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On Takings and Public Use

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A law school buddy emailed me some comments about some recent developments in eminent domain law, e.g. this Slate article about Kelo v. New London—a case before the US Supreme Court, that concerns the state's right to condemn private land and give it to private developers.

As a mini-primer—the Fifth Amendment to the U.S. Constitution requires that private property can't be taken unless it is taken "for a public use" and "just compensation" is provided. Now this originally applied only the federal government (see discussion of Barron v. Baltimore here), but has been incorporated into the 14th Amendment so that it now limits the states as well (see this case, and this one; also here; more info re the 14th Amendment here). So takings have to be for a "public purpose," and the question is whether this requirement prevents states from condemning private land to give it to private developers.

The Kelo case, as I understand it, is about whether "public use" in the 5th Amendment has any real Constitutional meaning. If it does, then shopping malls and luxury apartments become much more difficult to build. It's interesting to me how a sound economic (Austrian) and political (anarcho-capitalist) framework can help one cut through the muzzy arguments advanced by both "sides". The problem is both the proponents, and opponents, of such "non-public use" takings seem to accept the basic idea that there is an objective way to classify something as being a "public use". In my view, this standard is inherently vague and non-objective. Who knows, maybe transfering land from a little old lady to Donald Trump is a "public purpose," as much as roads or the military.

I doubt it's possible to articulart a coherent, clear, just standard that the state could respect even if it wanted to. Since it's not objective, in the end, it's got to be whatever the state decrees. Anarchists and Austrians ought to be able to see the problem here. Most people who think the state is justified have to accept the idea of a genuine public realm. In fact the economic concept of "public goods" is one main reason people support the state—they think there has to be a state otherwise certain necessary public goods would not be supplied. So if you believe this, you have to believe there is some definable, objectively bounded "public" purposes of the state. However, the idea of public goods is unscientific and uneconomic, as explained, e.g., by Austrian anarchocapitalist Hans-Hermann Hoppe, in Fallacies of the Public Goods Theory and the Production of Security.

As Hoppe points out, there is no objective way to distinguish "public" goods. Likewise, if the state says it can expropriate things for a public purpose only, that falsely implies the state is limited—it implies that the standard of "publicness" is objective. But it is in fact not; it is just whatever the state decrees. Therefore under the guise of limiting itself, it really gives itself more power. A similar point is true of many things about the state, such as the "rule of law"—for example, I tend to agree with libertarian law professor John Hasnas's view, in The Myth of the Rule of Law, that (my summary):

Despite common belief to the contrary, there is no such thing as "a government of laws and not people" (the so-called "rule of law"). Such a myth serves to maintain the public's support for society's power structure. The maintenance of liberty requires not only the abandonment of the ideal of the rule of law but also the [abandonment of the] commitment to a monopolistic legal system. The preservation of a truly free society requires liberating the law from state control to allow for the development of a market for law.)

Likewise, the state deludes people into thinking its expropriating power is limited, when it really is not. This allows it to get away with more than if its actions were recognized as naked criminality. Once you accept it's okay for the state to take your property so long as it's for a "public purpose," then all it takes is some crafty government lawyer to come up with an argument why taking your land to give to Donald Trump indeed serves some public purpose. And of course, it does, as much as any other kind of eminent domain does. Nonetheless, even though these standards are ambiguous and subject to manipulation by the state, it is to be hoped that some rationale is invented to limit the state's resort to condemnation.

Of note is the recent Michigan Supreme Court case, County of Wayen v. Hathcock [also, Overcoming Poletown: County of Wayne v. Hathcock, Economic Development Takings, and the Future of Public Use, by Ilya Somin; and the Institute for Justice's discussion of this case], which makes it more difficult (in Michigan) to expopriate land for a private purupose. There, the Court stated:

We are presented again with a clash of two bedrock principles of our legal tradition: the sacrosanct right of individuals to dominion over their private property, on the one hand and, on the other, the state's authority to condemn private property for the commonweal. In this case, Wayne County would use the power of eminent domain to condemn defendants' real properties for the construction of a 1,300-acre business and technology park.
Defendants argue that this exercise of the power of eminent domain is [not] permitted under article 10 of the 1963 Michigan Constitution, which requires that any condemnation of private property advance a "public use."
We conclude that ... these condemnations do not pass constitutional muster under art. 10, § 2 of our 1963 constitution. Section 2 permits the exercise of the power of eminent domain only for a "public use." In this case, Wayne County intends to transfer the condemned properties to private parties in a manner wholly inconsistent with the common understanding of "public use" at the time our Constitution was ratified.

A final note—I have written on this topic in the international context, where international law is said to have similar standards for a host state to lawfully expropriate an investor's property—the expropriation must be: (a) for a public purpose, (b) nondiscriminatory, and (c) accompanied by prompt and adequate compensation. There has been a great deal of debate about what adequate compensation means, but the obvious answer is that it has to be "full" compensation, however measured. If you take someone's property, you should compensate them for its full value. But if this is so, one can see that the "public purpose" requirement is basically superfluous and nonsensical: after all, whether the host state takes property for a public purpose or not, it still owes the investor full compensation.

What's the difference? The only way to distinguish between a lawful "public purpose" expropriation, and an unlawful one, would be for there to be different consequences—primarily, different damages. But this would require undercompensation in "legal" expropriations, which makes no sense. Alternatively, full compensation could be awarded in normal expropriations, with extra punitive damages added if the taking is discriminatory or not for a public purpose. But the problem with this approach is that punitive damages are especially troubling and unlikley in the international context where even full compensation has met with lots of resistance. (Background for this can be found in chapter 3 of my 1997 book Protecting Foreign Investment Under International Law: Legal Aspects of Political Risk, pp. 58-59 and 77-85; the section "The Requirements of Nondiscrimination and Public Purpose: Concepts of Limited Significance," at pages 85-87, presents this argument which, so far as I know, is unique to my co-author and me. We planned at one point to turn that section into the thesis of a full blown article, but never got around to it.

This argument will be expanded in International Investment, Political Risk, and Dispute Resolution: A Practitioner's Guide, due out later this year.) In the municipal (i.e., national law) context, however, the courts can actually enjoin the expropriation, if it is "unlawful", so the public purpose requirement makes more sense—even if the standard is still inherently non-objective and arbitrary.


Stephan Kinsella

Stephan Kinsella is an attorney in Houston, director of the Center for the Study of Innovative Freedom, and editor of Libertarian Papers.

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