2 The Mining Law

The General Mining Act of 1872 is known as the miners’ Magna Carta in that it codified the ‘right to mine’ for hard rock minerals on federal lands, excepting those lands that were withdrawn by administrative action. The stated purpose of the Act was ‘to promote mineral exploration and development in the Western United States’. As is discussed below, by 1872, many of the richest deposits located in the Western states had already been claimed, and the federal mining statute merely certified these claims. The mining law also ratified the informal claim and patent system that had been in effect in the mining districts for two decades. Commons’ observation about the common law – that it ‘comes up from economic and sociological conditions, not down from authority’ (Gonce Reference Gonce1971, 86, original emphasis) – seems generalizable to statutory law in the present case. By enacting the 1872 statute, Congress artificially selected the ‘customs of the dominant portion of the people at the time’ (Commons Reference Commons1934, 94).Footnote ²

Under the hard rock law, the holder of a mineral patent on federal land holds fee simple title. A patented mining claim confers ‘the exclusive possession and enjoyment of all the surfaces included within the lines of their location’. Gary Libecap (Reference Libecap2007, 270) notes that the law ‘established the precedent that individuals could own minerals and that government did not retain title to them, as was the practice in Europe and Spanish America’. The hard rock statute is also grounded in a distinctively American feature of property law – the doctrine of ad coelom. That is, the rights of landowners extend vertically both upwards and downwards.

The rights of mineral patent holders who, from the beginning of large-scale mining in the late 1850s, have been mainly corporations, fulfil all 11 of the ‘incidents of ownership’ delineated by the French property theorist A. M. Honoré.Footnote ³ In fact, these rights might be classified as ‘super’ property rights, in that the mining companies have enjoyed liberties with respect to the externalization of the harmful environmental costs of mining.

The Mining Law has had a profound and enduring impact on the distribution of wealth and political power in the Western US.Footnote ⁴ Population growth in the West has also meant greatly increased exposure to the spillover costs of mining. For these reasons, the Mining Law is among the most reviled and criticized of all federal statutes. Ending the patent system has proven to be a very difficult political proposition, perhaps illustrating Mancur Olson's principle that a ‘privileged’ small group with common, narrowly defined interests can prevail over larger groups.Footnote ⁵ The last serious attempt at reform came during the Carter Administration.

3 Sovereignty and withholding

Viewed as a test case for the comparative plausibility of the ‘state theory’ versus the ‘bottom-up’ or ‘spontaneous order’ (Hayek Reference Hayek1973) model of the origin of institutions, the historical facts of the Mining Law seem to provide more evidence for the latter view. At the time of the discovery of gold at Sutter's Mill in 1848, California was a sparsely populated, newly acquired US territory with no organized government.Footnote ⁶ As Mark Kanazawa (Reference Kanazawa2015, 119) states:

The things economists classify as natural resources or ‘free gifts of nature’ do not support a flourishing life process without considerable human effort, knowledge, and skill. A standard argument in defence of property rights in land is that they serve to distribute economic rewards to those who apply the effort, knowledge, and skill required for the beneficent use of trees, topsoil, fisheries, mineral deposits, or other resources. In the early days of the Gold Rush, prospectors had no assurance that their claims would be respected, and therefore had weak incentives to mobilize the labour and capital required to exploit these claims.Footnote ⁷ Gold or ‘placer’ mining was not feasible without security of access to water resources and it entailed substantial capital costs, as Kanazawa (Reference Kanazawa2015) has described.Footnote ⁸ Claim jumping and disputes turned to violence were common in the years immediately following the Sutter's Mill strike.

The hard rock law originated in the codes of the California and Nevada mining districts, which were ‘montages of Spanish rules transported north by Mexican miners, regulations from the Midwest, improvisation bred of common sense, and local custom’ (Wilkerson Reference Wilkerson1992, 39). Cornish immigrants for whom mining was a hereditary occupation were among the early arrivals in the California mining district and, later, at the Comstock Lode of Nevada (discovered in 1859). Several writers have remarked on the Cornish influence.Footnote ⁹

The mining camp codes established informal rights for claimants based on the ancient doctrine of terra nullius, or first possession as the basis of property. As Dean Lueck (Reference Lueck, Anderson and McChesney2003, 215) explains:

First, possession theoretically applies only to ‘lands owned by no person’ (the literal meaning of terra nullius). It is noteworthy that, as a matter of public policy, federal mineral-bearing lands have been treated as if they were un-owned.Footnote ¹⁰ The adverse revenue and distributive consequences of these policies is a recurring them in the literature.Footnote ¹¹ The Mineral Grant Act of 1866, sponsored by Nevada senator and former mining camp attorney William M. Stewart, ‘almost incredibly by today's standards . . . zoned a billion acres – nearly all of the American West – for [mineral] mining’ (Wilkerson Reference Wilkerson1992, 41). The patent system observed in the mining camps, and subsequently formalized into statutory law with the 1872 Act, has allowed the metal mining industry to take title to approximately 3.4 million acres of federal land – an area roughly the size of Connecticut – with minimal compensation to the taxpayers.

John Commons (Reference Commons1934, 695) defined sovereignty as ‘an organized instrument of physical force which individuals endeavor to use to enforce their own wills on others, or to prevent others from using their will on the individuals’.Footnote ¹² Our period of study is noteworthy for organic and enduring changes in the location, control and uses of sovereignty. These changes should be understood as purposive adaptations of sovereignty to evolving technical and business exigencies.

Prior to the 1872 statute, ownership claims were granted according to local mining district rules.Footnote ¹³ The territorial governments played no role in the enforcement of patent claims or in the adjudication of disputes over claims. These functions were performed by the mining districts, which established systems for recording claims, arbitration procedures, and ad hoc miners’ courts.Footnote ¹⁴ It is fair to say that, at this point, the mining district constituted a sovereign or collective power that made state enforcement of the mining codes unnecessary.Footnote ¹⁵ This bottom-up structure of rules and practices did, moreover, prove quite effective in achieving an orderly and productive prospecting environment. The question therefore arises: what factors gave rise to the ratification of the district mining codes in federal statutes? Perhaps more importantly, what can explain the shift in enforcement responsibility from the mining districts to the federal government that came with the 1872 law?Footnote ¹⁶

In explaining the insufficiency of custom or informal rules and the need for formal laws, Geoffrey Hodgson writes:

With respect to the location of sovereignty, Ilia Murtazashvili (Reference Murtazashvili2013, 18, original emphasis) hypothesizes that ‘claim clubs will be effective in in providing private property institutions when spontaneous order breaks down, yet the state is unwilling or unable to specify and enforce property rights’.Footnote ¹⁷ In the case of hard rock mining, two factors appear to be of great importance. With the mass entry of prospectors into the Western states after 1848, easy-to-recover mineral deposits were quickly exploited. The prospector soon gave way to the mining company. Deep-vein mining brought forth an increase in both the number and complexity of mining disputes. A key source of conflict derived from the fact that ‘extra-lateral rights’ were a component of ‘ledge’ claims granted under rules applicable in the Nevada mining districts. Extra-lateral rights meant that, though claimants faced restrictions on the location and width of mines at the surface, below the surface the width of the mine was unconstrained. Claimants were at liberty to ‘follow the vein’, a crucial proviso in bringing forth the large-scale investment required in deep-vein mining when the subsurface location or direction of the mineral-bearing vein could not be known prior to digging. Given the geology of mining, and in particular the concentration of mineral deposits in veins stretching laterally beneath the ground, extra-lateral rights were bound to come in conflict. As Libecap (Reference Libecap1979) reports, the miners’ courts were quickly overwhelmed with cases involving conflicting extra-lateral claims. In fact, Libecap (Reference Libecap1979, 371) argues that ‘the inadequacy of the miners’ court and the development of large-scale, absentee-owner mines’ provided the impetus for the creation of the Nevada Territorial government in 1861. The Territorial Justice System, however, proved unequal to the task of adjudicating mining disputes. A 300-case backlog had developed by 1864.Footnote ¹⁸ The new technological and organizational realities of hard rock mining clearly necessitated an increase in the level and quality of judicial services – something that, under prevailing circumstances, could only be provided by the federal government.

Honoré (Reference Honoré and Guest1971) includes the ‘right to use’ among his ‘incidents of ownership’. Institutional economists stress the ‘right of non-use’ or the right to withhold, as a crucial dimension of modern property. It is important to note that the giant US-based mining and smelting companies have never had much in the way of pricing power. US production of copper, for example, has rarely exceeded one-quarter of world output. Mine production has generally followed global metal prices, which have tended to fall sharply with contractions in industrial output. Mines could hardly be operated according to sound business principles without the right to withhold. But the shutdown of mines in reaction to weak prices deprives individuals of their livelihoods, and places mining companies at risk of retaliatory action. The right to withhold may therefore be barren if the state does not fulfil its correlative duty to protect this right.Footnote ¹⁹ The story of hard rock mining illustrates how the rights and liberties inhering in property co-evolve with new facts of economic organization.Footnote ²⁰

Property rights are a wellspring of class differentiation, and they give rise to antagonistic class interests. The profitability of a mine is, ceteris paribus, inversely related to the size of the wage bill. The inferior position of workers vis-à-vis the mining corporation in labour market transactions is explained by the corporation's right to withhold employment in combination with the workers’ lack of suitable alternatives. The leverage possessed by patent-holding mining companies, which has its objectification in the terms of employment that mine workers are compelled to accept, derives substantially from the ‘waiting power of property’ (Commons Reference Commons1924, 54).Footnote ²¹ Collectivization offers labour its only real option for checking the withholding power of property. Unionization efforts in Western hard rock mining began in earnest in 1863 at the Comstock Lode (see Wyman Reference Wyman1979). At this point the modern political economy of Western mining began to take shape. Mine owners and their representatives now devoted resources and energies to the capture of the sovereign power of the state as a means of enforcing the status quo. The election of friendly politicians and the appointment of jurists sympathetic to mining company interests became a top priority.

The capture of sovereignty by the mining interests was aimed at thwarting collectivization efforts and thereby preserving the withholding power of property. The capture of state power was revealed first of all in the forbearance of politicians and judges with respect to the private enforcement of ‘rights’ – meaning the hiring of private militias, Pinkerton detectives, or union infiltrators by the mining companies. Forbearance among key officials was equivalent to the (asymmetric) public sanctioning of private violence. The use of physical, as well as economic, coercion became a liberty conferred by ownership.

The historical record is, of course, replete with instances in which the police power of the state has been deployed at the behest of big mining. An early example is given by the Coeur d'Alene silver mine in Idaho, where ‘[t]he National Guard, brought in by the governor, was reinforced by federal troops: six hundred miners were rounded up and imprisoned in bullpens, scabs brought in, union leaders fired, the strike broken’ (Zinn Reference Zinn1999, 276). More recently, Arizona Governor Bruce Babbitt deployed the National Guard to protect replacement workers during a strike at the Phelps Dodge copper mines in Arizona in the late summer of 1983 (see Ruth Bandzak Reference Bandzak1991). The capture of sovereignty was also manifest in the issue of strike-breaking injunctions.Footnote ²² The capture of state power by the mining companies was not always assured, however. For example, the populist governor of Colorado, Davis Hanson Waite, called out the state militia in 1894 to protect the Western Federation of Miners during a five-month strike in the Cripple Creek gold mining district.Footnote ²³ A 1916 report of the Congressional Committee on Industrial Relations concluded:

The value of a mine as a business asset is diminished if rights of withholding are not protected. As Carol Rose (Reference Rose1985) explains, the doctrine of first possession is informed by the Lockean normative analysis of property. The impression derived from common law decisions is that ownership according to first possession is, above all, a reward for useful labour. Ownership claims on land may, according to the common law, be terminated without continuing evidence of useful labour. It is noteworthy that, during the prospecting phase where the informal mining camp codes were in effect, there was no right of non-use. A mineral patent imposed a diligence requirement.Footnote ²⁵ The informal codes in this sense showed fidelity to the common law understanding of property. The 1872 law imposed no such requirement.

Rights of withholding, particularly as they apply to mineral claims, are difficult to defend on social welfare criteria. In the case of tangible capital goods, the owners have at least made investments in the (man-made) productive assets that are the articles of withholding. Moreover, the ownership of capital goods entails significant carrying costs. If positions in capital goods have been financed with debt, the proclivity to withhold is checked by the need to use these assets to generate cash flows sufficient to service contractual debt obligations. By contrast, a mineral patent obtained under the 1872 law is pre-emptive in the sense of excluding other claimants. Such a claim may require minimal financing and involve zero or negligible carrying cost. As such, the patent holder controls a nearly costless option that can be exercised as global mineral prices warrant.Footnote ²⁶

The structural changes in mining were, of course, coterminous with, and a part of, the emergence of the absentee-owned corporation as the dominant economic and political force in American life. A major theme of Commons’ Legal Foundations of Capitalism is that these structural changes brought forth an adaptive transformation in the legal definition of property to include intangible property, expected earning power or exchange value. The state's responsibility with respect to property at this stage evolves into a duty to protect the owner's right to withhold as a means of preserving/increasing the exchange value of business assets. The political struggle between labour and capital is about the capture of sovereignty for the purpose of limiting or expanding the withholding power of property.

4 Liberty, exposure, and the environmental effects of hard rock mining

Liberty or capacity means the ability to take action subject to immunity, or without threat of legal liability. In Wesley Hohfeld's (Reference Hohfeld1917) taxonomy, the juridical correlative to immunity, is disability or exposure. So, for example, natural gas fracking companies in Pennsylvania enjoy the liberty to discharge vast quantities of subsurface water (a ‘fugitive’ resource) to support their operations, whereas farmers or other rural residents may suffer exposure in the form of depleted wells. Charles Wilkerson (Reference Wilkerson1992, 49) writes that ‘[t]he final distinctive quality of the General Mining Law is its utter lack of any provision for environmental protection’. Prior to the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) of 1980, mine operators enjoyed full immunity with respect to the externalization of the environmental spillover costs of mining. The cumulative impact of such immunity is manifest in a vast number of abandoned toxic mines that dot the Western landscape. As Ronald Coase observed (Coase Reference Coase1960), the cost of internalizing externalities may exceed the economic value of benefits accruing to third parties as a result of such internalization. In the early decades of Western mining, when mines were located in remote areas far from population centres and when mining was a major source of employment in the West, Coase's observation probably applied. The level of exposure to pollutants from mining has risen with Western population growth. The exposure has been by no means limited to low-income, marginalized communities. Citizens of upscale Crested Butte, Colorado, filed a lawsuit against the Bureau of Land Management (BLM) to reverse the issue of a mineral patent to Phelps Dodge in 2004. The patent conferred rights to minerals (molybdenum ore) located beneath 24 mountaintops in proximity to the town. The case was dismissed. In a landmark 2005 decision, Federal Judge Marcia Kreiger ruled that, under the 1872 law, the Department of the Interior has ‘sovereign immunity’ from lawsuits that do not involve competing mineral claims.Footnote ²⁷ The case illustrates that those suffering exposure to mine pollutants have very limited means of obtaining legal remedies under current statutes and their interpretation by the courts.

CERCLA requires those with BLM-issued mineral patents to reclaim their land when operations cease. The BLM issued regulations in 1981 that require mining operators to provide assurances that adequate funds would be available for clean-up. While this policy has been moderately successful in forcing operating mining companies to bear environmental clean-up costs, it has been ineffective in addressing the problem of mines abandoned prior to 1981, of which there are a vast number.Footnote ²⁸ CLERCA also authorizes the Environmental Protection Agency (EPA) to place hard rock mines on the National Priorities List (NPL), which makes them eligible for clean-up using the EPA Superfund. The EPA may also compel the owners or ‘potentially responsible parties’ of NPL sites to make financial assurances. The Government Accountability Office (GAO) reported in 2008, however, that financial assurances made to date fall well short of the estimated clean-up costs for mines designated as NPL sites.Footnote ²⁹ Moreover, big mining has been quite successful in scuttling the NPL-designation process with a flood of lawsuits filed against the EPA. As of 2013, the EPA has allocated $2.2 billion in Superfund money for the reclamation of hard rock mines.

5 Final remarks

The primary objective here has been to seek ‘a comprehension of the facts [of hard mining] in terms of cumulative sequence’ (Veblen [1919] Reference Veblen1932, 81). The present study of hard rock mining unearthed another key example of the principle that the cumulative or path-dependent quality of economic life is made real by the ‘dead hand of the law’. There is little doubt that the institutions formalized in the 1872 Miners’ Law were effective in promoting a national policy objective – the development of hard rock mineral resources in the Western US. The institutional structure described above should be understood as a key factor underpinning the explosive growth of industrial production in the post-1870 period. The well-rehearsed arguments in defence of property rights in land – specifically, that they eliminate the problem of wasteful racing observed in the case of ‘common’ resources, and that they give the security of expectations without which the considerable long-term investment required to make these resources useful would not be forthcoming – are validated in the case of hard rock minerals. If we view the question of natural resources from the narrow perspective of maximizing private profits from their sale over a multi-period time horizon (which, assuming no market failures, accords with ‘socially optimal’ use), the controversy might be considered resolved.

The problem is that the Mining Law has delivered a set of cumulative consequences that few would consider good. It created a de facto lottery in natural resource wealth, and so was responsible for the creation of powerful and enduring mineral dynasties.Footnote ³⁰ It deprived the US Treasury of many billions of dollars in royalties. It was a principal factor in shaping the sorrowful record of labour relations in the Western US. Finally, the structure of liberties contained in the law have virtually guaranteed that future generations will suffer exposure to environmental spillovers from hard rock mines long been abandoned.

The analysis performed here highlights the fact that popular notions about property – specifically, that it consists of a non-variegated ‘bundle of rights’ that societies either have or do not have – are seriously misguided. The historical record reveals that property is subject to purposive redesign by the body politic. Changing facts on the ground provide the primary motive force to this process of institutional change. There is nothing intrinsically bad about this phenomenon. To the contrary, the disruption or failure of this process of adjustment risks leaving society with an institutional structure that is obsolete – in the sense of delivering economic and social outcomes at variance with prevailing social values or ideas of ‘the good’. Judged on these criteria, the Mining Law of 1872 is obsolete. The need for progressive reform of the mineral patent system in the United States is pressing.