The Homestead Act: Abraham Lincoln's Greatest Legacy

Most of what you read today, the 200th anniversary of the birth of Abraham Lincoln, will justifiably focus on "the Great Emancipator's" achievements in freeing the slaves and saving the Union. Unfortunately forgotten in the well-deserved plaudits for our 16th president is what some insightful commentators believe deserves to be ranked with those two triumphs: the Homestead Act of 1862.

Throughout the rest of the world it was expected that a small minority would own or control the means of production. When land was the predominant form of capital, with few exceptions land was held in colossal latifundia or great feudal estates. Lincoln knew that if he couldn't come up with a democratic means of divesting the federal government of its vast western land holdings, the historic pattern would simply be repeated in the United States, and a rigid class structure imposed on America's government of the people, by the people, and for the people.

Lincoln therefore devised a plan whereby any U.S. citizen, or anyone who declared the intention of becoming a citizen, and was over the age of 21 could acquire a quarter section — 160 acres — of federal land in the "Great American Desert." After developing the land and living on it for five years (the "quid pro quo"; the land wasn't truly "free"), the homesteader was granted clear title.

The Homestead Act opened up the west to rapid development. The amazing productivity of the west from agriculture, ranching, and mining supplied the east with needed raw materials as well as a market for the manufactured goods of the east. The fact of ownership ensured that the homesteaders enjoyed the full stream of income from their newly-acquired capital, which could then be used to purchase eastern goods. This in turn ensured that America's nascent industrial sector had an opportunity to grow with equal rapidity at a time when European markets were closing off to American manufactured goods.

Unfortunately, while Lincoln's vision ensured rapid economic development and growth in the United States in the latter half of the 19th century, the Homestead Act addressed only one type of capital: land. Industry and commerce were growing in importance, however, and would soon result in a type of industrial feudalism, in which the small shopkeeper and artisan was forced out of business in competition with large concerns. The new trusts and corporations were owned by a very few people, and the great mass of people had no ownership stake in the company for which they worked.

There are hints in some of Lincoln's writings that he might have been thinking of applying the Homestead Act concept to the rising industrial and commercial enterprises, but we cannot be certain. Lincoln was killed before he was able to put the Civil War behind him and get to work on the task of rebuilding the country. Consequently, the tremendous incomes generated by the new technologies and the great commercial enterprises went not to consumption, but were reinvested, causing ownership of the means of production to become increasingly concentrated over time, and spurring ever-greater swings in the business cycle as production and consumption became disjoined, apparently in response to a seemingly iron law of economics.

This "iron law," however, was the result of a demonstrably false premise: that capital formation could only be financed by cutting consumption, saving, then investing. On the contrary, as Dr. Harold Moulton discovered in the early 1930s, in the United States from 1830 to 1930, which (as we saw above) covered periods of immense capital expansion and economic development, every period of great capital expansion was preceded not by decreases in consumption, but by increases in consumption! Savings were not being accumulated, but depleted! Banks did not lend existing pools of savings to finance capital formation, but created new money by extending credit for capital projects that were expected to pay for themselves out of profits to be made in the future.

We thus come to the conclusion that Lincoln might have, had he lived. Just as "free" land provided the opportunity for thousands of people to become owners of one type of capital, "newly-created" money tied to specific capital investments could provide the opportunity for millions — even billions — of people in the United States and throughout the world to become part owners of the companies for which they now work as wage slaves.

"Capital Homesteading" is a proposal to open up democratic access to capital credit so that every American has the ability and the means to acquire and possess a reasonable capital ownership stake. On this bicentennial of the birth of Abraham Lincoln there could not be a better way to honor his memory than to work to extend his vision to every citizen.