The congress ignored western New York and turned instead to the Ohio Valley to make good on the promise of western expansion. Congressman Thomas Jefferson, charged with drafting a policy, proposed dividing the territory north of the Ohio River and east of the Mississippi — the Northwest Territory — into nine new states with evenly spaced east-west boundaries and townships ten miles square. He even advocated giving, not selling, the land to settlers, because future property taxes on the improved land would be payment enough. Jefferson’s aim was to encourage rapid and democratic settlement and to discourage land speculation. Jefferson projected representative governments in the new states; they would not become colonies of the older states. Finally, Jefferson’s draft prohibited slavery in the nine new states.

The congress adopted parts of Jefferson’s plan in the Ordinance of 1784: the rectangular grid, the nine states, and the guarantee of self-government and eventual statehood. What the congress found too radical was the proposal to give away the land; it badly needed immediate revenue. The slavery prohibition also failed, by a vote of seven to six states.

A year later, the congress revised the legislation with procedures for mapping and selling the land. The Ordinance of 1785 called for three to five states, divided into townships six miles square, further divided into thirty-six sections of 640 acres, each section enough for four family farms. Reduced to easily mappable squares, the land would be sold at public auction for a minimum of one dollar an acre, with highly desirable land bid up for more (Map 8.2). Two further restrictions applied: The minimum purchase was 640 acres, and payment had to be in hard money or in certificates of debt from Revolutionary days. This effectively meant that the land’s first owners would be prosperous speculators, many of whom never set foot on the acreage. The commodification of land had been taken to a new level.

Speculators who held the land for resale avoided direct contact with the most serious obstacle to settlement: the dozens of Indian tribes that claimed the land as their own. The treaty signed at Fort Stanwix in 1784 was followed in 1785 by the Treaty of Fort McIntosh, which similarly coerced partial cessions of land from the Delaware, Wyandot, Chippewa, and Ottawa tribes. Finally, in 1786, a united Indian meeting near Detroit issued an ultimatum: No cession would be valid without the unanimous consent of the tribes. For two more decades, violent Indian wars in Ohio and Indiana would continue to impede white settlement (see "What external threats did the United States face in the 1790s?" in chapter 9).

A third land act, called the Northwest Ordinance of 1787, set forth a three-stage process by which settled territories would advance to statehood. At all three territorial stages, the inhabitants were subject to taxation to support the Union, in the same manner as were the original states.

The Northwest Ordinance of 1787 was perhaps the most important legislation passed by the confederation government. It ensured that the new United States, so recently released from colonial dependency, would not itself become a colonial power — at least not with respect to white citizens. The mechanism it established allowed for the orderly expansion of the United States across the continent in the next century.

Nonwhites were not forgotten or neglected in the 1787 ordinance. The brief document acknowledged the Indian presence and promised that “the utmost good faith shall always be observed towards the Indians; their lands and property shall never be taken from them without their consent; and, in their property, rights, and liberty, they shall never be invaded or disturbed, unless in just and lawful wars authorized by Congress.” The 1787 ordinance further pledged that “laws founded in justice and humanity, shall from time to time be made for preventing wrongs being done to them.” Such promises indicated noble intentions, but they were not generally honored in the decades to come.

Jefferson’s original and remarkable suggestion to prohibit slavery in the Northwest Territory resurfaced in the 1787 ordinance, passing this time without any debate. Probably the addition of a fugitive slave provision in the act set southern congressmen at ease: Escaped slaves caught north of the Ohio River would be returned south. Also, abundant territory south of the Ohio remained available for the spread of slavery. The ordinance thus acknowledged and supported slavery even as it barred it from one region. Still, the prohibition of slavery in the Northwest Territory perpetuated the dynamic of gradual emancipation in the North. North-South sectionalism based on slavery was slowly taking shape.