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Sunday, July 24, 2011

THE SECRET LIFE OF CAPITALISM Part Four


I would say that William Ralston (above) had scaled the summit of delusion. In order to stand atop the very precipice of fallacy, this founder of the Bank of California, owner of much of the Comestock Silver Lode and respected member of the monetary elite, had sold $10 million in shares in his new diamond company in a single morning, and had then, with the ruthlessness efficiency he was respected for, had duped the two Kentucky country bumpkins into selling him their lucky find for little more than a half a million dollars. And having done all of that, he had now ascended his ultimate tower of phantasm. He was now poised to come plummeting to earth.
It is easy to see how Ralston had reached his precarious perch. The entire nation was tripping on inflated  dreams, even if they weren't their own. The Alta California newspaper reported, “We have seen a report written by Henry Janin, a mining engineer of an established reputation, who had visited the mines, examined them and reported favorably on them. He has accepted the position of superintendent and has expressed the opinion that with twenty-five men he will take out gems worth at least $1,000,000 a month...Most of the diamonds found by Mr. Janin are small, weighing a karat. One obtained previously weighed over 100 karats... Some of the sapphires are as large as pigeon eggs....The diamond mines are the property of the San Francisco and New York Mining and Commercial Company, which has...100,000 shares of stock and they have been selling at $40, making the present market value of the whole property $4,000,000.”
In fact there was no 100 karat diamond. Janin was not the new superintendent. In fact that gentleman had recently sold his 1,000 shares in the claim for $40,000, to maintain his expensive lifestyle. Still Janin had faith in the venture, so perhaps the first man to realize that Raliston was actually a man on the verge was
Mr. Clarence King (above). But then it was easy for Clarence because he had no money invested in the mountain. As a trained and thus disinterested geologist, Clarence King knew from the second he saw those lurid headlines that the diamond mountain was a fraud. He knew that diamonds and sapphires are never found together, if for no other reason than that diamonds are formed at temperatures and pressures which would crush and melt sapphires. Proof of this, common knowledge even in 1872, was that you could cut a sapphire with a diamond, but not the reverse. Only later would it be established that diamonds were made of carbon while sapphires were corundum, a form of aluminum.  But more than that, Clarence King knew the area around the alledged diamond mountain as few other people in the world could.
What made the 30 year old Professor King such an expert was that he had just completed (pun alert!) his groundbreaking work on the 40th Parallel Survey. This massive seven volume catalog of the natural resources made accessible by the transcontinental railroad, had only been completed in September of 1872. As its centerpiece it produced a topographical geological map centered on the 40th east /west parallel, and covering 50 miles on either side, on a scale of four miles to an inch. And nowhere on this map or in its thousands of pages of supporting geological and biological compendiums, was there even a hint of such a place as Ralston's diamond mountain.
Over dinner at the Pacific Union Club in San Francisco (above), King carefully grilled Henry Janin about the claim. He was stunned to discover that even now Janin was not sure of the exact location of the mine. “I was taken a long distance on a train, about 36 hours. Then we left the railroad at some small station where there was no attendant. We were brought out of the station blindfolded and put on horses” For two days, explained Janin, they had ridden with the sun in their faces.
The consulting mining engineer described the claim itself as a curious place, “...a desert with a conical but flat topped mountain rising right out of it, and on the mountain you find everything from garnets to diamonds!” Familiar with the country, King realized that 36 hours on the train would have taken Janin into eastern Utah territory or Western Wyoming territory. And the sun in his face for two days, meant Janin had been ridding south from the railroad. After lunch, King consulted his maps.
And 36 hours later he arrived at Rawlings Springs, Wyoming. He hired an aging German emigrant prospector and together they set off for a mountain he had surveyed just the year before, in what is today northwestern Colorado. On November 2, 1872 they crossed a creek with a sign marked, “Water Rights – Henry Janin”. Immediately, King began to set up camp while the prospector went off exploring. King was hardly finished pitching the tents when the old man came back holding a gem. He proudly announced, “Look, Mr. King. This diamond field not only produces diamonds but cuts them also!”
The two men working together quickly became adept at finding gems. They had only to look for tool marks on the surface, to find a diamond pushed into the ground, or a sapphire jammed into a crevice in the rocks. And indeed, many of the gems showed signs of having been worked over by lapidary tools. It appeared that the great diamond mine had been “salted”.
The term was an invention of the colonial American frontier. At a time when salt was vital in the preservation of food, poor farmland could still be sold at a premium if the seller poured salt down a well on the property, to give the impression of a “salt lick” or mineral deposits just below ground level. Gold and silver claims were even more easily salted, with a shot gun loaded with the appropriate mineral dust. But salting this diamond mine had required a more labor intensive approach.
A week of examining the property provided King with all the evidence he would need. On the the sixth of November the two men headed back toward the railroad, barely 20 miles away. (It seemed Mr. Harpending had actually heard the Union Pacific engine's whistle, after all!) King did not wait for a scheduled stop at Rawlings Spring, but flagged down a passing train, parted company with the sharp eyed prospector and composed a quick cable to William Ralston, which he dispatched at the next station. The message was short and sour. The great North American Diamond Mine was a hoax.
The sound reverberating out of San Francisco that day was of a hundred egos suddenly deflating - one in particular. How had such wise men been so completly dupped?
- 30 -

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