Was Alaska a Good Buy?

The U.S. bought Alaska from the Russian Empire in 1867 for $7.2 million.  At the time the purchase was derided as “Seward’s Folly,” but today it’s common to compare the purchase price with Alaska’s gross state product of $45 billion and claim it a resounding success.  But is that the right comparison?

CruiseAlaskaMost obviously one should correct for discounting, risk etc.  Less obviously, but more importantly, one should start by thinking about total world product: Was total world product increased by the U.S. purchase? To the extent that the Russians would have held on to Alaska and would not have been able to fully exploit Alaska’s resources in the 20th century then perhaps the answer is yes.  But if the U.S. had not purchased Alaska it’s plausible that Great Britain would have.  So if the counter-factual was British purchase, then US purchase simply resulted in a redistribution of resources from British/Canadians to Americans with no increase in net wealth.

Moreover, given the ease of immigration at the time, economist David Barker argues that it’s closer to the truth to think that the redistribution was nominal only, i.e. from Alaskans calling themselves Canadians to more or less the same Alaskans of the same wealth calling themselves Americans.  But why should other Americans be willing to pay for this nominal redistribution?  Taking into account these considerations, Barker concludes:

Using a variety of assumptions and techniques for
valuing the net cash flows from Alaska, it is clear that the financial returns have not
been positive. The economic benefits that have been received from Alaska over the
years could have been obtained without purchasing the territory. In financial terms,
Alaska has clearly been a negative net present value project for the United States….[A] close analysis of non-economic factors also
casts doubt on the wisdom of the purchase….

True, the wisdom of purchasing Alaska is now moot, but the analysis raises questions of more than historical interest:

The results of this paper suggest new lines
of inquiry in the history of the West, such as: Has westward expansion been worth the
price? What have been the costs and benefits? Should expansion have been less or
greater than it was? Should United States expansion continue? Should the United States shrink by cutting ties with its remaining possessions? All of these questions
seem worthy of future research.

Hat tip: Ben Muse.


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