Vox Libertatis
columnist: Nick Sheedy

Topic: Government Regulation
The End of Oregon's Golden Years

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An historical look at the federal policies that destroyed the mining industry of eastern Oregon and have prevented it from recovering.

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by Nick Sheedy
(libertarian)
Thursday, December 13, 2007

(I originally wrote this article for a special history edition of the Blue Mountain Eagle, John Day, Oregon.)

A great deal has been written on the discovery of gold and the subsequent heyday of the mining era. I would like to write a bit about the fate of the mining industry in Grant County, Oregon, and its demise, which occurred quite suddenly in 1942.

In Oregon, Grant County's gold production was exceeded only by Baker County's. Soon after gold was discovered in 1862, communities and towns sprang up. A great deal of new wealth caused the economy to grow (after all, gold was legal tender, and the recently mined gold was new money that increased the over-all purchasing power of the country.)  After visiting eastern Oregon in late 1900, the preeminent geologist, Waldemar Lindgren, in his 1901 U.S.G.S. report, The Gold Belt of the Blue Mountains of Oregon, estimated that no more than $16 million in gold had been extracted from the Canyon City area. ($16 million in gold in 1900 would have been roughly 800,000 ounces, worth $640 million at today's value of $800 per ounce.)  At first, most residents were miners, but census data shows that, by 1900, a majority of the population in the area were families, ranchers, timber-men, dairy farmers, shopkeepers, schoolteachers, etc.

Mining in the early days focused on placer works: mining gold in gravel beds that had eroded from initial sources - as opposed to lode mining which focuses on deposits or veins in "hard rock."  By 1900, the easy placer deposits were playing out, but the miners, many of them using their new wealth, had begun developing lode mines.

Hard rock mining employs tunnels and shafts and is, by its nature, more labor- and capital-intensive. Considerable investments were made in lode mines and ore mills, but a recession in the first decade, and then some stock scandals and a capital scare about 1907, had a chilling effect on investors.

During World War I, the federal government pressured mine owners to develop their properties, even threatening to exercise eminent domain if they did not. They emphasized the production of strategic metals, but investments made in equipment and infrastructure helped the whole industry grow. Some investments were made in the 1920s, and new technology (such as expanded dredging) made mining more profitable, with mixed success by specific lode and placer mines.

In 1928, the inflated stock market crashed. Very little capital was available to invest during the depression. Large-scale mining slowed with the economy as demand for metals dropped. Some people who could work, but couldn't find employment, turned to small-scale mining to get a little grocery money; after all, gold was still legal tender.

But in 1933, everything changed. On April 5, President Franklin Roosevelt issued Executive Order No. 6102, and made it illegal for any U.S. Citizen to possess more than $100 worth of gold or to use it as legal tender. U.S. citizens were prohibited from converting their cash to gold, and had to send all gold to the nearest Federal Reserve Bank by March 1, or within three days of coming into possession of gold after that. Roosevelt issued another proclamation Aug. 28, creating a federal licensing system for any person, corporation or bank to possess gold. The Gold Reserve Act of Jan. 30, 1934 stated that any gold that was still held privately would be forfeited to the U.S. Treasury subject to a penalty of twice the gold's value, and created other punishments (fines up to $10,000, and jail time up to 10 years) for people who continued to hold gold.

These actions were primarily an attempt to prevent money-hoarding, but they did not stop foreign citizens or other central banks from owning gold, or from redeeming their cash or U.S. Treasury notes for gold from the U.S. Treasury. (In 1961, President Dwight Eisenhower would also make it illegal for U.S. citizens to buy or hold gold out of the country. And in 1971, President Richard Nixon stopped foreign citizens and banks from redeeming their U.S. gold certificates for gold as well, practically eliminating any vestige of the gold standard.  It is interesting to note that, during that forty-some years, more than three-quarters of the U.S. gold reserves held at Fort Knox were spirited out of the country in exchange for cash by foreign central banks-especially the International Monetary Fund and the World Bank.)

But back in rural eastern Oregon: while the 1933-34 prohibitions to hold gold, and requirements to ship it to the Federal Reserve did not explicitly ban gold mining, they created practical burdens on small producers in Grant County who had to ship their weekly clean-up to San Francisco or Seattle, or face stiff penalties. Large mining companies, and especially foreign banks, silently welcomed the new regulations because they burdened smaller competitors and helped to consolidated their wealth and power.  But the honest miner who might find a little color in his pan could no longer use his gold as legal tender.  He used to be able to take his clean-up down to the general store and to buy beans and tools.  But after January 1934, he was required to ship it to the nearest Federal Reserve Bank within three days, and wait for a receipt.

A second part of this new monetary policy actually gave the mining industry a shot in the arm. On Jan. 31, 1934, Roosevelt reduced the gold content of the U.S. dollar, fixing a new value for gold at $35 per ounce (up from $20.67). The paper-money value of gold increased by almost seventy-percent overnight. This initially encouraged people to turn their gold over for cash, because they got more dollars in their pockets-even though their money was quickly devalued by the inevitable inflation bought on by printing more cash while the economy was in a depression (the dollar lost about forty three percent of its purchasing power in short order).  But the policy encouraged gold mining as a means of generating new wealth (which was also spurred by the lower material and labor costs of the depression). Oregon Gold production averaged $3 million annually between 1935 and 1940, levels not seen since the 1860s. The highest lode-gold production in Oregon's history was, by far, 1941. The early wartime economy saw a significant jump in mining activity to provide the raw materials for increased industrial and manufacturing production, and the increased mining activities in Grant County allowed the industry to expand into other deposits, such as copper and chrome.

Then, in October 1942, The War Labor Board, and an executive order by FDR practically killed the gold mining industry in Grant County and everywhere else in the United States.  Acting under the auspice of the War Labor Act, and rationalizing that it was "non-essential," Order L-208 made it illegal to mine gold. More than that, it became illegal to operate, purchase or transport any gold mining equipment, and the federal government confiscated any equipment in transit. The only mines that were allowed to keep operating were those that could prove they produced "strategic metals" such as iron, copper, chrome, nickel, cobalt and tungsten.

In Grant County, this included only a few mines, such as the Buffalo near Granite (the longest-operating gold mine in Oregon, once owned by the author's grandparents), the Standard and Copperopolis near Prairie City, and a few chrome producers around Canyon City. But, with the rest of the mines shut down, the industry lost a critical mass: there simply was not enough economic activity to make mining feasible, keep all of the vendors and service industries in business, or even keep the economies of some towns viable. Susanville, Galena, and Greenhorn became ghost towns practically overnight. The population of Granite decreased by eighty percent between 1942 and 1945. By 1950, only two people appeared on the census there. Of course, the service industries, transportation, stores and other businesses that served and depended on the mines and miners, closed as well.  (Granite, which had boasted its own electrical power plant and telephone lines, would see that infrastructure abandoned, and electrical and telephone services would not be restored for another half-century!)

Besides making gold mining illegal, the federal government also sponsored scrap-drives for the war effort. Through an appeal to patriotic duty-commonly considered coercion, and sometimes resulting in outright theft-ore cars, rail, ore mills, and other idle equipment were carted off: the mining infrastructure of Grant County--and most of the rest of rural west--literally was dismantled and removed.  (I have even been informed by geologists who worked for a time in Russia, that they saw old stamp mills that were originally from Colorado and Idaho that had been shipped to our allies during WWII as scrap, but were reassembled and put in production in Kamchatka and Siberia.)

The demise of the mining industry influenced something else: due to sagging ticket sales during the depression, the Sumpter Valley Railroad had discontinued passenger service in 1937, but continued a profitable cargo business. Shipments of cattle and lumber continued during the war, but without the gold ore from steady producers it enjoyed prior to 1942 (there were seven ore mills along its tracks), keeping the line open became unfeasible.  Trains were kept running through World War II, but the SVRR made its last run in 1945.

A few placer and dredging operations picked up in the 1950s, but federal policies kept the value of gold artificially low through 1979. It simply was not economically feasible to mine gold at the regulated price - not to mention that hard rock mining is so capital intensive, and that opening a closed mine is more expensive than starting a new mine. Of course, the infrastructure and had been dismantled, and the labor force, industrial expertise and business relationships either had left the area or ceased to exist.

It is not a matter of personal opinion, or late speculation, that the end of Grant County's mining industry was due to these economically harmful, albeit perhaps well-intentioned, federal policies. In the 1957-58 Oregon Blue Book, the Secretary of State wrote: "Until some change is brought about [in federal policy] to give the gold miner a chance to make a profit, no improvement can be expected in gold production in the state."  And in 1959, Oregon's Secretary of State wrote: "Gold accounted for the bulk of the state's mineral wealth for almost 90 years, but began a rapid decline in the period 1942 to 1945. Today, the value of gold produced annually is less than $100,000."  (Gold production in 1941 had exceeded $4 million.)

While the nature of mining is to extract a finite resource, the oft' given explanation that gold mining is a "boom and bust" phenomenon is oversimplified.  And the knee-jerk assumption that the old-timers exhausted all the gold long ago is simply not accurate. Of course, other pressures have discouraged miners more recently, and the United States now imports most of its necessary minerals and metals from foreign sources. As present trends and public policies are applied today, it seems likely that other resource industries will follow suit, and history will repeat itself.

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©2007 Nick Sheedy, all rights reserved. You must have written permission from the author in order to republish this work.
Published: Thursday, December 13, 2007
Last modified: Friday, December 14, 2007

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