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August 20, 2014

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Nevada’s 20th century economy a tale of water, mining, casinos

When Nevada entered the 20th century, the state was in the throes of a 20-year depression, with barely enough people to qualify it as a state at all.

A protracted downturn in the state's mining industry was driving people away, spurring many to suggest that the United States revoke Nevada's statehood and return it to territorial status, or merge it with another state. In 1900, only 42,000 people lived in Nevada.

What a difference a century makes.

With 2000 here, Nevada has been the nation's fastest-growing state for 14 straight years. More than 1.8 million residents now call Nevada home -- up 1 million since 1980.

That transformation began in March 1931 -- a month historians identify universally as the most important in Nevada's history. In that one month, Nevada legalized gambling and construction began on what is now called Hoover Dam.

"March 1931 is really the key turning point in Nevada history," said Michael Green, a historian at the Community College of Southern Nevada. "We would not be a tourist mecca without gaming. If we didn't have Hoover Dam, we wouldn't have the water.

"Everything came together for us in the same month. We just didn't realize it at the time."

Boom and bust

Nevada has always had its boomtowns. What makes Las Vegas unique is that it survived.

From its birth in 1864 until World War II, Nevada's economic fortunes were firmly rooted in the mining industry. When new veins of gold, silver and copper were struck, the state's economy soared. These strikes would create boomtowns almost overnight. But when those veins ran dry -- or demand for precious metals declined -- Nevada's economy would crash back to earth just as quickly and the boomtowns would disappear.

The state's mines busted again in the 1930s with the coming of the Great Depression. By 1932, production at the state's mines was at one-seventh the level of 1929, noted historian Russell Elliott in his book, "History of Nevada."

Nevada lawmakers became desperate for ways to raise more revenues. Their solution -- legalize gambling.

Gambling had been banned in 1909 and alcohol followed nine years later. These were the work of a progressive movement in Reno, which saw an opportunity to make Nevada "a model commonwealth" for the rest of the nation.

Ironically, the progressives never moved against prostitution, so it didn't have to be reinstated. It remains legal in parts of rural Nevada to this day, a symbol of the laissez-faire attitude that pervades the state.

Gambling took a small hold after 1931 in Nevada, though things hardly exploded overnight. Harold's Club in Reno launched a successful "Harold's Club or Bust" campaign in the '30s and vehicles across the nation could be seen sporting the slogan as they make their trek to Nevada.

But it wasn't much of an industry at first. The industry didn't do much to bolster state coffers -- for gaming's first 16 years, only cities and counties collected taxes on gambling. The state only began getting a cut in 1947, with the passage of a 2 percent gross gaming tax.

Indeed, Nevada was more known for its divorce industry, which had been a big business for decades. Thousands of people, from Hollywood stars to New York businessmen, rushed into Reno for divorces. Today, Nevada is better known for easy marriages with no waiting period. But since divorcees had to live in the state for six weeks, the divorce industry offered a much more significant economic impact in the 1930s.

As the 1930s began, Northern Nevada was still dominant in the state. Washoe County residents outnumbered those of Clark County by a 3-1 margin. But a massive federal project just south of Las Vegas was about to change the balance of power in Nevada.

Hoover Dam

The federal government had planned Hoover Dam for several decades in an effort to control flooding in California and to supply water to the growing Southwest. It was authorized in 1928 and construction began three years later.

"Gambling being legalized in Nevada was not a major thing," said Michael Wright, curator at the Nevada State Museum and Historical Society. "The major thing was the dam."

From 1920 to 1930, Clark County's population doubled to 8,500, primarily the result of the planned project. By 1940, the population doubled again, to 16,400.

Prior to the dam, Las Vegas' only water source was the natural water table below the city.

"The history of Southern Nevada is unimaginable without Hoover Dam," CCSN's Green said.

With the coming of World War II, Southern Nevada was about to get another boost from Washington.

Battle born

Entering the war, the United States was desperately short on military bases in the West. It also needed raw materials to feed its war machine.

Southern Nevada fit the bill on many fronts. The federal government owned huge tracts of land, so military bases could be cheaply established. The area was well inland from the Pacific, lessening the risk of military attack. The new dam created a source of water and cheap electricity, both vital for heavy industry.

Construction began on a massive magnesium processing plant southeast of Las Vegas in 1941. This plant, known as Basic Magnesium, opened in 1942. Literally overnight, it created a payroll of 10,000. To house the huge workforce, the federal government built 1,000 homes in the middle of the desert -- and the city of Henderson was born.

North of Las Vegas, the U.S. Army opened a school for machine gunners. After the war, this school reopened as Nellis Air Force Base. During the Korean War, Nellis became the nation's largest training base for fighter pilots, adding thousands more jobs to the area. To this day, Nellis remains a huge employer for the Valley, particularly for the nearby city of North Las Vegas.

Basic Magnesium closed in 1944, but Henderson was saved from extinction when the state bought the plant. It leased the Henderson space to chemical and metal producers and the old Basic Magnesium facility reopened in 1948. Today, it's home to Titanium Metals Corp. Henderson, riding a residential boom in the 1990s, has grown into Nevada's second-largest city.

But the federal government wasn't done investing in Nevada. In 1950, Washington decided to move testing of its new atomic arsenal from the South Pacific to a desolate stretch of land it owned 65 miles north of Las Vegas. Employment at the Nevada Test Site numbered in the thousands until the early 1990s, when the United States signed the Nuclear Test Ban Treaty.

As World War II ended, Americans had a new thirst to travel. Las Vegas was about to give them something to see.

Birth of the Strip

As America entered the war in 1941, Thomas Hull opened El Rancho Vegas -- the first resort hotel on the Strip. At the war's end, Benjamin "Bugsy" Siegel, one-time mob hit man, opened the Flamingo.

Hull created the concept of moving gambling out of small joints and putting it into large resort hotels. Siegel took it a step further by adding elegance.

"It was a totally different concept for Las Vegas," Wright said. "It was elegance. Right at the end of the war, the whole country is ready to bust out and travel, and there's the Flamingo."

The seeds planted by El Rancho and the Flamingo grew across the Southern Nevada desert. This was assisted in no small part by the introduction of air conditioning, which made casinos bearable in the torrid summers of Southern Nevada.

Transportation into Nevada also eased considerably in the 1950s. I-15 was built between Los Angeles and Las Vegas, as President Eisenhower began a national campaign to build the nation's first interstate system. Meanwhile, the first jet service to Las Vegas began in 1957.

Reno did not share Las Vegas' enthusiasm for unbridled growth. Instead of allowing unchecked expansion, city officials "redlined" the casinos, prohibiting them from building outside of the downtown district. The red lines would remain in effect until 1973.

"Reno's always felt a little guilty about the kind of economy it had to resort to," University of Nevada, Reno history professor William Rowley said. "There's some of that residual progressive puritanicalism that says, 'Well, we have to tolerate this kind of vice economy if we're going to make it, but we're not terribly thrilled about it.' "

The result: Clark County's population surpassed that of Washoe by 1960, following a 163 percent population boom in the '50s. Today, nearly 70 percent of Nevadans call Clark County home.

Fighting for legitimacy

In the 1950s, the federal government became increasingly concerned about organized crime's involvement in the gaming industry. These pressures spurred Nevada officials to tighten the regulation of gaming.

The state's Gaming Control Board was born in 1955, followed by the Nevada Gaming Commission in 1959.

"Once you get past the '50s, the industry begins to attract legitimate capital into casino investments," UNR's Rowley said. "The world was invited to invest in Nevada gambling."

In a foreshadowing of what was to come in Las Vegas, hotel chain operator Jay Sarno opened Caesars Palace in 1966 and Circus Circus in 1968. Caesars was the city's first themed megaresort, featuring a palatial recreation of ancient Rome for high rollers. At Circus Circus, middle-class families had an affordable place to gamble -- and attractions to keep their children busy. Both properties were funded by loans from the then mob-connected Central States Teamsters Pension Fund.

Corporate investment took a huge step forward in 1966, when billionaire Howard Hughes bought the Desert Inn. Over the next three years, Hughes rapidly expanded his Las Vegas portfolio, adding such properties as the Sands and the Frontier.

"Corporate investment in Nevada gambling, always potentially profitable, was made respectable by the presence of Hughes," Elliott wrote.

Another respected name following Hughes into Las Vegas was billionaire Kirk Kerkorian. Kerkorian, who sold the Caesars land to Sarno in 1962, bought the Flamingo in 1967 and built the International (now the Las Vegas Hilton) in 1969. After selling both properties to Hilton in 1970, Kerkorian used the proceeds to build the old MGM Grand (now Bally's) in 1973. Kerkorian is now the controlling shareholder of MGM Grand Inc., which owns the MGM Grand and New York-New York on the Strip and the Primadonna properties in Primm.

Nevada moved to encourage these kind of investors in 1969, with the passage of the Corporate Gaming Act. Rather than requiring corporations to license all shareholders, regardless of size, the act said only shareholders with more than 5 percent of a company's stock had to be licensed by the Gaming Control Board. The effect was dramatic -- within 11 years, Elliott notes, 20 publicly traded companies generated nearly 50 percent of the state's gambling revenues.

A new era

In 1989, an era that could only be launched with corporate dollars began in Las Vegas.

Golden Nugget owner Steve Wynn opened the Mirage that year, making it Las Vegas' first new property since the 1960s. The tropical-themed megaresort was financed with high-yield bonds -- a source that far outgunned anything organized crime could offer.

"As big as the mob was, they couldn't work through Michael Milken or the stock market," Green said.

Casino after casino vanished as megaresorts sprang up along the Strip in the 1990s.

"Every hotel now, whether it's the Paris with the Eiffel Tower or the rollercoaster of at the New York-New York, now has that special attraction," said UNLV history professor Gene Moehring. "That has made Las Vegas distinctive in the '90s."

The new vision of the 1990s enabled Las Vegas to survive a sudden expansion of gaming across the United States, as casinos sprung up in Mississippi, Atlantic City and Missouri. Gambling's expansion also created a sense of legitimacy, something Nevada had been struggling to gain since the 1940s.

When the Mirage opened in 1989, Las Vegas had 67,400 hotel rooms and 18.1 million visitors a year. Gaming pumped $3.4 billion a year into Clark County. Today, the Las Vegas room inventory exceeds 120,000. Las Vegas surpassed the 30 million-visitor mark in 1997. And in 1998, gaming revenues in Clark County exceeded $6.35 billion.

But economic diversification, something Nevada has been striving for since the opening days of the 20th century, remains a challenge in the 21st. Economic developers have successfully added new industries and new businesses, such as the Citibank credit card processing center on Sahara Avenue, but gaming has grown faster than any economic developer could keep up with.

In the 20th century, Las Vegas was one of the greatest economic success stories. But economists warn that the city should remember the Nevada boom and bust towns before it.

"The history of the state of Nevada is the search for economic diversification," said Keith Schwer, director of UNLV's Center for Business and Economic Development. "Nevada has more ghost towns than any other state. Those ghost towns were the result of failed economic ventures.

"To be sure, so long as gaming and tourism are growing and prospering, it will remain an important part of our economy. But if tastes and preferences change, and gaming and tourism drop substantially, it would change our objectives."

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