Common Property, Gains from Trade—and Statehood
Historian Staughton Lynd argued that the contemporaneously drafted Constitution and Northwest Ordinance of 1787 were themselves components of a larger implicit package that harmonized the conflicting interests of the several states, in which one document officially recognized and sanctioned slavery while the other expressly prohibited it (“The Compromise of 1787,” Political Science Quarterly, Vol. LXXXI, No. 2, June 1966, p. 225). Slavery was recognized in the Constitution’s 3/5ths clause, but was prohibited in the Northwest Territory by the Ordinance, and supposedly neither could have stood alone, in the context of the time.
Economists, like historians, may similarly be interested in questions of expanding territory and voting franchises. Per Ronald Coase (“The Problem of Social Cost,” Journal of Law and Economics. October 1960, pp. 1-44), if transaction costs are sufficiently low and property rights defined in the relevant context, a near-optimal allocation of resources should result from negotiation over available gains from trade.
In that vein, I ran across an essay of mine, an old American Economic History class term paper at George Mason University called “Missouri’s Platte Purchase and Michigan’s Stunted Statehood: Common Property Allocation by Territorial Logroll” It’s now updated and posted on SSRN. Here’s the executive summary.
Gains from trade may have been operative in allowing peaceful, simultaneous violations of the Missouri Compromise of 1820 and the Northwest Ordinance of 1787 both to occur in the year 1836. In the formative years of the vast continental United States, every other proposed and actual violation of these and similarly weighty territorial agreements (such as changes in the ground rules embodied in popular sovereignty, the Kansas-Nebraska Act, the Dred Scott decision, and the Wilmot Proviso) proved disruptive and even deadly. A unique territorial “logroll” unappreciated by historians and economists may have made this breach of vital territorial agreements starkly different.
One reason modern immigration debates are contentious in the U.S. and Europe is because such questions involve constitutional level rather than mere legislative questions of expanding the voting franchise itself. Such was more intensely the case with regard to the addition of new states to the union in the U.S.’s formative years following the just-noted Constitution/Northwest Ordinance “package.” Petitions for statehood could be considered when territories attained 60,000 inhabitants, but statehood wasn't automatic given the changes in House and Senate representation continually at stake. The growing United States was repeatedly in a condition termed a “constitutional moment,” in which the most important question facing the nation was literally whether or not to remain a union at all. Such a divisive, rending issue isn't the concern now, but modern questions over legalization and particularly citizenship for undocumented individuals do involve potentially many millions of people, across all the states, in aggregate numbers exceeding the population of some individual states; so the fact that that contentious public debate exists isn’t surprising.
The interesting thing I noted in the new working paper was a blatant violation of the Missouri Compromise—otherwise incendiary—that seemed to get no attention at all; how could Missouri get “something for nothing”? The Platte Purchase was a sizeable addition of territory to the slave state of Missouri in 1836, seemingly without incident. With some digging, looking for an explanation, I found that the Platte addition appears to have been counterbalanced by a simultaneous violation of the long-standing Northwest Ordinance of 1787 to favor existing Northern interests during the admission of the Michigan Territory to statehood (to Michigan’s detriment), nominally paired with Arkansas.
The Introduction follows. Perhaps other economists or researchers will decide to extend the investigation or conduct similar ones regarding expansions of voting franchises and allocations of territory.
The theoretical perspectives of property rights and gains from trade lead economists to view the expansion of a territorial franchise, such as that of 19th Century America, with an emphasis different from that of historians. Events during the 1800s culminating in the Civil War illustrate both successes and failures in the efforts of United States to peacefully tame a vast continent by allocating its shifting territorial expanses among citizens and states whose interests were not harmonious. All economists are familiar with the notion that, where property rights are not well defined or where common ownership exists, open access leads to a “tragedy of the commons” when the resources in question possess economic value (that is, are scarce and desired). The deeper insight that territorial allocation is distinct from ordinary legislation because it poses the constitutional-level problem of expanding the voting franchise itself has been developed and explored historian Arthur Bestor (“The American Civil War as a Constitutional Crisis,” American Historical Review, 69, 1964, pp. 327-352) and others as it pertains to the coming of the Civil War.
During the founding era, lawful specific and certifiable allocation of common property—especially when carried out by constitutional provisions, but sometimes even when achieved by mere legislative decree—tended to temporarily mitigate the disruptive forces that animated opposing interests. One explanation is that a brand of unanimous consent, made possible by the existence of substantial gains from trade available to opposing sides through territorial allocation, made a resolution possible—however precarious—in these instances. In the American experience, these post-constitutional bargains materialized in such agreements as the Northwest Ordinance of 1787 and in the Missouri Compromise of 1820, each of which allocated unorganized common property for a number of years by creating a package acceptable to both the pro- and anti-slavery interests.
Because adding new states to the Union inadvertently reopened the territorial questions that had been initially resolved by the Constitution, maintaining peace between the northern and southern interests depended heavily upon strict observance of these national contracts once formed. Deep sectional rifts reopened several times following breaches of territorial truces, whether these transitions advanced the pro- or anti-slavery cause. In effect, these breaches reduced or dissolved the “value” responsible for securing agreement in the first place for the “losing” party. For example, by introducing the principle of popular sovereignty, the Kansas-Nebraska Act of 1854 permitted slavery in territory that had been declared free by the Missouri Compromise in 1820, which obviously provoked the North. Similarly disruptive, both the Missouri Compromise and the principle of popular sovereignty itself were declared invalid by the Dred Scott decision, which provided that slavery could not be excluded from any territory. This drastic measure eliminated even the modest tool that popular sovereignty afforded the North as a means of slowing the spread of slavery. On the opposite side of the coin, the Wilmot Proviso, though never enacted, would have excluded slavery from any territory acquired as a consequence of the Mexican War.
Popular sovereignty left the possibility of further gains open to either side. But note that the Wilmot Proviso threatened to, and the Dred Scott decision did, wipe out any remaining gains from trade that had made or could make peaceful territorial acquisition possible. One side stood to lose entirely in each case. The popular sovereignty of the Kansas-Nebraska Act was less drastic since neither side stood to lose all future bargaining power, but it did ruin the stabilizing power of the Missouri Compromise.
The force with which opposing factions were excited by such offenses makes it almost inconceivable that the Missouri Compromise could ever have been violated peacefully, yet this did happen at least once as this paper describes. But the fact that this infringement occurred is not fatal to an economic approach. On the contrary, gains from trade can explain a willingness to overlook a mutually beneficial arrangement when conditions are right just as they explain the power of those very agreements over the initial common property problem that brought about the arrangement.
The Missouri Compromise, which had attained inviolable status in the minds of many, was an integral part of the glue holding the Union together. Nevertheless, this law was violated without incident in 1836 during a historical episode known as the Platte Purchase, seemingly as part of a larger territorial logroll overlooked by historians. This essay applies economic analysis, specifically a case study in gains from trade, to form a plausible explanation of how annexation of free territory from the remaining expanses of the Louisiana Purchase was peacefully made to the slave state of Missouri in explicit violation of the Missouri Compromise. That very region had been the subject of explosive debate in Congress in 1819, and was neighbor to bloodshed after 1854’s Kansas-Nebraska Act transformed the Compromise.
The full paper with a couple charts is available on SSRN here.