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Research Article

The Greatest Privatization Ever


     
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After end of the Revolutionary War, the thirteen newly independent states of North America came into conflict over their territorial boundaries, especially in the area west of the Appalachian Mountains. Seven states claimed territories extending to the Mississippi River. Between 1781 and 1802, however, the states resolved these conflicts, mainly by ceding most of their “western” lands (those beyond the Appalachians) to the U.S. government. These lands then formed the first portion of the “public domain”—the area under the national government’s ownership and control. (Kentucky, which was formed from part of Virginia’s claim, and Tennessee, which was formed from part of North Carolina’s claim, retained control of their own unclaimed lands, and thus those lands never became part of the public domain.) The state cessions amounted to more than 13 percent of the ultimate land-surface area of the United States (sans Alaska and Hawaii)—almost as great an area as that retained by the original thirteen states.1

In the Land Ordinance of 1785 and the Northwest Ordinance of 1787, Congress spelled out how the public domain would be transferred to private owners and divided into new states. These laws had the greatest importance in determining how successfully the country would develop.2

Although afterward few people have paused to consider how the matter might have been resolved differently, alternatives certainly existed. For example, the original states might have insisted on their claims and fought border wars to resolve their differences (as many states elsewhere have). Or, the national government might have retained ownership of the public domain and administered it as a permanent colony, granting use rights to political favorites or tenants. Had such an alternative policy been adopted, the United States would not have developed as successfully as it did. By placing an enormous area of immense potential productivity into private hands, with the holdings precisely demarcated by careful surveys and the ownership validated by recorded titles, the government ensured that the land would tend to come under the control of the persons who would put it to the highest-yielding use and thereby maximize its value.

The importance of the land-disposition system loomed even larger as the nation expanded its territory. The most important acquisitions were the Louisiana Purchase (1803), Texas (annexed 1845), the Oregon Country (by negotiation with Great Britain 1846), and the Mexican Cession (by conquest 1848). Together these additions amounted to 68 percent of the ultimate land-surface area of the United States (sans Alaska and Hawaii).3 Purchase of Alaska from Russia in 1867 added an area half again as large as Texas, although its remoteness, rugged terrain, and harsh weather diminished its economic value.

During the nineteenth century, the national government transferred ownership of much of the public domain to others in various ways. (Although Texas retained control of its unclaimed land when it joined the United States, it privatized much of that land.) After the Revolutionary War, the War of 1812, and the Mexican War, the U.S. government gave land warrants to veterans as a reward for their military services. It gave large tracts to the states to promote various projects, such as financing common schools, making transportation improvements, and establishing “land grant colleges.” It gave land to private companies to subsidize transportation improvements, especially in the vast, thinly populated area beyond the Mississippi River. Beginning in 1862, it transferred a substantial amount to homesteaders on the condition that they occupy and cultivate the land for five years. The government sold much of the public domain at auction to the highest bidder or, under so-called preemption laws, at minimum prices to settlers who had occupied the land without a legal right to do so.

According to an authoritative summary, “By 1970, approximately 287 million acres of public lands had been patented to homesteaders, 328 million acres had been granted to States for various public purposes, 94 million acres had been granted to railroad corporations to aid in financing the construction of railroads, and about 434 million acres had been sold or otherwise disposed of.”4 In the United States (sans Alaska and Hawaii), approximately three-quarters of the land now belongs to private owners.5

How the public domain passed into the hands of private owners was less important than the sheer fact of its transfer. Once the land had been transferred, whether by sale to farmers or by gift to railroad companies, it became a commodity to be bought and sold on an open market. As such, it could be acquired by the potential user who valued it the most, and it would be used in accordance with competing appraisals of how it might be made most productive. Today, evidence of that competitive process surrounds us: land that once belonged to the public domain has been put to an endless variety of uses by private owners, and in combination with labor and capital it yields a huge, tremendously varied stream of outputs in mining, forestry, ranching, agriculture, commerce, industry, housing, and other activities. It continues to be switched from one use to another as economic conditions change, facilitating the economy’s flexible adjustment and thus promoting economic dynamism.

Unfortunately, since the late nineteenth century, the privatization of the public domain has been slowed and even reversed, as more and more land has been withdrawn from availability for transfer to private owners and placed in national forests, national rangelands, national parks, military bases and reservations, and other government reserves. Currently, the United States owns approximately 28 percent of the entire land surface of the nation, including 62 percent of Alaska and nearly half of the land in the eleven Far West states of the Lower Forty-Eight.6 By keeping so much land under government management, the nation suffers a tremendous ongoing loss of opportunities to create wealth.

Notes

1. Benjamin Horace Hibbard, A History of the Public Land Policies (New York: Macmillan, 1924), p. 31.

2. Brief analytical surveys include Jonathan Hughes and Louis P. Cain, American Economic History, 4th ed. (New York: HarperCollins, 1994), pp. 83-97; and Jeremy Atack and Peter Passell, A New Economic View of American History, 2nd ed. (New York: W. W. Norton, 1994), pp. 249-73.

3. Calculated from data in Hibbard, p. 31.

4. “Land, Water, and Climate,” in U.S. Bureau of the Census, Historical Statistics of the United States, Colonial Times to 1970 (Washington, D.C.: U.S. Government Printing Office, 1975), p. 423.

5. Calculated from data for circa 1954 in ibid., p. 433; confirmation for recent times calculated from data compiled by Natural Resources Council of Maine, available at http://www.maineenvironment.org/nwoods/Landowned0800.htm.

6. Calculated from data in U.S. Bureau of the Census, Statistical Abstract of the United States: 2001 (Washington, D.C.: U.S. Government Printing Office, 2001), p. 209.


Robert Higgs is Senior Fellow in Political Economy at The Independent Institute and Editor at Large of the Institute’s quarterly journal The Independent Review. He received his Ph.D. in economics from Johns Hopkins University, and he has taught at the University of Washington, Lafayette College, Seattle University, and the University of Economics, Prague. He has been a visiting scholar at Oxford University and Stanford University, and a fellow for the Hoover Institution and the National Science Foundation. He is the author of many books, including Depression, War, and Cold War.

Full Biography and Recent Publications

Published with permission from The Freeman (June 2004). Copyright 2004, Foundation for Economic Education.

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