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Founded as a milling town in the 1850s, there has long been dispute as to the naming of the settlement. The town's streets are named for prominent British poets, and it is possible that the town's original intended name of Milltown became shortened by association with the poet of the same name. It is equally possible, however, that the name Milton inspired the choice of poets' names for the streets.
Milton's early history was strongly affected by the discovery of gold by Gabriel Read at Gabriel's Gully close to the nearby township of Lawrence. As Milton stood close to one of the most easily accessible routes to the interior, it grew greatly during the goldrush years of the 1860s and was a major staging post for prospectors heading for the goldfields.
Today, Milton is, after Balclutha, the second largest town in South Otago. Its main economic livelihood is as a service town for the surrounding farming community, although forestry is also becoming of increasing importance.
The farming settlement of Milburn two kilometres north of Milton, has recently been controversially chosen as the site of a new prisonA prison is a place in which people are confined and deprived of a range of liberties. Prisons conventionally are institutions authorised by governments and forming part of a country's criminal justice system, or as facilities for holding prisoners of war.
Otago Cities and towns of New Zealand