Land Speculation

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LAND SPECULATION

LAND SPECULATION. The favorite object of speculation in America before the era of big business was public land. Investors could buy it cheaply in large quantities and withhold it from market, if they had sufficient capital to carry it, until rising prices brought profits. Memories of high land values in the Old World and of the social prestige enjoyed by the possessor of broad acres produced in Americans an insatiable lust for land.

Land speculation began with the first settlements in America. The Virginia proprietors, disappointed at the meager returns from their investment, granted themselves great tracts of land from which they hoped to draw substantial incomes. Similarly, the Penns and Calverts in Pennsylvania and Maryland and the early proprietors of New York, New Jersey, and the Carolinas speculated in land in an imperial way. Later in the colonial period, a new crop of land companies composed of English and colonial speculators sought both title to and political control over great tracts in the Mississippi Valley. The Mississippi, the Georgiana, the Wabash, the Indiana, the Loyal, and the Ohio land companies attracted some of the ablest colonial leaders into their ranks, among them George Washington, Richard Henry Lee, Benjamin Franklin, the Whartons, and George Croghan. The struggles of these rival companies for charters and grants played an important role in British colonial policy during the years before the Revolution.

The trival land claims of the colonies matched company rivalries. One of the most notable was the conflict between Connecticut and Pennsylvania for the Wyoming Valley, which Connecticut granted to the Susquehanna Land Company. In western Virginia, Richard Henderson and his Transylvania Company, which claimed title to a great tract received from the Indians, came into conflict with Virginia and were successful in receiving only a small part of the area confirmed to them.

Most influential colonials tried their luck at speculating, either through the land companies or on their own account. George Washington was a large landowner in Virginia, Pennsylvania, and the Ohio country; Robert and Gouverneur Morris, William Duer, Oliver Phelps, Nathaniel Gorham, and William Johnson acquired princely domains in Pennsylvania, New York, and Maine. The Morrises negotiated a number of large purchases and resold tracts to others; perhaps the largest of them went to the Holland Land Company. Dutch capitalists who bought the Holland Reserve in western New York and were busily engaged in settling it during the first third of the nineteenth century made up this company. In the meantime, speculators received parcels comprising most of upstate New York. Among the most prominent of the speculators were the Wadsworths of the Genesee country, John Jacob Astor, and Peter Smith, father of Gerrit Smith. These men, unlike Robert Morris, were able to retain their lands long enough either to resell at high prices or settle tenants on them.

The largest purchase and the most stupendous fraud was the sale in 1795 of 21.5 million acres of western lands in Yazoo River country by the legislature of Georgia to four companies for one and one-half cents an acre. The next legislature canceled the sale, but the purchasers, frequently innocent third parties, waged a long fight to secure justice, claiming that the obligation of the contract clause in the federal Constitution prevented the Georgia legislature from reversing the original sale. The Supreme Court, in Fletcher v. Peck (1810), agreed with this interpretation. The Yazoo frauds became a cause célèbre in which John Randolph, Thomas Jefferson, John Marshall, and other notables took prominent parts.

Undeveloped Lands

When donations by states with western land claims created the public domain of the United States, speculative interests converged upon Congress with requests to purchase tracts of land north of the Ohio River. In fact, the land speculation craze was partly responsible for the adoption of the Northwest Ordinance of 1787, which set up a government for the ceded territory north of the Ohio. A group of New England capitalists known as the Ohio Company of Associates wished to buy a tract of land in southeastern Ohio for a New England settlement. To get the measure through Congress, it seemed necessary to enlarge the original project and to create a second organization, the Scioto Company, which consisted of members of Congress and other influential people who planned to buy some 5 million acres of land. The formation of the Scioto Company increased support for the enactment of the Northwest Ordinance, but the company itself was a failure because it could not fulfill its contract with the government. The Ohio Company of Associates did, however, succeed in planting a little New England outpost at Marietta on the Ohio River. In 1788 John Cleves Symmes of New Jersey also bought a large tract from Congress. These purchases virtually defeated the purpose of the Land Ordinance of 1785, which authorized the sale of land at $1.00 an acre, or a third more than the Scioto Company paid, and the Land Act of 1796, which raised the price to $2.00 an acre, because the speculators whom Congress had allowed to acquire large tracts of land at lower prices than were offered to individual settlers were able to undersell the government.

There were three land speculation periods after the creation of the public domain: 1817–1819, 1834–1837, and 1853–1857. Easterners such as Daniel Webster, Caleb Cushing, Edward Everett, Amos Lawrence, Moses and John Carter Brown, and James S. Wadsworth and southerners such as John C. Breckinridge, John Slidell, Eli Shorter, and William Grayson bought western lands in large quantities. Speculators again organized land companies, and they entered tracts embracing entire town-ships. The New York and Boston Illinois Land Company acquired 900,000 acres in the Military Tract of Illinois; the American Land Company had estates in Indiana, Illinois, Michigan, Wisconsin, Mississippi, and Arkansas; and the Boston and Western Land Company owned 60,000 acres in Illinois and Wisconsin.

The Homestead Act of 1862 did not end land speculation; some of the largest purchases occurred after it was passed. William S. Chapman alone bought over 1 million acres of land in California and Nevada; Henry W. Sage, John McGraw, and Jeremiah Dwight, benefactors of Cornell University, entered 352,000 acres of timberland in the Northwest and the South; and Francis Palms and Frederick E. Driggs bought 486,000 acres of timberland in Wisconsin and Michigan. Not until 1889 did the federal government take effective steps to end large speculative purchases, and by that date it had parted with its best lands. At the same time, the canal and railroad land grants and the lands given to the states for drainage and educational purposes were also attracting a great deal of speculative purchasing.

The accumulation of vast quantities of land in advance of settlement created many problems for the West, some of which remain unsolved. The Indians lost their lands more rapidly than the needs of the population dictated, and more social control of westward expansion and land purchases might have prevented the frequent clashes between settlers and Indians. In some places, absentee proprietors who withheld large amounts of land from development while waiting for higher prices created "speculators' deserts." Settlers were widely dispersed because they could not find land at reasonable prices close to existing settlements. This settlement pattern consequently aggravated the problem of providing transportation facilities, and as a result of the importunities of settlers, developers built thousands of miles of railroads through sparsely settled country, which could provide but little traffic for the roads.

Nevertheless, the speculators and land companies were an important factor in the development of the West. Their efforts to attract settlers to their lands through the distribution of pamphlets and other literature describing the western country lured thousands from their homes in the eastern states and the countries of northern Europe to the newly developing sections of the West. They also aided in building improvements, such as roads, canals, and railroads, to make the life of the immigrant easier. Land speculators were often unpopular and regarded unfavorably in newly opened areas because they often left their holdings undeveloped. By contrast, local people, actively selling and improving their holdings and thus contributing to the growth of the town and country, were shown every favor, were popular, and were frequently elected to public office.

The land reform movement, with its corollary limitation of land sales, had as its objective the retention of the public lands for free homesteads for settlers. Beginning in 1841, new land acts, such as the Preemption Act (1841), the Graduation Act (1854), the Homestead Act (1862), the Timber Culture Act (1873), and the Timber and Stone Act (1878) restricted sales to 160 or 320 acres. Nevertheless, the cash sale system continued, although after 1862 very little new land became open to unrestricted entry, and large purchases were made only in areas previously opened to sale. Although reformers had tolerated the granting of land to railroads in the 1850s and 1860s, they later turned against this practice and began a move to have forfeited the grants unearned by failure to build railroads. In the midst of a strong revulsion against what were called "monopolistic" landholdings by railroads, cattle kings, and lumber companies in 1888– 1891, Congress adopted the Land Forfeiture Act of 1890, which required the return of unearned grants to the public domain, and enacted other measures to end the cash sale system, to limit the amount of land that an individual could acquire from the government to 320 acres, and to make it more difficult to abuse the settlement laws. However, through the use of dummy entrymen and the connivance of local land officers, land accumulation continued.

Urban Property

Speculation in urban property was not so well structured as was speculation in rural lands, but investors widely indulged in it and found it subject to the same excesses in periods of active industrial growth and to a similar drastic deflation in values following the economic crises of 1837, 1857, 1873, and 1930–1933. During the boom years, prices for choice real estate in New York and other rapidly growing cities skyrocketed, only to decline when depression brought economic activity to a grinding halt. Old-line families made fortunes in New York, Philadelphia, and Chicago from swiftly rising real estate values. Among the parvenus, the best known is John Jacob Astor; the great wealth he accumulated enabled his family to rise to the top of the social ladder. With remarkable prescience, between 1800 and 1840, Astor invested $2 million, made from his trade with China and from returns in his land business, in land in Greenwich Village and elsewhere in Manhattan, but outside New York City limits. He acquired the fee simple to the land bought from Aaron Burr and George Clinton and took long-term leases on land from Trinity Church. After dividing the acreage bought from Clinton into blocks and lots, he waited until the demand rose and then began selling. His profit from these sales was substantial, but in later years he concentrated on granting long leases on his property. By his death, his rent roll alone was bringing in $200,000 annually. His estate, valued at from $18 million to $20 million, mostly invested in real estate that was rapidly appreciating, had made him the richest man in the country. In two successive generations, the family fortune, still concentrated in Manhattan real estate, increased to $50 million and $100 million. Other New York families were enjoying like successes in the burgeoning real estate market. The purchase in 1929 by John D. Rockefeller Jr. of a long-term lease from Columbia University for the 11-acre tract on which he built Rockefeller Center was the most spectacular real estate transaction up to that point. He was able to get an eighty-seven-year lease for a ground rent of $3.3 million a year. With other city property, this acquisition placed the Rockefeller family among the largest owners of New York property.

In every growing city, similar increases in land values occurred, to the profit of those whose families by wisdom or good luck acquired land early. In Chicago, for example, lots on State Street between Monroe and Adams climbed from $25 per front foot in 1836 to $27,500 in 1931, a depression year. The families of Potter Palmer, Walter L. Newberry, and George M. Pullman were representative of the new rich in the Windy City.

Each generation produced its new millionaires: those who had the foresight to buy land in promising urban centers when prices were low. The spendthrift lifestyle of the new millionaires and their children aroused resentment, especially among the followers of Henry George. To tax the unearned increment in rising land values for the social good, George proposed a single tax on land so that the enhanced value of land that stemmed from society's growth would benefit the government directly. He also criticized the concentration of rural land ownership in a few hands, a situation most evident in California. Appropriately, George had his largest following in New York, where economic pressures had pushed up land values. To further his reforms, George offered himself as an independent candidate for mayor in New York in 1886. Without any party machine to fight for him and protect his interests at the polls, he still won 30 percent of the vote, against 41 percent for Tammany's candidate and 23 percent for Theodore Roosevelt, the Republican candidate. By that time, George was the best-known economist in the country. Few people in America or Great Britain were unaware of his single-tax proposal and his strictures on the unearned increment that was creating so many millionaires.

For everyone who turned to land and tax reform there were several who tried to emulate, on a smaller scale, the achievements of the Astors, the Schermerhorns, and the Hetty Greens by getting in on the ground floor of promising municipalities. In some states, particularly Illinois, eastern Iowa, and Kansas, town-site promoters took up hundreds of quarter sections of public land; laid out their blocks and lots; prepared alluring lithographed maps showing imagined buildings, factories, and homes; and peddled their towns, blocks, and lots in older communities that had long since given up the prospect of becoming miracle cities. Most of these dream cities never flourished, but a few, with aggressive leadership, managed to become the county seat, the territorial or state capital, or a railroad center, or managed to acquire the U.S. land office, a religious college, or a state university or other public institution. These few grew moderately.

Among the major promoters of towns and cities were the land-grant railroads, which created station sites every ten or fifteen miles along their routes and offered numerous advantages to persons and institutions for locating in the vicinity. The officers of the Illinois Central alone laid out thirty-seven towns in Illinois, and the transcontinental railroads created far more communities around their stations. In fact, the struggle of town promoters to bring railroads and state and federal institutions to their communities constitutes one of the central themes of western American history. Some of these once-flourishing cities or towns have become ghost towns; few have gone on to flourish and grow.

The United States did not accept Henry George's view that profits from rising land values should be used for the public good, but it has increasingly sought to restrict property owners' rights by zoning regulations in both rural and urban areas. The outstanding illustration of such action is New York State's Adirondack Park Agency Act of 1971, intended to protect the wild character of the Adirondacks. The law curbs the creation of subdivisions with numerous small sites for second homes.

BIBLIOGRAPHY

Feller, Daniel. The Public Lands in Jacksonian Politics. Madison: University of Wisconsin Press, 1984.

Gates, Paul Wallace. The Jeffersonian Dream: Studies in the History of American Land Policy and Development. Albuquerque: University of New Mexico Press, 1996.

Hyman, Harold M. American Singularity: The 1787 Northwest Ordinance, the 1862 Homestead and Morrill Acts, and the 1944 G.I. Bill. Athens: University of Georgia Press, 1986.

Oberly, James Warren. Sixty Million Acres: American Veterans and the Public Lands before the Civil War. Kent, Ohio: Kent State University Press, 1990.

Williams, Frederick D. The Northwest Ordinance: Essays on Its Formulation, Provisions, and Legacy. East Lansing: Michigan State University Press, 1989.

Paul W.Gates/a. e.