Four cents an acre

September 2007

Four cents an acre

Map of LA purchase. Original image at
http://www.washington.edu/uwired/outreach/cspn/Website/Graphics/LA%20Purchase%20Map.jpg

'Twas ever thus
I recently ran across an article in the Smithsonian magazine that discussed what became known as the Louisiana Purchase. It made for fascinating reading and, if I may say so, proves that there's a pattern to real estate that's existed for some long time.
Not the least interesting point is that, as the article's author calculated, the deal worked out at four cents an acre -- which, of course, isn't likely to buy as much as a square centimetre of the land involved nowadays. Just goes to show that, if you can manage to hang on for a couple of hundred years after buying something, you're going to end up quite wealthy!
But the background details are no less intriguing and it seems useful to run through them and offer a few comments of my own.
So then ....

A willing buyer and a willing seller
The key to any successful real estate transaction is the existence of two parties, one interested in buying and the other prepared to sell what they presently own. Usually, the parties are individuals, even if they're acting in the name of an organization or entity that each of them represents. On this occasion, the personages were no less than Thomas Jefferson and Napoleon Bonaparte. However, although they both used intermediaries to bring a deal together, the final -- and, for that matter, the inital -- decisions were essentially their own. Unlike in most significant transfers of title these days, there was little in the way of what can be called Board Approval. Jefferson and Bonaparte came up with the yeas and nays on their own with scant reference to their associates and/or superiors (although, in reality, neither of them had people in higher authority who needed to be consulted).

The matter of motivation
On both sides, there were reasons to support the idea of a sale.
On the one hand, Jefferson was concerned that France might extend its presence and power in North America, not the least by way of restricting access to New Orleans and the use of the Mississippi river (which then represented the western edge of the United States). This, as a report to the then US Secretary of State pointed out, would lead to "incalculable difficulties" and pose a threat to goods that were destined for shipment to the East Coast and beyond.
At the very least, Jefferson decided, there was an essential need to acquire the port of New Orleans so it would remain open and accessible to American commerce. Accordingly he instructed his US minister in Paris to start negotitions with Napoleon's foreign minister.
On the other hand -- and while the US idea of a purchase had been growing -- Napoleon had started to question whether his North American territory was of any great value. (Some years previously, a French observer had described it as "a primitive place fit only for degenerate life forms," while a later opinion argued that "it isn't worth a straw at the present time.") More to the point, though, Napoleon was giving thought to a further campaign against Britain and wanted to raise funds for waging it.
To what would subsequently come as a surprise to Jefferson and his representatives, the answer seemed to lie in a sale of the entire Louisiana territory to the United States.

The need for a survey
At the time, no one appeared to have an exact idea of where the boundaries of French possessions in North America lay -- or at least France seems to have been unwilling to define them. By some accounts (including the one provided in Wikipedia) the northern parts extended into what is now Alberta and Saskatchewan and the southern perimeter reached down into the Florida Panhandle.
Indeed, one of Jefferson's first decisions after the purchase was ratified (which it was, despite some strong opposition -- which included a comment that "we are to give money of which we have too little for land of which we already have too much") was to have the territory explored and charted. The job was given to Lewis and Clark, who in time undertook their historical expedition to the shores of the Pacific Ocean.
In any case, the entire area was scarcely populated and mainly by Indian tribes at that -- who, as might be expected, were neither consulted in the matter nor advised of the change in ownership until well after the fact.

Offers and signbacks
There was no lack of negotiation between the two parties, although the final price was some way off from what both the buyer and seller had in mind at the beginning.
Jefferson's original interest was in acquiring New Orleans and little more, for which he expressed a willingness to pay up to $9,375,000 -- although his representatives in Paris first made an offer of $8 million.
Unexpectedly, however, they were asked if they'd be interested in purchasing the entire Louisiana territory instead. The figure Napoleon had decided upon -- and one that they were told he would accept -- was $22,500,000.
Rather taken aback, (but, as I see it, very much to their credit), Jefferson's people countered with a willingness to keep things going if they could arrive at a mutually agreeable -- and more reasonable -- price.
They then suggested $12,700,000, but were told that $15,000,000 was as low as Napoleon would go. Although having neither the authority nor the time to get approval (Transatlantic messages took considerably longer than they do today.) they then agreed to this amount.
The effect was to double the size of the United States and would enable it to take its place, as one of the negotiating team remarked, "among the powers of first rank."

Arranging financing
Although the Louisiana Purchase would fulfill Napoleon's wish for a replenished treasury, the money was quite beyond the means of the still young United States. However, it proved possible to obtain financing from the British bank of Baring & Company, which, in co-operation with one or two other lending sources, came up with the necessary cash. This was accompanied by the issue of bonds for the United States to pay off, which it did over a fifteen year period at a six percent interest rate.
All told, the cost to the U.S. treasury added up to about $27 million.
At the same time, however, Napoleon ended up with only $8,831,250 in cash. This was because France was required to pay off some debts it owed to the United States. Even then, it would appear, there were "adjustments to the purchase price on closing."
Neverthless, there are no recorded regrets from either side about being one red cent the worse for putting the sale together.
At most, perhaps hindsight can suggest that the real winners in the transaction were the bankers. This, though, merely reinforces the headline of my opening paragraph, doesn't it?