Coasian contracts in the Coeur d'Alene mining district.

• Author: Higgs, Robert
• Position: Essay

For the greater part of the twentieth century, mainstream economists viewed negative (technological) externalities as a prima facie justification for government intervention in the market. Absent such government action, they argued, nothing would be done to prevent or remedy the damages third parties suffered as a result of unrestrained "spillovers" or "neighborhood effects." For example, in the words of Joseph E. Stiglitz, "without government intervention there would be an underprovision of pollution control" (1988, 76). Even such staunch defenders of the market as Milton Friedman (1962, 30) and F. A. Hayek (1979, 43-45) conceded that spillovers might justify government intervention, although they embraced neither the "blackboard economics" conclusion that government intervention is desirable and effective in all cases of spillovers nor the "nirvana" standard implicit in Stiglitz's use of the neoclassical welfare-economics term underprovision.

Not until the argument of Ronald Coase's 1960 article "The Problem of Social Cost" began to penetrate professional understanding did economists start to appreciate how private contracting--usually viewed as property-right exchanges of various sorts--might be employed to prevent or remedy negative externalities without any government intervention to impose regulation, taxes, or subsidies. A literature gradually developed in which an assortment of cases--for example, private construction and maintenance of lighthouses (Coase 1974), private provision of bee-pollination services (Cheung 1973), private management of coastal developments (Rinehart and Pompe 1997), and private improvement of riverine water quality (Yandle 2004)--illustrates the voluntary internalization of externalities in history.

Even now, however, more than fifty years after the publication of Coase's landmark article, economists and economic historians continue to learn about important cases of private contracting to allay pollution problems and, in particular, about the variety of means that private contractors have employed to organize themselves for this purpose and to carry it out. In the present article, I relate the history of an important and little-known case: the voluntary measures that mine, mill, and smelter operators undertook in the Coeur d'Alene mining district beginning at the turn of the twentieth century. These parties not only purchased existing private-property rights specifically in order to internalize negative externalities but also engaged in creative organizational and technological innovation to achieve the same end. They did not do so, however, merely out of the goodness of their hearts. The interplay between legal and political proceedings, on the one hand, and the operators' "internalization" projects, on the other hand, lies at the heart of the story.

The Fabulous Coeur d'Alene

The Coeur d'Alene mining district is located in the Idaho panhandle approximately three hundred miles east of Seattle and seventy miles east of Spokane. Mining began there after the discovery of gold near the North Fork of the Coeur d'Alene River in 1883 kindled a gold rush that brought thousands of people in search of quick riches. The town of Murray sprang up, "a city a half a mile long" that "had its own lawyers, doctors, gamblers, and women of ill repute" ("Coeur D'Alene Mining District" 1998). By 1885, the rush had subsided, but gold mining continued near Murray for decades afterward. As prospectors fanned out from the original gold rush on the North Fork, they discovered mineral deposits rich in silver, lead, and zinc near the South Fork in 1884, and those deposits became the basis for the development of one of the world's greatest mining districts, known now as the Silver Valley (Ojala 1972, 6-8; Bennett, Siems, and Constantopoulos 1989, 145; Bennett 1994, 6).

According to an authoritative summary published in 1989,

[t]he Coeur d'Alene Mining District ... has the largest recorded silver production in the world. From the beginning of lode mining in 1884, the district's mines have produced over 1 billion ounces of silver, 8.5 million tons of lead, 3 million tons of zinc, and substantial quantities of antimony, cadmium, copper, and gold. The total value of this production is over $4.8 billion....

There are over ninety mines in the district. Eleven of these have produced over 3 million tons of ore. Of mining operations in the United States, the Coeur d'Alene contains the largest underground mine (the Bunker Hill, over 150 miles of workings), the deepest mine (the Star-Morning, over 7,900 feet deep) and the richest silver mine (the Sunshine, over 350 million ounces of silver). (Bennett, Siems, and Constantopoulos 1989, 137)

Almost all of these mines are located near the South Fork of the Coeur d'Alene River or its larger tributaries, including Canyon Creek, Nine Mile Creek, Big Creek, and Pine Creek. This district occupies a roughly rectangular area approximately twenty-five miles long from east to west and five miles across from north to south. Figure 1 sketches the setting, including the larger towns and the major creeks.

Although the South Fork between Mullan and Pinehurst flows in some places through a sizable floodplain, its tributary creeks, along which most of the mines are located, all pass through steep, narrow canyons. The important mining town of Burke, on Canyon Creek, for example, was so narrow that "merchants had to roll up their store awnings or lose them to passing trains" (Bennett, Siems, and Constantopoulos 1989, 154), and the nearby Tiger Hotel accommodated itself to the narrow canyon by straddling the railroad track (an unfortunate consequence of this position was that "lodgers were regularly smoked out of their rooms when wood-burning locomotives passed underneath" [Van Gundy 1998]). This feature of the topography had major consequences for the disposal of wastes from the mines and, more important, from the associated mills.

[FIGURE 1 OMITTED]

Mill Tailings and Their Disposal

The economics of mineral production requires that ores removed from the mine be concentrated nearby to avoid the expense of transporting large quantities of worthless rock and nonmetallic material, or gangue. In the beginning, workers picked the mineral-laden chunks out of the crushed ore by hand, sacked them, and shipped them via a narrow-gauge railroad (completed in 1887) to the old mission at Cataldo, then by paddlewheel riverboat twenty-five miles to Lake Coeur d'Alene, and finally by steamer across the lake to the railhead for transportation to distant smelters. In 1890, completion of the Northern Pacific tracks through the valley and up Canyon Creek simplified the shipment of ores to the smelters (Bennett 1994, 6-8; Van Gundy 1998).

To further concentrate the ores, the mine operators soon employed a system of grinding and washing. As geologist Earl H. Bennett describes the process,

The ore-bearing rock was ground up and the heavy galena separated by gravity using equipment with names like jigs and buddles. In a jig cell, a plunger agitated a mixture of ground up ore and water. Water flowing through the cell separated the less dense minerals from the galena.... The finer material (slimes) was processed using other gravity equipment called buddles or vanners.... Only about 75% of the ore was recovered in the jig plants ..., but recovery from the slimes was far worse. Obviously, the early gravity mills were very inefficient, reclaiming only part of the ore; the rest was dumped in the nearest creek along with just about everything else in the district.... This mill waste is called jig tails and this material was the first major metal contamination in the district. (1994, 8) Periodic floods "would move the metal-bearing jig tails down the South Fork system and the tails would eventually reach Smelterville Flats" near the west end of the valley, but "fortunately the coarsely ground, dense ore, did not transport easily, and few of these jig tails made it past the flats" (Bennett...