ties connecting the nation's past to the present, especially in the West, I spoke with Charles Scoggin, a board member at the Center of the American West, a doctor and a high-technology entrepreneur. He is currently on his fourth start-up, called Medrock, a company intended to help consumers find the best health care.

    Leaving conventional employment -- in his case, as a medical school professor -- and starting a business, Scoggin said, can deliver a sensation much like the Gold Rush experience of leaving friends, families, and familiar circumstances behind.

    Like a forty-niner chronically wondering if his decision to leave for California was an awful misjudgment, today's entrepreneur, he said, lives with what he calls "the terror that you might be wrong." Those people who choose not to take such risks, or those who stay at home in more comfortable if less promising circumstances, give the adventurer a heavy dose of envy and resentment.

    Failed or even moderately successful gold prospectors wondered whether their families and friends would welcome them back. Today, individuals less successful than my friend wonder whether the old-economy companies they left will take them back once their start-ups collapse.

    Scoggin said exaggerated investment claims, wild speculative swings, predatory investors' taking advantage of the little guy's work, fights over claims (read "patent disputes"), constant tests of endurance and adaptability, and a custom of casual dress that makes it difficult to read status at a glance were common to both booms.

    More generally, acknowledging the kinship between the Gold Rush and the Start-Up Rush could give today's business innovators cause for reflection, if the declines in many dot-com stocks haven't already.

    Scoggin responded in hearty agreement to the comments of Decker and Thoreau. But he says many entrepreneurs today are driven not only by money but also by the intellectual and personal challenge of innovation.

    "Good capitalists get paid for solving problems," he said. Providing a service that solves a problem, he noted, is "a lot different than digging a hole in the ground and blundering upon something."

    But even some of those who blundered upon something invested talent, intelligence and loyalty in their new communities, contrary to the "get in and get out" mode. When the forty-niner Peter Decker died in 1888, the Marysville, Calif., newspaper gave him an epitaph that anyone could envy: "Success in accumulation of wealth makes many men arrogant and pretentious, but it had no such effect upon Decker."

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