15.3: California’s Economic History

California has experienced waves of migration. Once the Treaty of Guadalupe Hidalgo of 1848 was coercively signed with Mexico, the US acquired the future states of California, Nevada, Utah, Arizona, New Mexico as well as the independent territory of Texas the newly acquired territories underwent rapid and extensive development. In 1847, California was controlled (with much difficulty due to deserters leaving to look for gold) by a U.S. Army-appointed military governor and an inadequate force of a little over 600 troops. After the finding of extensive gold deposits in California, the California gold rush started in 1848. Commerce and economic activity in California initially centered around the vastly expanded cities of San Francisco, San Jose, and Sacramento as they scrambled to supply the hordes of gold miners. Meanwhile, Los Angeles initially remained a less populated settlement with fewer than 5,000 residents, until the findings of borax in Death Valley (1881), and silver and lead in the Eastern Sierra (1866).

Lecture Time: California’s Economics

Want to learn more? Either scan the QR code or visit this link to watch a lecture that introduces the story sectors of California’s unique and fruitful economics. (Video length: 28min).

From Statehood to Higher Education to Agriculture

Soon after gaining statehood in 1850, the state required and paid through taxes for nearly universal elementary school education. Other private schools were founded and are still doing well. In the 1930s California was a leader in the high school movement to educate students beyond elementary school. State-subsidized college educations have a long history in California as well as many private elementary, middle, high schools, colleges, and universities. There are three public funded higher education systems in the state: the California State University (CSU) (founded 1857), the University of California (UC) system (founded 1868), and the California Community College System (CCCS) founded in 1967. CSU is the largest university system in the United States. CSU has 23 campuses and eight off-campus centers enrolling 437,000 students with 44,000 faculty members and staff, The University of California was founded in 1868 in Berkeley as a state supported university. The California Community College System consisting of 112 community colleges in 72 community college districts in California has over 1,800,000 students. California also has an extensive private college system of over 133 colleges and universities including California Institute of Technology (Caltech) and Stanford University.

About half the settlers coming to California after 1846 came by the wagon trains on the California Trail (a trip of about 140–160 days). The other half came by sea via paddle steamers going to and from the Isthmus of Panama or Nicaragua (about a 40+ day trip). The building of the Panama Railroad in 1855 made this a much more used route especially for passengers. The other main sailing ship route was going around Cape Horn, about a 120-day (via Clippers) or 200-day trip by regular sailing ship. Nearly all freight to California till 1869 took this long route around South America—shipping by ship has nearly always been relatively slow but cheap. Overland shipping was too difficult and took too long for nearly all cargo. The First Transcontinental Telegraph replaced the Pony Express in 1861 and established the first rapid communication with the east coast. The First transcontinental railroad was completed across the future states of Nebraska, Wyoming, Utah, and the new states of Nevada (est. 1864) and California in 1869 and cut this trip to about 7 days. This rail link tied California and the rest of the Pacific states firmly into the union and led to much more rapid and profitable commerce between the states. In 1886 the first refrigerated cars on the Southern Pacific Railroad entered operation. The loading of such cars with oranges, at Los Angeles on February 14, 1886, started an economic boom in the citrus industry of Southern California, by making deliveries of perishable fruits and vegetables to the eastern United States possible.

Early farming in the state was primarily concentrated near the coast, and the Sacramento–San Joaquin River Delta in the Central Valley. Winter wheat was an early crop that grew well without irrigation if planted in the fall and harvested in the spring. By the 1880s extensive grape fields for producing wine were being planted in many areas in California. Many of the vine stock originally came from France and other parts of Europe. Starting in the late 1880s, Chinese workers and other laborers were used to construct hundreds of miles of levees throughout the Sacramento–San Joaquin River Delta's waterways to control flooding, reclaim and preserve flooded land that could be converted into farmland. This area now often grows extensive rice crops. Subsequent irrigation projects have brought many more parts of the Central Valley into productive agriculture use. The Central Valley Project, formed in 1935 to redistribute water from northern California to the Central valley and Southern California helped develop more of the Central Valley.

California's location along the Pacific coast and its rapidly growing population initially led to the constructions of major seaports at San Francisco in the San Francisco Bay area and inland ports at Sacramento, etc. The first paddle steamer, the SS California, arrived in the port of San Francisco on February 28, 1849, with over 400 passengers trying to get to the gold rush territory. She left New York City October 6, 1848, before the gold discoveries were verified and the gold rush truly started. Shipment of passengers and freight to Sacramento was accomplished by off-loading the cargoes and passengers onto paddle steamers for transit up the Sacramento River to Sacramento, Stockton, etc. As the population spread out and grew ports were established up and down the California coast with other major ports in Long Beach, Los Angeles, and San Diego. The largest U.S. Naval base on the west coast is now in San Diego. The state's shipping industry evolved to handle cargoes to and from California to Europe and the eastern United States and help support the growing international trade with South America, Asia, and Oceania. During World War II, numerous military bases and various wartime industries were quickly established in the state to support the Pacific Ocean and Atlantic Ocean fleets—ships could use the Panama Canal to get from ocean to ocean. California led in the number of merchant ships built at the Kaiser shipyards in Richmond and the Los Angeles areas. Mare Island Naval Shipyard (now closed) in the San Francisco Bay built submarines as well as repaired many of the ships used by the U.S. Navy Pacific Fleet in World War II. The rapidly growing California aircraft industries was greatly expanded. Since then, these defenses connected industries have largely closed or moved to cheaper areas in the U.S.

Talkies to The Silicon Valley

With Thomas Edison's invention of the Kinetoscope (early movie camera) in 1894, California would become a leader when "talkies" were introduced in the sound film movie industry. The idea of combining motion pictures with recorded sound is nearly as old as film itself, but because of the technical challenges involved, synchronized dialogue was only made practical in the late 1920s with the perfection of the Audion amplifier tube and the introduction of the Vitaphone system (we will learn more about why the Audion would help with computers later). After the release of The Jazz Singer in 1927, "talkies" became more and more commonplace. Within a decade, popular widespread production of silent films had ceased. Cheap land, good year-round climate and large natural spaces prompted the growing film industry to begin migrating to Southern California in the early part of the 20th century. The film patent wars of the early 20th century led to the spread of film companies across the U.S. Many worked with equipment for which they did not own the patent rights, and thus filming in New York was "dangerous"; it was too close to Edison's company headquarters, and to his agents which the company sent out to seize "illegal" cameras. By 1912, most major film companies had set up movie production facilities in Southern California near or in Los Angeles because of the region's favorable year-round weather and the rapidly growing supply of "talent" both before and behind the cameras. Since the 1920s California continues to be a major U.S. center for motion-picture shows, television shows, cartoons, and related entertainment industries, especially in Hollywood and Burbank areas.

Since 1945, manufacturing of electronic equipment, computers, machinery, transportation equipment, and metal products, has increased rapidly while aircraft and naval construction has largely ceased. Stanford University, its affiliates, and graduates played a major role in the development of California's electronics and high-tech industry. From the 1890s, Stanford University's leaders saw its mission as leading the development of the West and shaped the school accordingly. Regionalism helped align Stanford's interests with those of the Stanford area's high-tech firms for the first fifty years of Silicon Valley's development. During the 1940s and 1950s, Frederick Terman, as Stanford's dean of engineering and provost, encouraged faculty and graduates to start their own companies. He is credited with nurturing Hewlett-Packard, Varian Associates, Fairchild Semiconductor, Intel Corporation, and later other high-tech firms such as Apple Inc., Google, etc. in what would become Silicon Valley that grew up around the Stanford campus. Despite the development of other high-tech economic centers throughout the United States and the world, Silicon Valley continues to be a leading hub for high-tech innovation and development, accounting for one-third of all the venture capital investment in the United States. Geographically, Silicon Valley encompasses all the Santa Clara Valley, the southern Peninsula, and the southern East Bay. Several high-tech companies and small low-tech, often low-wage, companies are also located in Southern California.

California also pioneered numerous innovations in retailing during the mid-20th century, particularly fast-food restaurants, and credit cards. Nationwide fast food chains A&W Restaurants (1919), McDonald's (1940), Taco Bell (1961), and Panda Express (1983) were all founded in California. Visa Inc. (originally BankAmericard) was born from a 1958 experiment by Bank of America in Fresno, while MasterCard (originally Master Charge) was formed as the