Homesteading rock: a defense of free access under the general mining law of 1872.

Author:Morriss, Andrew P.
  1. INTRODUCTION II. THE CONTEXT A. Mining and the Mining industry B. The Structure of the Mining Law 1. Obtaining Property Rights 2. The Evidence on the Giveaway Claim 3. Narrowing the Scope 4. Explaining the Institution III. SOLVING PROBLEMS A. Incentives to Locate B. Incentives to Develop C. Corruption D. Resolving Conflicts E. Spillovers F. Comparing Solutions IV. TESTING THE THEORY A. Mining and Homesteading Compared 1. Giving A way Resources 2. Was Homesteading Rent-Seeking? 3. Problems with Homesteading B. Resource Withdrawals C. Land Exclusions and Withdrawals D. State and Private Resources E. Summary V. CONCLUSION I. INTRODUCTION

    The discovery of gold in 1848 at Sutter's Mill in California changed American mining law forever. (1) Within weeks, thousands poured into the area seeking riches. (2) With no official sanction, and in a region with no official civilian government, prospectors staked claims and searched for gold. When they found it, they took it for their own. (3) Throngs followed over the next decades as the gold rush spread from California to Nevada, the Dakotas, Montana, Colorado, Alaska, and wherever gold or other valuable minerals could be found. When Congress finally addressed the miners' claims, it had little choice but to ratify the miners' methods. (4) The Lode Law of 1866, (5) the 1870 Placer Act, (6) and, most importantly, the Mining Law of 1872 (Mining Law) (7) recognized claims based on individual actions appropriating the minerals from federal lands. (8) Despite high-level attacks on this system (9) and a gradual narrowing of the scope of the minerals appropriable under the Mining Law and the lands available for appropriation, 10 more than a century and a half later (11) the basic system remains intact for hardrock minerals. (12)

    Mining and the Mining Law are regularly the subject of heavy criticism by a variety of interest groups. (13) The Mining Law is derided as "an anachronism," (14) "outdated since its inception," (15) "a 'tawdry process," (16) "not only grossly outdated, but in most meaningful ways, inimical to today's needs and values," (17) "a disgrace to the Government of the United States," (18) a "gargantuan prehistoric fire breathing dragon," (19) "one of the last remaining American dinosaurs of the old public resource giveaways," (20) "passed in the spirit of Manifest Destiny," (21) a "relic of pioneer days," (22) and "obsolete and antiquated." (23) It is "corporate welfare" (24) and a gift of public resources to private interests; (25) it allows "[u]ncontrolled mining[,] ... a menace which can strike almost anywhere, often in the midst of the most environmentally valuable and vulnerable places," (26) and lets "huge mining conglomerates ... wreak environmental havoc on public lands." (27) It "plunders taxpayers" (28) and is "the largest ongoing scare in American history." (29) It allows "foreign-owned corporations from ten countries [to] have collectively gained control of metals beneath one of every five acres of claimed lands in the United States." (30) Even a policy analysis from the libertarian Cato Institute managed only "two cheers" for the law, concluding that it would have deserved "a third cheer were it a more robust engine of unbiased privatization." (31)

    In the face of this onslaught, even some of the strongest Industry supporters in Congress, such as Democratic South Dakotan Senator Thomas Daschle, whose state has important mining interests, (32) called for the industry "to face the inevitability of reform" and work with critics "to guide and perfect" the law. (33) The Mining Law must change, critics argue, to recognize modern environmental concerns and generate revenue for the federal government. (34) Nonetheless, reform has not come, in part because the threat to the free-access principle from change unites the mining industry and western interests in opposition to beginning a process they cannot control. (35)

    The Mining Law appears to be an easy target. As just noted, the critics argue that it privileges an environmentally risky activity conducted by a small number of companies over recreation, preservation, and other interests popular with large numbers of American voters. (36) The mining companies, some foreign owned, are said to extract valuable resources from public land without paying substantial sums that ought to belong to the federal treasury. (37) Despite the populist appeal of their arguments and decades of efforts, however, critics of the Mining Law have not yet succeeded in persuading Congress to change any of the basic principles articulated in the 1872 law with respect to hardrock minerals. (38)

    In this Article we argue that the critics' failure is a good thing. The critics are wrong about the structure and impact of the Mining Law. It is not a relic of discarded nineteenth century robber-baron attitudes (39) toward the land and minerals. Rather what former Interior Secretary Donald Hodel called "the heart and soul" of the Mining Law (40)--the principle of self-initiated free access to mineral resources and the provision of full title to both mineral and surface estates for minimal transfer fees--provides a rational basis for allocating resources in a principled manner that solves critical information and incentive problems inherent in public ownership of resources. (41) Most "reform" efforts aimed at the Mining Law take the wrong approach, (42) attacking free access and focusing on generating revenue from royalties (43) rather than on removing doctrinal technicalities that hinder free access. We contend that, far from needing replacement, the Mining Law offers an important model for governments looking for the means to privatize public property where the value of the property is unknown. Not just mineral rights but assets such as radio spectrum frequencies are problematic as publicly owned resources. (44) The Mining Law can serve as a model for privatization of such resources both here and abroad.

    In Part II we describe the structure of the mining industry and how the Mining Law functions. In Part III we discuss the problems surrounding public domain resources and explain how the Mining Law responds to them. In Part IV we test our theory by examining the allocation of mineral resources among the various mining law regimes in the United States. Part V concludes with a discussion of the future of the Mining Law in light of the insights gained in this Article.

  2. THE CONTEXT

    To understand the debate over the Mining Law, it is necessary to know something of the structure of the mining industry and how the law operates. In this section we briefly review these matters, highlighting the features which affect our analysis of the Mining Law. We then survey the explanations for the Mining Law's persistence and offer our own theory.

    1. Mining and the Mining Industry

      There are three key characteristics of the modern U.S. mining industry. The first is that its economic structure creates vulnerability to political risks. Hardrock mining (45) is a generally capital-intensive industry, in which large quantities of low-grade ore must be extracted from the earth and processed to produce a mixture of useable minerals. (46) Mining's capital intensity and fixed location renders it vulnerable to expropriation; once a mine is developed it cannot be moved. This vulnerability made possible the wave of nationalizations and controlling legislation adopted in developing countries in the 1960s and 1970s. (47) Highlighting the importance of strong property rights when such vulnerabilities exist, these expropriations led mining companies to withdraw from those countries and concentrate their efforts on the United States and other countries with more secure property rights. (48)

      Although no one thinks it is likely that any government in the United States will nationalize mines tomorrow, mining in the United States remains vulnerable to "regulatory expropriation." (49) Just as property owners can lose their property rights through the imposition of severe regulatory burdens as well as outright seizures, so businesses are vulnerable to having the value of their assets used to prevent escape from regulatory burdens (at least in the short run). The more capital-intensive an industry, the more valuable assets are at stake.

      This effect is more serious for mining than other capital-intensive industries because hardrock mining today is a regional industry: Arizona, California, Montana, Nevada, and Wyoming have the most mining activity. About 45% of claims at the end of fiscal year 2000 were in Nevada and almost 35% more were in the other four states. (50) Since most states have little or no interest in the mining industry, and since mineral resources are largely on federal land, states without mining interests form a majority coalition in favor of converting those resources into a form which potentially benefits their citizens at the expense of mining state citizens. Only the protection provided minority interests by the structure of the U.S. Senate has prevented such a resource transfer. (51)

      Mining is thus an economically vulnerable activity (52) that has little protection from political risks: It generates enormous wealth yet has significant capital at risk; it has only a regional political base; and the industry's workforce is relatively small, eliminating a potent source of political support. Secure property rights are thus critical to inducing investment in long-term mining operations. (53)

      The second key characteristic of the industry is the high cost of locating new mineral resources. Locating new deposits is a lengthy and costly process, typically costing $150,000 to $250,000, with another $500,000 to $1,000,000 necessary to determine whether to proceed with the site. (54) The result is that "mining has one of the lowest returns on investment of major industries." (55) A successful mining operation requires large capital investment in extraction...

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