Dot-Coms
and the Great Cattle Die-Off
By Ross F. Collins
History News Service,
Summer 2000.
Psst--want to make 30 to 40 percent and more a year on your money? Invest in
an exciting American industry showing incredible growth! Best investment in
years! All you have to do is sit back and wait for the profits to roll in!
And so a throng of investors responded, venturing thousands, some even millions.
They came from the East, from the West, from Europe to pour money into an American
industry growing exponentially year by year. No other economic development held
such fascination.
Then, in a matter of months, the market crashed. Optimists lost millions, particularly
those who joined late. No longer was this the new darling of venture capital.
It was just another industry, offering reasonable reward for reasonable risk.
Were talking about the dot-com industries of the90s, arent
we? Not this time.
Were talking about an industry of the 80s--the 1880s. The industry
that spawned a thousand movies, the industry of cowboys and frontier, the industry
that helped to define American life and culture: the cattle-trailing industry
of the Old West. If that world of lone prairies and lawless cow towns is long
gone, its motivating fable seems to be with us still: huge investments in a
romantic new industry is sure to reap fantastic profits with little risk.
Common sense would seem to argue against this. But American investment patterns
seem only occasionally based on common sense, whether their subjects be web
sites or cattle herds. The great market crash of Old West cattle speculation
is not likely to be featured on cereal boxes or cigarette packets. Nevertheless,
this process of rags to riches and back to rags seems to reflect an old tradition
in the United States, playing out yet again today in the frenzy of internet
stock speculation.
After the Civil War, Texas cattle owners discovered the economic advantages
of driving stock north to rail heads for shipping to high-priced eastern markets.
Early on, profits could be as amazing as a dot-com. Beef shortages back East
drove prices skyward, and Texas longhorns actually got fatter as they grazed
their way to Kansas and points north.
As today, it was a period of economic expansion. The wealthy had idle money.
Why not put it to work in the blazingly profitable cattle industry of the romantic
west? Like internet-based industries, the stock-raising business relied on trained
professionals. But that didnt matter then, no more than it seemed to matter
now: you just employed on-site cattle bosses (pixel bosses?) to handle that.
Just as a megabyte of financial writers booted up for dot-coms, a herd of 19th-century
writers tracked bullish on cattle. At its frenzy in the three years after 1883,
money poured into the western cattle business. Elegant stock clubs such as the
Cheyenne (Wyo.) Stock Growers Association offered sumptuous surroundings to
visiting owners, just as dot-com owners living on venture capital pampered themselves.
Literally millions of beeves filled the Great Plains to bursting.
By 1885 cattle-town newspapers were predicting disaster. Overgrazing made food
scarce, while beef prices fell in the St. Louis and Chicago markets. As new
internet stocks have been built on increasingly-risky speculation, managers
of the huge but high-risk cattle outfits put on the happy face expected of them.
They chronically underreported years of attrition and winter stock losses and
over-reported increases. Cattle dealers overestimated the size of herds they
sold to Eastern investors who didnt know the difference.
The crash, the big die-off, came the winter of 86-87. A harsh
winter after a dry summer left little for range cattle expected to rustle their
own winter feed. What was left the next spring many remember in a single picture
by C.M. Russell, an emaciated cow entitled The Last of 5,000.
That single winters cattle die-off may not have been as bad as that: managers
took the opportunity offered by nature to tote up unreported losses of several
years on one balance sheet. The numbers shocked imprudent investors. Some of
the largest and most famous operations went broke. Theodore Roosevelt may have
gotten his strength from North Dakota, as he said, but he certainly did not
increase his fortune there.
The die-off crushed the frenzy of speculation in cattle. Few absentee financiers
survived. Local ranchers filled the void to make the industry reasonably profitable
for those who knew what they were doing and had modest expectations.
Todays investment frontier may be on line instead of on hoof, but it seems
that a die-off here too will leave a few profitable survivors who know the industry
and keep their expectations modest. Its an old American tradition.
Copyright 2004 by Ross F. Collins <www.ndsu.edu/communication/collins>