The american fur company case study

The American Fur Company

The American Fur Company was a relentless monopoly built in the climactic era of the fur trade. It was created in 1808 by John Jacob Astor, a striving German immigrant, in an environment so favorable that over vast North American territories it had more power than the fledgling American government.

In its time, this company shaped the destiny ofa young nation. It made Astor the richest American of his day. Yet by the 1830s its situation had so changed that it and the 300-year-old trade in furs collapsed.

ASTOR ARRIVES IN

A YOUNG NATION

In 1763 Astor was born to a butcher and his wife in the German village of Waldorf. In childhood he met hardship. The family was poor and often hungry, his mother died and a new step-mother was hostile. He spent much time alone but grew into a strong, diligent young man. Finding no joy in his father’s butchering work, at the age of 15 he left the village for London, working four years there to save money for an ocean voyage to the New World. In

1783, at the age of 20, with no education, little money, and speaking poor English, he set sail on a merchant ship. During the long voyage, a fur trader taught him how to appraise and handle skins.

These lessons gave Astor knowledge he needed for an occupation. He would soon show himself an apt student.

At this time, the fur trade on the North American continent was almost 300 years old. It had begun early in the sixteenth century after Spanish and

French explorers made contact with native forest dwellers, and it soon included the British. The Europeans wanted beaver, martin, ermine, mink, otter, bear, deer, muskrat, wolf, raccoon, and other animal skins for fashionable hats and clothing. The Native

Americans, who had not yet entered the age of metal, were eager to get even the simplest manufactured goods such as knives, mirrors, ornaments, and buttons.

This simple mutual advantage proved durable over time.

Indians were the fur industry’s production workers.

Fur traders depended on them to trap animals.

Indian women skinned and prepared the hides.

Overhead costs for traders were low. Instead of collecting wages, Indians traded the pelts for goods worth a fraction of a fur’s ultimate value. Since furs were light, they could be transported economically by mules, barges, and ships to Eastern ports and thence to Europe. The fur companies’ profits were enormous.

Fur trading had transforming effects on society because it promoted settlement. Traders worked on the edges of Euro-American habitation. Over time, fur production in these frontier areas always declined. Populations of fur-bearing animals such as beaver, having slow breeding cycles, were steadily depleted. The reliability of Indian trappers fell as their tribal cultures buckled under thestrains of new values and diseases. When productivity in an area fell, fur traders pushed over the horizon. In their wake came settlers using fresh maps and trails. Farms and towns sprouted.

Indians were killed or dislodged. This unsentimental cycle of the fur trade, repeated over and over, generated waves of migration that settled much of the United States.

ASTOR ENTERS THE FUR BUSINESS

Astor made his way to New York, then a city of 25,000, where he got a job selling bakery goods. He invested most of his $2-a-week pay in small trinkets and in his spare time prowled the waterfront for Indians who might have a fur to trade. Within a year he picked up enough skins to take a ship back to London, where he established connections with fur-trading houses. This was a phenomenal achievement for an immigrant lad of 21 who had been nearly penniless on his arrival in America, and it revealed Astor’s deadly serious and hard-driving personality. Astor worked briefly with a fur dealer in New York City during which time he trekked into the forests of upstate New York to bargain for furs. He soon left his employer and by 1787 was working solely for himself. He demonstrated sharp negotiating skills in trading trinkets for furs and quickly built up an impressive business. One neighbor said: Many times I have seen John Jacob Astor with his coat off, unpacking in a vacant yard near my residence a lot of furs he had bought dogcheap off the Indians and beating them out, cleaning them, and repacking them in more elegant and salable form to be transported to England and Germany, where they would yield him 1,000 percent on the original costs. 1 Astor made great profits and expanded his business but, like other Americans, he was blocked from harvesting furs in the forests of the Northwest Territory. The Northwest Territory was the huge unsettled area between the Ohio River and the Mississippi River bounded on the north by the Great Lakes. After the Revolutionary War, Great Britain ceded this area to the United States but continued to maintain forts and troops there because the American government was too weak to enforce its rights. British fur-trading companies exploited the area and incited Indians to attack American traders and settlers who dared enter. This audacity pushed Congress near to declaring war. To avoid hostilities, England agreed to a treaty in 1794 that required removal of British troops and gave both British and Americans trading rights in the Northwest Territory. 2 “Now,” said Astor on hearing this news, “I will make my fortune in the fur trade.” 3

But he was stunned when President George

Washington proposed befriending the Indians by settingup government fur-trading posts to be run with benevolent policies. These posts would compete with Astor and other private traders. Congress approved the plan, which required that trade goods be sold at cost, prohibited the use of liquor, and ordered payment of fair prices for furs.

The government trading posts infuriated Astor, who moved quickly to undercut them. He saturated the territory with his agents, instructing them to buy every fur they could get their hands on before competitors did. He bought trade goods in huge quantities to lower the cost, and his agents paid for furs with these trinkets. And he allowed liquor to flow freely during trade negotiations, creating an advantage the government could not match.

Astor had great success with these tactics. The government lacked his nimbleness and commitment, and he outwitted other rivals. In less than 10 years he was the second-richest man in America (after only Stephen Girard, the shipping magnate and banker).

Having accumulated deep resources, the Astor juggernaut turned toward the West.

THE LOUSIANA PURCHASE

In 1803 the territory of the United States more than doubled with the Louisiana Purchase. President

Thomas Jefferson agreed to purchase from France for

$15 million approximately 800,000 square miles of land between the Mississippi River and the Rocky

Mountains and running north from New Orleans to the 49th parallel, which is now the Canada–U.S. boundary. At the time, little was known about the area called the Louisiana Territory. No accurate or complete maps existed; even its exact boundaries were vague. But Louisiana was beautiful in its mystery.

Some geographers thought it was largely an arid desert. Others predicted a lush, fertile land. Rumors of geological wonders, horrific animals, and strange natives circulated, including the story of a tribe of bow-hunting, man-hating female savages in which the archers had their right breasts removed to keep them from interfering with the bowstrings. 4 Jefferson himself had a clear vision of how to use the new territory. In his 1803 message to Congress, he proposed to relocate into Louisiana eastern tribes getting in the way of American settlers, and over the next 50 years this occurred many times. 5 He also ordered an Expedition of Discovery headed by Meriwether Lewis and William Clark to explore on foot the unknown territory. A primary purpose of the Lewis and Clark expedition was to determine the suitability of Louisiana for the fur trade. The adventurers set out on a roundtrip march between St. Louis and the Pacific Ocean, going where no white American had gone before, and on their return in 1806 reported a wondrous land “richer in beaver and otter than any country on earth.” 6 They also reported that most Indian tribes in the territory were friendly to Americans and the fur trade. These discoveries were not lost on fur traders, among them John Jacob Astor

THE AMERICAN FUR COMPANY IS BORN

The Lewis and Clark expedition was a catalyst for fur trading in the new territory. Beaver production in the Northwest Territory was already beginning to fall off. The North West Company, Astor’s main competitor, began to move down from Canada, intent on harvesting the Louisiana Territory as rapidly as possible. However, it would reckon with Astor, who wanted the prize himself. In his distant New York City study, Astor pored over maps of the fur-rich areas discovered by Lewis and Clark, hatching a vast and daring plan for a new company that would string trading posts over a 2,000-mile route. In those days, state legislatures had exclusive power to create a company by issuing a charter that listed the conditions of its existence. So he approached the governor and legislature of New York seeking to charter a company to be known as the American Fur Company. To sell the idea, he cloaked his mercenary scheme with a veil of patriotism. He argued that most of the furs taken from the Louisiana territory went to Canadians and British, thereby depriving America of trade revenue. His new company would drive the foreigners out. He would join with 10 or 12 other wealthy entrepreneurs to capitalize the new company, which would then issue stock to others. The new company would enhance U.S. security by establishing a strong presence of American citizens over unpopulated areas. And finally, Astor promised that his company would deal honestly with the Indians and drive out smaller, irresponsible traders. The legislators of New York, responding more to Astor’s open pocketbook than to the credibility of his arguments, passed a charter setting up the American Fur Company. Soon President Jefferson wrote a letter to Astor giving his blessing to the new company also. Astor proceeded to take on four partners and establish a board of directors as the charter required. However, he retained 99.9 percent of the stock, elected himself president, and subsequently declared dividends whenever he wanted to compensate himself. The partnership was a fiction; Astor never intended to share either the proceeds of the company or any portion of the fur trade that he could control. In 1810 he made his first move. His ship, the Tonquin, sailed to the mouth of the Columbia River on the Pacific Coast and set up a trading post named Astoria. At this time, Britain and the United States contested the wild area known as Oregon territory, consisting of present-day Oregon and Washington. Astor got diplomatic support for his trading post by arguing that its presence established an American claim to the territory. Secretly, however, he hoped to form a new nation called Astoria and make himself king. Meanwhile, he would make Astoria one end of a vise that would squeeze competitors out of the new fur areas. Furs taken in the West would come to Astoria and then be shipped to China, which was a major fur market, or to New York. By this time, Astor owned a fleet of ships with which to do this. The other end of the vise would be St. Louis. Furs from Astor’s planned string of trading posts on the eastern slopes of the Rocky Mountains would come down the Missouri River system to St. Louis and from there go overland to New York or on to the port of New Orleans to be shipped to Europe. It was a megalomaniac scheme, and no one but Astor had both the nerve and the resources even to attempt it. But it was too grandiose. Only part of it was to work, and the rest worked only until the fur trade fell apart. THE ROAD TO MONOPOLY In 1813 Astor’s plan suffered a great reversal when he was forced to sell Astoria to the British during the War of 1812. He sold out at a fraction of its value because British soldiers were in a position to seize it as a war prize. Without Astoria as a foothold in the Oregon territory, he was unable to compete with British and Canadian fur companies. And 61 of Astor’s employees died pursuing the settlement, along with hundreds of natives they came in conflict with. 7 Unbowed, Astor later commissioned Washington Irving, the best-selling author of the day, to write a book about the intrepid adventurers and himself as the great mind behind them. 8 Despite the loss of Astoria, Astor nonetheless predominated. In 1816 his lobbying succeeded in getting Congress to pass a law forbidding foreigners from trading furs in U.S. territories. This prevented Canadian and British companies from operating in the Northwest Territory, and Astor immediately bought out their interests, giving him a monopoly in furs east of the Missouri River. Blocked from the Pacific Coast trade by the British presence, he turned his attention to the upper-Missouri fur trade. Astor bided his time as other fur companies pioneered trading in the northern Great Plains and then, after discovery of rich valleys of beaver, in the Rocky Mountains. By 1822 Astor had established a presence selling trade goods and buying furs in St. Louis, but he waited as other companies sent expensive expeditions of traders and mountain men up the Missouri, absorbing heavy losses of men and money. These pioneering companies found tremendous reserves of beaver in Rocky Mountain valleys, mapped new routes, and discovered advantageous locations for trading posts Then Astor crushed the competition. In 1826 he merged with Bernard Pratte & Company, an established firm, using it as an agent. He bought out and liquidated another competitor, Stone, Bostwick & Company. In 1827 he broke the Columbia Fur Company by building his own trading posts next to every one of theirs, engaging in cutthroat price competition for furs, and plying Indians liberally with whiskey. His trappers shadowed its trapping parties to learn where the beaver were, then muscled in. Using similar tactics, he bankrupted Menard & Valle. Now, according to Astor’s biographer Terrell Competition on the Missouri River was all but nonexistent. What remained was inconsequential, and might have been likened to a terrier yapping at a bear. The bear lumbered on, ignoring the noise until it became aggravating.

Then with the sudden swipe of a paw, the yapping was forever stilled. Astor made astonishing profits. He would buy, for example, a 10-pound keg of gunpowder for $2, or 20 cents a pound, in London and transport it to histrading posts using his ships. He paid himself a 2 percent commission for buying the trade goods, or $0.04 cents on the keg of gunpowder. He paid himself a freight charge for carrying the gunpowder on his ship to New Orleans. From there the keg was transported up the Missouri using the inexpensive labor of his hired trappers and traders. The gunpowder was valued at $4 a pound to the Indians, who were not allowed to pay money for it but got it only by exchanging furs or on credit. In the 1820s Astor charged one 2-pound beaver skin for each pound of gunpowder, getting 10 skins weighing 20 pounds for the keg of gunpowder. These skins were transported back to London, where they were worth $7 a pound or $140. From the $140 Astor deducted a 5 percent commission, or $7, for brokering the sale of the furs. Astor also subtracted 25 percent, or $35 from the $140, for the estimated costs of transportation and wages. All told, this left a net profit for the American Fur Company of $97.96, or 4,900 percent on the original $2 investment. 10 And Astor owned over 99 percent of the company’s shares. This profitable arithmetic was repeated on a wide range of trade goods. The value of trade goods lay not in their utility but in Indian beliefs. Indians coveted them so much that they considered whites foolish to exchange even the smallest trinkets for beaver skins that were abundant in the forests. The idea of material acquisition beyond basic needs was foreign to Indian cultures. The Arikaras, for example, believed a person who had more possessions than needed to survive ought to give the excess to others. Offering money to Indians did not motivate them to trap and process furs; they were indifferent to accumulating currency. Trade goods such as rifles, knives, clothing, blankets, beads, and trinkets were useful, but nativemade equivalents were often just as good. Trade goods, however, had mystical significance beyond their utility or monetary value. Their allure lay in magical, spiritual qualities. Indians believed the future could be seen by looking in a reflection of the self. Because manufactured mirrors gave a clearer reflection than water they were a wondrous advance in prophecy. They thought guns had supernatural properties, because they created thunder, an event associated with the spirit world. They thought pots and kettles were alive, because they rang or sang out when hit. Thus, Indians found in trade goods supernatural qualities that were lost on Europeans. 11 Astor encouraged Indians to take trade goods on credit. As a result, some tribes—the Winnebagos, Sacs, Foxes, Cherokees, Chickasaws, and Sioux— were hopelessly mired in debt, owing the American Fur Company as much as $50,000 each. Since trinkets had sky-high markups, Astor could not lose much even if tribal debts grew, but indebtedness forced tribes to trade furs with him rather than with competitors. His traders and trappers fared no better. He marked up trade goods heavily before selling them to traders. Often, traders were in debt to Astor or had mortgaged their trading posts to him and were forced to mark up goods heavily themselves before selling them to Indians and trappers. Trappers employed by the American Fur Company were ruthlessly exploited. They worked unlimited hours in hazardous conditions and extreme weather, but when Astor achieved dominance in an area, he cut their salaries from $100 a year to $250 every three years. They had to buy trade goods and staples at markups that were higher than those charged Indians to get furs. Whiskey costing 30 cents a gallon in St. Louis was diluted with water and sold to them at $3 a pint. Coffee and sugar costing 10 cents a pound was sold for $2 at trading posts up the Missouri. Clothing was marked up 300 to 400 percent. Astor had contrived a lucrative, pitiless system that amplified his fortune by diminishing those caught in its workings. Though never venturing out West, he was in touch, working long hours, his shrewd mind obsessed with the most minor details and with squeezing out the smallest unnecessary expenses. In 1831 his son William estimated American Fur Company revenues of “not less than $500,000” yearly. 12 Astor was by now the richest man in America. He began to buy real estate in and around New York City

ASTOR RACES ON

In the early 1830s it seemed nothing could slow Astor. Men who hated the American Fur Company started competing firms, but few lasted. Astor destroyed them by underbidding for furs and debauching the Indians with alcohol. In 1832 Congress prohibited bringing alcohol into Indian territories, but the law was mostly ignored. Astor never favored using alcohol. It raised costs. However, many competitors saw inebriation as their only hope of seducing Indians with furs away from him. Astor, obsessed with defeating his rivals, let the spirits flow despite sad consequences. Alcohol was unknown in native cultures; Indians developed a craving for it only after European traders introduced intoxication into fur price negotiations. Some thought that spirits occupied their bodies when they drank. Among Indians who took to whiskey, a new desire was created, a desire that motivated them to produce furs. A few tribes, notably the Pawnee, Crow, and Arikara, never imbibed. Most did, however, and some were so debilitated that their fur production fell and traders moved on. Astor smuggled liquor as needed past Indian agents. He ordered construction of a still at the confluence of the Yellowstone and Missouri rivers, producing enough spirits to keep tribes in several states in a constant drunken state. Congress could not enforce its will because the federal government had almost no presence in vast areas of the West. Statutes were meaningless where no authorities stood to enforce them. In Indian country, the only law was the will of leaders of trading companies and brigades of trappers who wore selfdesigned, military-style uniforms and could rob, cheat, and murder both Indians and whites with impunity. An 1831 report to Lewis Cass, secretary of War, stated: The traders that occupy the largest and most important space in the Indian country are the agents and engagees of the American Fur Trade Company. They entertain, as I know to be the fact, no sort of respect for our citizens, agents, officers of the Government, or its laws or general policy. 13 Government officials such as Cass were disinclined to thwart Astor in any case since they were frequently in his pay. Cass, who was the federal official in charge of enforcing the prohibition law, was paid $35,000 by the American Fur Company between 1817 and 1834. 14 At one time, Astor even advanced a personal loan of $5,000 to President James Monroe. Over the years, the Astor lobby achieved most of its objectives in Washington, D.C., and state capitals, including heavy tariffs on imported furs and abolition of the government fur-trading posts so beloved to Washington and Jefferson. Under these circumstances, it is not surprising that the government failed to regulate the fur trade. In 1831 Astor introduced a new technological innovation, the steamboat Yellowstone, which could travel 50 to 100 miles a day up the Missouri, transporting supplies to his posts. Keelboats used by competitors made only 20 miles upriver on a good day and exposed men pulling them with ropes from the bank to hostile Indian fire. Upriver Indians were awestruck by the Yellowstone and traveled hundreds of miles to see the spirit that walked on water. Some tribes refused to trade with the Hudson Bay Company any longer, believing that because of the Yellowstone it could no longer compete with the American Fur Company.

THE ENVIRONMENT OF THE FUR TRADE CHANGES

Although the American Fur Company was ascendant, unfavorable trends were building that would bring it down. Demand for beaver was falling as the fashion trends that made every European and American gentleman want a beaver hat waned. Silk hats became the new rage. Also, new ways of felting hats without using fibrous underhair from beaver pelts had developed, and nutria pelts from South America were entering the market. These were not the only problems. In 1832 trade came to a near standstill during a worldwide cholera epidemic because many people thought the disease was spread on transported furs. Beaver populations were depleted by overtrapping. The fur companies made no conservation efforts; the incentive was rather to trap all beaver in an area, leaving none for competitors. In the 1820s the Hudson Bay Company tried to prevent Astor from moving into Oregon territory by exterminating beaver along a band of terrain to create a “fur desert” that would be unprofitable for Astor’s trappers to cross. Losses of human life rose as mountain men entered the shrinking areas where beaver were still abundant, leaving behind somewhat friendly Indians such as the Snake and Crow to encounter more hostile tribes such as the Blackfeet, who poisoned their arrows with rattlesnake venom and conducted open war against trappers. 15 One study of 446 mountain men actively trapping between 1805 and 1845 found that 182, or 41 percent, were killed in the occupation. 16 Astor knew that the fur industry was doomed. Beaver pelts that had fetched $6 a pound in 1830 brought only $3.50 a pound by 1833. In that year he liquidated all his fur-trading interests. He spent the rest of his life accumulating more money in New York real estate. For a time, the American Fur Company carried on under new owners, but the industry environment continued to worsen. In 1837 the firm’s steamboat St. Peters carried smallpox up the Missouri, killing more than 17,000 natives, and an agent observed that “our most profitable Indians have died.” 17 By 1840 the firm had withdrawn from the Rocky Mountains and focused on buffalo robes, which remained profitable for some time.

ASTOR’S LAST YEARS

Astor lived on in New York, wringing immense profits from rents and leases as the city grew around his real estate holdings. By 1847 he had built a fortune of $20 million that towered above any other of that day. In 1998 this sum was estimated to be the equivalent of $78 billion, at the time more than the wealth of Microsoft’s Bill Gates. 18 In his last years he was weak and frail and exercised by having attendants toss him up and down in a blanket. Yet despite his physical deterioration, he remained focused on getting every last penny from his tenants, poring over the rents for long hours behind the barred windows of his office. Astor gave little to charity. An early biographer found “no trustworthy evidence of a single instance” in which he bestowed even a small sum of charity beyond his family and close friends and concluded: To get all that he could and to keep nearly all that he got—those were the laws of his being. He had a vast genius for making money, and that was all that he had. 19 Social critics attacked him for his stinginess. When he died in 1848, his major gift to society was $460,000 in his will for building an Astor Library. In addition, he left $50,000 to the town of Waldorf, Germany, his birthplace; $30,000 for the German Society of New York; and $30,000 to the Home for Aged Ladies in New York City. This totaled, in the words of one commentator, less than “the proceeds of one year’s pillage of the Indians.” 20 The rest of his wealth went to his heirs. As to how America felt about him, one obituary minced no words. No doubt he had many fine, noble qualities, but avarice seemed to hold an all-conquering sway. . . . [W]hat a vast amount of good he might have rendered the world! But how reverse is the case—he dies and no one mourns! His soul was eaten up with avarice. Charity and benevolence found not a congenial home in his cold and frigid bosom!

THE LEGACY OF THE FUR TRADE

For 300 years the fur trade shaped the economic, political, and cultural life of both native and European inhabitants of the raw North American continent. Its climactic era has often been depicted as a progressive and romantic period when trading posts represented “civilization which was slowly mastering the opposition of nature and barbarism.” 22 According to historian Dan Elbert Clark: The fur traders, with all their faults and shortcomings, were the pathfinders of civilization. They marked the trails that were followed by settlers. They built trading posts where later appeared thriving towns and cities. They knew the Indians better than any other class of white men who came among them. 23 The American Fur Company and its competitors greatly advanced geographical knowledge and blazed trails. The fur industry reinforced central American values such as rugged individualism, the frontier spirit, and optimism about the inevitability of progress. Yet there is also a dark side to the story. Traders undermined Indian cultures by introducing new economic motivations. Tribal societies were destroyed by alcohol, smallpox, and venereal disease. “The fur trade,” according to Professor David J. Wishart of the University of Nebraska, “was the vanguard of a massive wave of Euro-American colonisation, which brought into contact two sets of cultures with disparate and irreconcilable ways of life.” 24 The industry also left extensive ecological damage in its wake. It slaughtered animal populations and denuded riverside forest areas to get steamboat fuel. Astor’s mentality of pillage set a destructive standard. Argues Wishart: “The attitude of rapacious, short-term exploitation which was imprinted during the fur trade persisted after 1840 as the focus shifted from furs to minerals, timber, land, and water. The American Fur Company, now largely forgotten, was the main actor in a global industry with enormous geopolitical power. The firm’s operation was like a test-tube experiment on the social consequences of raw, unrestrained capitalism. It would be many years before the American nation gave thought to the lessons.

Questions

1. How would you evaluate Astor in terms of his motive, his managerial ability, and his ethics?

What lesson does his career teach about the relationship between virtue and success?

2. How did the environment of the American Fur Company change in the 1830s? What deep historical forces are implicated in these changes?

3. What were the impacts of the fur trade on society in major dimensions of the business environment, that is, economic, cultural, technological, natural, governmental, legal, and internal?

4. Who were the most important stakeholders of the nineteenth century fur industry? Were they treated responsibly by the standards of the day? By the standards of today?

5. On balance, is the legacy of the American Fur Company and of the fur trade itself a positive legacy? Or is the impact predominantly negative?

6. Does the story of the American Fur Company hint at how and why capitalism has changed and has been changed over the years?

7. Do one or more models of the business– government–society relationship discussed in

Chapter 1 apply to the historical era set forth in this case? Which model or models have explanatory power and why?