Wealth Creation and the Buffalo of Hoboken

It was 1843, and some guy in Hoboken, New Jersey, was stuck with a herd of scrawny buffalo. They weren't thick and meaty buffalo you could sell for meat. They weren't particularly lively and picturesque buffalo that you could sell to a circus. They were just a sad lot of buffalo that he was tired of having on his hands.

Enter a businessman, who bought the dilapidated creatures for $700. That was quite a tidy sum for the guy who had owned the buffalo. He went home happy.

The businessman had a publicity blitz in New York, all about a free exhibition buffalo hunt. Free! Fun for the entire family!

He expected about 16,000 people to show up. He got 24,000. They weren't particularly impressed with the buffalo. The cattle panicked and bolted through the fence into the freedom of the swamps.

Still, the people had an amusing day. And the businessman walked away $3400 richer.

What? He held a free buffalo exhibit. People showed up, paid him noting, watched the buffalo stampede into the distance, and went home. The guy not only didn't charge admission, he lost the entire $700 herd of buffalo. How did he manage to come out ahead?

It turns out that this was an exceptionally clever businessman. He launched his scheme in concert with the owners of the ferries that ran between New York and Hoboken. He'd provide the advertising and the buffalo, they'd give him half the profits from the thousands of people taking the round trip.

Okay, so the final tally is:

1. Guy who originally owned the herd of buffalo. $700 in the black. He's happy.

2. People who came to see the buffalo. They got an amusing outing for the cost of a ferry trip. They're happy.

3. Ferrymen. They came out $3400 ahead. They're happy.

4. The businessman. He came out $3400 ahead, and turned it into great publicity for his next stunt. He's happy.

Who was the winner here? I'd say, "Everybody." Except for maybe the buffalo, but even they were probably headed for the slaughterhouse anyway. Everybody came out ahead.

The businessman, if you haven't already guessed, was P.T. Barnum.

Barnum started out with the same asset that the original buffalo owner had: a scrawny bunch of buffalo. The original owner only managed to leverage the buffalo for $700. Barnum, however, recognized that the buffalo were worth more than just how much you could sell them for. He leveraged $6800 -- nearly ten times what he'd bought them for -- out of those animals -- for himself and the owners of the New York / Hoboken ferries.

And this, my friends, is how wealth creation works.