Tyler Cowen recently made a thought-provoking comment regarding the purchase of the Danish West Indies in 1917. This statement has sparked a renewed debate on whether the United States got the better end of the deal or if it was a win-win situation for both parties involved.
In 1917, the US paid $25 million in gold for the Danish West Indies, which is equivalent to over $3 billion in today’s currency. This transaction, although a significant sum for a small country like Denmark, may not have been a game-changer economically. The US was primarily motivated by the need for a strategic location to host military bases for the defense of the Panama Canal and to prevent Germany from acquiring the islands during World War I.
However, in hindsight, it is debatable whether the US truly benefited from this purchase. The Monroe Doctrine could have potentially prevented Germany from taking over the islands, considering the country’s involvement in a losing war in Europe. The Virgin Islands may not have played a crucial role in defending the Panama Canal, raising questions about the justification for the acquisition.
On the other hand, Denmark, which already faced financial challenges with its ownership of Greenland, might have viewed the sale of the Danish West Indies as a positive move. The islands could have served as a financial burden for the country, prompting many Danes to prefer the $3 billion in gold over the distant Caribbean territories.
Today, the US ownership of the Virgin Islands raises questions about the practical benefits of retaining these territories. While the islands are undoubtedly attractive tourist destinations, ownership may not be essential for enjoying their resources. A potential alternative could involve negotiating exclusive military rights with an independent Greenland, ensuring security interests while avoiding the fiscal burden of ownership.
Critics of this argument may point out that areas with a net fiscal burden can still contribute to the overall prosperity of the US through economies of scale and market integration. However, the unique circumstances of the US Virgin Islands, including limited economic integration and high subsidies per person, raise doubts about their contribution to the country’s prosperity.
Furthermore, the presence of other nearby Caribbean islands, such as Vieques, Culebra, and Puerto Rico, offers geographical diversity without the need for additional territories like the US Virgin Islands. Ultimately, reevaluating the strategic and economic implications of owning these islands may lead to a more efficient allocation of resources and a clearer understanding of their value to the United States.
