The best trades in history… buying Alaska from Russia

William Seward was born in 1801 in Florida, New York. After studying at Union College, he briefly dropped out due to an argument with his father over money before eventually graduating in 1820. He then practised as a lawyer before becoming involved in New York state politics. He became governor in 1839, serving two terms in office, and was elected as a senator in 1849, only narrowly missing out on the Republican nomination for president in 1860. In 1861 Abraham Lincoln appointed him secretary of state, a post he would hold until 1869.

What was the trade?

The first Russians arrived in Alaska in 1732, and in 1799 the Russian-American Company was set up. Tsar Alexander I formally declared Alaska Russian territory, which was acknowledged by the US three years later. However, losing the Crimean War in 1856 left the Russian government desperate for cash. Fearing that Alaska was impossible to defend, and would eventually be overrun by the growing number of US and Canadian settlers anyway, it broached the idea of a sale to the US. Seward agreed that the US would buy the territory for $7.2m ($142m today) in 1867.

How did it turn out?

The deal was broadly popular, but some prominent Americans thought it a waste of money, referring to the deal as “Seward’s folly”. It did not seem like such a bad deal, however, when gold was discovered near the US-Canada border in the Yukon, which set off a gold rush in 1896. By 1959 (when it had become a US state), Alaska’s population had soared. In 1967 oil was discovered, setting off a second economic boom.

Lessons for investors

Alaska’s oilfields alone have generated more than $180bn in tax revenue and its estimated remaining oil reserves of 40 billion barrels are worth $4trn at current prices. This works out to a 4.7% annual real return, far in excess of the average historical after-inflation returns of roughly 1%-3% for land. The deal was made for strategic rather than economic reasons, but the boom might have been predicted: many supporters of the deal at the time noted travellers’ accounts of Alaska’s extensive natural resources. It pays to do your research.