The Mystery of Capital

by Hernando De Soto

  The result for property rights was a great deal of variability and extralegality. In his analysis of legal change in colonial Massachusetts, David Thomas Konig provides an outline of the bureaucratic and technical failures that exacerbated the problems of migration. The lack of a uniform surveying system, for example, created divergences and irregularities. Throughout Massachusetts, colonial authorities often disagreed over how lands should be divided. There “was not agreement, for example, as to whether straight lines or natural features should be used to separate land holdings.” One colonist “had assumed that his grant of three hundred acres in Reading was rectangular in shape, but to his dismay he later discovered that the lot of his neighbor in the next town had been laid out in a ‘circular form’ whose arc subtracted from [the colonist’s] acreage.”8 Technical shortcomings in the surveying procedures also added to the uncertainty and confusion. Konig notes that difficulties in compensating for the variation of the meridian in North America often created overlapping property claims, until John Winthrop IV produced a table of variations for land surveying in 1763.9

  In crafting decisions for a bewildering array of property disputes, the nature of which had few or no English precedents, colonial authorities could not easily defer to English jurisprudence. Instead, “the courts often turned to local town customs and transformed them into a new body of law that would stabilize land dealings.”10 In matters ranging from domestic political autonomy to the use and distribution of land, colonists began to deviate in significant ways from English laws that had little or no logical relevance to the realities of colonial life. As Peter Charles Hoffer emphasizes: “In theory they were part of the king’s personal domain [and subject to all his laws], but fact preempted theory. Far from England, thinly populated, rich in natural resources, and occupied by men and women who knew their own minds and grasped a bargain when they saw it, the colonies edged toward self-government.”11

  An Early American Tradition—Squatting

  Although early migrants were mainly British subjects and obeyed English law, once they moved to America, a different reality, the way they related to each other began to change. In England, occupying a plot of land for a long period without a title—“squatting”

  —was against the law. In the United States, with no initial resistance and many opportunities, squatting on available land quickly became a common practice. Squatting is older than the nation itself. According to Amelia Ford’s study of the colonial precedents of the U.S. land system, “before the arrival of the Massachusetts Bay Company in New England, there were settlers without charter or grant living at various places within the limits of the Bay…. The first Connecticut settlers were legally trespassers on their territory and could base their rights only in occupation and purchase from the Indians.”12 During Maryland’s early years, Frenchmen and other non-English people resided on land that they were incapable of owning under the conditions of the grant. And in 1727, Pennsylvania legislators protested those “sorts [who] sitt frequently down on any spott of vacant Land they can find.” These colonial American squatters had already occupied and improved 100,000 acres of land without, as one historian put it, a “shadow of a right.”13

  In New England, propertied politicians found no virtue in the activities of squatters, whom they regarded simply as illegal trespassers. As early as 1634 in Massachusetts, the General Court attempted to restrict squatting by ordering “that all land grants to freemen be recorded and a transcript be sent to it. Surveying was to be done in each town by a constable and four other freemen.”14 This did not work either. As the widespread failure of those who occupied land “to follow the injunctions of 1634 and 1635 forced the General Court [in 1637] to act once more and demand ‘that some course bee taken to cause men to record their lands, or to fine them that neglect.’”15

  However, there were no effective legal means to reconcile many of the conflicts that arose. As a result, squatters turned to de facto devices that created openings for legitimizing squatting. Many of the most intense conflicts took place on the largely vacant outlying territories now known as Vermont and Maine. Prior to the American Revolution, both New York and New Hampshire claimed the territory of Vermont.16 In order to circumvent New York’s claim, Governor Benning Wentworth of New Hampshire, “acting on the principle that possession was nine tenths of the law…made free grants in the region to both New Hampshire and Massachusetts citizens…. [The result was that between 1764 and 1769] 131 townships were granted to more than six thousand…select groups of individuals.”17

  Following closely on their heels, squatters with little allegiance to any state soon overran the territory. Indeed, “settlers began streaming into Vermont and settling wherever it suited their fancy.”18 Early on, they realized the importance of collective action and began “to petition first New Hampshire and later the governor of New York for a grant of land to include their settlements, or an ordinance confirming them in their lands.”19 Although both colonies attempted to thwart the squatters’ claims by repeatedly bringing ejectment proceedings against them, squatter dominance of the territory was so complete that Ethan Allen and his “squatter followers” won statehood for Vermont following the Revolution. A primary result of this extraordinary triumph of “squatter power” was formal recognition of their property arrangements.

  Squatting was often fueled by propertied politicians eager to develop and exploit a colony’s resources. In most colonies, politicians believed that territorial development could be accomplished only through immigration. To accomplish this goal, colonial politicians gave grants to individuals and groups to settle on undeveloped land, predicating the passage of title on occupation and improvement. In Virginia, according to Ford, “to seat the tract meant to build a house, plant one acre, and keep stock for one year; if this were not done within three years, the land lapsed to the state.”20 Under Massachusetts law, a settler’s duties “included taking actual possession and within three years, building a house of a certain size, usually eighteen or twenty feet square, and clearing five to eight acres for mowing and tilling.”21

  In Maryland during the 1670s, Lord Baltimore used squatters to “settle some disputed territory on the seaboard side on the Eastern Shore and on Delaware Bay.”22 In a measure to keep their own revenue stream from being broken, the Penns in Pennsylvania “sent directions that people who had settled on any lands could have them at the price in vogue at the time of settlement with interest from that time but minus the value of improvements; those who could not do this were obliged to pay a quitrent proportioned to the purchase money.”23 As the Penns soon discovered, however, such a directive proved exceedingly difficult to enforce if squatters did not want to pay. In fact, “it became clear that unless some modus vivendi was established with these determined, land hungry men, who could not be driven away, large revenues would inevitably be lost…. Accordingly, [Pennsylvania’s] land office connived at or permitted many usages it was powerless to prevent and there arose besides the regular office rights, many particular, local species of land titles.”24

  In securing the rights they hoped to achieve through such settlement policies, squatters often found the formal system too burdensome or complex. As Amelia Ford also notes, “the land office was too distant, affairs too confused, and methods too dilatory to suit the practical” squatters.25 British laws were becoming increasingly irrelevant to the way many people lived and worked.

  The New Social Contract: “Tomahawk Rights”

  In the chaos surrounding law, land, and property, the migrants realized that if they were going to live in peace among themselves, they had to establish some sort of order, even if it had to be outside the official law. Squatters began inventing their own species of extralegal property titles known as “tomahawk rights,” “cabin rights,” and “corn rights.” “Tomahawk rights” were secured by deadening a few trees near the head of a spring and marking the bark of one or more trees with the initials of the person who made the improvement. As early
as the 1660s, squatters in Maryland developed the custom of marking trees on the lands they wanted before they were surveyed with the permission of the colony’s “surveyor-general.”26 By the end of the American Revolution, the practice of marking trees for possessory right to lands had become so prominent that one army official wrote to the secretary of war: “These men on the frontier have been accustomed to seat themselves on the best of the lands, making a tomahawk right or improvement, as they term it, supposing that to be a sufficient title.”27

  “Cabin rights” and “corn rights” meant staking out land by building a log cabin or raising a crop of corn. Significantly, these extralegal rights were bought, sold, and transferred—just like official titles.28 And although such cabin or corn rights may not have legally entitled anyone to the land, there is no question that such extralegal property rights helped avoid quarrels, were widely accepted in America’s frontier communities, and became the source of legal title years later.

  Despite the implicit acquiescence of local politicians to these extralegal arrangements, squatters still encountered a hostile world. They were constantly provoking conflict with Native Americans by invading their lands. But squatters were also a threat to the elite who feared losing their vast properties. That is why one member of the elite—George Washington—complained in 1783 of the “Banditti who will bidd defiance to all Authority while they are skimming and disposing of the Cream of the Country at the expense of many.”29

  Shooting the Sheriff

  Migrants began settling boundaries, plowing fields, building homes, transferring land, and establishing credit long before governments had conferred on them the right to do so. Despite their enterprise, however, many authorities remained convinced that these new Americans were flagrantly disobeying the law and should be prosecuted. But this was not easy to do. Even when George Washington, the father of the United States, tried to eject the people who had squatted on his Virginia farmland, his lawyer warned that “if he succeeded in his suit against the settlers on his estate, they would probably burn his barns and fences.”30

  Relations between other states and local squatters also began to heat up. Even before the Revolution, migrants from Massachusetts had already begun to settle in Maine, a territory that Massachusetts claimed as early as 1691. At first, Massachusetts politicians tolerated the rapid increase in squatters in distant Maine. After the Revolution, however, with its treasury bankrupt and its currency depreciated, Massachusetts politicians looked upon the vast lands of Maine as a major source of new revenue.31 Suddenly, the Maine squatters were an obstacle to the sale of large blocks of land. In 1786, the governor issued a proclamation prohibiting squatting in Maine.32

  To reassure potential purchasers, Massachusetts appointed a committee to investigate and demand payment from illegal “trespassers.”33 Most squatters, however, simply refused to move or pay for their lands. Rather than compromise with the squatters, the state ordered sheriffs to enforce legal ejectment procedures, igniting a powder keg that led to what one historian described as “something like open warfare.”

  “The most prominent feature in [the squatter’s] character is a violent and implacable hatred to the law,” commented one Maine lawyer in 1800. “The sheriff of the county and his officers they have marked out doomed as victims for sacrifice and the hated name of execution [of writs in ejectment proceedings] is to terrify them no more. They declare the profession of law must come down, that lawyers must be extirpated and their offices prostrated with the dust.”34 And when a sheriff was killed while trying to oust a squatter, juries refused to convict the alleged murderer. Partly as a result of the political ramifications of the hostility among the Maine squatters, Massachusetts consented to the statehood of Maine in 1820.35

  Other colonies also did their best to suppress squatting on public and private lands. In Pennsylvania, Scots-Irish settlers began moving into Indian lands as early as 1730, and the Native Americans fought back. Colonial authorities repeatedly warned the settlers “against stealing the Indian’s land, and by way of instruction burned their cabins.”36 Indeed, from 1763 to 1768 the Pennsylvania Assembly tried to deter squatting with the penalty of “pain of death,” while Governor William Penn ordered soldiers to remove illegal settlers.37 Despite these measures, the numbers of squatters doubled. In response, according to one historian of the period, “the infuriated governor then proclaimed that those settling on Indian lands would be executed. But no judges could be found for such prisoners, or compliant juries and secure lockups.”38

  The Legal Breakthrough: “Preemption”

  In a country where every settler was either a migrant or related to one, the squatters were bound to have supporters among colonial authorities who realized how difficult it would be to apply English common law to many new settlers. Under English law, even if someone mistakenly squatted on another person’s land and made improvements, he could not recover the value of what he had done. In the colonies, however, given the lack of effective government and reliable records and surveys, authorities had to accept that improvements made on land, taxes paid, and local arrangements among neighbors were also acceptable sources of property rights. As early as 1642, the colony of Virginia allowed a wrongful possessor to recover the value of any improvements from the true owner. The Virginia statute noted that “if any person or persons whatsoever have sett downe upon any plantation or ground which did properly belong to any other man,” a “valuable consideration [is to] be allowed by the judgment of twelve men.”39 Moreover, if the rightful owner was unwilling to reimburse the squatter for these improvements, the squatter could purchase the land at a price set by a local jury.40 This statute was soon copied by other colonies. Such clauses demonstrated the extent to which local elites were sympathetic to people who wanted to generate surplus value from their land.

  This legal innovation of allowing a settler to buy the land he had improved before it was offered for public sale was known as “preemption”—a principle that would be the key to the integration of extralegal property arrangements in American law over the next two hundred years. Politicians and jurists began to interpret “improvement” in ways that heavily benefited squatters. In North Carolina and Virginia, cabin rights or corn rights counted as improvements.41 In Massachusetts, tomahawk rights were included.42 Significantly, incorporating such local extralegal arrangements into the law “was not only a recognition that some allowance was due first settlers for the charge and risk they had incurred; it was a legal expression of a widespread sentiment…that the squatter was really a benefactor to the state, and not a trespasser.”43 By the time of the American Revolution, the corn rights of the itinerant squatter had been transformed, in many people’s minds, into the occupancy rights of the hardy pioneer. Even as George Washington was lamenting the “banditti” who had invaded his own land, elsewhere in his home state of Virginia other politicians were encouraging squatters by protecting their extralegal titles.

  For states with little money, preemption was also a source of revenue. They would charge squatters for surveying the land they had improved and for issuing legal title. As a result, preemption laws proliferated both before and after the Revolution. In 1777, North Carolina opened up a landed office for a western county, permitting settlers to take 640 acres, giving preference to people already squatting in the area.44 Two years later, Virginia passed a law that gave settlers who had squatted on its western borders the right to preemption on land that they had improved.45

  More Legal Obstacles—More Extralegals

  Having won many battles, the American squatters, however, were far from winning the war. The ambivalence toward extralegals persisted during the United States’ first century, and nowhere was it more evident than in the new federal government, suddenly in control of vast public lands. From about 1784 to 1850, the United States acquired almost 900 million acres through conquest and purchase: The Louisiana Purchase (1803) included 500 million acres; the Florida Purchase (1819), 43 million acres; the Ga
dsen Purchase (1853), 19 million acres; and war with Mexico (1848) won 334 million acres.46 In addition, by 1802 the federal government had acquired all the western territories of the eastern seaboard states.

  Beginning in 1784, the Congress of the newly confederated (though not yet constitutionally united) states began formulating plans to restrict access and rights to the national domain. The most momentous decision was that settlements in the Northwest Territory would ultimately become states with the same rights and privileges as the original thirteen.47 In 1785, Congress expanded the previous year’s ordinance by providing a system of surveying and selling the public lands. Following the model used in the New England colonies, the surveying system divided land into townships six miles square with the townships further subdivided into thirty-six sections of one square mile or 640 acres. Once the area had been surveyed, these 640-acre sections were to be sold at $1 an acre.

  Two years later, in 1787, Congress consolidated the previous ordinances into the Northwest Ordinance, which provided for the division of the Northwest Territory into several sections and laid out three stages of increasing representation that would lead to statehood. Notably, the law established the concept of “fee simple ownership” (estates were held in perpetuity with unlimited power to sell or give them away) and provided the first guarantee of freedom of contract in the United States.48 Although such federal laws provided an elegant structure of formal law for the distribution of public lands—historians view the Northwest Ordinance as the prime achievement of the pre-Constitution U.S. government—they could neither control nor contain the increasing number of people migrating to the nation’s periphery. One major problem was the prohibitive price of federal land. Faced with a price tag of $640—a huge sum at the time—thousands of America’s migrants were immediately priced out of the federal land market.49 The drafters of the Northwest Ordinance, however, assumed wealthy investors would sell the tracts off in smaller parcels, extend credit, or make favorable leases to the land. Even these speculative options were often beyond the means of the pioneer.50 Migrants instead “chose the uncertainties of unlawful settlement.”51 And thus tens of thousands more Americans became squatters on the basis of extralegal arrangements.