Was selling Manhattan for $24 such a bad idea?

February 22nd, 2008 • Related • Filed Under
                                                         

The sale of Manhattan by the natives to Peter Minuit in 1626 often includes a mention of the estimated sale price. The actual exchange was apparently for some trade goods which is estimated to have been worth $24. Often the view that the natives were short-changed is expressed in the same breath. I don’t know what the value of Manhattan would be today, but if we assume that $24 grew at a real rate of return of 5 – 6% (extrapolating the long term rate of return for real estate as sourced from Dr. James DeLisle’s paper: ‘Real Estate: A Distinct Asset Class or an Industry Sector?’, 1995), we might have a better idea…

Pennies.jpg$24 x 5% real rate of return x 382 years = $2.98 Billion
$24 x 6% real rate of return x 382 years = $111.44 Billion

It’s amazing the impact of 1% isn’t it? :)

If we try to figure out what $24 dollars was worth in today’s dollars back in 1626 we just calculate using the long term rate of inflation which most seem to agree on as being roughly 3%. Applying the math, we find that the natives received about $1.9 million in today’s dollars for Manhattan.

But if the natives had taken that money and invested in the stock market (bare with me) and earned a 7% real rate of return, they would have just over $4 trillion. Who’s laughing now! :)

Hey, its RRSP season and I’m losing my mind… give me a break! :)  

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There Are 5 Responses So Far. »

  1. Comment by Nick on 8 March 2008:

    Your point is moot, there was no stock to invest in back then.

  2. Comment by Preet on 8 March 2008:

    Hence the comment, "bare with me". It is a hypothetical concept. However, you could indeed own stock back then – it could’ve been private equity – so the point is not moot.

  3. Comment by Jim on 9 March 2008:

    I just hear a twist, the Indians that made the trade never one the land anyway.
    the first land swindle in NY. want to buy the Brooklyn bridge?

  4. Comment by Preet on 9 March 2008:

    Jim: I will give you $24 dollars for it! :)

  5. Comment by Anonymous on 15 December 2008:

    Nick you’re out in left field.

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