The Land Ordinance of 1785 Was an Early Case of National Central Planning and Price Floors

We often hear about how the Articles of Confederation were too weak for a sufficient national government for the newly created United States of America for a multitude of reasons, from being unable to collect taxes as needed to being unable to stop the states from adopting their own trade policies, and perhaps most famously, to prevent events like Shays’ Rebellion that Massachusetts managed to put down on its own from re-occurring. It is because of this, we are taught in American history, that the 1787 Constitutional Convention convened and the U.S. Constitution was adopted. What often goes unexplained in this simplistic narrative is if the Congress of the Confederation were so weak, how did they manage to pass sweeping legislation that effectively nationalized the large swath of land that Virginia had claimed after the British cession of said territory with the 1783 Treaty of Paris, as with the Land Ordinance of 1784, or create an entirely new government, as with the Northwest Ordinance of 1787, and most glaringly, why were able to centrally plan what would be done with the new land by the individual settlers and why were they able to set price floors for the sale of land in a way that benefited both Congress and large land speculators with the Land Ordinance of 1785?

The Land Ordinance of 1785 was an example of central planning that, while not trying to change the nature of humanity as the 20th century attempts at the process would do, still attempted to force the New England way of doing things on a group of people who might not have supported such measures and may have found it petty and intrusive. Thomas Jefferson’s Land Ordinance of 1784 just stated that if 20,000 settlers gathered within a given territorial area, that they would have the right to statehood. This was quickly deemed to be an insufficient criterion and it became official policy to dictate from above what the new townships in these new states would have to look like. As Murray Rothbard explained in Conceived in Liberty, Volume 5: The New Republic: “The Ordinance provided for congressional surveyors to map out the land before sale, and for the land to be divided into New England-style ‘townships’ and parceled out into rigid rectangular surveys of six square miles in the New England fashion. This contrasted to the natural boundary method of surveying used in the South. The rigid rectangular method compelled the purchases of sub-marginal land within an otherwise good ‘rectangle.’” While this may seem trivial and even humorous, this shows that the Congress had the fatal conceit that they could decide from above what the settlements of the new states would look like and were even willing to sacrifice agricultural productivity and efficient allocation of land in order for the strange fixation on having rectangular townships. One cannot help but be reminded of zoning laws that plague us today, wherein people decided from above that only single-family homes were to be allowed to be built within land that was ostensibly private property. However, it is when the Congress of the Confederation got the idea of centrally planning the price of that newly acquired land that any humor of the situation disappears.

Perhaps the most insidious part of the Land Ordinance of 1785 was the fact that it actively sought out to drastically increase land prices for the new settlers, while at the same time professing that the purpose of the ordinance was so that settlers could purchase a title to farmland in the frontier. A more honest way of phrasing that would have been to say the purpose was to sell townships of 640 acres at an exuberant minimum price floor of $1 an acre each, as well as forcing the townships to pay $36 for the unrequested surveying by Congress. The result of this? It was almost only large land speculation companies that could afford to purchase the land and it was indeed those companies themselves that influenced Congress to set these price floors. Congress was happy to oblige, as the Articles of Confederation did not give them the ability to tax, so they needed revenue, regardless of if frontier settlers were going to be discouraged by the artificially high price of land or not. Much like how FDR’s Agricultural Adjustment Act set a price floor on crops that lead to crops being destroyed to keep prices higher while Americans were starving in the Great Depression, so too did the inability of settlers to gain access to land at the market value in the 1780s likely give away to the populism of Andrew Jackson promising cheap land in exchange for political support, which ultimately culminated in the Trail of Tears once land companies bought up much of the land of what was to become the Northwest Ordinance. Both these examples show the consequences that can come from governments having the fatal conceit to attempt to set prices above their market value.