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Takings: The Evils of Eminent Domain

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The “takings clause” of the U.S. Constitution is the portion of the Fifth Amendment that says “nor shall private property be taken for public use without just compensation.” It is one of the few parts of the Bill of Rights that authorizes the government to violate individual liberty, since under the takings clause, the government, exercising so-called eminent domain, can compel a person to sell his property. But although the framers unfortunately believed the government would sometimes have to compel the sale of property, they also were aware of the potential for abuse that government power always represents.

That skepticism about government power led them to put safeguards in the takings clause. First, property could only be taken for “public use.” The phrase is vague. But the intention is clear: the government should not be allowed to take the property of one citizen merely to give it to another. Second, the framers required that owners be justly compensated. That requirement has problems. In the marketplace, we know what just compensation is. It is the price consented to by a seller and buyer. But under a forced sale, there is no just price because consent is lacking. The government must resort to proxies, such as the price agreed on for “comparable” properties. Comparables are often far from identical.

But like the “public use” criterion, the requirement of just compensation had two worthy intentions. First, it recognized that a property owner was not a servant of the state. If the government wanted his property, it had to pay him. Second, the compensation requirement would restrain the government. Obviously, if private property were free for the taking, the government would take much more than if it had to pay for it.

Unsurprisingly, the government has found a way around the safeguards. It has effectively taken private property for use other than public and without paying for it. How? Through regulations that restrict owners’ use of their property.

For example, local zoning regulations tell people what they can and cannot do with their land. The federal government has increasingly used the Endangered Species Act (ESA) and the Clean Water Act (CWA) to stop owners from developing or farming their land. If an animal on the endangered species list lives on a property, it is against the law to destroy the animal’s habitat. This has been the case with farmland in California that is home to the kangaroo rat, in Pacific Northwest forests that are home to the spotted owl, and with other private property. Under the Environmental Protection Agency’s interpretation of the CWA, private “wetlands” (some owners claim their property is not really wet) are protected and may not be developed.

The government’s policy has led to countless tragedies. Elderly couples who looked forward to retiring on the profit from the sale of property have suddenly found that their assets are worth little because the government prohibits development. In one case, a couple saw the value of their land drop from over $800,000 to $30,000 in one year after the government declared development illegal for environmental reasons. In another case, a man who spent $1 million for two South Carolina beachfront development properties was prohibited from building because a state commission thought undeveloped beach was better for tourism. The price of the land plummeted.

Unlike in eminent domain cases, the owners are not paid a penny in a “regulatory taking.” (Congress is considering legislation that would require payment if the property value is reduced more than ten percent.) Government officials and environmentalists argue that no compensation is due because the owner retains title to the property. Thus, they say, no taking occurred.

The objection to that reasoning should be obvious. The framers could not have meant that a taking occurs only when the government acquires title. That would make the takings clause hollow. The government could avoid having to pay for any private property simply by prohibiting all uses except the one it seeks, while leaving title with the original owner. That is already happening. The city of Tigard, Oregon, required the owner of a hardware store to dedicate ten percent of his land for a bicycle path and open space in return for a permit to expand his store. (The case was appealed and the U.S. Supreme Court placed some restrictions on what a government can demand as a condition for a permit.)

The advocates of government land-use restrictions often argue that no compensation is due because the activity being suppressed harms others. They like to say that you are not due compensation because you are not allowed to use, say, your gun to murder someone. That argument assumes what it needs to prove. It is true that if you do not have the right to perform a specific act, then your forbearance should not be compensated. However, the question is whether destroying the habitat of the kangaroo rat or the golden-cheek warbler on one’s own land violates anyone’s rights. It is hard to see how it does. Some cases may be harder. If a landowner changes the typography of his land and, as a result, water runs onto his neighbor’s land, that may be a rights violation.

But that is a matter for the courts, the common law, and the particular circumstances. A general policy that landowners may never develop a wetland or an endangered species’ habitat is unjustified.

Environmentalists also argue that if the government has to pay when it restricts land use through regulation, it will not be able to afford to regulate. That, of course, is an argument for the application of the takings clause to regulatory restrictions. Until now, there has been little to brake the regulatory juggernaut. If the regulators have to worry about how the taxpayers will react, perhaps they will not be so eager to interfere with private property. If the framers intended the takings clause to restrain government activity, then there is no reason to think that its regulatory activity should not also be restrained. The framers were worried about government’s general penchant to cause mischief and not just outright seizure of property.

Opponents of the notion of compensation for “regulatory takings” pose as friends of the taxpayers and of budget restraint. They say they are trying to save the public money by fighting the property rights movement that has sprouted in reaction to the Endangered Species Act and other government intrusions. Saving the taxpayers money is a noble cause. But there is more than a dash of hypocrisy here. Their method of sparing the taxpayers is to allow the government to restrict the use of private property by fiat β€” even if owners lose all the value of their land.

It should be understood that a landowner’s right is in the physical property, not its value. The value β€” or market price β€” is the result of other people’s estimation, which cannot be owned. If someone’s land falls in value from $1 million to $500,000 as a result of voluntary action (changes in consumer tastes or in the surrounding area, for example), no rights have been violated. One cannot own a particular set of market conditions. Thus, when government restrictions on the use of private property cause the value to fall, the government’s offense is not theft of value. That is merely the result of the government’s real offense: the restriction on the owner’s peaceable actions, which is enforced, ultimately, at the point of a gun.

It we apply the principle of liberty to the takings issue, we easily see that, in fact, taxpayer compensation for regulatory takings is not the right solution to this problem. It may have the beneficial effect of restraining government activity. But there is no justice in forcing taxpayers to compensate property owners for theft committed by bureaucrats. That merely substitutes one act of theft for another. The real source of the crime is the takings clause itself. It violates individual liberty, and the only corrective is to amend the Constitution and get rid of it. The government should never be able to compel a person to sell his property.

Respect for property rights, which unfortunately was always less than 100 percent, has been in a free fall since the New Deal, when the Supreme Court said that the Constitution contains two kinds of rights: fundamental (speech, press, assembly, religion) and nonfundamental (property). The New Deal court actually upheld the government’s authority under the interstate commerce clause , to stop a farmer from growing wheat on his own land for his own use.

Of course, the Constitution has no such division of rights, and property is specifically protected in several places. The reassertion of the right to property is one of today’s brighter developments. The property rights movement should be encouraged in every way because property rights are the key to limiting the power of government. But a true property rights movement should not stop short of calling for eradication of the takings clause. That is the root of all evil in this matter.

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    Sheldon Richman is vice president of The Future of Freedom Foundation and editor of FFF's monthly journal, Future of Freedom. For 15 years he was editor of The Freeman, published by the Foundation for Economic Education in Irvington, New York. He is the author of FFF's award-winning book Separating School & State: How to Liberate America's Families; Your Money or Your Life: Why We Must Abolish the Income Tax; and Tethered Citizens: Time to Repeal the Welfare State. Calling for the abolition, not the reform, of public schooling. Separating School & State has become a landmark book in both libertarian and educational circles. In his column in the Financial Times, Michael Prowse wrote: "I recommend a subversive tract, Separating School & State by Sheldon Richman of the Cato Institute, a Washington think tank... . I also think that Mr. Richman is right to fear that state education undermines personal responsibility..." Sheldon's articles on economic policy, education, civil liberties, American history, foreign policy, and the Middle East have appeared in the Washington Post, Wall Street Journal, American Scholar, Chicago Tribune, USA Today, Washington Times, The American Conservative, Insight, Cato Policy Report, Journal of Economic Development, The Freeman, The World & I, Reason, Washington Report on Middle East Affairs, Middle East Policy, Liberty magazine, and other publications. He is a contributor to the The Concise Encyclopedia of Economics. A former newspaper reporter and senior editor at the Cato Institute and the Institute for Humane Studies, Sheldon is a graduate of Temple University in Philadelphia. He blogs at Free Association. Send him e-mail.