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Our Economic Past
by Robert Higgs
Ideas On Liberty
JUNE 2004
The Greatest
Privatization Ever
A
fter the Revolutionary War, the 13
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 â??westernâ? lands (those beyond the Appalachians)
to the U.S. government.
These lands then formed the first portion
of the â??public domainâ?â??the area under the
national governmentâ??s ownership and control. (Kentucky, which was formed from
part of Virginiaâ??s claim, and Tennessee,
which was formed from part of North Carolinaâ??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)â??
almost as great an area as that retained by
the original 13 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
Robert Higgs (rhiggs@independent.org) is senior
fellow at the Independent Institute (www.
independent.org), editor of The Independent
Review, and author of Crisis and Leviathan.
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 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 highestyielding 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 more
than twice as large as Texas, although its
remoteness, rugged terrain, and harsh
weather diminished its economic value.
31
The Freeman: Ideas on Liberty â?¢ June 2004
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 â??land grant colleges.â? 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,
â??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 threequarters of the land now belongs to private
owners.5
Land as Commodity
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
32
sold on an open market. As such, it could be
acquired by the potential user willing to pay
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 economyâ??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 government 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 11 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.

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. 83â??97; and Jeremy Atack and Peter
Passell, A New Economic View of American History, 2d ed.
(New York: W. W. Norton, 1994), pp. 249â??73.
3. Calculated from data in Hibbard, p. 31.
4. â??Land, Water, and Climate,â? 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 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.
Chapters Quiz #2 / Chapters 3 – 6
see CANVAS for due date
Directions: Post your answers to these questions in the assignment text box.
[1] Briefly define the ideas historians label as â??The Enlightenmentâ??.
[2] Why is Benjamin Franklin considered Americaâ??s first â??rock starâ??
[3] Briefly explain how the Seven Years War set up the American Revolution.
[4] Go to this link The Real American Revolution and answer this question.
â?¢ According to James Fraser, name the three groups of people who pushed
and carried out the American Revolution?
[5] Review these two eyewitness accounts of â??the â??shot heard â??round the worldâ??.
Rebel account
Redcoat account
â?¢ Give at least two reasons why you believe these accounts are so different?
[6] Explain what the Articles of Confederation were and briefly detail at least two
of the general reasons they were abandoned.
[7] Briefly detail or explain how the following issues were resolved between these
listed parties in developing the Constitution of the United States:
a) Big states vs. small states â??
b) North vs. south (hint: 3/5) â??
c) Strong central government vs. Not so strong central government [8] Utilizing this weekâ??s assigned reading, explain the significance of the
Northwest Territory/Ordinance by detailing the following: What did it resolve?
What did it establish? What statement did it make regarding slavery?
[9] What are the Federalist Papers and why are they still studied?
[10] Briefly define Federalism.
University of South Florida Sarasota-Manatee
American History I
Mr. Michael Sprout
msprout@mail.usf.edu

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