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Applied Economics Letters
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Determinants of homestead claims and the expansion
of Western settlement
a
b
Randy McFerrin , Stephen Norman & Douglas Wills
b
a
Department of Economics, Applied Statistics & International Business, New Mexico State
University, Las Cruces, NM, USA
b
Milgard School of Business, University of Washington Tacoma, 1900 Commerce Street,
Campus Box 358420, Tacoma, WA, 98402, USA
Available online: 12 Apr 2012
To cite this article: Randy McFerrin, Stephen Norman & Douglas Wills (2012): Determinants of homestead claims and the
expansion of Western settlement, Applied Economics Letters, 19:18, 1927-1932
To link to this article: http://dx.doi.org/10.1080/13504851.2012.671920
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Applied Economics Letters, 2012, 19, 1927–1932
Determinants of homestead claims
and the expansion of Western
settlement
Randy McFerrina, Stephen Normanb and Douglas Willsb,*
a
Downloaded by [Douglas Wills] at 09:55 29 April 2012
Department of Economics, Applied Statistics & International Business,
New Mexico State University, Las Cruces, NM, USA
b
Milgard School of Business, University of Washington Tacoma, 1900
Commerce Street, Campus Box 358420, Tacoma, WA 98402, USA
This article examines the impact economic variables had on the rate of
settlement, measured by original homestead claims, in the Western United
States. Our results from the estimated panel regressions indicate that the
underlying rationale for the Homestead Act, namely that economic factors
were important for settlement, was justified. The two most important
economic variables, output prices, measured by real wheat prices, and the
cost of capital, measured by real interest rates, were statistically significant
in explaining the change in the original homestead claims. Furthermore,
contrary to previous studies, railroad mileage was not found to be
significant. This study also reveals that the location of a homestead
relative to the 100th meridian, the traditional boundary of humid and
sub-humid areas, had little effect on the response of homesteaders to
economic variables.
Keywords: homestead claims; western settlement; wheat prices; panel
regression
JEL Classification: C23; N41; N51
I. Introduction
One relatively unexplored research area in the development of the Western United States is the role that
economic factors had on the rate of settlement.1 This
article addresses the oversight of analysing the impact
of changes in crop prices and interest rates on the
change in original homestead entries. It is unique in
three respects: first, we include the cost of capital,
measured by real interest rates; second, we break
down the data by individual land offices; and third,
we use original homestead entries as our dependent
variable, not planted acreage. Original homestead
entries were the first indication that an individual
intended to start a farm, essentially equivalent to a
new business. Therefore, the focus is not on whether a
homestead was successful but what impact output
prices and interest rates had on the decision to start a
homestead.
This study focuses on land claims by land office
within seven states (Kansas, Minnesota, Montana,
Nebraska, North Dakota, South Dakota and
Wyoming) from 1881 to 1907. These states were
chosen because they were similar in terms of their
degree of settlement over this time period. This
lowers the likelihood of problems arising from
*Corresponding author. E-mail: [email protected]
Harley (1978) was the first to explore how western US expansion was related to economic factors. A more recent study was by
Solakoglu (2008). There were, however, a series of articles exploring this issue in Canada; see Norrie (1975), Grant (1978), Marr
and Percy (1978) and Borins (1982).
1
Applied Economics Letters ISSN 1350–4851 print/ISSN 1466–4291 online # 2012 Taylor & Francis
http://www.tandfonline.com
http://dx.doi.org/10.1080/13504851.2012.671920
1927
R. McFerrin et al.
Downloaded by [Douglas Wills] at 09:55 29 April 2012
1928
comparing states that were highly settled to those that
were less settled. Furthermore, these states largely
break down into two geographical areas (humid and
sub-humid) and were populated, for the most part, by
single product crop farms intended for export to the
eastern United States and Europe. Over this time period, the Department of the Interior reported original
homestead entries by land office in a consistent format, thus improving data reliability.
The results strongly indicate that the underlying
rationale for the Homestead Act, namely that economic factors were an important determinate of settlement, was justified. Both the real output prices and
the real interest rates were statistically significant in
explaining the change in original homestead entries.
Contrary to previous studies, railroad mileage was
not found to be significant in settlement decisions.
Railroads seem to have more impact on the success
of homesteads rather than a factor in determining
the rate of settlement. Both the output prices and
the interest rates were significant for land claims on
each side of the 100th meridian; however, there was
little difference in the degree of response. This is an
interesting result given the importance placed on the
role of the semi-arid climate in the development of
the Western United States.
II. Model
costs obviously include transportation costs, labour
land and so on. Transportation costs have traditionally been approximated by the density of railroads
within a state. There is little data on labour costs and
most labour was provided by the owner and family
members. As such, wages in the eastern United States
or Europe are poor measures of the opportunity cost
of labour on farms in the Western United States.
Including the cost of capital requires some explanation given that it has not been included in any
previous study where the amount of homestead
entries was the dependent variable. As for land,
the Homestead Act provided it at essentially a zero
price. However, the capital requirements to begin a
farm were significant, even with ‘free’ land. A
homesteader had to transport his/her family to the
farm location, purchase animals and tools to work
the land, seed for the crop and provide enough food
to support the family until the first crops could be
sold in the market. One estimate places the minimum capital requirements at $1000 to begin a
homestead (Bogue, 1955, p. 4). It should also be
noted that while the Homestead Act provided
‘free’ land, it did not provide any means of subsidizing the operation of a homestead. In addition,
because the homesteader did not technically own the
land for 5 years, he could not borrow against it.2 As
such, a priori, we would expect output prices and
interest rates to be significant in the decision to
begin a new homestead.
The empirical model that is used is based on the following equation:
III. Panel Regression Results
originali;t ¼
C
fðpriceW
t ; pricet ; RRi;t ; rt Þ
ð1Þ
Our dependent variable, originali,t , is the total acreage
of original homestead entry claims in state i for year t.
The real price of wheat and corn in year t is repreC
sented by the variables priceW
t and pricet , respectively.
RRi,t measures the railroad mileage in state i, whereas
rt represents the real interest rate in year t. Real interest rates are included in the model to measure the
possible costs of settlement that would have arisen
from taking out loans for equipment required to settle
new land.
The creation of a homestead can be appropriately
modelled as an entrepreneurial decision to create a
new business. As such, the factors being taken into
account are expected output prices, proxied by current
and past prices, and expected input costs. Expected
2
We first check to see whether the time series variables
are stationary in levels or whether they need to be
differenced. Given that our data set contains panel
data variables, we used the test of Levin et al. (2002),
which assumes a common unit root process among
cross sections. For variables that do not vary by land
office or state, we use the conventional Augmented
Dickey–Fuller (ADF) test. Table 1 reports the results
of the unit root tests. We fail to reject the presence of a
unit root in every variable except wheat and corn
prices and all differenced variables appear to be stationary. We therefore differentiate all variables with
the exception of crop prices.
The data are fitted to the following regression equation using panel data estimation with Panel-Corrected
SEs (PCSEs), which control for serial correlation and
heteroskedasticity.
This was one rationale for keeping the controversial ‘commutation’ clause in the Homestead Act. This allowed a homesteader
to buy the land after a short period of residing on the land. Late in the nineteenth century, this was a source of much fraud.
Determinants of homestead claims and the expansion of western settlement
Table 1. Unit root tests
Variable
ln ðoriginali,t Þ
ln ðoriginali,t Þ
ln ðpriceW
t Þ
ln ðpriceC
t Þ
RRi,t
RRi,t
rt
rt
Table 2. Regression results by all states (1881–1907)
LLC
ADF
–0.40
–11.35***
–3.85**
–2.76*
–0.87
–3.59***
–0.90
–6.00***
Notes: ADF, Augmented Dickey–Fuller; LLC, Levin, Lin
and Chu.
***, ** and *Denote significance at the 1%, 5% and 10%
levels, respectively. The unit root tests for RRi,t included a
trend.
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ln ðoriginali;t Þ ¼ b0 þ b1 ln ðpriceW
t Þ
þ b2 ln ðpriceW
t1 Þ
C
þ b3 ln ðpriceC
t Þ þ b4 ln ðpricet1 Þ
þ b5 RRi;t þ b6 RRi;t1 þ b7 rt
þ b8 rt1 þ et
Following Beck and Katz (1995), one common autoregressive term is included. One lag of each variable to
allow for the possibility that past year’s conditions
would affect the settlers’ decisions in the current year
is also included. The regression is estimated with all
the states pooled together. These results are presented
in Table 2. The coefficient on the lagged price of wheat
is positive and significant at the 1% level. This
strongly supports Harley’s original findings and contradicts with that of Solakoglu (2008).3 The estimated
coefficients in the real interest rates, both current and
lagged, are negative and significant at the 1% level.
These results strongly support the argument that
homesteaders were responding predictably to market
stimuli. The coefficient on the price of corn was significant at the 5% level and with a negative sign, which
follows as corn was an input for most of these states
except for Kansas and Nebraska. Railroad mileage,
both current and lagged, was found to be significant
but negative. These results are inconsistent with both
Harley (1978) and Solakoglu (2008).
Although railroad mileage has traditionally been
used as a proxy for lower transportation costs, the
development of the railroads makes their use as this
proxy somewhat problematic. The railroads were
initially built as transcontinental lines, heavily subsidized by the Federal government, and built far ahead
3
1929
Variable
All states
ln ðpriceW
t Þ
ln ðpriceW
t1 Þ
ln ðpriceC
t Þ
ln ðpriceC
t1 Þ
RRi,t
0.09 (0.35)
0.60 (2.63)***
0.19 (1.33)
–0.30 (2.12)**
–0.98 (2.23)**
–2.20 (4.81)***
–4.85 (3.93)***
–3.89 (2.64)***
–1.29 (2.55)**
0.17
58
936
RRi,t1
rt
rt1
Intercept
R2
Land offices
T
Notes: Values in parentheses are the absolute value of the
z-statistics.
***, ** and *Denote significance at the 1%, 5% and 10%
levels, respectively. Although not reported, a dummy variable
was included to control for the effect of the Kincaid Act of
1904 for all regression including land offices from Nebraska.
of any settlement. Trunk lines were then added either
following settlement or in response to breakdown in
cartel agreements (Norrie, 1975, p. 424). For example,
see Fig. 1 that plots the change in the railroad mileage
for each state as a per cent of 1913 totals. The period
between 1886 and 1887 is associated with historically
large increases in the railroad mileage in most states.
This was caused by a breakdown in a cartel agreement
(Harley, 1982).
To determine whether the above statistically significant results were largely determined by the surge in
railroad mileage during this period, a PCSE regression
was estimated using all seven states for the years after
1887. The results reported in Table 3 suggest that there
is no relationship between railroad mileage and homestead claims. This completely contradicts both Harley
and Solakoglu. One possible explanation for this is
that both Harley and Solakoglu use planted acreage
in their studies. Planted acreage is affected by the
success of homesteads (and other farms) which, one
would expect, is affected by the density of railroads.
For our purposes, given the lack of evidence of the
effect of railroad mileage on settlement decisions, the
railroad variable was not included in any subsequent
regressions.
One of the advantages of using land office data
rather than state level data is the ability to restrict
attention to geographic areas, which do not follow
political boundaries. The 100th meridian, in particular, was an important geographic boundary, which
Solakoglu (2008) used lagged endogenous variables as instruments for the two-stage least squares regressions reported in that
work. That approach is not appropriate for our approach given that lags of all variables are already included in the model used
in this article.
R. McFerrin et al.
1930
0.25
0.20
KS
MN
0.15
MT
NE
0.10
ND
SD
WY
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0
1880
1881
1882
1883
1884
1885
1886
1887
1888
1889
1890
1891
1892
1893
1894
1895
1896
1897
1898
1899
1900
1901
1902
1903
1904
1905
1906
1907
0.05
Fig. 1. Change in railroad mileage as a percentage of 1913 totals
Note: KS, Kansas; MN, Minnesota; MT, Montana; NE, Nebraska; ND, North Dakota; SD, South Dakota; WY, Wyoming.
Table 3. Regression results for all states (1888–1907)
Variable
ln ðpriceW
t Þ
ln ðpriceW
t1 Þ
ln ðpriceC
t Þ
ln ðpriceC
t1 Þ
RRi,t
RRi,t1
rt
rt1
Intercept
R2
Land offices
T
0.03 (0.13)
0.42 (1.71)*
0.20 (1.38)
–0.39 (–2.44)**
–0.15 (0.17)
0.53 (0.45)
–5.54 (3.98)***
–5.57 (3.16)***
–0.70 (1.12)
0.19
50
706
Notes: Values in parentheses are the absolute value of the
z-statistics.
***, ** and *Denote significance at the 1%, 5% and 10%
levels, respectively. Although not reported, a dummy variable was included to control for the effect of the Kincaid Act
of 1904 for all regression including land offices from
Nebraska.
separated the arid west with the humid eastern portion
of the Great Plains. This geographical boundary is
considered to be significant in determining the pattern
of western settlement, especially in the high plains of
the Dakotas, Minnesota and Montana (Ottoson et al.,
1966). As shown in Fig. 2, the 100th meridian bisects
the Dakotas. Table 4 contains the results of regressions that were estimated with land offices east and
west of the 100th meridian from Minnesota, North
Dakota, South Dakota and Montana, all states
where much of the land was devoted to the production
of wheat. Surprisingly, given the emphasis historians
have placed on the 100th meridian, there was little
difference in the coefficients. Although far from conclusive, this does raise the possibility that the difference in climate between these areas was not nearly as
significant for settlement decisions as previously
thought.
IV. Conclusion
For the first time, this study provides strong evidence
that homestead settlement decisions in the Western
United States were determined in large part by economic stimuli, such as output prices and the cost of
capital. These results support the underlying rationale
for the Homestead Act of 1862 that lowering the
price of land would encourage western settlement.
However, given the strong influence of interest rates,
not including any method of financing homesteads
and preventing homesteaders from borrowing against
the land may have inadvertently slowed the rate of
settlement.
In addition, for the first time, this study provides
evidence that railroad mileage was not a significant
factor in determining new homesteads. This result
contradicts previous studies based on total planted
acreage perhaps indicating that railroads were more
important for the long-term success of homesteads
rather than in determining the rate of new homesteads.
Finally, little evidence was found that homesteaders
responded differently to economic incentives
Determinants of homestead claims and the expansion of western settlement
1931
Land office
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100th meridian
Fig. 2.
Land offices relative to the 100th meridian
Table 4. Regression results by state (east and west of the 100th meridian)
Variable
East – MN, MT, ND, SD, WY
West – MN, MT, ND, SD WY
ln ðpriceW
t Þ
ln ðpriceW
t1 Þ
ln ðpriceC
t Þ
ln ðpriceC
t1 Þ
rt
0.15 (0.40)
0.63 (1.86)*
0.15 (0.71)
–0.45 (2.09)**
–5.38 (2.82)***
–4.46 (2.06)**
–1.35 (1.64)
0.14
19
315
–0.14 (0.60)
0.61 (2.89)***
0.26 (1.81)*
–0.42 (2.91)***
–2.50 (1.87)*
–4.52 (2.79)***
–0.69 (1.34)
0.13
16
292
rt1
Intercept
R2
Land offices
T
Notes: MN, Minnesota; MT, Montana; ND, North Dakota; SD, South Dakota; WY, Wyoming.
Values in parentheses are the absolute value of the z-statistics.
***, ** and *Denote significance at the 1%, 5% and 10% levels, respectively. Although not reported
a dummy variable was included to control for the effect of the Kincaid Act of 1904 for all regression
including land offices from Nebraska.
depending on which side of the 100th meridian the
homestead was located. This lack of difference is surprising given the importance placed on geography in
determining settlement patterns in the Western United
States.
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with time-series cross-section data, American Political
Science Review, 89, 634–47.
Bogue, A. G. (1955) Money at Interest, the Farm
Mortgage on the Middle Border, Cornell University
Press, Ithaca.
Borins, S. F. (1982) Western Canadian homesteading in
time and space, Canadian Journal of Economics, 15,
18–26.
Grant, O. (1978) The rate of settlement of the Canadian
prairies, 1870–1911: a comment, Journal of Economic
History, 38, 471–3.
Harley, C. K. (1978) Western settlement and the price of
wheat, 1972–1913, Journal of Economic History, 38,
865–78.
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Harley, C. K. (1982) Oligopoly agreement and the timing of
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Levin, A., Lin, C. and Chu, J. (2002) Unit root tests in panel
data: asymptotic and finite-sample properties, Journal
of Econometrics, 108, 1–24.
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Economics, 11, 757–67.
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prairies, 1870–1911, Journal of Economic History, 35,
410–27.
Ottoson, H., Birch, E., Henderson, P. and Anderson, A.
(1966) Land and People in the Northern Plains Transition
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Appendix: Data Sources
as the average of the 12 monthly prices. The annualized price was adjusted for inflation by dividing it by
the consumer price index.
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Original homestead entries
The reported number of acres of original claims in
year t is from July of year t–1 through June of year t.
The data were collected from ‘Annual report of the
Commissioner of the General Land Office’. Claims are
reported by land offices in each state. Data from a
land office were only used if there were five or more
annual observations reported. Because the majority of
the variables that are used in this article are based on
the calendar year, we averaged the number of claims
from year t and year t + 1 and used that value as the
number of acres of original homestead claims for
year t.
Consumer price index
The consumer price index was taken online from
http://www.measuringworth.com/uscpi/.
Railroad mileage
Rail RRi,t measures railroad mileage in state i in year t
as a percentage of total mileage in year 1913, which is
the last year that we have data available. Data were
retrieved from The Statistical Abstract of the United
States. Before 1889, the mileage for North and South
Dakota was reported as 1 because the individual states
had not yet formed. To estimate the railroad mileage
for the individual states, the proportion of total mileage of each state as a percentage of the total between
the two states was calculated in 1889 and used to
divide the total mileage for the two states for the
years prior to 1889.
Interest rates
Grain prices
The wheat and corn prices were taken from the NBER
Macrohistory data set. The annual prices were taken
The interest rates used in this article are the shortterm interest rates reported by http://www.
measuringworth.com/interestrates/.