
Tyler Cowen recently made the following comment:
I still am glad we bought the Danish West Indies in 1917. Nor do I hear many Danes, or island natives, complain about this.
This issue has been revived due to discussion regarding the purchase of Greenland. So who got the better of that earlier deal? Or was it win-win? It’s not obvious, but let’s start with a few facts:
1. In 1917, we paid $25 million in gold, which today is worth a bit over $3 billion. (Denmark now has $5.6 billion in gold reserves.) That’s a non-trivial sum for a small country, but certainly not a game-changer.
2. Reports suggest that the US was motivated by two factors, a desire for a place to host military bases to defend the Panama Canal, and a desire to prevent Germany from getting the islands.
In my view, those objectives do not justify spending lots of money to buy some tiny Caribbean islands. We could have used the Monroe Doctrine to prevent Germany from taking the islands. Germany was tied down in a losing war in Europe, and in no position to challenge US supremacy in the Western Hemisphere. And I don’t see the Virgin Islands playing an important role in defending the canal.
Of course, that doesn’t mean it was a good deal for Denmark or a bad deal for the US. Even $3 billion is a modest sum for the US government, and the islands may have great value for other reasons, such as tourism. For many years, it hosted a big oil refinery. Nonetheless, I am confident that it was a very good deal for Denmark, and probably a bad deal for the US (although I’m less confident in that claim.)
Denmark already has a big money pit in Greenland, which requires large subsidies. The last thing they need is another money pit in the Caribbean. I suspect that most Danes would prefer $3 billion in gold to those faraway islands.
The US case is trickier. The original justification certainly doesn’t make much sense. But what about today? Aren’t these islands a nice tourist destination? Yes they are. I’ve never been there, but my wife and I enjoyed snorkeling in the British Virgin Islands. So I see the appeal. But the fact that we were able to have a nice holiday in the BVI suggests that ownership isn’t all that important—what matters is the ability to use a resource. Thus in my view the US might be better off having a military base in an independent Greenland, perhaps even negotiating exclusive rights to military use of the island (to keep out China and Russia), rather than the burden of owning the whole thing. As far as mineral resources, our firms can negotiate agreements with a Greenland or Danish government representative. What exactly does ownership buy you, other than a big fiscal burden?
One good objection to my argument is that it proves too much. If all areas with a net fiscal burden were undesirable parts of the US, then we’d have to get rid of many states. There are economies of scale in having a big national market and this helps the US prosper, even if some specific areas are below average. I accept that counterargument, but I suspect it applies more the contiguous states in the lower 48, where low transport costs allow for a closely integrated market. Due to factors such as the Jones Act, the US Virgin Islands are less closely integrated into the US economy, making it less likely that they contribute to our overall prosperity. We do help the Virgin Islanders, but there are probably more utilitarian ways of helping the people of the Caribbean—such as smaller per person subsidies to a larger area.
Update: Commenter Colin Grabow pointed out that the Jones Act exempts the Virgin Islands.
Another argument is that it’s nice to have some small idyllic Caribbean islands, to give America a greater level of geographic diversity. But we already have nearby Vieques and Culebra, as well as the much larger Puerto Rico.
Here’s beautiful Culebra:
READER COMMENTS
Craig
Jan 17 2025 at 12:02am
Of course I would suggest the ultimate reason is that the very premise of Germany invading Denmark and then annexing Denmark and consequently all its possessions was flawed from the get go because now instead of Netherlands, Denmark, Norway and Sweden being neutral and trade being able to seep through to Germany, the British would be able to impose that much tighter of a blockade. A neutral Denmark benefitted Germany.
William Connolley
Jan 17 2025 at 4:44am
“We could have used the Monroe Doctrine to prevent Germany” – that means, use violence or the threat of violence, no? It is odd to see you advocating that above peaceful trade.
Craig
Jan 17 2025 at 9:56am
The Germans ultimately didn’t invade Denmark, but as events in East Africa showed, their presence their tied resources and proved to be a real nuisance. Monday Night Quarterbacking is always easy of course, but if its WW1, the Lusitania has been sunk, German subs lurk, the thougbt somebody might think, “Hey, we better make sure the Germans don’t get a base in the Carribean” isn’t completely absurd.
Scott Sumner
Jan 17 2025 at 12:17pm
I am not advocating that approach in general. But in this case we were in the midst of WWI (and about to enter ourselves), so it’s not the same as a peacetime decision.
Colin Grabow
Jan 17 2025 at 8:30am
Due to factors such as the Jones Act, the US Virgin Islands are less closely integrated into the US economy, making it less likely that they contribute to our overall prosperity.
The US Virgin Islands are exempt from the Jones Act. Due to a lack of shipping between the US mainland and the USVI, Section 21 of the Merchant Marine Act of 1920 declared that “the coastwise laws of the United States shall not extend to the Virgin Islands of the United States until the President of the United States shall, by proclamation, declare that such coastwise laws shall extend to the Virgin Islands and fix a date for the going into effect of same.” Basically, each year the president would decide if the JA would apply to the USVI or if the exemption would continue.
The USVI did not like this hanging over the heads, as the islands’ main business was selling West Virginia coal to ships passing by (bunkering). If the JA was applied, the cost of that coal would increase and they would not be able to compete with other nearby islands. So the Merchant Marine Act of 1936 basically said they were exempt until the president declared otherwise.
You can find a more complete backstory here: https://x.com/cpgrabow/status/1608531760052043776
Scott Sumner
Jan 18 2025 at 3:26pm
Thanks for that information.
Scott H.
Jan 17 2025 at 9:57am
To me, this hinges on what the military negotiations end up looking like. Does Denmark totally lose the power to influence US installations in any way? Would there be constant, open, fly-over capability? Also, would follow-up installations be allowed if they were deemed necessary? The way world politics works, these tiny countries often have the inclination and peer pressure to get cute when their land is needed most.
If the access is ironclad, and the scope of action wide open, then I’d agree there’s not much sleep to be gained at night for our generals.
Then again who do we think whispered Greenland in Trump’s ear?
Craig
Jan 17 2025 at 10:29am
…..like most kids Trump played Risk and understands it is one of the gateways to North America, we have Alaska and are working on Panama.
Tyler Watts
Jan 17 2025 at 11:32am
Does Trump really think the US can “buy” Greenland? Does he really want to buy the island and make it US territory like Guam or Puerto Rico? Or does he want this:
Thus in my view the US might be better off having a military base in an independent Greenland, perhaps even negotiating exclusive rights to military use of the island (to keep out China and Russia), rather than the burden of owning the whole thing.
…and he’s putting the idea of the US “buying” Greenland out there to a) get it to the top of the news cycle, and b) as an ridiculously yuge opening gambit in a shrewd process of negotiation?
I think Trump sees Greenland as a strategic and economic asset, and he just wants the US to be in first position (and perhaps exclusive position) over it. The details of the relationship could take many acceptable forms.
Scott Sumner
Jan 17 2025 at 12:20pm
You might be right, but I think he really wishes to buy it. He’s a real estate guy.
We already have a base there. Are these bases actually all that important? I’m not sure. I seem to recall that we basically “borrowed” Iceland during WWII, so it seems we had no need to “own” Iceland.
Andrew_FL
Jan 17 2025 at 1:24pm
We can get exclusive base rights by negotiating a Compact of Free Association, rather than buying Greenland.
Nicolas
Jan 17 2025 at 7:30pm
The Chinese aren’t crafty. They simply need to create a Xi Jinping Doctrine, and insist that the US leave its area of assumed influence. How could the likes of Scott Sumner object? It’s a doctrine!
steve
Jan 17 2025 at 10:54pm
Greenland has issued 23 mining licenses. US companies have one (1) and Canada and the UK the others. Looks to me like US companies are not that interested in Greenland. It doesnt look to me like a base in Greenland vs a base in Canada would give us much better early warning about a missile attack. Russia doesnt have much of a navy so not seeing the need for a big navy base there.
Steve
Craig
Jan 17 2025 at 11:51pm
I think its partly motivated by things like this: https://www.thearcticinstitute.org/tortuous-path-china-win-win-strategy-greenland/
And with respect to Panama similar:
https://www.newsweek.com/fact-check-does-china-control-panama-canal-trump-suggests-2006047
“While a subsidiary of Hong Kong-based CK Hutchison Holdings manages two ports at the canal’s entrances, with Chinese firms funding construction of a new bridge over the canal to the tune of over $1 billion, this does not equate to control of the canal’s operations. The Panama Canal Authority, an autonomous government agency, oversees the canal’s administration.”
‘block China’ ?
Tacticus
Jan 18 2025 at 11:29pm
I’m not sure what you mean by using the Monroe Doctrine to prevent Germany from taking the islands? What does that actually mean?
Strategically, it’s hard to appreciate the Islands from today’s perspective. It made more sense in the days of coal-burning battleships – which is why the US spent almost 60 years trying to buy them!
Personally, I think it was a good deal for everyone involved – most especially those who lived on the Islands.
I’m really not sure why Trump wants Greenland besides that it’s big.
Comments are closed.