The Alaska Purchase, completed in 1867 for $7.2 million, has long been viewed through an economic lens, often celebrated as a "bargain basement deal." This acquisition, equivalent to $132 million in 2024, brought a vast territory into U.S. possession, an area more than twice the size of Texas. While initially met with some skepticism, the long-term financial implications and economic returns of Alaska have been a subject of ongoing discussion, from
the lucrative seal fisheries of the 19th century to contemporary debates about federal investment.
Early Economic Returns: The Seal Fishery
One of the chief considerations that motivated the United States to purchase Alaska was the potential of its seal fisheries. This resource quickly proved to be a significant source of revenue, eventually generating an amount that surpassed the original purchase price. Between 1870 and 1890, the seal fisheries consistently yielded 100,000 skins each year. The administration of these fisheries was entrusted to a company through a lease from the U.S. government. This company paid an annual rental of $50,000 and an additional $2.625 for each skin taken.
The harvested seal skins were transported to London, where they were dressed and prepared for global markets. This business grew substantially, contributing significantly to the economy. By 1890, the earnings of English laborers involved in this industry, following the U.S. acquisition of Alaska, totaled $12,000,000. However, the exclusive U.S. control over this valuable resource eventually faced challenges, leading to the Bering Sea Controversy. This conflict arose when the United States seized over 150 sealing ships flying the British flag, operating off the coast of British Columbia. The dispute between the United States and Britain was ultimately resolved by an arbitration tribunal in 1893.
The Bering Sea Controversy and Resource Management
The arbitration tribunal's decision in the Bering Sea Controversy had significant implications for resource management and international law. Contrary to the U.S. contention that the Bering Sea waters were an internal sea, the tribunal deemed them to be international waters. As a result, the U.S. was required to make a payment to Britain. Furthermore, both nations were mandated to adhere to regulations developed to preserve the seal resource, highlighting an early instance of international cooperation in environmental and resource management.
Despite the early success of the seal fisheries, the broader economic development of Alaska was slow. American settlers who rushed to the territory after the purchase, driven by beliefs in its riches, often found that exploiting its resources required substantial capital. Many of these resources were also available closer to markets in the contiguous United States. Consequently, most early settlers left, and Sitka's population declined sharply by 1873. It was not until the Klondike Gold Rush in 1896 that Alaska truly began to be seen as a valuable addition to U.S. territory, shifting public perception of its economic potential.
Modern Debates on Financial Return
In contemporary economic analysis, the financial return of the Alaska Purchase remains a topic of debate. Economist David R. Barker has argued that the U.S. federal government has not earned a positive financial return on the purchase. According to Barker, the tax revenue and mineral and energy royalties received by the federal government have been less than the federal costs of governing Alaska, when factoring in interest on the borrowed funds used for the purchase. John M. Miller has extended this argument, contending that U.S. oil companies developing Alaskan petroleum resources did not generate enough profits to offset the risks they incurred.
However, other economists and scholars, including Scott Goldsmith and Terrence Cole, have criticized the metrics used in these conclusions. They point out that most contiguous Western states would also fail to meet a "positive financial return" bar if the same criteria were applied. These scholars argue that a more accurate picture of Alaska's financial return as an investment would emerge by considering the increase in net national income, rather than focusing solely on U.S. Treasury revenue. This ongoing discussion underscores the complexity of evaluating the long-term economic impact of such a monumental historical acquisition.
