The Mystery of Capital

by Hernando De Soto

  These migrants wanted the courts to recognize their rights to the property they had acquired.88 Thus the political and judicial backlash to the Supreme Court’s decision in Green v. Biddle in Kentucky was a huge victory for the extralegals, and they quickly went on the offensive. In the minds of many politicians and the local newspaper editors, the villain was now the U.S. Supreme Court. One local paper spoke of the “treacherous conduct” of justices who threatened to “exterminate” the rights of “nonresidents and aliens.”89 In the midst of the furor over the Court’s authority, Kentucky’s powerful Richard M. Johnson declared in a speech before the Senate that the decision “would overturn the deliberate policy of [Kentucky]…and, if persisted in, would produce the most disastrous consequences in giving rise to much litigation where questions had been settled for years, and put everything respecting landed property into the greatest confusion.”90 Kentucky’s other and even more influential U.S. senator, Henry Clay, long an opponent of liberally extending squatter rights, conceded: “They build houses, plant orchards, enclose fields, cultivate the earth, and rear up families around them. Meantime, the tide of emigration flows upon them, their improved farms rise in value, a demand for them takes place, they sell to the newcomers at a great advance, and proceed farther west…. In this way, thousands and tens of thousands are daily improving their circumstances and bettering their conditions.”91 Both the governor and the Kentucky legislature also voiced their opposition to the Supreme Court’s decision.92

  Since its inception, the Court had been a prime target of politicians critical of the authority of an elite group of judges elected by no one. But in an extraordinary turn of events, Kentucky judges also rejected the Supreme Court’s decision. In a similar case two years later, a Kentucky judge noted that Green v. Biddle could not be followed because the case “was decided by three only of the seven judges that composed the Supreme Court of the United States; and being the opinion of less than a majority of the judges cannot be considered as having settled a constitutional principle.”93 In 1827, another Kentucky judge rejected Biddle, emphasizing that the occupying claimants law was constitutional in “cases too numerous to be quoted.”94

  In the wake of the furor over Green v. Biddle, western politicians and Democrats from around the country began viewing this growing constituency of squatters through a different prism. No longer were they scruffy criminals skimming the cream of the nation’s lands but “noble pioneers” helping to develop the country. Of course, they were also potential voters.95 Sympathetic politicians began attacking the property system. One congressman from Kansas emphasized, “all over his state settlers had taken up public lands, made their improvements, paid their fees, and were later ordered off the land without redress by decisions of the Secretary of Interior, for one reason or another.”96

  Federal Efforts to Lift the Bell Jar

  In the middle of the dispute over Green v. Biddle, Andrew Jackson, a hero of the War of 1812 against the British and a vocal supporter of the pioneers, almost won the presidency. Four years later, Jackson finally did become president. During his two-term administration, as the last property qualifications for voting and running for political office disappeared, as public schools proliferated, as the states humanized penal codes and closed down debtor prisons, sympathy for the rights of squatters increased. So did public animosity toward judges and attorneys, who were perceived as eager agents of the rich and the powerful.97

  By 1830 the thirteen original states were twenty-four, including seven in the West whose representatives in Washington were fully committed to policies that favored the squatters. To gain the support of this increasingly influential bloc, Northern and Southern states competed to show how pro-Western they were.98 The Western states and the squatters who dominated its lands started to flex their growing political muscles, and the results were impressive. Between 1834 and 1856, Missouri, Alabama, Arkansas, Michigan, Iowa, Mississippi, Wisconsin, Minnesota, Oregon, Kansas, and California all adopted occupancy laws similar to the Kentucky law rejected by the Supreme Court in Green v. Biddle.99 Paul Gates argues that “no case decided by the Supreme Court had been so completely overturned by state legislation and state courts, by failure of the federal courts to make use of the case, and finally by the unchallenged act of Congress extending the coverage of federal courts to occupants as Green v. Biddle.”100

  Washington finally began to get the message. Whereas in 1806, the Pubic Lands Committee had blamed squatters for their own hardships, by 1828 the same committee was reporting to the House of Representatives that the American squatter had performed a valuable public service for which he deserved compensation.101 The once dreaded squatter was now someone “who by his enterprise and industry has created for himself and his family a home in the wilderness, [and] should be entitled to his reward. He has afforded facilities to the sale of public lands, and brought into competition lands which otherwise would have commanded no price and for which there would have been no bidders, unless for his improvements.”102

  Members of Congress began drafting legislation that helped ease the way for settlers’ arrangements to be absorbed into the legal system.103 At its center was the legal device that had been the squatter’s salvation during the colonial period (and that the U.S. Congress had adamantly opposed)—preemption. In 1830, a coalition of Western and Southern Congressmen passed a general preemption act that applied “to every settler or occupant of the public lands…who is now in possession, and cultivated any part thereof in the year one thousand eight hundred and twenty-nine.”104 A squatter could claim 160 acres of land, including lands he had improved, for $1.25 per acre. Payment was required before the land was set for public auction, and transfers or sales of preemptive rights were strictly forbidden.

  In 1832, 1838, and 1840, Congress renewed the general preemption act of 1830. Each time it attempted to strengthen further the rights of the lowest squatter, while trying to block some of the abuses of the preemption principle. For instance, the 1832 act lowered the minimum amount of land a squatter had to purchase from 160 acres to 40 acres.

  By 1841, the preemption principle had become so firmly established that Congress enacted a general prospective preemption bill. The 1841 act covered not only existing squatters but “every person…who shall hereafter make a settlement on the public lands.”105 The settled land had to be surveyed, but even this provision was eventually overturned.106

  Extralegal Efforts to Lift the Bell Jar

  Often geographically isolated from the political and constitutional debates over property, many squatters did everything they could to secure the land they occupied; some even paid twice for the same parcel, while others paid lawyers enormous fees to help them make their land legal.107 Many did not have the means to cover the costs of the official legal system, so they established their own extralegal arrangements, thus creating new avenues for accessing and holding property on the American frontier. For all practical purposes, they took the law into their own hands—and forced the legal establishment to follow their lead. It took the politicians some time before they awakened to the fact that alongside the official law, extralegal social contracts for property had taken shape and that they constituted an essential part of the nation’s property rights system. To establish a comprehensive legal system that could be enforced throughout the nation, they would have to catch up with the way people were defining, using, and distributing property rights.

  Two important examples serve to illustrate the emergence of extralegal organizations to protect informally acquired property rights: the claim associations that proliferated throughout the American Midwest during the first half of the nineteenth century, and the miner districts that saturated the American West after the discovery of gold in California. For many American historians, claim associations and miner regulations represented the “manifestation of the frontier man’s capacity for democratic action.”108 Others have argued that these organizations operated “as a smoke screen to obscure the theft o
f land from bona fide owners.”109 That is not my debate. What interests me about the claim associations and miner organizations is that they show that extralegal groups played an important role in defining property rights in the United States and in adding value to the land. Although technically trespassers on the public domain, these squatters possessed, in the words of the historian Donald Pisani, a “law-mindedness rooted in the conviction that…‘the people’ have a greater right to define and interpret the rules than legal experts.”110 To this end, the extralegal organizations performed a range of functions, from negotiating with the government to registering the properties and rights that squatters claimed.

  Claim Associations

  The claim associations of the American Midwest were originally formed by settlers to protect their rights against speculators or claim jumpers. Two claim associations in Iowa, for example, agreed in their constitutions to protect each member’s claims for a period of two years after the land sales.111 Allan Bogue notes that “the squatter could expect that his comrades in the club would come to his assistance if claim jumpers threatened his holding and…his friends would intimidate speculators who might seek to outbid him at the land auction.”112 One local Iowa historian noted that “when an actual settler—one who wanted land for a home and immediate occupancy…settled on a portion of [an association’s] domain, he was immediately set upon by the bloodhounds, and it was demanded of him that he either abandon the claim or pay them for what they maintained was their right.” If “the settler expressed doubt to their having previously claimed their site, the [claim association] always had one or more witnesses at hand to testify to the validity of the interest they asserted.”113

  These associations provided their own strict and primitive justice. A local minister once asked an association member what would happen if a claim jumper succeeded in buying his claims. The squatter replied, “Why, I’ll kill him; and, by agreement of the settlers, I am to be protected, and if tried, no settler dare, if on the jury find a verdict against me.”114 More typically, however, claim associations provided at least the illusion of due process, by convening juries—of fellow squatters—to sit in on cases of claim jumpers. In one Iowa county, a claim jumper who attempted to occupy a vacant second tract owned by a member of a claim association was “within an hour” brought by “a score of earnest, angry men” before a settler jury.115

  But the function of their claim associations also extended beyond protection against third parties all the way into the official law. For example, members of the associations, “usually the squatters who first took up land in an area, agreed not to bid against each other at land auctions and to prevent others from bidding against [association] members.”116 One claim association’s constitutional preamble candidly describes its mission:

  Whereas, we have, by the sanction of the Government become settlers on its lands, and have expended out time and money in improving them, we feel justly entitled to buy them at the regular price. And whereas there may be persons disposed to interfere with our rights, and thus create distrust, excitement, and alarm; Therefore it is Resolved, that in our case there is safety, only in Union—and a determination to settle amicably any disputes amongst us, to reciprocate concessions, and avoid every thing, that may have a tendency to create distrust and excitement—to abide explicitly by the wards of the several committees, and defend them in the discharge of the duties assigned to them.117

  This document is particularly striking in its resemblance to the “settlement contracts” that groups of squatters make throughout much of the Third World today.

  Each claim association drafted its own constitution and by-laws, elected operating officers, established rules for adjudicating disputes, and established a procedure for the registration and protection of claims.118 The constitution of the claim association of Johnson County, Iowa, for example, provided for a president, vice-president, clerk, and recorder; for the election of seven judges, any five of whom could compose a court and settle disputes; for the election of two marshals charged with enforcing rules of the association; and for procedures that specified property rights in land.119 According to Allan Bogue, a historian of these Iowa “claim clubs,” most of “the regulations covered the size of the claims allowed; direction for marking, registering, and transferring claims; and the procedure to be followed when club members contested each other’s rights, when members were threatened by claim jumpers, and when the date of the land sale arrived.”120

  The settlement contracts of the claim associations clearly worked to increase the value of land that squatters claimed. In the Iowa counties of Poweshiek, Johnson, and Webster, claim associations drafted specific “regulations prescribing the degree to which the member must improve his claim.”121 Associations also set upper and lower limits upon the size of the claim to be protected, and most allowed members to sell their claims in order to capture their property’s value. Many members, however, “were not content with the amount of land the law entitled them to, but made pretended claims to so large a portion of the territory, that in some instances, it was difficult for a buyer to find an unclaimed lot.”122 This practice had the tacit support of most association members. Although members of claim associations denounced large speculators, they themselves were, as Bogue points out, “small-scale speculators.”123 The claim associations of American history were more than just a scheme to protect the homestead; they were also used to protect the trade in claims.124

  And thus claim associations helped create “a kind of common-law…established by common consent, and common necessity.”125 As one historian of settlers pointed out, “although claim-law is no law derived from the United States, or from the statute book of the territory, yet it nevertheless is the law, made by and derived from the sovereigns themselves, and its mandates are imperative.”126 The settlers, however, did not displace official law completely. Their extralegal arrangements served as temporary rest stops on the road to legal respectability.

  Miners’ Organizations

  On January 24, 1848, James Marshall and a group of Indians and Mormons discovered gold along California’s American River. Although the miners swore an oath of secrecy, within four months, word of their discovery had reached the San Francisco newspapers. This discovery “sparked probably the greatest voluntary human migration in world history to that time in a rush to California for gold.”127 The immediate effect was profound: “Farmers left their plows in the fields. Soldiers and sailors deserted. Shopkeepers abandoned their business. San Francisco became a ghost town over night.”128 Within one year, there were 100,000 miners in California; two years later there were almost 300,000.

  When these hopeful prospectors rushed into California to strike it rich, they “found no fences, no surveyor’s corners.”129 Nevertheless, legally, they were trespassers since most of the land they were prospecting had hundreds of competing interests.130 At the time of the gold rush, most of the land was owned by the federal government, up to 9 percent of the total area of California was covered by Mexican land grants, while much of the rest was desert, mountainous, or otherwise inaccessible.131 And in spite of the fact that the federal government was, as we have seen, churning out hundreds of statutes regulating land use, the United States had no law regulating the sale or lease of federal lands containing precious minerals.132 Moreover, Congress explicitly excluded “mineral lands” from the general Preemption Act of 1841.

  The combustible nexus of Mexican land grants, absentee owners, land-hungry settlers, and the absence of a federal law that could be enforced created the immediate need for extralegal arrangements. Historians such as Pisani felt the settlers did not have much choice. If “they settled on a Mexican claim in the hope it would be disallowed, they faced the prospect of losing their improvements. But if they purchased land from a claimant whose boundaries were subsequently adjusted, or whose application was subsequently rejected, they might lose the cost of the land as well as the value of their improvements.”133 While the settler
s made their own arrangements, the government tried to find a solution based on existing official law. The problem was that the government was far too slow. In 1851, Congress established a commission to pass judgment on the validity of the Mexican and Spanish land grants. Although the commission’s official tenure lasted until 1856, the courts and the General Land Office put off final action until years later. The result was that the settlers had to rely increasingly on their extralegal law to maintain some sense of order. They were forced to, because, in the words of one legal historian, “the longer the confirmation process took, the greater chance of litigation and violence.”134

  Like the claim club squatters in the Midwest, miners had two precedents on their side: the right of preemption and the right of occupants to their improvements.135 So they formed organizations to regulate their extralegal rights and stipulate the obligations that individual miners had to the invaded lands. These settlement contracts were known as “mining district regulations.” The miners knew that if they drafted their regulations carefully, with as much regard as possible for existing law, sooner or later the government would have to come to terms with them.