The SS Central America: The lost gold ship that triggered a global crisis

The SS Central America was just one of hundreds of steam ships transporting goods along the East Coast of the Americas in the mid-19th century. But why was this ship so special and why did its loss, en route to New York with a hold full of gold, have such far reaching consequences that were felt all over the world?

The story begins far away, in the remote valleys of northern California…

At the time, over 300,000 people were flocking there as news broke that gold had been discovered along the American River, in what has come to be known as the California Gold Rush. Men, women and children from across the world would pan gold along the American River, which would then be exchanged for local goods, returned to far away homes by sea or deposited in a bank in exchange for banknotes.

Gold Prospectors

The economic boom spurred by the gold rush led to heavy investment from East Coast banks and beyond, hoping to cash in on the American expansion into the Western Frontier as Native Americans were driven from their land. But then, as gold grew scarcer, the rush began to pitter out and the demand for land, and the people to work it, collapsed. As a result, there was a sudden drop in the stock of the companies that enabled and epitomised all that westward expansion and speculation: the railroads.

Consequently, investments, both domestic and foreign, began to fail, leading to an announcement that the Ohio Life Insurance and Trust Company would suspend payment operations in the company’s New York City offices.

The failure of Ohio’s most prominent financial institution was largely attributed to embezzlement and the loaning of credit too freely. It led to a flight of capital from banks along the East Coast of the US, as panic spread due to concerns of systemic insolvency. To mitigate the risk of a widespread bank run, New York banks took action to increase their specie (bullion coin) holdings to meet any sudden demand and raise economic confidence.

Thus, New York banks attempted to redeem their gold in exchange for bank notes issued by smaller banks throughout the nation. However, when these demands resulted in multiple bank closures due to bad credit, several major New York financial institutions banded together to arrange a large shipment of Californian gold from the San Francisco Mint to shore up their reserves.

A laden voyage

The SS Central America was the ship chosen for this auspicious voyage. An 85m long sidewheel steamer, she was scheduled to deliver 477 passengers, 101 crew and up to 30,000 pounds (worth more than US$500 million, or £400 million today) of gold prospected in the California Gold Rush to New York’s desperate financial establishments.

The SS Central America

The gold sailed south from California over the summer of 1857, arriving in Panama where it crossed the isthmus by rail (this was well before the construction of the Panama Canal) to be loaded onto the SS Central America. On 3 September the ship departed Colón Panama under the command of William Lewis Herndon, operating under the United States Mail Steamship Company. Without delay, the vessel stopped in Havana before sailing along the US coast where, six days later, the SS Central America crossed paths with a Category 2 hurricane off the Carolinas.

Attempting to battle through the increasing wind and waves it was not long before the ship started taking on water. By 12 September 1857, the boiler had failed and the sails were torn. In a last-ditch effort Herndon raised the Stars & Stripes upside down as a signal of distress and for assistance, two ships were spotted in the distance and 153 passengers escaped on life boats, leaving 425 others to perish with the ship.

As word spread of the disaster, so too did the news of the irrecoverable mass of gold preserved at the bottom of the sea. While the idea of hidden treasure has captivated the minds of many today, at the time, the loss of the SS Central America compounded the financial hysteria surrounding banking institutions in New York City. As a widespread bank panic took hold, European banks tried to liquidate American assets and many others followed suit, causing New York, Pennsylvania and many other states to institute a suspension of specie payment to prevent bank runs.

An economic tempest

Although many Americans believed that the harsh consequences of bank failure would be limited to speculators, the public soon discovered this was not the case given small banks could no longer offer credit in the absence of gold. Additionally, good harvests in Europe crippled the value of US grain and prompted storage from the American agricultural community. Thus, as a predominantly agricultural economy was unable to rely on a market for its exports, further exacerbating the panic because no gold was coming into the United States.

By October 1857, the panic climaxed. Unemployment and poverty swelled over the next several months. In a world experiencing the first incantations of industrial globalisation, the economic panic and resultant sell-offs travelled with unprecedented speed with the development of new technologies (e.g. the steamship and the telegraph).

A run on a bank during the ‘Panic of 1857’

The systemic bank failure in the US quickly reached Britain, where, in order to address the severity of the crisis the government required the suspension of the Bank Act of 1844, effectively abandoning the gold standard and thereby allowing British banks to also cease specie payment. Consequently, financial concern spread to South America, South Africa, Australia and the Far East as banks across the world could no longer withdraw their investments held in the United States and Britain.

Like all bank panics the endemic limited investment led to a negative multiplier effect: A failure of consumer confidence and mass unemployment. For America, these consequences were pronounced and long lasting, affecting all levels of society, including the agrarian communities who had felt themselves impervious to the financial excesses of the cities. Such were the effects of the crash that some historians have cited it as source for the tensions that led to the outbreak of the American Civil War in 1861.

Discovery of the SS Central America

Remarkably, the story of the SS Central America continues to this day, over 150 years later.  In the late 20th Century, treasure hunter Tommy Gregory Thompson became fascinated with the lost shipwreck, now known by many as ‘The Ship of Gold’. For years, Thompson analysed the potential route of the ship and focused on developing the technology necessary to recover it. After receiving an investment of $12.5 million to find and salvage the gold, Thompson collected a team to recover the lost treasure.

To the surprise of sceptics, the wreck was discovered on 11 September 1988 2,200m below sea-level, 160 miles off the coast of South Carolina by a ship operated under Thompson’s discovery group. Using Bayesian Search Theory, Thompson had reconstructed the path the ship had taken through calculated probability based on all reasonable hypotheses from studying ship routes and documents from the time. His hard work payed off and the total value of the recovered gold was estimated at $100-150 million –the greatest treasure discovery in American history.

However, the good fortune of Thompson’s investors was short lived. Tommy Thompson sold hundreds of gold bars and coins for $52 million without returning money to investors or his crew and a legal battle quickly ensued, prompting Thompson to go into hiding in 2012.

Thompson was not captured for another three years, until his arrest in a hotel in Boca Raton with US$500,000 in cash. He had been living in the hotel, hiding in plain sight just 80 miles from where he was last seen. When the case came to court, the judge held Thompson in contempt in December 2015 for refusing to answer questions regarding the location of 500 missing gold coins that he supposedly turned over to a trust in Belize. Thompson has remained in jail ever since and his gold remains at large…

A model of the SS Central America