The Bottom Line

Page 4 of 13

For a brief period from October, 1801, through the middle of May, 1803, Napoleonic France and the Great Britain of George III shared an uneasy peace. Mutual mistrust fed an appetite for building up armies and navies. Expenditures in turn fueled a great need for hard cash. The French had wasted thousands of men and vast sums trying to re-shackle the recently freed slave population in Haiti. That old imperial dream died hard. Napoleon needed cash to prepare for the looming war with England and her continental allies. His decision to sell not just the city of New Orleans and a duty-free port to Americans, but to convey the whole Louisiana Territory to the new democracy, was part of his strategy to raise funds for a new war and perhaps to acquire an ally. There were many uncertainties in the air—Napoleon was besieged by those who wished to restore the old colonial empire, or who wished him to renege on his promise to sell the Louisiana Territory.

President Jefferson and Albert Gallatin faced the challenge of delivering enough money to Paris to satisfy the First Consul's appetite, and to do it promptly. They issued certificates of public debt, or stocks.1 Stocks would be sold in various denominations at six percent. However, no French banking house would serve as intermediary in the transaction, for fear of British blockade and seizure. Marbois turned to the London-based merchant bankers, the House of Baring. It was a well known Anglo-American firm with strong ties to a major continental house and would be acceptable to all parties.2 Sir Francis Baring, scion of the house, in turn relied upon his son-in-law Pierre Cesar Labouchere, a partner not only in Baring but also in the prestigious Hope and Company of Amsterdam. The Dutch conduit would make prompt payment in Paris possible. Alexander, Sir Francis' second son, would handle the American end of the deal. Alexander had married Anne Louisa, the daughter of Henry Bingham, the richest man in America. The two younger men worked out the details. It was a tidy family arrangement. Strikingly, it was not a major challenge for these veteran financiers. Both had worked in this entangled international money market for some time.

Thus it was that a London banking firm sold American stocks on an international market to help France finance a renewed war with Great Britain.

Figure 1

Stock Certificate

(Original dimensions, 10.5 by 5.5 inches.)

stock certificate

(No. 596) Treasury of the United States, Register's Office,
July 12th—1809.

National Archives and Records Administration

Be it known, That there is due from the UNITED STATES OF AMERICA, unto,
N. & J. & R. van Staphorst, Ketwich & Voombergh & William Borski of Amsterdam,
or their Assigns, the sum of Two Thousand Dollars, bearing interest at SIX PER CENTUM PER ANNUM, from the first day of January 1810 inclusively, payable in London, Semiannually, viz. on the first days of July and January, and at the rate of Four Shillings and Six Pence, sterling, for each Dollar, being Stock created by virtue of an act, entitled "An Act authoring the creation of a Stock to the amount of eleven millions two hundred and fifty thousand dollars, for the purpose of carrying into effect the convention of the 30th of April, 1803, between the United States of America and the French Republic, and making provision for the payment of the same," passed the tenth day of November, 1803; the Principal of which is payable at the Treasury of the United States by Annual Instalments[sic] of not less than One Fourth Part each, the first of which will commence fifteen years after the twenty-first day of October, 1803; which debt is recorded in this office, and is transferable only by appearance in person, or by attorney, at the proper office, according to the rules and forms instituted for that purpose.


Notice that the stock certificate (Figure 1) is dated July 12, 1809, six years after the Louisiana Purchase Treaty was signed. In late spring of l803 both France and England were preparing to renew hostilities. Barings Bank, founded in London in 1762, was given the task of selling the majority of the stocks to fund the purchase. As hostilities spread and France occupied Holland, major partners in Hope and Company removed to London also. Napoleon was aware that capital was critical to his war effort and so he gave assurances that Hope and Company would be free to conduct business without duress if they would return to Amsterdam. The stocks there however were already sold and Dutch investors were invited to purchase any available in London. It would appear that the stock certificate illustrated here was likely purchased with a special sinking fund, amounting to perhaps $178,000, which was established by some of the more important Dutch investors—whose sons also owned land in the Hyde Park area of upstate New York.

The U.S.Treasury sent $11,250,000 in stocks to the French ministry of finance. The remainder of the $15 million purchase price would be set aside to pay American merchants' claims against France. Livingston and Monroe had pledged an advance of $2 million to be channeled through a Philadelphia banking firm, Willing and Francis. Baring bought a third of those stocks. Eventually all funds would pass through Barings. Every major player was happy: Napoleon bought arms; we doubled our territory; Great Britain controlled this financial pipeline and enhanced her national wealth.

Consider how a nation just emerged from its revolutionary fatigues could acquire such an increase in security and territory, and how it could pay for it right after another war largely fought on its own soil. The United States operated on a shoestring financially, but paid its way in an increasingly complex world of finance, and proved its worth. Gallatin's prudent budget administration meant that no additional taxes had to be levied upon citizens to pay off the stocks. Interest, and later redemption, payments came from selling public lands.

In late November 1803, the Spanish Governor of Louisiana presented a representative of the French government with a silver platter holding keys to important public buildings in New Orleans. (It was a comic-opera scene, of course; Spain had retroceded Louisiana to France three years before.)

A few weeks later, the Frenchman handed the same silver platter and keys to an American official. When Lewis and Clark crossed the Mississippi from Camp River Dubois on May 14, 1804, and started up the Missouri River, they entered a land that had been delivered on a silver platter.

Baring and Sons might have smiled at the irony. They, in turn, had found a pot of gold. It is estimated that after all the stocks were retired and all payments made, their company profited to the tune of $3 million. At the appointed time the United States began repaying the loan—which, including interest, came to around $20,000,000.

And Marbois had gotten a better price for Louisiana than Napoleon expected!

1. Noah Webster, in his Compendious Dictionary of the English Language (published in 1806), defined a stock as 'property or interest in a joint capital or fund,' and bond as simply 'an obligation.' In his later (1828) American Dictionary of the English Language, he more specifically defined stock as 'money lent to a government, or property in a public debt; a share or shares of a national or other public debt,' whereas a bond was 'an obligation or deed by which a person binds himself, his heirs, executors, and administrators, to pay a certain sum, on or before a future day appointed.' Today a bond is a public or governmental debt, while a stock is an investment in a private corporation.

2. The House of Baring had a long, close connection with the government of the United States. Following World War II it evolved into an investment bank with global interests. In a spectacular example of organizational dysfunction, a rogue trader, Nick Leeson, who was considered a rising young star bet 1.4 billion dolars on derivatives based upon the Japanese stock market. An earthquake in Kobe had rattled that market and Leeson bet on the Osaka stock exchange that the Nikkei index would rise. He leveraged too much and lost his bets, which led to the bankruptcy of this venerable old merchant banking house.