Yukonomist: How the Yukon saved the economy

During the Klondike gold rush, the prospect of free gold drew more than 100,000 people to leave home, work, friends and family for the arduous trek into the unknowns of the Yukon.

But there wasn’t just a pull. There was also a powerful push. The financial crisis of 1893 had morphed into a severe and prolonged depression. When the S.S. Excelsior arrived in San Francisco in July 1897 with thousands of pounds of gold and just 63 passengers lugging it to the bank, the US economy was just coming off a painful double-dip of the crisis in 1896.

Harvard professors Carmen Reinhart and Kenneth Rogoff have studied more than 100 financial crises over the last 200 years. In US economic history, the only crisis worse than the downturn of 1893 was the Great Depression. Per capita gross domestic product fell a painful 14.2 per cent, and it lasted six years. Our recent 2008-09 crisis saw the economy shrink less than half as much, and rebound sooner.

This explains why Tappan Adney, the Harper’s Weekly writer who recorded his Chilkoot Trail experience in the fall of 1897, found so many greenhorns on the trail. One reason a bank clerk will leave the big city to lead horses through Dead Horse Gulch or steer a home-made boat across Bennett Lake is if his bank just went bankrupt and employment insurance hasn’t been invented yet.

Strangely, the whole thing got started in Argentina. A massive boom involving commodities, rapid immigration and foreign railway investment turned into a bubble that was popped by a crop failure and coup in 1890. London’s powerful Barings Bank was at the centre of the action, and is now a case study for one of the world’s first big banking bailouts.

In the ensuing run for cover, British and European investors pulled money back home. This included investments in the US. Remember that most major countries were on the gold standard at this time, meaning paper money in circulation was backed by gold. People sold investments in the US, got cash, and then used it to withdraw gold from their banks to take back to Europe. This caused a classic credit crunch; basically, a shortage of money.

The tsunami took until 1893 to hit North America. Over 500 banks went under, several of the biggest railways failed, and unemployment spiked over 25 per cent in Pennsylvania, New York and Michigan.

According to the World Gold Council, US gold reserves fell dramatically from 442 tonnes in 1890 to just 169 tonnes in 1895.

In this context, the Klondike stampede was like an economic stimulus program. Seattle, San Francisco, Victoria and Vancouver boomed. Spending on boots, long johns and bacon spiked. Seattle shipyards restarted. Steel mills churned out boilers and rails for the White Pass & Yukon Route. But this was relatively small compared to the total continental economy.

The bigger effect occurred when the gold started coming back. We don’t know exactly how much gold came out of the Klondike. Record keeping was shaky in general, and lots of people saw no good reason to advertise their good fortune. Adney reports an incident where two guys passed backwards over the pass through Skagway on their way Outside carrying 78 pounds of gold. They were careful to tell no one but the doctor (and had him swear not to tell anyone until they were safely on their ship).

In case you’re wondering, 78 pounds of gold would be worth about $2.2 million at today’s prices and exchange rate.

One estimate is that 2.4 million ounces came out of the Klondike in the first three years of the stampede. That’s about 75 tonnes of gold.

Most of that probably went to the US. Around two-thirds of stampeders were American or recent immigrants. Some of this gold went to bank vaults or Fort Knox, and the rest circulated privately. The remainder ended up with Canadian banks or in Ottawa’s vaults, or filtered overseas.

To think about how this boosted the economy in the late 1890s, let’s think about how things would work today. Consider an experiment where you took a few thousand residents of North America and split 75 tonnes of gold among them. They would buy lots of new stuff, and maybe invest in some new businesses. This would boost the economy.

However, they would probably save a lot of it, rather than spending it. Or the people who bought the gold from them would save it. The total amount of money in the economy wouldn’t change much. (This is also the case since our economy is so much bigger now).

However, because of the gold standard, things worked differently in the 1890s. Remember that US gold reserves were just 169 tonnes in 1895. It’s a big deal to add a big share of the Klondike’s 75 tonnes to this mix, especially since that gold would then get multiplied as more paper currency was issued.

This is reversing the vicious cycle that caused the contraction in the first place.

Neither the US nor Canada had official central banks during the 1890s downturn. Instead of economists carefully crafting a quantitative easing program, Klondike miners provided the monetary policy response.

Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. He is a Ma Murray award-winner for best columnist and received the bronze for Outstanding Columnist in the 2019 Canadian Community Newspaper Awards.

Yukonomist

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

A bobcat is used to help clear snow in downtown Whitehorse on Nov. 4. According to Environment Canada, the Yukon has experienced record-breaking precipitation this year. (Crystal Schick/Yukon News file)
Yukon will have “delayed spring” after heavy winter snowfall

After record levels of precipitation, cold spring will delay melt

Yukon RCMP say they’ve received three reports of youth being extorted online. (Black Press file)
Yukon youth being extorted online

Yukon RCMP say they’ve received three reports of youth being extorted on… Continue reading

Fines for contravening the fire ban start at $1,150 and could go as high as $100,000. File photo
Yukon campgrounds will open on May 1 this year. (Black Press file)
Yukon campgrounds to open early

Yukon campgrounds will open on May 1 this year. The early opening… Continue reading

A Housing First building on Fifth Avenue and Wood Street will be taken over by the Council of Yukon First Nations and John Howard Society later this month. (Crystal Schick/Yukon News file)
CYFN, John Howard Society take over downtown Housing First residence

The organizations have pledged culturally appropriate service for its many Indigenous residents

Legislative assembly on the last day of the fall sitting in Whitehorse on Nov. 22, 2018. Politicians return for the spring sitting of the assembly March 4. (Crystal Schick/Yukon News file)
Analysis: What to expect in spring sitting of the legislature

They’re back on March 4, but election speculation is looming large

A man walks passed the polling place sign at city hall in Whitehorse on Oct. 18, 2018. The City of Whitehorse is preparing for a pandemic-era election this October with a number of measures proposed to address COVID-19 restrictions. (Crystal Schick/Yukon News file)
City gets set for Oct. 21 municipal election

Elections procedures bylaw comes forward

A rendering of the Normandy Manor seniors housing facility. (Photo courtesy KBC Developments)
Work on seniors housing project moves forward

Funding announced for Normandy Manor

Tom Ullyett, pictured, is the first Yukoner to receive the Louis St-Laurent Award of Excellence from the Canadian Bar Association for his work as a community builder and mentor in the territory. (Gabrielle Plonka/Yukon News)
Tom Ullyett wins lifetime achievement award from the Canadian Bar Association

Ullyett has worked in the Yukon’s justice ecosystem for 36 years as a public sector lawyer and mentor

The Blood Ties outreach van will now run seven nights a week, thanks to a boost in government funding. Logan Godin, coordinator, and Jesse Whelen, harm reduction counsellor, are seen here on May 12, 2020. (Crystal Schick/Yukon News file)
Blood Ties outreach van running seven nights a week with funding boost

The Yukon government is ramping up overdose response, considering safe supply plan

Ranj Pillai speaks to media about business relief programs in Whitehorse on April 1, 2020. The Yukon government announced Feb.25 that it will extend business support programs until September. (Crystal Schick/Yukon News)
Government extends business relief programs to September, launches new loan

“It really gives folks some help with supporting their business with cash flow.”

Whitehorse City Hall. (Joel Krahn/Yukon News file)
A look at decisions made by Whitehorse City Council this week

Bylaw amendment Whitehorse city council is moving closer with changes to a… Continue reading

Susie Rogan is a veteran musher with 14 years of racing experience and Yukon Journey organizer. (Yukon Journey Facebook)
Yukon Journey mushers begin 255-mile race

Eleven mushers are participating in the race from Pelly Crossing to Whitehorse

Legislative assembly on the last day of the fall sitting in Whitehorse on Nov. 22, 2018. As the legislature prepares to return on March 4, the three parties are continuing to finalize candidates in the territory’s 19 ridings. (Crystal Schick/Yukon News file)
Nine new candidates confirmed in Yukon ridings

It has been a busy two weeks as the parties try to firm up candidates

Most Read