Manhattan tribe’s opportunity cost

Posted by Marc Hodak on May 4, 2007 under History | 3 Comments to Read

This day in 1626, Peter Minuit landed on this rocky island at the mouth of the Hudson. As everyone has been taught in school, the natives sold Manhattan to Minuit for $24 of beads and trinkets.

Rubes or victims? The $24 sale price has been used, in turn, to show how naive the natives were, or how badly the Europeans abused the natives in land transactions. Very likely, neither view is warranted. While it’s true that native Indians did not have the same view of property rights as the Dutch, there is plenty of evidence that they did trade in similar rights. According to one scholar, the rubes, in this case, were not the Indians, but the Dutch. You see, Minuit bought Manhattan from the Canarsee tribe–a Lenape tribe from Brooklyn. The Canarsee didn’t yet have a bridge to sell Minuit, so they made do instead with selling the Dutch an island they did not own. The tribe that was really screwed, here, were the Weckquaesgeeks, an Algonquin tribe that hunted the island, but favored the more forested, northern parts.

A good deal? The sale price and centuries that have passed are often used to illustrate the power of compound interest. The $24 figure itself is rather dated–it was calculated in the 1840s based on the value of cloth, trinkets, hatchets, etc. then estimated at 60 guilders. The translation of 17th century Dutch guilders to modern US currency would equate to roughly $600–still quite a bargain. The finance textbooks tells us that if the Lenape Indians had invested that sum at a rate approximating the 6-7% average real return on investment of American assets over that 350+ year period, that they could easily buy back all of Manhattan–land and buildings–with their profits.

Of course, the natives, even if they had been disposed to such an investment, had no financial markets available to provide such an opportunity. That would have to await the development of the very properties they had just sold.