Financing the Louisiana Purchase
The new United States of America had a Mississippi River problem because in the 1783 Treaty of Paris, Britain was guaranteed access to the river that ran down the middle of the North American land mass. The treaty that ended the American Revolution gave the U.S. the land east of the Mississippi, not both sides of the river. Through New Orleans, the French controlled the entrance to the land west of the Big Muddy and could prevent any ship from going up the river.
France, now led by Napoleon, had a North American problem. To him, maintaining a large portion of North America seemed impossible given the French loss of Canada to the British during the Seven Years War. His focus was on England and Europe and believed he could not defend a large portion of the North American continent. However, to prevent the British from capturing New Orleans, he sent more troops to defend the city that controlled the entrance to the Mississippi.
That didn’t play well in Washington. President Madison’s representative in France was already discussing buying the land around the mouth of the Mississippi. Discussions led by Robert Livingston were progressing slower than Madison wanted so James Monroe, his Secretary of State, was dispatched to speed the talks along before Napoleon changed his mind.
Shortly before Monroe arrived in Paris, Napoleon’s representative in the talks – François Barbé-Marbois – offered to sell the whole Louisiana Territory to the U.S. All 880,000 square miles for $15,000,000 or roughly $.65/acre.
Undaunted, the Americans quickly agreed to the price and set about finding the financing. Monroe and Livingston were faced with two immediate problems. One, they were only authorized to commit to up to $10,000,000. Two, the U.S. government didn’t have the money.
The pair turned to an unlikely source, a British merchant bank named Barings. Founded in 1762 by German born British wool merchant, Francis Baring, the firm already had worked with man American merchants before and after the American Revolution.
As an aside, this is the same Barings Bank that in 1995 Nick Leeson stuck with £887 million in losses from fraudulent investments and bad commodity trading decisions. Forced to close after 233 years in business. the Dutch firm ING bought the bank that same year for £1.
Back to funding the Louisiana Purchase. What emerged was a series of financial transactions based on the exchange rate of 5.3 French francs to each U.S. dollar. First, the United States government assumed $3.75 million debts owed to American citizens by the French government, companies and individual Frenchmen.
The balance of $11.25 million was funded by issuing U.S. bonds with an interest rate of six per cent and semi-annual payments of $337,500/year. The bonds would amortize over 15 years.
Napoleon needed money to pay for his wars and in steps Francis Barings who sensed an opportunity. He and Barings Bank purchased of all the bonds at a 12.5% discount. Barings paid $.875/dollar of value and agreed to pay the French $1,132,208 within 30 days and $377,358 a month until the balance was paid off. So, Napoleon got his cash and now, Barings Bank held $11.25 million in U.S. bonds that would generate six per cent interest on the principal for which he paid only $9.843,375.
Barings sold all the bonds to investors in London and Amsterdam. Barings made a healthy 12.5% gross profit from the transaction. In the end, Napoleon received far less than his asking price of $15 million because $3.75 of the deal was really debt forgiveness. Apply the 12.5% discount Napoleon gave Barings for the $11.25 million, and Napoleon only received about $9.84 million in cash for the Louisiana Territory.
Image of Louisiana Bond courtesy of Howe & Ruisling’s website.
Dear Mr. Liebman,
The other day, I happened to stumble upon your article on the financing of the Louisiana Purchase: bravo!
As it happens, I was part of the team that pulled together the exhibit at Federal Hall (and accompanying brochure) back in 2004 commemorating the bicentennial of the financing. As a kindred spirit, I thought I would simply reach out in case you would ever like to connect and share insights and perspectives on the financing of the Purchase.
In any case, it has delighted me to know that others have found this seminal global capital markets transaction of great interest; my compliments on your article.
With my thanks and all best wishes, Tim
Tim,
Thanx for your comment. I literally stumbled on the story when I was researching banks for a passage in my novel Raider of the Scottish Coast. Actually I would because it could lead to more posts. I just found it fascinating that Napoleon got far less than the asking price and a British banker made a killing while England and France was at war. And, in the bargain, we acquired enough land that roughly doubled the size of the country.
So, my real email is marc@marcliebman.com. Let’s set up a time to talk.
Great piece on the financing of the Louisiana purchase. And I love the breakdown of how much Napoleon walked away with. The Emperor walked away with a dent in his pride for a deal or should I say “promise” he made with France to recapture Haiti—France’s breadbasket. I’d like to know what else you found in your research for this article in regards to the money/profits the US, and or France made during the TransAtlantic Slave Trade.
Nevertheless, the article doesn’t state the facts behind why Napoleon was willing to sell the territory that more than doubled the size of the US. Napoleon and his French army lost the war during the Haitian Revolution, led by General Toussaint Louverture in 1803. He had to sell the land since they lost in Haiti trying to keep the Africans enslaved, which made France $21,000,000 million a year (est). I wrote about this in my new book, “America’s & France’s 1,000 Year World War Against #Haiti (Ayiti): The Assassination of a Nation.”
Kevin,
You are correct. However, my blog is usually about 500 – 650 words max. So scope is a premium and I wanted to focus on the financing which I thought was really interesting given that the French and British were at war. Napoleon wanted out of Louisiana because he knew he couldn’t defend it against the British and he needed money.
What if they gave a war and no one financed it?! Following the money behind the Louisiana Purchase taken together with Jefferson’s rhetoric of Republicanism and subsequent blockade of free Haiti because he feared the spread of slave revolt to America, reveals the deluding mentality of self interest. While sitting at the apex of capitalism Jefferson indulged his delusion of virtuous Republicanism! The 13 colonies revolted because they didn’t want to pay taxes to pay off the 7 Years War. Haitians revolted because they wanted to be free. Barrings profited as Napoleon savaged Europe. And American Indians were the victims of “purchasing” Louisiana. ONLY CHRIST CAN MAKE MEN TRULY FREE IN THIS DARK VALE!
Allen,
The Louisiana Purchase was driven by Napoleon’s desire to divest France’s territory in North America. The U.S. wanted it to help fulfill a 1783 Treaty of Paris commitment to provide Open access to the Mississippi River which at the time was the western border of the U.S. The orignal intent was to buy the area around New Orleans but the French offered what we called the Louisiana Territory. Jefferson was far from being a capitalist and in fact, he pursued policies that hindered economic development, preferring the U.S. to be an agrarian society. Also, Jefferson’s fears of the Haitian slave revolt spreading to the U.S. were unfounded. In fact, both Adams and Jefferson actually tried to aid the Haitians but ultimately pulled back.
Next, it would have been hard for the U.S. to blockade Haiti since we didn’t have a Navy from 1783 until it was authorized in 1794. The new ships weren’t available until 1797-1798 and there weren’t enough to blockade the western end of Hispaniola. Plus, we were fighting the French in the Quasi War. Then, after Jefferson took office, he immediately defunded the Navy, bringing it down to just a few friages and coastal vessels, not enough to blockade a port, much less than an island. During the war against the Barbary Pirates, the bulk of the U.S. Navy was in the Mediterranean, not in the Caribbean.
One last point… please keep your religious views to yourself.
You are deluded! The Occult Crown of England is the villain in it all! Britain and European freemasonry will bow before The King of Kings and Lord of Lords!
The stupidity of blaming colonists for slavery under European-nobility rule is the most insane notion in history! Probably a descendant of Civil War!
Slavery has been with us from the dawn of time. Unfortunately, it still exists today. In the case of the 13 Colonies, it was allowed by the British Government who also allowed it all its other colonies. So, from a U.S. history perspective, that’s where slavery begins. However, most, if not all the Founding Fathers, came to believe that it was wrong. Most who owned slaves, freed them upon their death or at other times. The first Anti-Slavery Act was passed by Congress in 1794 and what followed were a series of acts that made importing slaves illegal. However, it was not until 1866 with the passage of the Civil Rights Act that the practice of slavery was banned in the U.S.
Sir, you write above that President Madison authorized the negotiation with France for what became the Louisiana Purchase. That’s incorrect. Madison was the Secretary of State in 1803, and Jefferson was the president who authorized the negotiations. Additionally, you write Monroe was the Sec State. He alongside Robert Livingston were the U.S. plenipotentiaries wrt the Louisiana Purchase. Monroe didn’t become Sec State until Madison was inaugurated in 1809.
That’s what it says in the 6/28/24 post. and I quote.
When Jefferson sent James Monroe and Robert Livingston to Paris to purchase New Orleans from the French, the U.S. negotiators thought the French had title to the land they were selling. Au contraire.
Which post did I get it wrong and I’ll correct it.
This has given me the information that I was looking for except where did Hope & Company come into the picture ?
I have always heard that they (Hope) were in this deal. This is all very interesting to a native Orleanian.
Short answer is that I do not know. I did not see any reference to them when I did the research.
https://commons.wikimedia.org/wiki/File:AandeelLouisianaPurchase.jpg#/media/File:AandeelLouisianaPurchase.jpg
According to this Barings and Hope were involved.
Marc, i Really liked the article. Well researched but it did focus on the most important aspect of the Republic: Financial independence. The government this time was still understood to be exist independent of the ‘new’ form of free citizen with inalienable and guaranteed rights. The state was nor longe able to simply take at will. It no longer had entitlement, which is the lifeblood of Monarchies. The American citizen was not to be a mere subject with privileges whose sole existence was as a resource for the Crown. That was the original intent. The game changed in 1865 with a clever bait and switch. That change restored governmental entitlement and ultimately allowed Britain and the US to seemingly have aligned objectives. Nothing could have been further from the truth. And by 1917, the governmental, again in a clever and deviant plan created the selective service which STOLE the United States Free Citizen’s inalienable right to determine their mortal destiny. The Louisiana purchase was the last time there was clear evidence the people did not exist to finance the federal government ( NOTE: this does not translate to anti taxation. That’s a different discussion)
Your comment is thought provoking, but I disagree with some of your tenets. One, the draft was used during the Civil War by the North, so what the Selective Service Act did was codify a way of identifying what are known as military age males. Lets not get into the woman in combat issue. It worked, albeit somewhat creakily and is still in force today.
The original intent of the Lousiana Purchase was to fulfill a Treaty of Paris committment to the Brits to guarantee access to the Mississippi River. At the time, we thought the entrance was controlled by the French, but was in reality still owned by the Spanish. Both of these countries were at war with Britain in 1803. There are several posts on this web site about how the Louisiana purchase came about and was funded.