Much as it was for the country as a whole, the middle of the 19th century was a formative era for American finance. The Era of Free Banking was a period of very little regulation of banks and saw the founding of many of them. But two of today’s most massive American financial firms, Wells Fargo and American Express, were founded in a different burgeoning business of the period altogether, express shipping.

           Wells Fargo, today one of the world’s largest banks, did not necessarily jump from the express business to banking over time. It was founded with both industries in mind from the start and while many may know that the California Gold Rush was the place and period of Wells Fargo’s early success, this post will try to put that history in a larger context and explain what the banking industry Wells Fargo entered in the mid-19th century was like.       

The “Era of Free Banking”   

           From 1816 to 1836, the Second Bank of the United States functioned as national bank chartered by Congress to act as an agent to the government in regulating the currency and handling government payments. Although a private bank, it was chartered to handle government business, and as such, the Second Bank of the United States was essentially a kind of national central bank comparable to the Bank of England which had a similar role early in its history.

           This bank was therefore like no other in the country at the time. But what makes it worthwhile noting was that this was a rare example in this period of bank operating across state boundaries. From the expiration of its charter in 1836 to the passage of the National Bank Act of 1863, the banking system of the United States would be composed exclusively of state-regulated banks.

           During the post-1836 “Era of Free Banking,” referring to the absence of any federal regulations on the industry, private banks flourished. In many states, anyone with a vault could start a bank. Each of these banks would operate in no more than one state and issue its own banknotes leading to a proliferation of different notes in circulation around the country, some trading at discounts depending on the perceived health of the bank and the distance to its branches. This era of low barriers to entry in the banking business was one part of the backdrop to Wells Fargo’s founding in 1852.  

Gold Rush

           The event that actually triggered the creation of Wells Fargo, however, was the California Gold Rush, which started with the announcement of the discovery of gold in newspapers across the country in 1848. The Gold Rush brought tens of thousands of people west and created a trans-continental trade that hadn’t existed before. It thus increased demand for express shipping between California and cities on the East Coast, along with improved banking infrastructure in the West. At the time, neither of these industries were regulated by the state of California, where the firm would be founded.

           As the economy of Northern California boomed, firms that specialized in serving the gold miners profited, usually more than the miners themselves. While prospecting for gold is a risky business, some struck riches while others found nothing, one could make steadier profits from serving the mining industry by selling supplies, lodging miners, or shipping money and mail.  

Wells Fargo

           In 1851, Henry Wells and William Fargo, worked for the recently formed express shipping business American Express, which they had recently founded along with a partner, John Butterfield. Upon seeing the opportunity presented by the California Gold Rush, Wells and Fargo sought to expand the Eastern-focused American Express westward. The two proposed an expansion which the company’s board declined. In response Henry Wells and William Fargo left American Express; they would go on to take some of the firm’s talent with them to serve as Wells Fargo’s early managers.  

           Even by themselves, the two partners knew a thing or two about the express business. Long before the creation of American Express, formed just two year before Wells and Fargo left, Wells had operated a delivery business between Albany and Buffalo in New York. He saw the transformative effect a well-organized shipping business had on the communities it served. Early in his business’s operations, upon delivering oysters to Buffalo, he said the residents of the city gathered around him creating “almost as much excitement as the locomotive on its first trip through the country.” Then, in 1845, Wells hired Fargo to serve as a manager in his expanding firm, itself a predecessor to American Express.

           Now on their own, the two partners raised $300,000 to found Wells, Fargo & Company and intended that the company should focus on the booming business of transcontinental shipping and banking. While the Gold Rush created great demand for transporting parcels and letters across the country, it also required that money, gold, and checks be transported as well; Wells Fargo would be handling payments between parties located hundreds of miles apart.

           The distances involved meant that the company’s banking operations were far different from that of a conventional bank. For one, the bank served miners scattered across the wilderness; as such, the bank set up branches which it thinly scattered across the mining towns. This was in contrast to banks which operated centrally, in major commercial and industrial cities. Each of these branches had to be self-sufficient, fully equipped for transactions, yet connected to each other and the country.  

           The company acquired stagecoaches to connect its outposts. So extensive was the Wells Fargo express network that it was not only faster than the Postal Service, which is essentially the value proposition of express shipping, but it also reached places the Postal Service didn’t. Given its speed and access, the bank and express company essentially became the dominant mail carrier of California; by the 1860s, it was estimated that Wells Fargo carried 75% of the mail in the state.

      “Don’t send me any more mail through the Post Office, for it takes a week to get here. Give it to Wells Fargo and I’ll get it in 9 hours.” – 1850s San Jose resident, in reference to receiving mail from San Francisco     

           There were some synergies in running an express and banking business in mid-19th century California. Not only could they offer a more complete set of basic business services to the state’s gold miners and others, but combining the two services allowed them to overcome the limitations of long-distance banking at the time. For example, a difficulty in doing business nationwide was the slow and loss-prone mail system. If Wells Fargo could more reliably deliver your checks or bills of exchange, it made people more likely to bank with them, not just ship things through them.

           In practice, being reliable meant sacrificing some efficiency in those days. For example, bank transfer drafts would be duplicated or even triplicated and mailed out on different coaches or steamships so that at least one would actually arrive at its destination. A branch receiving a transfer would honor the first one to come it and void any duplicates as they came in later.  

           The careful attention paid to ensuring reliability meant that in the span of just a few years, Wells Fargo expanded rapidly, both organically and by acquisition. Consolidation came in waves, starting in 1866, with the merging of other stagecoach lines into Wells Fargo. Of course, in the history of the bank, this continued into the 21st century when Wells Fargo acquired Wachovia and other smaller lenders in 2008. The banking part of the firm long ago overshadowed the express part. However, the last remnants of that line of business was the company’s armored truck division which was only spun-off and merged into competitor Loomis in 1997. Below is a picture of a couple of Wells Fargo branded armored trucks from the late-1980s.


           Given the gold rush driven economic growth and anything goes regulatory environment of the time of Wells Fargo’s founding, its history is a particularly interesting story to hear. But besides telling the story of particular firms, the histories of banks like Wells Fargo offer a view of what the world of finance was like in an earlier period. It helps illustrate how banks operated, the problems they faced, and the value they created for their customers. In the case of Wells Fargo, it became a leading player in two distinct industries. Though it operates in only one of those businesses today, it’s a testament to how large a reliable firm could grow in 150 years, in this case from an initial capitalization of just $300,000.  

Further Reading

1.     Bentz, Alyssa. “The Men Who Founded Wells Fargo.” Wells Fargo Stories, Wells Fargo, 16 Mar. 2018.

2.     Chandler, Robert J. Wells Fargo. Arcadia Pub., 2006.

3.     “Wells and Fargo Start Shipping and Banking Company.”, A&E Television Networks, 21 Aug. 2018.

4.     “Wells Fargo History.” Wells Fargo History, Wells Fargo Bank, N.A., 2018.

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