American History Revised (43 page)

When Thomas Jefferson sent James Monroe and Robert Livingston to Paris, they had specific instructions to try to buy New Orleans and the Gulf of Mexico seacoast for $10 million and not a penny more. Before they could start negotiating, the French put a counteroffer on the table: the entire Louisiana Territory for $15 million. Even though they lacked the mandate to do such a gigantic deal, the two American ministers accepted on the spot and rushed to get it completed and signed before the French changed their minds. It took another month for the news to cross the ocean and Jefferson to hear what happened. When he did, he was delighted. “I very early saw,” he said, “that Louisiana was indeed a speck in our horizon, which was to burst in a tornado.” Only there was one problem: the Constitution. Nowhere does the Constitution grant the federal government authority to acquire more territory, especially of a size that would double the area of the entire country. To do so would presumably require a constitutional amendment. All his life Jefferson had been a strict constructionist, following the Constitution to the letter and believing that if the Constitution did not give specific permission, he could not do it. His secretary of the treasury, Albert Gallatin, eager to consummate the transaction, kept leaning on him to be more flexible. Finally, Jefferson relented. But he must be very quiet about it. “The less we say about the constitutional difficulties regarding Louisiana, the better. What is necessary for surmounting them,” he told James Madison, “must be done sub-silentio.” With time running short and Napoleon threatening to back out of the deal, Jefferson pushed for an immediate ratification by the Senate and got it, 24–7.

It may have been the mother of all real estate deals—buying 838,000 square miles for four cents an acre—but good deals are never simple. First there was the question of clear title. The territory had originally belonged to France. In 1782 it was ceded to Spain, then ceded back to France in 1800–1801 in a transaction kept secret so the English wouldn’t find out about it. When the Spanish learned that the French were selling to the United States, they objected that France didn’t have clear title, that there had been an implicit understanding that the land would
never be sold to a third party. Eventually France and Spain reached an understanding, enabling the sale to the United States to go forward. When the closing finally did take place on December 20, 1803, in New Orleans, it would be a most unusual ceremony: the flag of Spain was lowered, then the flag of France was raised, then the flag of France was lowered, then the flag of the United States was raised. Also part of the ceremony was the delivery, on a silver platter, of the keys to the city, relinquished to the French by the Spanish only a few weeks before.

But before this all happened, there was the issue of money: how to pay for it? The United States was a classic “subprime” borrower: it had no cash for a down payment, and no credit rating to speak of. The U.S. Treasury was still paying off its debts from the Revolutionary War. Fifteen million dollars in 1803 was a staggering sum: if adjusted for the relative share of GDP, this amount would equal almost $400 billion today.

According to the opposing Federalist party, $15 million was the equivalent of 433 tons of solid silver that would fill 866 wagons, making a wagon train five and a third miles long. Stacked in dollar coins, it would make a pile rising nine miles into the sky. “We are to give money of which we have too little,” said one, “for land of which we have too much.” Said Fisher Ames, the most eloquent Federalist, America was “rushing like a comet into infinite space.”

The U.S. Treasury retained a British merchant bank to raise the money, a most unusual arrangement because England was on hostile terms with the ultimate beneficiary of the money, Napoleon. But money is money. The British merchant bank had a partnership with a Dutch bank, which in turn routed the money to France in a classic money-laundering scheme. Says one historian wryly, “Thus it was that a London banking firm sold American bonds on an international market to help France finance a renewed war with Great Britain.” The London merchant bank, the House of Baring, floated a public bond offering and sold securities to the general public and to banks (the “institutional investors” of the day). The major buyers were not American investors but French and Dutch investors, who bought the bonds at the opening offering price and immediately resold them to other investors for a nice profit (“flipping” is what it’s called today on Wall Street).

For the United States, this was a superb deal because the country was essentially financing the acquisition with other people’s money, mostly foreigners’. For the foreign investors and speculators, it was a good deal because they were able to quickly resell at a profit. The two merchant banks collected a success fee of $3 million, so they walked away happy. The bonds yielded an interest rate of 6 percent, and all investors got their money back at the end of fifteen years. To be sure, in 1818—several years after a disastrous
war with England—$15 million was beyond the capacity of the U.S. to repay in one lump sum. But by then the value of the land was at least fifty times its original cost, thus providing the collateral to underwrite additional financings to repay the original bondholders.

Of course, in all deals there are losers. In this case the loser was France because of its gross mismanagement of the proceeds. A monarchy, France was accustomed to having its queen attired in a manner befitting her rank. “French fashions must be France’s answers to Spain’s gold mines in Peru,” opined the finance minister Jean-Baptiste Colbert in the 1770s. Louis XVI’s wife, Marie Antoinette, had an annual clothing budget of $3.6 million, but consistently overran it by commissioning gowns encrusted with diamonds and sapphires that left John Adams, the American consul to Paris, speechless. She was “an object too sublime and beautiful for my dull pen to describe,” he wrote. “Her dress was everything that art and wealth could make it.” Not to be outdone, Napoleon’s wife Josephine took the proceeds of the Louisiana Purchase and spent half of the $15 million on clothes over the next ten years.

Today the Louisiana Purchase is applauded in history books for doubling the size of the country. Less known but even more significant, the success of the Louisiana Purchase initiated for the next two hundred years a much broader view of the Constitution. It also introduced the idea of debt as an easy form of government financing. (And it did establish, to some degree, France’s claim to be the world center of fashion.)

Rarely appreciated today is the magnitude of the gamble. Imagine nowadays a president going to Congress and asking for $400 billion to buy territory of which there was no general map and the only information the seller could give him was “Make the most of it.” The speaker was Talleyrand, and the United States did do the deal. It takes enormous confidence, but out of such daring are great deals made.

1848
Jack London, the famous novelist who wrote
Call of the Wild
, once did a story on the discovery of gold in the Klondike, and arrived at the astounding conclusion that $220 million was spent extracting $22 million from the ground.

“Who has profited? Who has lost? How much has gone into the ground? How much has been taken out of the ground?” he asked. London estimated that some 125,000 gold seekers had rushed into the Northern Eldorado, each of whom “gave a year of his life. In view of the hardship and severity of their toil, four dollars a day per man would indeed be a cheap purchase of their labor. One and all, they would refuse in a civilized country to do the work they did do at such a price.”

By multiplying four dollars a day times 125,000 men times 300 days and adding the resulting $150 million to the $75 million that went for their transportation and food, London arrived at the $220 million (actually $225 million). Viewed in its totality, the Klondike Gold Rush was essentially a glorified lottery.

The California Gold Rush of 1848 was not much better. Here, too, the people who made the money were the equipment suppliers and saloonkeepers. Because of the lack of laundry services, for example, gold miners had to send their clothes to Hawaii to be washed. The Hawaiian washer women made more money than most of their California customers.

Even more remarkable about the California Gold Rush was who lost the most money: John Sutter. When the first discovery was made at Sutter’s Mill, he must have counted himself the luckiest man in the world: here he was, probably the largest landowner in America, living “like a feudal baron” with his own fort and private army, master of a million acres, when his head carpenter went to one of his sawmills and discovered gold.

However, just as important as making money is keeping it. Within weeks, forty thousand gold-seekers had swarmed into his property, destroying crops, roads, and bridges in their frenzy. Sutter couldn’t keep so many trespassers off his property, nor could he sue them in court because by the time his lawsuits got a court hearing, all the unknown trespassers had long since moved on. Sutter spent the rest of his life trying to win compensation, but to no avail, and finally died impoverished, a broken man.

1867
When Edward Robinson died in 1865, shortly followed by his sister and former partner Sylvia Ann Howland, there was only one family heir left: Edward’s daughter Hetty. Robinson left his daughter $910,000 and the income from the balance of his $6-million estate (the money was made in whaling). Sylvia Ann Howland, in turn, left her niece the income from half of her $12.3 million estate. But Hetty was not happy with the income from half of $12.3 million; she wanted more. A thirty-year-old spinster, Hetty Robinson had but one love in life, and she loved it dearly: money. So she did what every American in search of easy money does: she filed a lawsuit.

The Howland Will Case quickly developed a life of its own, and took years to untangle and resolve. The will of Sylvia Ann Howland was written in 1863; everyone agreed she was “of sound mind,” and the executor was her (and her brother’s) remaining business partner. So far, so good.

In her complaint, Hetty Robinson produced a copy of an earlier will, written a year before the registered will, awarding
her $12.2 million of the $12.3-million estate. Now, normally when there are two wills, the most recent one takes priority, not the first one. But Hetty Robinson then produced two copies of an additional page to the first will, known during the trial as “the Second Page,” revoking “all wills made by me before or after this one….I give this will to my niece to show, if absolutely necessary to have it, to appear against another will found after my death.” The letter was signed only by Sylvia Howland; there were no signatures by witnesses.

Why this strange behavior on the part of Sylvia Howland? Hetty claimed that her aunt had become estranged from her brother/business partner (Hetty’s father), and had made Hetty promise that Hetty’s father would never inherit any money; in return for this promise, Hetty would get all her aunt’s money. This all came as a great surprise to the executor, Thomas Mandell, the business partner of Sylvia Howland and Edward Robinson. Edward, as it turned out, had died before Sylvia, so the need for excluding Edward became moot, not to mention the fact that Edward, as the managing partner of the family business, had made a lot more money than his sister and certainly didn’t need any of her share. If there had been an estrangement in the family that would have caused a young woman to turn against her own father, presumably Mandell would have known about it.

Regardless of how bizarre Hetty’s claim seemed, the executors still had to contend with Sylvia Howland’s signature on “the Second Page.” Was it real? Or was it a forgery? The executors decided the best way to beat back Hetty Robinson’s challenge to the will was to claim that the unwitnessed signature on the Second Page did not match the witnessed signature of the first will, which everyone agreed was legitimate.

The fight was a vigorous one. The evidence before the court took a full year to compile and consisted of more than one thousand pages. Handwriting experts from all over the country and even from France were called in by the plaintiff to argue that the two signatures matched. Hetty Robinson’s lawyers even produced 110 samples of the signature of the late President John Quincy Adams to show that a person’s signature was consistent, to which the defense argued that John Quincy Adams was famous for his scrupulous handwriting.