As the frontier steadily advanced, various land disposal schemes were considered. There was pressure to reduce the unit size and cost of public lands. Various factions devised land disposal approaches to promote their own interests.
Some favored "distribution" - pricing the public lands at higher levels with returns from sales to be distributed among the States in proportion to their population. Some proposed "graduation and donation" - implementing a gradual reduction of the price of unsold lands at $1.25/acre, then $1, $.75, and $.50, with remaining unsold lands being given away to settlers. Some proposed "preemption" - allowing squatters who settled on the public domain first priority in purchasing the land when it was offered for disposal, and allowing them to "relate back" to their original date of entry in onto the land then "proving up" under homestead laws. Some favored "cession" - the turning over of unsold lands to the State as a source of income.
Under implementation of pre-emption laws after 1841, speculators hired armies of squatters to pre-empt land, while loan sharks extorted heavy interest to purchase pre-empted farms from the speculators. "Homestead" was perceived as the answer; distributing land to actual settlers in small lots to discourage development of plantation systems. The first Homestead Bill was introduced in 1846 by Felix Grundy McConnell of Alabama. Others followed, largely introduced by Andrew Johnson. One of Johnson's Homestead bills passed the House in 1852, but was never considered by the Senate.
Final passage of the Homestead Act in 1862 permitted any adult citizen or permanent immigrant intending citizenship to claim 160 acres of public land for a $10 filing fee. Patenting of the land was conditional upon 5-10 years living on the land, building a house and cultivating the land; or purchasing outright at the going price ($1.25-$2.50 an acre.) The Act did not provide for patenting of tracts larger than 160 acres and was not reauthorized in 1890. Only about one tenth of new farms in the west were actually obtained by homestead.
In 1866, only 147,000 acres sold for cash or were homesteaded. In 1869, land homesteaded or purchased with either scrip, military warrants or cash totalled 2.4 million acres. In 1873, 658,000 acres were claimed.
Lands were also offered to railroads as an incentive to the development of railroads. This had the effect of withdrawing large amounts of land from homestead in a checker board pattern in many areas of the West. (Much of the lands managed by the BLM and some of that managed by the US Forest Service were indemnity lands for a planned rail line that was never built.)
A bill authorizing construction of the Pacific railroads in 1862 was illustrative of the practice of awarding "indemnity" lands as an incentive for development. The Union Pacific was authorized to build a line from Omaha, Nebraska to the California-Nevada line. The Central Pacific was to build the line from Sacramento eastward. The land grant for the "roads" included odd-numbered, alternate sections of land for twenty miles on either side (a swath 40 miles wide.) The companies were required to allow preemption by settlers on any land remaining three years after completion of the road, which would be sold to them for not more than $1.25 per acre. A loan was made directly to the railroad of $16-48,000 for each mile of track laid; (U.S. Statutes At Large XII p.492 -authorization, and P.356-appropriation.)
In 1886, many of the "in lieu" of or "indemnity" lands still remained withdrawn from settlement, pending selection by the railroads. Guilford Miller complained to the General Land Office because Northern Pacific had claimed his homestead as part of their indemnity selection. Secretary of the Interior Lucius Lamar sent the dispute to the U.S. Attorney General for a legal opinion. In 1887, he upheld the railroads contention that a settler could acquire no rights to title of public land while railroad privilege of selection within a prescribed area was pending; (Report of the Secretary of the Interior, 1887, pp. 9-10.)
In 1888, President Grover Cleveland wrote an executive order to the Interior Secretary to withdraw land from the contingent indemnity lists and reopen it to settlement. Lamar reopened over 21 million acres; (land Office Report 1888, p.41.)