A Touchstone for Policymakers: Homesteading
Widespread private land ownership made the United States prosperous and stable.
by Tom Sarrouf
Property ownership has long been a central aspect of what it means to be an American. From the ratification debates and discourse around suffrage and citizenship in the early Republic to the suburbanization of the 1950s and 1960s, to own one’s own home is bound up in the idea of “the American dream” and how we understand American citizenship. President Thomas Jefferson’s “yeoman farmer” ideal has retained currency in our political and cultural imagination.
Yet homeownership today seems to be becoming more difficult due to cost. A 2023 survey showed that cost is the biggest limitation in buying a home, especially for millennials. We also know that increases in housing prices have outpaced income increases since the Great Recession. From a purely economic perspective, this is not a problem in and of itself; markets fluctuate, and renting is a viable alternative. Likewise, government policy in the Great Recession has left us distrustful of government interventions in housing. After all, they can have disastrous consequences.
From a more holistic perspective, housing policy and owning homes is a significant problem, and indeed, a significant political problem. What does it mean for citizens who cannot achieve the American Dream? What does it say about the country where the American Dream is unattainable? How are property rights to be secured when the voting masses own nothing? Can citizens be independent without their own holdings? What virtues, practices, and outlook does being tied down cultivate and engender in property ownership? All of these questions have occupied the talents and energies of American statesmen from Jefferson and Madison to Clay and Lincoln. The same questions have also been the root of government policy to make homeownership attainable. The Homestead Act of 1862, a government policy meant to encourage home ownership, was a vital part of the “American system” of political economy and the development of American economic and political greatness.
Passed during the Lincoln administration, the Homestead Act was an expansion of pre-existing land sale laws that offered individuals up to 160 acres for just ten dollars. In return, they would move to the frontier lands of the Midwest and Great Plains, live on their holdings for five years, and “improve” them through agriculture. The goal of the Act was to help increase settlement and help ordinary people realize the goal of owning property. Prior to the Homestead Act, public land sales made it such that people of meager means were unable to buy such land. With the law, ownership was able to shift to ordinary Americans, many of whom would leave to strike out on the frontier and claim vast swaths of open space.
In his 1863 message to Congress, Lincoln spoke of the aim of the law and its consonance with the principles of American statecraft. He wrote, “It has long been a cherished opinion of some of our wisest statesmen that the people of the United States had a higher and more enduring interest in the early settlement and substantial cultivation of the public lands than in the amount of direct revenue to be derived from the sale of them.” From this, we can gather that, while the revenues to the government from selling the land were significant, the higher priority was in settling these territories and thereby expanding the American Republic.
Territorial expansion of the United States was controversial in the antebellum period because of the controversy over expanding slavery into new states. The Missouri Compromise settled how new territory would be settled in the balance between slave and free states, but by 1850 the Missouri Compromise had become undone, and in his last speech to the Senate, John C. Calhoun argued it as the cause of “the loss of equilibrium” between North and South. The Compromise of 1850 effectively ended the Missouri Compromise, but the struggles over settling new territory would continue with “Bleeding Kansas” and the debate over “popular sovereignty.” In the context of this deadlock, legislation like the Act failed to appear.
Lincoln, as a devotee of Henry Clay’s “American System” of political economy, supported homesteading. He believed it would have all of the benefits mentioned above; it was also tied to his philosophy of ownership and “free labor” in a vein similar to Jefferson’s idealized self-sufficient yeoman farmer. In his speech to the Wisconsin State Fair, Lincoln explained:
The prudent, penniless beginner in the world, labors for wages awhile, saves a surplus with which to buy tools or land, for himself; then labors on his own account another while, and at length hires another new beginner to help him. This, say its advocates, is free labor—the just and generous, and prosperous system, which opens the way for all—gives hope to all, and energy, and progress, and improvement of condition to all.
Lincoln’s view favors free enterprise. Historically speaking, many tenant farmers and sharecroppers would eventually rise from a position of being hired to eventually owning their own plots of land. The Homestead Act took this understanding and extended it to the frontier, and kept land open for ordinary Americans by preventing speculators and major business interests from taking it. Those concerns would receive their own parcels of land.
Much has been made of the fact that significant acreage was set aside to be sold to the railroads, including some of the most agriculturally fertile land. This criticism suggests that the homesteading policy, although giving the appearance of helping out “the little guy,” was really a form of crony capitalism that prioritized the business interests of the railroads.
This neglects the fact that both sides of the homestead policies work in the same direction: settling the country. Federal funding or subsidies for roads, canals, railroads, and other “internal improvements,” was an essential part of the American System; it helped further integrate the diverse parts of the country into a Union. Arguing in favor of internal improvements, Clay argued that “physical causes will have their influence” in the future of the country, making the people drift apart and undermine the Union. Internal improvements, Clay said, would be “a stronger tie to connect the various parts of the country together.”
Arguing in a similar vein, Lincoln noted that “the grants to railway companies of alternate sections of land upon the contemplated issues of their roads, which when completed will so largely multiply the facilities for reaching our distant possessions.” The railroads would help connect the farthest reaches of the American continent so they could be settled.
While the railroads could be expected to put the land to good use for the profit of the nation, the homestead policy offered a necessary inducement to move and speed up the process of settlement. This type of inducement—the cheap land and offer of land ownership—is consonant with the Hamiltonian theory as put forward in his Report on Manufactures. Contrary to Adam Smith’s position that “industry, if left to itself, will naturally find its way to the most useful and profitable employment,” Hamilton argued that:
The spontaneous transition to new pursuits, in a community long habituated to different ones, may be expected to be attended with proportionably greater difficulty…these changes would be likely to be more tardy than might consist with the interest either of individuals or of the Society. In many cases they would not happen, while a bare support could be ensured by an adherence to ancient courses; though a resort to a more profitable employment might be practicable. To produce the desireable changes, as early as may be expedient, may therefore require the incitement and patronage of government.
This mode of thinking about economics and the interests of society is too often neglected today, but the Homestead Act reflected Hamilton’s way of thinking. As we know, life on the frontier was nasty business. How likely is it that Americans would have bought land at the market value and moved to live in a wasteland? If one considers also people’s ties to their existing communities, the impediments to becoming frontiersmen were even greater, so the offer of cheap land and the promise of ownership served as an incitement to help aid settling.
Even though only 40 percent of homesteads were ultimately successful and converted to private land, the homestead law should be considered a success, in speeding up the settlement of middle America and creating wealth. Robert Gordon’s analysis of farm productivity compared to urban productivity in the 1870s also shows how farming families were wealthier on average than working-class urban families. On top of this, farming families were more subsistent and largely owned their own land, keeping expenses lower relative to the urban classes.
Homesteads were also available to immigrants who intended to stay and become citizens. Many immigrants took advantage of this opportunity, and by 1870, more immigrants were settled in the West than in the East. The openness to immigrants receiving land had two benefits. First, it required immigrants to become naturalized citizens before receiving full ownership of the land, thus inducing migrants to settle roots and Americanize themselves. Second, it benefited the United States to have more migrants come and help settle a relatively empty continent. At least 24 percent of homestead claimants were immigrants, and in some places they were a majority.
In criticism of the Homestead acts, Robert Gordon argues in The Rise and Fall of American Growth that the intervention altered the economic outcomes of settling the frontier, suggesting “absent the Homestead land gifts, the unregulated role of land speculation might have induced an equivalent number of land settlers hoping to make profits by buying and then selling the land at higher prices.” By itself, it could be true that wealth creation would have been higher under a purely laissez faire system.
Nevertheless, the Homestead policy’s goals were primarily political, rather than economic; in these terms, it worked as intended, giving opportunities to the commons to become landowners, implicating them directly in the American polity. Had the statesmen of the era outsourced their decision-making to the economists, we could imagine a scenario where the federal land was purchased by the wealthiest men or other corporations with a consequent proletarianization of the commons.
We see this similar problem in our own day as corporations and hedge funds invest in single-family homes, often paying above market price to crowd out competitors. Economy-wide, “institutional investors” only own 15 percent of homes, which is significant but not dominant; yet housing markets are local rather than state-wide or national, so these property investors can—and often do—have significant impacts in local areas.
For example, in Ohio, the company “American Homes 4 Rent” owns some 4,000 homes, which it uses as rental property. Invitation Homes bought up almost entire ZIP codes in Atlanta, drastically increasing costs for single-family homes. With lower interest rates relative to the average home buyer, they have a significant advantage allowing them to outbid normal Americans.
In light of these troubling trends, policymakers have critiqued the power of these institutional investors. Senator Sherrod Brown, an Ohio Democrat, has introduced the “Stop Predatory Investing Act,” and Representative Adam Smith, a Washington Democrat, has introduced the “End Hedge Funds Control of American Homes Act.” These laws would reduce special benefits available to large institutional investors or outright ban them from owning single family homes. Eliminating the power of large investors would create greater opportunities and decrease the overall demand for housing, thus making homeownership more attainable for the middle and working classes. Other, more aggressive government measures to help people buy homes could include government-sponsored housing loans for families, which are partially forgiven with every extra child born, a policy recently taken up in Hungary.
The job of American statesmen is to look to the great men and women of our past for the principles that have made America free and prosperous and adapt them to our current situation. Homesteading was one policy rooted in the principles of the American System of Henry Clay and Abraham Lincoln, combined with the yeoman farmer ideal of Thomas Jefferson. A new homesteading philosophy would seek to fortify property ownership for Americans, and thus secure the American Dream, and all of the virtues needed for true American citizenship.
This article is part of the “American System series” edited by David A. Cowan and supported by the Common Good Economics Grant Program. The contents of this publication are solely the responsibility of the authors.
Tom Sarrouf is the Senior Academic Programs Manager at the Intercollegiate Studies Institute and co-hosts the podcast, "Conservative Conversations with ISI." He was a 2023 Publius Fellow with the Claremont Institute.