scottish kilts and american cowboys -- 11/13/17
Today's selection -- from Cattle Kingdom by Christopher Knowlton. As was often the case in early American enterprise, the biggest investors in the cattle companies of the American West were from England and Scotland. The initial returns on these investments exceeded 25 percent per annum:
"Scotland had developed a coterie of shrewd, patient investment managers who were good at recognizing opportunities and appraising risk. Many had agreed to pool their capital, and to do that it was essential that they know and trust one another. By no accident, they all belonged to the same social and sporting clubs, attended the same church (Scottish Presbyterian), and supported the same educational causes.
"One of their most successful members was Robert Fleming, the son of a Dundee shopkeeper. In 1873 Fleming had founded the first overseas Scottish investment trust, known as the Scottish American Investment Trust, to invest in distressed American railroad bonds. By helping to reorganize these railroads, he had consistently delivered 40 percent annual returns for his general partners. He would go on to even greater acclaim in the City of London as the founder of the merchant bank Robert Fleming & Company. It was Fleming, more than anyone else, who taught his fellow Scotsmen to think like venture capitalists and to invest abroad.
"Following Fleming's advice proved much easier than it would have been just a few years earlier. In 1855 Parliament had passed the Limited Liability Act. For the first time, investors were no longer on the hook for the liabilities, or debts, of an enterprise if it should fail -- or sink, in the case of a ship. The investor might lose whatever money he had put up to buy his shares, but that was all. This simple act of limiting liability had instant implications for both investment and trade. The vast wealth and savings of the British aristocracy, as well as that of the emerging merchant class, began to pour into the shares of new limited liability companies, which offered better returns with controlled risk. A later act, in 1862, allowed any seven individuals to form a so-called joint-stock company by means of a memorandum of association, with the choice of limited or unlimited liability.
"The Scots would take the lead in the creation of joint-stock companies. Many would be assembled specifically to buy up existing western ranches or start western cattle companies from scratch. They would beat the English to the opportunity. The English, however, were not far behind.
"The English too had taken note of [correspondent James] Macdonald's postings from America. Intrigued by what they read, they formed the Royal Commission on Agriculture and sent two members of Parliament -- Clare Read and Albert Pell -- on reconnaissance to the American West in the fall of 1879 to explore opportunities for British investment. To escort them, the two commissioners hired a savvy twenty-eight-year-old cattle expert named John Clay, who had immigrated to Ontario with his family only five years before. Ever since, he had been actively engaged in shipping fine breeds of cattle to America to improve his family's stock. ...
"After a couple of months spent touring the West in the company of young John Clay, Read and Pell submitted their report. The conclusion? 'The acknowledged profits upon capital invested in cattle are 25 to 33 per cent; even the latter figure is probably below the mark.' So it was true: 25 percent returns on capital were the norm! As the historian Edward Everett Dale observed in Cow Country, 'It was said that the announcement of an important gold discovery could hardly have created greater excitement throughout the Island Kingdom than did this report of Read and Pell.' "