Friday, February 18, 2011

Was Alaska a good deal?

Every Alaskan student learns the history of the acquisition from the Russians of Alaska by Secretary of State William Seward in 1867.  Bought for the low price of 7.2 million dollars, or two cents an acre, the purchase was derided by many as Seward's Folly.  While it expanded the reach of the United States in an increasingly colonial era, many thought the the land was a worthless frozen wilderness with nothing of value.  The primary critic of the purchase was New York Tribune publisher Horace Greeley, who nicknamed the area "Seward's Icebox."

Check with which Alaska was purchased

 Over time though, the purchase was became viewed as the steal of a epic proportions.  7.2 million dollars, in modern terms is about 108 million dollars, less than many pro athletes are paid.  In the view of many at the time, the only thing of value in Alaska was the fur trade. Since 1867, Alaska has been shown to have many commodities of value:  gold, copper, timber, oil.  The value of goods extracted from Alaska dwarfs the purchase.  In 1932, former territorial delegate James Wickersham ran the numbers and calculated the totals expenditures for the United States in Alaska from 1867 to 1932 to be around 150 million dollars, while the total value of money extracted from Alaska to be around 2.5 billion dollars.  This included, by his estimate, around 431 million dollars of gold.  Certainly a 16 fold return on investment is hard to argue with.  And this was before the discovery of oil on the North Slope.

It seems a pretty good deal.  Many Russians are still sore about the deal, claiming that it was actually a 100 year lease on the land that was purchased.  A 2007 article that jokingly advised the sale of Alaska back to Russia was picked up by the Russian media.  Recently though, some have come forward to say that it is actually the United States that got the short end of the deal.  David Barker, an adjunct professor at the University of Iowa college of business, wrote an unpublished article arguing that if the United States had not purchased Alaska, it would likely have been bought by Great Britain and become part of Canada.  Barker notes that this scenario would have allowed many Americans to extract the resources from Alaska without the expense of having to govern.  

Barker's article has generated criticism.  Several Alaska economists and historians responded to the New York Times that Barker only looked at the bottom line in the federal treasury,  and not the net income for Americans through the profits of private business.  

Ultimately, Alaska as a good deal comes down to whether or not the analysis is based only on returns to the federal government.  Like many western states, Alaska has cost the federal government a great deal of money to govern.  But it has been a vehicle for a great amount of wealth creation by Americans. 

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