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Government Support of Private Claims to Public Minerals: Western Mineral Rights

Published online by Cambridge University Press:  11 June 2012

Gary D. Libecap
Gary D. Libecap
Affiliation:
Assistant Professor of Management, Texas A & M University
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Abstract

“Gold is where you find it,” said the old prospector. It has long been recognized, in one way or another, that it belongs to him who can find it and extract it, and that the rules of land tenure and use formed in an agrarian society would serve poorly to define legal rights. In the middle of the nineteenth century, the demand for gold was particularly high. Its vital significance to American economic growth is revealed in the fact that the chronic foreign trade deficit of the United States in these years was balanced by two main elements: capital imports and gold exports. Professor Libecap shows just how pragmatic Americans could be about the impact of economics upon law under such circumstances, and draws a picture of a land use code that proved as malleable as the glittering metal it called forth.

Type
Research Article
Information
Business History Review , Volume 53 , Issue 3: Legal and Business History , Autumn 1979 , pp. 364 - 385
Copyright
Copyright © The President and Fellows of Harvard College 1979

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References

* The author would liko to thank Joseph D. Reid, Jr., Richard Easterlin, William Whitney, and Oliver Williamson for their helpful comments.

1 Hurst, J. Willard, Law and Economic Growth: The Legal History of the Lumber Industry in Wisconsin, 1836–1915, (Cambridge, Mass., 1964)Google Scholar, Law and the Conditions of Freedom in the Nineteenth Century United States, (Evanston, 1956); Davis, Lance and North, Douglass, Institutional Change and American Economic Growth, (Cambridge, Mass., 1971)CrossRefGoogle Scholar; North, Douglass and Thomas, Robert, The Rise of the Western World, (New York, 1973)CrossRefGoogle Scholar; Scheiber, Harry, Ohio Canal Era: A Case Study of Government and the Economy, 1820–1861, (Athens, Ohio, 1969)Google Scholar, “At the Borderland of Law and Economic History: The Contributions of Willard Hurst,” American Historical Review (1970), 744–765; “State Policy and the Public Domain,” Journal of Economic History, 1965; Davis, Lance and Ledger, John, “Government in the American Economy, 1815–1902,” Journal of Economic History (1966), 514–552CrossRefGoogle Scholar; Soltow, James H., “American Institutional Studies: Present Knowledge and Past Trends,” Journal of Economic History (March 1971), 87.CrossRefGoogle ScholarMcCurdy, Charles W., “Stephen J. Field and Public Land Law Development in California, 1850–1866: A Case Study of Judicial Resource Allocation in Nineteenth Century America,” Law and Society Review, Vol. 10, No. 2 (Winter, 1976), 235–266.CrossRefGoogle Scholar

2 Scheiber, Harry, “Property Law, Expropriation, and Resource Allocation by Government: The United States, 1789–1910,” Journal of Economic History (1973), 232–251.CrossRefGoogle Scholar

3 Hurst, Law and Economic Growth, 119, 159, 285.

4 For a general discussion of western mining, see Paul, Rodman W., Mining Frontiers of the Far West, 1848–1880, (New York, 1963).Google Scholar The legal response to rapidly changing resource values is discussed in detail from 1858 to 1895 in Libecap, Gary D., The Evolution of Private Mineral Rights: Nevada's Comstock Lode” (New York, 1978).Google Scholar Besides the Comstock, Colorado mining law is also briefly examined. For analysis of the California case, see Charles W. McCurdy, “Stephen J. Field and Public Land Law Development” and Umbeck, John, “A Theoretical and Empirical Investigation into the formation of Property Rights: The California Gold Rush” (Ph.D. dissertation, University of Washington, 1975).Google Scholar

5 For the legislative history leading to the adoption of Comstock mining law into the federal statute of 1866 see Gary D. Libecap, The Evolution of Private Mineral Rights, 190–205. Hardrock mining law is outlined in Rocky Mountain Mineral Law Foundation, ed., The American Law of Mining, (New York, 1974), Vol. 1, 8–11.Google Scholar See also Blanchard, George and Weeks, Edward, The Law of Mines, Minerals and Mining Water Rights, (San Francisco, 1877)Google Scholar; and Gates, Paul W., History of Public Land Law Development, (Washington, D.C., 1968), 699–765.Google Scholar

6 A more explicit development of a net gains model is provided in Libecap, Gary D. “Economic Variables and the Development of the Law: The Case of Western Mineral Rights,” Journal of Economic History, XXXVIII (June, 1978), 338–362.CrossRefGoogle Scholar Other examples of economic analysis of legal change are Posner, Richard and Ehrlich, Isaac, “An Economic Analysis of Legal Rule Making,” Journal of Legal Studies (January, 1974), 257–286.Google ScholarSamuels, Warren, “Interrelations between Legal and Economic Processes,” Journal of Law and Economics (October, 1971), 435–450CrossRefGoogle Scholar and Buchanan, James, The Limits of Liberty, (Chicago, 1975).Google Scholar For a general theory of property rights see Demsetz, Harold, “Toward a Theory of Property Rights,” American Economic Review (May, 1964)Google Scholar and Demsetz, Harold and Alchain, Armen “Property Rights Paradigm,” Journal of Economic History (March, 1973).Google Scholar Focusing on the incentive of mine owners to obtain legal support of their claims places considerable emphasis on the effects of economic variables in forcing adjustment in mineral rights arrangements. This approach seems appropriate given the high expected returns from controlling the land and the lack of an existing ownership structure when ore was first discovered. There also was general support in Nevada for secure mineral rights. Economic growth and increases in mine output were highly regarded by Nevada citizens. For similar findings elsewhere see Willard Hurst, Law and Economic Growth, x–xiii, 42, 157, 172, 240, 264; Gerald Nash, State Government and Economic Growth, 36–40, 350. Political and social factors, however, were likely to be important in influencing the selection of particular institutions as resource values rose. English common law as well as eastern legislative and judicial practices were brought West by migrants and modified as necessary. Two outstanding examples of those western modifications are the rejection of the riparian water rights doctrine and the establishment of vein ownership in mineral rights arrangements.

7 Attempts by the military governor of California to enforce a leasing arrangement proved futile as troops deserted for the gold fields. There was also confusion in Congress as to what policy to follow, and the confusion led to inaction. See Hibbard, Benjamin H., A History of the Public Land Policies, (New York, 1924; reprinted Madison, 1965), 512–528.Google Scholar Federal Mineral policy is discussed by the following: Benjamin Hibbard, The Public Land Policies, 512–518; Robbins, Roy M., Our Landed Heritage, (Princeton, 1942), 141–151, 221–222Google Scholar; Paul W. Gates, Public Land Law, 699–765, and Wright, James E., The Galena Land District: Federal Policy and Practice 1824–1847 (New Haven, Conn., 1966).Google Scholar

8 Smith, Grant H., “The History of the Comstock Lode,” University of Nevada Bulletin, Volume 37, Geology and Mining Series, Number 3 (Carson City, Nev., 1943) 2.Google ScholarLord, Eliot, Comstock Mining and Miners, U.S. Geological Survey Monographs (Washington, D.C., 1883), 35.CrossRefGoogle Scholar Lord describes early mining agreements and their lack of enforcement by miners who were working low value ore. See also Hutcheson, Austin E., ed., “Before the Comstock, 1857–1858: Memoirs of William Hickman Dolman,” New Mexico Historical Review (July, 1947), 205–246.Google Scholar See Grant Smith, “The History,” 2, for output; population figures from the San Francisco Alta California, November 14, 1860, and the 1861 Census, Nevada Territorial Papers, Library of Congress. The dynamics of legal change are outlined more precisely in Gary D. Libecap, “Economic Variables and the Development of the Law.” Local miners' rules authorized private mineral rights throughout the West, beginning in California. See Shinn, Charles, Mining Camps, A Study in American Frontier Government (New York, 1948).Google Scholar

9 Shinn, Charles H., The Story of the Mine (New York, 1908).Google Scholar Builders of the Nation Series Volume 9, 123–125.

10 Grant Smith, “The History,” 91.

11 This method of underground ownership began in California in 1851 and spread to Nevada as miners migrated there in 1859. California quartz (deep vein) mining, however, was soon dwarfed by that in Nevada and elsewhere in the West. A discussion of early California quartz rules and how they were carried to Nevada is given by Mack, Effie Mona, “William Morris Stewart, 1827–1909,” Nevada Historical Society Quarterly, VII (1964), 29.Google Scholar Another rationale for vein ownership is as follows: Miners sought to control the valuable ore deposits for private gain rather than the less valuable surface land. Accordingly, they devoted more resources to defining legal claims to the rich underground ledges than the top soil.

12 Ownership by vein was also consistent with this desire to insure free access to the land. Since ore veins were generally in close, narrow bands, ownership by vein allowed other miners to work nearby parallel ledges. On the other hand, surface plot assignments to underground ore were apt to tie up several veins, giving the owner a disproportionately large share of the minerals.

13 For example production from the Ophir mine jumped from $112,000 in 1859 to $600,000 by 1861. 1859 production calculated from data in the Grant Smith Papers, Bancrott Library, University of California, Berkeley; 1861 production calculated from the San Francisco Mining and Scientific Press, December 20, 1862.

14 Discussions of the need for a higher level court system are found in the San Francisco Alta California, February 8, 1860, and March 7, 1860.

15 To facilitate trading, the San Francisco Stock Exchange was organized in 1862, and most of the listings were from Comstock mines. By the end of 1861 eighty-six corporations were formed with an aggregate capital of $61,000,000. Shares in the corporations were sold and among the inhabitants of the Pacific Slope there was general interest in the movement of Stock prices. Quotations were regularly printed in the major papers and weekly discussions of the investment prospects of various mines were included. Stock ownership appears to have been wide-spread, though evidence suggests that the board of directors of each mine were the largest share holders. Incorporation figures are from the San Francisco Mining and Scientific Press, September 29, 1866. A short history of the San Francisco exchange is provided by King, Joseph L.History of the San Francisco Stock Exchange (San Francisco, 1910).Google Scholar

16 The territorial process was a known and accepted procedure for providing a higher level government with an expanded judiciary whose costs would be partially subsidized by Congress and whose rulings would be recognized as valid in other states. Anti-Mormon sentiment among the farmers in the Carson Valley below the mining area was also important in the pressure for a territorial government since the region was part of Utah. See Angel, Myron, ed., History of Nevada (Oakland, 1881; reprinted New York, 1973), 58–73.Google Scholar

17 U.S. Statutes at Large, Volume 12, 209.

18 Production for the Comstock rose from $257,000 in 1859 to $6,000,000 in 1862 and $16,000,000 in 1864. Couch, Bertrand and Carpenter, Jay, “Nevada's Metal and Mineral Production,” University of Nevada Bulletin, Volume 37, Number 4, Geology and Mining Series, Number 38 (Carson City, Nev., 1943), 133.Google Scholar

19 Virginia City Daily Union, March 6, 1864.

20 March, Andrew J., Official Report of the Debates and Proceedings in the Constitutional Convention of the State of Nevada (San Francisco, 1866), 13–14.Google Scholar

21 See Congressman Julian's statements regarding western mining as well as those of the Secretary of the Interior. Julian was chairman of the House Mining Committee. Congressional Globe, 38th Congress, Second Session, p. 685, and Appendix, p. 20. For a discussion of emerging federal mineral policy see Gary D. Libecap, “The Impact of Government on Mineral Rights: The Comstock Lode in 1864,” paper presented at the Western Economics Association Meetings, June, 1975.

22 Virginia City Territorial Enterprise, December 29, 1863; San Francisco Alta California, April 29, 1864 and May 1, 8, 20, 1864.

23 Two constitutions were written before statehood was obtained. Disagreement over mine taxation was a primary reason for the defeat of the first constitution. For discussions of the constitutional conventions see Andrew March, Official Report of the Debates; Bushnell, Eleanore, The Nevada Constitution, (Reno, 1968)Google Scholar; Miller, William, Bushnell, Eleanore, McDonald, Rusell, Rollins, Ann, eds., Reports of the 1863 Constitutional Convention of the Territory of Nevada as Written for the Territorial Enterprise by Andrew J. Marsh and Samuel L. Clemens and for the Virginia Daily Union by Amos Bowman, (Carson City, Nev., 1972).Google Scholar The final constitution was favorable to the mining interests. It left the issue of mine taxation to the legislature where lobby pressure could be applied. It also increased the number of District Judges from 3 to 11 with 3 assigned to Storey County alone. Those judges were elected – an important factor since with their large voting labor force, the mine companies would have a greater probability of obtaining sympathetic judges through elections than through selection by the President – the territorial procedure.

24 Charles Dana, Assistant Secretary of War, reported that Lincoln wanted Nevada's vote for the 13th Amendment.

25 Statutes of Nevada, Second Session (Carson City, Nev., 1866), 269.

26 Congressional Globe, 38th Congress, Second Session, 7, 9. Congressional Globe, 39th Congress, First Session, 4048–4051.

27 Congressional Globe, 39th Congress, First Session, 3916, 3952, 4016, 4054. Senator Stewart achieved passage through skillful maneuvering. He amended another bill by deleting its body and replacing it with mining legislation. The amended bill was then guided around those hostile to it.

28 For a discussion of the law see Yale, Gregory, Legal Title to Mining Claims and Water Rights, (San Francisco, 1867) 359–382.Google Scholar Lobbying by the mining interests was primarily aimed at preventing federal attenuation of local rights. After the 1866 law was passed and the federal threat was eliminated, Comstock mine owners neglected to apply for legal title. It was unnecessary, since their rights were already recognized locally.

29 Grant Smith, “The History,” 85, gives the investment figure. Kelly, J. Wells, First Directory of Nevada Territory, (San Francisco, 1862), 101.Google Scholar Shaft depths are from Browne, Ross J., Mineral Resources of the United States, 1868, (Washington, D.C., 1868).Google Scholar Employment figures are from the Virginia City Daily Union, February 1866, clipping in Grant Smith Papers, Box 1, Bancroft Library, University of California, Berkeley.

30 Laws of the Territory of Nevada (1861) (San Francisco, 1862) 56–90. Lows of the Territory of Nevada (1862) (Virginia City, 1863), 12–13.

31 “Report of the Council Committee on Mines and Mining Interests,” Journal of the Council of the Second Legislative Assembly (Virginia City, 1863).

32 Many of the Comstock Companies incorporated in California.

33 Laws of the Territory of Nevada (1862), 33–34.

34 For a discussion of the various acts involved passed by both the territorial and state legislatures see Gary D. Libecap, Evolution of Private Mineral Rights, 57–72, 120–131.

35 Laws of the Territory of Nevada (1862), 33–34.

36 Laws of the Territory of Nevada (1861), 26–31.

37 In only one case did the legislature seriously consider a bill hostile to the leading mine companies. In response to the resentment in Nevada against the absentee San Francisco owners, a bill was passed in 1862 to increase local control of the mines. Called the Winter's bill, the act required all out of state mining corporations to move their offices to Nevada or lose corporation status. The owners reacted sharply and Congress disallowed the law on February 9, 1863. For a more detailed discussion of equity effects of mining law see Gary D. Libecap, “Economic Variables and the Development of the Law.”

38 For example, there were sharp conflicts of opinion among miners regarding the definition of claim abandonment. Accordingly, the legislature never successfully resolved the issue.

39 R. H. Stretch, the Nevada Surveyor General, estimated that $9,000,000 was spent on litigation through 1865. Grant Smith Papers, Box 1, Bancroft Library, University of California, Berkeley. Assuming that the mine companies on the Comstock Lode spent half that amount and their competitors the other half, $4,500,000 is 11 per cent of estimated Comstock Lode companies' production costs. Those costs were $42,689,723 and were estimated as follows: with the formula total revenue-profits = total costs in mind, total mine revenue was computed as the sum of ore sales and stock assessments, and profits were considered equal to dividend payments. Computation of those two values and use of the formula gave total costs.

40 There is no problem of double counting for the court cases listed in Table 1. As the narrative points out the 40 Comstock mines were rarely involved in disputes with each other. Mining camp rules clearly defined subsurface claim boundaries between mines along the same vein (the Comstock Lode); those rules, however, were less definite regarding mines on different veins. Accordingly, most of the conflicts were between the rich mines on the lode and those adjacent mines off it. Only the Chollar and Potosi were involved in litigation, and they were not included in the regression.

41 The results were as follows: for the constant the estimated coefficient was −1.27 with a t statistic of −.5546; for claim length the coefficient was 8.23 × 10−3 with the t statistic 3.6130; for the value of output the corresponding values were 2.38 × 10−6 and 4.5678; assessments −.23 × 10−5 and −.2196; dividends .32 × 10−5 and 1.7667; and for the number of owners the coefficient was 3.51 and the t statistic 1.1719. The R2 was .65 with 32 degrees of freedom and a Durbin Watson statistic of 1.999.

42 The Gold Hill Rules gave each person 300 feet along the vein, so only associations of several claimants could form longer claims.

43 Only three of the mines with a record of court cases were plaintiffs less than 50 per cent of the time – the Hale and Norcross, Chollar, and Potosi. The latter two can be explained by the fact that both mines were in conflict with one another; hence, the high percentage of cases where each was the defendant.

44 Nevada Supreme Court Minutes, Ophir versus Burning Moscow, Nevada State Archives, Carson City. The case is also discussed by Eliot Lord, Comstock Mining, 139–156.

45 Quoted in Eliot Lord Comstock Mining, 155.

46 Nevada Supreme Court Minutes, Chollar versus Potosi, Nevada State Archives, Carson City. Eliot Lord, Comstock Mining, 160–162.

47 Because many of the mining companies were incorporated in California a few cases were heard in the 9th District Federal Court in San Francisco, but most judicial activity was centered in the Nevada courts. See Kinney versus Consolidated Virginia, 14 Federal Case, 611 and Thornburgh versus Savage, 23 Federal Case, 1113.

48 Qualitative sources studied included the San Francisco, Sacramento, and Virginia City newspapers for the years 1859–1880, Emmons, Samuel Franklin, Geology and Mining Industry of Leadville, Colorado, Monographs of the U.S. Geological Survey, Vol. 12 (Washington, D.C., 1886)Google Scholar, Browne, J. Ross and Taylor, James W., Reports Upon the Mineral Resources of the United States (Washington, D.C., 1867)Google Scholar, Browne, J. Ross, Report on the Mineral Resources of the States and Territories West of the Rocky Mountains (Washington, D.C., 1868)Google Scholar, Raymond, Rossiter W., The Mines of the West: A Report to the Secretary of the Treasury (New York, 1869)Google Scholar, The Engineering and Mining Journal for 1869–1876, (New York), Spence, Clark C., British Investments and the American Mining Frontier: 1860–1901 (Ithaca, 1958)Google Scholar, Mining and Scientific Press for 1860–1868.

49 Stock prices were collected from daily listings in the San Francisco Alta California and the Virginia City Territorial Enterprise. The index was computed as an unweighted average of the prices for the four mines.

50 Mass meetings were held in Virginia City to protest unpopular legislation in Congress; in addition the San Francisco Chamber of Commerce petitioned Congress for passage of favorable laws. In Washington, Representative Julian succeeded in holding up statutes favored by Nevada mine owners, and it took skillful maneuvering by Nevada Senator Stewart to obtain passage of the July 23rd law.

51 Tests were run for the passage of the July 23rd law and the Nevada Boundaries Bill, which passed on May 5, 1866 and gave support to local claims. Each test involved regressing the stock index against a dummy variable representing the passage of the law, a dummy variable for ore strikes, New York gold prices, and New York short term brokers' rates, which were lagged by one day to allow for San Francisco adjustment (both markets were connected by the telegraph). None of the tests proved conclusive.

52 Hague, James D., Mining Industry, Geological Exploration of the 40th Parallel, (Washington, D.C., 1870).Google Scholar