love and the louisiana purchase -- 11/2/20
Today's selection -- from The Sixth Great Power: A History of One of the Greatest of All Banking Families, The House of Barings, 1762-1929 by Philip Ziegler. The Louisiana Purchase in 1803 was a bold transaction that doubled the size of the United States. Yet the U.S. did not have the funds to make the $15 million purchase, and had to borrow from a consortium assembled by the high-profile Baring Brothers firm of England and the Hope banking firm of the Netherlands, which often joined with the Barings on financing transactions. Yet even for the combined forces of the Barings and the Hopes, it was a monumental and daunting transaction. Conveniently, the daughter of William Bingham, one of America’s richest and most-well connected citizens, had a daughter who had only recently married Alexander Baring, who was the prime force behind the Barings' interest in the transaction. The transaction would have faced much more formidable odds without this connection:
"Louisiana had been a French colony until 1763, then was ceded to Spain, only to be restored to its original owner in 1800 by the treaty of Saint-Ildefonse. The Americans disliked having the Spaniards there, but at least could rely on them to remain inert. The thought of a French army installed to their south appalled them. The British obligingly offered to conquer the area and hand it over to the United States after the war. This alarmed the Americans even more. Instead Jefferson sent an emissary to Paris to see if Napoleon might be prepared to sell part of the area. To his surprise he found that the Emperor was happy to dispose of the entire territory. Napoleon needed the money and had no real interest in Louisiana, indeed his main reason for demanding it back from Spain had been to frustrate any similar move from Britain: 'Pour affranchir les peoples de la tyrannie commerciale de l'Angleterre, il faut la contrepoiser par une puissance maritime qui devienne un jour sa rivale: ce sont les Etats-Unis.'
"The United States in 1803 were thus offered the chance of doubling their land space and acquiring the entire Mississippi valley at a single throw. It was an opportunity that could not be missed. 'A little more or less money cannot be an object with a Country circumstanced like ours,' wrote Rufus King, 'especially when it is applied to secure advantages so important.' In fact the price was a bargain -- $15 million from which $3.75 million were to be deducted for American claims against France -- but the negotiators were still stupefied by the immensity of their undertaking. Someone announced that a pile of 15 million dollar pieces would be three miles high, a calculation of dubious relevance but symptomatic of the disquiet felt in many circles. Where was the money to be found?
"The answer was to hand. Alexander Baring had been in Paris throughout the negotiations in an unobtrusive role and, according to his father, was largely responsible for reducing the French demands to so low a figure. Barings and Hopes, it was understood, would underwrite the purchase. Francis Baring, normally imperturbable, was almost overwhelmed by the responsibility his son was incurring. 'I must request that no calculation may be made,' he wrote to Labouchère, 'those sent to Alexander Baring should be burnt, and even this letter after extracting such notes as you may think useful. My nerves are equal to the operation, but not to the imprudences which I see committed to paper. We all tremble about the magnitude of the American account.' At the very most Barings might contract for 60 per cent of the whole. But though the risks were great, the potential rewards were still greater. 'I am satisfied if we can manage this business well,' he told his son, 'we shall have frequent occurrence to us in circumstances or events that must arise and keep the Ball at our feet for many years to come.' The final agreement was that Barings and Hopes would acquire $11.25 million of 6 percent American bonds against payment to the French of 52 million francs. The bonds would be handed over in three tranches, and similarly payments to the French would be spread over two years; 6 million francs payable in the first month and 2 million a month thereafter. What in fact happened was that the two banks bought Louisiana from France and resold it to America.
"A curious feature of this operation was that, while Britain was still at peace with France, it seemed certain that war would soon be resumed. The money Napoleon obtained through the sale of Louisiana could be used to launch an attack on Britain. Rather belatedly, Francis Baring in June 1803 told the Prime Minister, Henry Addington, what had been done. 'I asked distinctly if he approved the treaty and our conduct. He said that he thought it would have been wise for this country to pay a million sterling for the transfer of Louisiana from France to America, that he saw nothing in our conduct but to approve.' With this ministerial blessing Alexander Baring set off for Washington to settle the last details with the Americans.
"By June 1803 the war with France had already been renewed. It was not long before Addington began to wonder whether he could really justify a situation in which a British bank was remitting 2 million francs a month to a country with which Britain was at war. In December he formally requested Barings to cease paying remittances to France. If there were sums of money on the continent which were due to France on this account, 'and you should have the Means of withdrawing them, or of diverting them into other Channels, I fully rely on your doing so'. Barings dutifully passed this on to Hopes, in a letter that was cautiously phrased, 'from a persuasion that our correspondence is watched'. Hopes' reply was blunt: 'We have no objection to the discontinuance of your Remittances as we shall not want them. But we cannot comply with the rest of your request.' It is hard to believe that this somewhat formal exchange is all that passed between the two houses. Barings must have known that Hopes would continue to pay remittances to the French, and Hopes must have known that Barings would make only a token protest: if the British government expected anything else then they were deluding themselves.
"Albert Gallatin estimated the profit which Hopes and Barings made from this business at $3 million. No precise figures exist, but though Gallatin's figure must be too high, there were undoubtedly rich pickings. There was some rancour between the two partners over the division of the spoils. Labouchère claimed that he had originated the operation and that a sixth of the profit was due to Henry Hope in London. Barings denied the claim. 'To put an end to such discussions, which can answer no good purpose,' Francis Baring wrote finally, 'we are compelled to state to you that we claim as "a Right" one moiety of the profits as proposed to you by Alexander Baring. We do not ask this as a favor, for we should think meanly of ourselves if we received a single penny as a concession or favor, but we claim it as a strict indisputable right.' He dismissed the argument that Hopes deserved more because of the political risks to which they had been exposed. His own political situation had been far worse; 'what I suffered can never be described and it completely overpowered my nerves for the first and I hope the last time'.
"The fact that Barings were the foreign bankers most trusted by the American government did not mean that they were treated as sacrosanct or given the benefit of every doubt. In 1806 the former Vice President, Aaron Burr, was accused of plotting to dismember the Union and was widely believed to have British backing. Vincent Nolte found himself looked on with suspicion by the commanding general in New Orleans, 'since he had ascertained that the house of Baring, at London, had placed itself in readiness to furnish the funds necessary to secure the success of Burr's conspiracy...'"
|The Sixth Great Power: A History of One of the Greatest of All Banking Families, The House of Barings, 1762-1929
|Borzoi Boo published by Alfred A. Knopf, Inc
|Copyright 1988 by Barings Brothers & Co. Ltd and P.S. & M. C. Ziegler & Co.
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