As of 1854, the public land states except California and Florida had been largely surveyed and were open to sale. Many reasoned that these federal lands did not sell because the $1.25 price tag was beyond the current value. The idea of graduated land values had been in Congress, in one form or another, since 1820. In 1854, when the movement for free homesteads was making headway in Congress, the Graduation Act was passed. The Graduation Act provided that all public land that had been available for purchase for 10 to 15 years would be priced at $1.00, 15-20 years at 75 cents, 20-25 years at 50 cents, 25-30 years at 25 cents, and 30 years or over at 12.5 cents (one bit). This was the first instance of land valuation by federal legislation and is of foremost importance from that standpoint. The Graduation Act is also important from the standpoint that it limited purchases to 320 acres. This was a change in national land disposal policy that previously had no limitations on the number of acres that could be purchased by any one entity. Also, each buyer was required to make an affidavit that the land was intended for personal use for actual settlement and cultivation.
The Graduation Act contained no reference to the time within which settlement should take place, no proof of settlement was required, nor were there any eligibility standards for the purchaser. From 1855 to 1862, 26 million acres were sold as a result of this act, 54 percent of it at the graduation price of one bit or 12.5 cents per acre.