Dot-Coms and the Great Cattle Die-Off

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.

We're talking about the dot-com industries of the '90s, aren't we? Not this time.

We're 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, 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's. Beef shortages back East drove prices skyward, and Texas longhorns actually got fatter as they grazed their way to Kansas and points north.

Like our own era, 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 didn't matter then, no more than it seems to matter now: you just employed on-site cattle bosses (pixel bosses?) to handle that.

Just as a megaherd of financial writers has 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 facilities to visiting owners, much as dot-com owners living on venture capital have pampered themselves. Literally millions of beeves filled the Great Plains to bursting.

By 1885 cattle-town newspapers were predicting disaster. Overgrazing made feed 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; Eastern investors didn't 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 winter's cattle die-off may not have been as bad as that: managers took the opportunity offered by nature to tot 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.

Today's 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. It's an old American tradition.

Ross Collins is an associate professor in the Department of Communication, North Dakota State University, and a writer for the History News Service.