Citadels of Dead Capital

What the Third World must learn from U.S. history

Hernando de Soto from the May 2001 issue

(Page 2 of 4)

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. 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.

Consider the claim associations that proliferated throughout the Midwest during the first half of the 19th century. These were originally formed by settlers to protect their rights against speculators or claim jumpers. Two claim clubs in Iowa, for example, agreed in their constitutions to protect each member’s claims for a period of two years after the land sales. One 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."

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." 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.

Each claim association drafted its own constitution and bylaws, elected operating officers, established rules for adjudicating disputes, and established a procedure for the registration and protection of claims. Their function also extended into the official law. One association’s constitution 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." The document bears striking resemblance to the settlement contracts that squatters make throughout the Third World today.

Although members of claim associations denounced large speculators, they themselves were, as one historian points out, "small-scale speculators." 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.

And thus claim associations helped create a new body of laws. The settlers, however, did not displace official law completely. Their extralegal arrangements served as temporary rest stops on the road to legal respectability.

Rules on the Ground

Despite the implicit acquiescence of local politicians to such arrangements, squatters still encountered a hostile world. Many constantly provoked conflict with Native Americans by invading their lands. But squatters were also a threat to the elite, who feared losing their vast properties. One member of that 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." But when he tried to eject the people who had squatted on his Virginia farmland, his lawyer warned that, in Ford’s words, "If he succeeded in his suit against the settlers on his estate, they would probably burn his barns and fences."

Relations between states and squatters also began to heat up. Even before the Revolution, migrants from Massachusetts had already begun to settle in Maine, a territory Massachusetts had claimed as early as 1691. After the Revolution, with its treasury bankrupt and its currency depreciated, Massachusetts started seeing the vast lands of Maine as a major source of new revenue -- and the squatters as an obstacle to the sale of large blocks of land. In 1786, the governor issued a proclamation prohibiting squatting in Maine.

To reassure potential purchasers, Massachusetts appointed a committee to investigate and demand payment from illegal "trespassers." Most squatters, however, simply refused to move or to pay for their lands. Rather than compromise, the state ordered sheriffs to enforce legal eviction procedures, igniting a virtual war. When a sheriff was killed trying to oust a squatter, juries refused to convict the alleged murderer. Massachusetts eventually withdrew from the fight, and Maine became a state in 1820.

Other colonies did their best to suppress squatting. In Pennsylvania, Scots-Irish settlers began moving into Indian lands as early as 1730, and the Native Americans fought back. From 1763 to 1768 the Pennsylvania Assembly tried to deter squatting by threatening the death penalty, while Gov. William Penn ordered soldiers to remove illegal settlers. Despite these measures, the number of squatters doubled. In response, writes economic historian Stanley Lebergott, "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."

In a country where every settler was either a migrant or related to one, some colonial authorities were bound to realize how difficult it would be to apply English common law to many new settlements. Under English law, even if someone squatted mistakenly 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. 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. This statute was soon copied by other colonies.

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 200 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. In Massachusetts, tomahawk rights were included. By the 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 land, elsewhere in Virginia politicians were protecting squatters’ 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.)

Digging In

Having won many battles, the squatters were still far from winning the war. In 1785, Congress passed a resolution explicitly prohibiting squatting in the public domain and giving the secretary of war authority to remove unlawful settlers from federal lands in the Northwest Territory. This policy went into effect in the spring of 1785 at the juncture of the Muskingum and Ohio rivers, where the Army destroyed 10 families’ homes and built a fort to prevent them from returning. Four years later, President Washington ordered the removal of families who had settled on Pennsylvania frontier land owned by Native Americans.