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Sunday, July 03, 2011

THE SECRET OF CAPITALISM Part One

I would like to see every PhD.. candidate in economics at an American university required to make a pilgrimage to the Unita Mountains, about 100 miles due east of Salt Lake City, Utah and about the same distance north-north west of Golden, Colorado. There, looming over tributaries of the Green River stands a lonely, wind swept conical peak, and a 7,000 foot high mesa called Diamond Mountain Plateau (above). There are no diamonds in Diamond Mountain, but amongst the scrub brush, gravel, and oppressive isolation there is a zircon of veracity for these academic acolytes to contemplate, one brilliant shinning baguette illuminating the fundamental and eternal truth behind capitalism – greed makes you stupid.
In 1846, the 17 year old Philip Arnold left his home in Elizabethtown, along with his cousin John Slack
to join 4,700 of their fellow Kentuckians serving in the Mexican war. Both men were mustered out in 1848 in Texas, and rather than returning east, they joined the California gold rush. Like the vast majority of prospectors, they found no gold. They both worked for a time at a mine in New Mexico. Philip eventually found employment in San Francisco at the new Bank of California - owned by William Ralston – as an appraiser of other prospector's gold claims. It was not the romantic life's adventure Phillip had dreamed of, and as the precipice of middle age yawned open before him, he found less physically demanding employment, as an assistant bookkeeper for “General” George D. Roberts, at his Diamond Drill Company.
From this reasonably secure pedestal Philip watched as the pattern established in California in the 1850's was repeated in the gold and silver finds in Nevada of the 1860's. Out of the thousands of prospectors who rushed in, a mere handful of the early arrivals actually found gold, and they were quickly bought out or squeezed out by the mining conglomerates. In 1869, when word spread of an 83 carat diamond picked up in plain sight on the ground by a sheep herder, hundreds of aging desperate 49'ers even boarded ship for South Africa, knowing they would arrive months too late to strike it rich. So it was no wonder then that in 1870, at forty years of age, Philip Arnold gathered his life savings, quit his job and along with his cousin, went prospecting for diamonds in America. Amazingly he found them.
In early February of 1872, two dusty unshaven prospectors carrying a battered raw hide bag walked into a San Francisco saloon, ordered drinks and sat alone. Their furtive arguing, and their sheltering of the tattered bag, immediately drew attention. Many of the denizens recognized them as John Slack and Philip Arnold. After several minutes, the pair paid their bill and left. But they repeated their argument at several saloons before finally presenting themselves, dusty and unshaven and now reeking of whiskey, at the main office of the Bank of California. Without a word of explanation, they presented their bag for deposit. It was accepted and recorded by the bank manager as filled with diamonds, rubies and other sapphires. It took about twenty minutes for the whole town to be assemble the story and to be set afire with rumors.
The manager immediatly notified his boss, William Ralston. And when Ralston made inquries about the  two men, he then urged Major George Roberts to contact his old “friend” Philip Arnold. But Philip was reluctant to talk, and John Slack was virtually mute. After plying the prospectors with whiskey for hours, Philip finally admitted that some where in the great desert wilderness of Utah territory, just before winter drove them back to civilization, they had found a mountain literally peppered with diamonds and sapphires. The bag deposited in Ralston's bank was just a sample of what they had picked up in a few hours. Arnold explained, they had filed on the claim and were now the legal owners of a diamond mountain.
It was an unbelievable story. But Ralston (above) and Roberts both knew Philip Arnold as a trustworthy and honest employee. And John Slack was also know around town as a dull but hard working man. And there was a logic to finding yet another massive, rich deposit of wealth in the American west, where everything was possible. The biggest problem at this point was getting information out of the two prospectors. Over the next few weeks banker Ralston and a small group of close investors managed to convince the pair to allow two local jewelers to examine the diamonds. They pronounced the contents as worth $125,000. This inspired Ralston to offer $50,000 for one half of one percent interest in the claim, if it were first examined by two experts, one being David Colton, part owner of the successful Amador gold mine, and the other expert was General Roberts. Reluctantly, Philip Arnold and John Slack agreed to take these experts to their claim.
In early March they traveled by railroad from San Francisco to Sacramento. There the two prospectors and their charges boarded the Central Pacific Transcontinental Train, climbing over the Donner Pass, down into the Nevada basin and across the Utah desert. After 36 hours on the train, Philip insisted the two experts put on blindfolds, and they meekly complied. They rode across the desert with their eyes covered, and then just before dawn, at a small seemingly abandoned station, the train pulled to a stop.
Philip and John helped the two men, still blindfolded, off the train and onto horseback. Immediately they continued their journey. For the next two days the experts, softened by life in San Francisco, suffered on horseback in the oppressive heat of the sun, and endured freezing temperatures each night. They were allowed to remove their blindfolds only after sunset. And starting before sunrise each morning, they were required to replace their blinders. And then, just as they had grown so frustrated they were on the verge of ripping off their blindfolds, the horses were brought to a stop, and their blindfolds were removed.
What was revealed was a flat desert mesa, covered in scrub brush and gravel, with an odd thurst of a mountain at it's foot. Colton and Roberts wandered about, staring at and kicking the nondescript terrain until, suddenly, Colton reached into what appeared to be an ant mound and pulled out a small hard brilliant crystal. In an instant the two excited experts agreed. The Great Diamond Mountain was real!
They spent several hours collecting gems – diamonds and sapphires – before Philip Arnold and John Slack re-blindfolded the men and led their horses back off the mesa. It was a two day journey back across the horrible desert, and, flagging down the transcontinental train in the dark, Colton and Roberts were accompanied by Arnold and Slack as far west as Oakland. There they collected their $50,000 payment and returned to their "diggings". But the two experts continued on to San Francisco with the two bags of jewels they had collected.
With those jewels in hand it seemed obvious to William Ralston (above) that the Diamond Mountain Claim was going to make him and his friends (such as Colton and Roberts) even richer than they were already. But first they had to squeeze Philip Arnold and John Slack out of the deal as quickly and as inexpensivly as possible. And you know, Mr. Ralston was half right.
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