Another Nail in the Coffin for Property Rights

by | Jul 1, 2005

The U.S. Supreme Court last week ruled that it’s perfectly legitimate for a local government to seize private property, pay a below-market price and hand it over to another private citizen or company that claims it can do more with the property — i.e., better develop it and pay more taxes to the local government.[1] […]

The U.S. Supreme Court last week ruled that it’s perfectly legitimate for a local government to seize private property, pay a below-market price and hand it over to another private citizen or company that claims it can do more with the property — i.e., better develop it and pay more taxes to the local government.[1] Heretofore Supreme Court decisions in such “eminent domain” cases only upheld takings if they were for a “public use”[2] and only if just compensation was paid for the property taken (in accord with the “Public Use” clause in the 5th Amendment to the U.S. Constitution). Now, the high court says, government may steal private property in America for any reason whatever, so long as the thief spouts such incantations as “public purpose,” “the public good” or “the “common good.”

In principle, private property rights no longer exist in America. For decades these rights have been diminished; now it is only a matter of time before they are wholly dissipated.

Those who know political and economic history know that a nation which extensively violates or nullifies property rights is a nation headed for economic hell. Most people properly interpreted the demise of the U.S.S.R. in the early 1990s as evidence that communism had lost, while capitalism had won; some even glimpsed that this had something to do with the abolition of private property under communism and the inviolability of private property unique to capitalism. But most intellectuals and judicial activists failed (or refused) to draw any such conclusion. Now we see a majority of U.S. Supreme Court justices rejecting the conclusion as well; apparently they believe communism deserves another chance — in America, of all places.

According to the Court’s majority opinion, governments in the U.S. need only claim that their takings will boost economic development or tax revenues. This position evades centuries of historical experience[3] demonstrating that private property protection has been a essential prerequisite of economic development and prosperity; it also ignores the fact that most taxes themselves constitute a taking.[4] The Court’s perverse ruling endorsed a wider government takings power — on the grounds that such power would assist government in taking (taxing) more than it does already. And of course, the ruling came from a branch of government — the same government which, in recent years, has dared to accuse Wall Street and businessmen of abusive “conflicts of interest.” Is there no such conflict when government condones government theft?

It’s worth understanding two other perverse aspects of the Court’s majority opinion yesterday: 1) it justified the taking on the grounds that the municipality (the City of New London, Connecticut) had a “comprehensive plan” and 2) it held that the government not need even argue or guarantee that a taking will foster net economic benefits or greater tax-revenues. Now, what “plans” could be more “comprehensive” than, say 5-year plans for an entire nation, like those contrived by central planners in the former Soviet Union? According to the Court, the bigger, more comprehensive and more audacious the government plan, the more likely it will pass judicial muster in the future and the more it can entail unjust takings. Thus the Court only now condones unjust takings at the municipal level; it positively invites still-wider planning and takings at the state and federal levels. Worse, such central planning need not even pretend to engender net economic benefits. Take note, would-be central planners and ex-Soviet commissars: for there’s now a welcome place for you — in America.

In its majority opinion the Court also claimed that specific takings of private property for the sole benefit of politically-connected private parties were justified so long as the result was likely to be an upgrade, but not a downgrade, of the property in question. Yet for every piece of property in America one could legitimately argue that another holder could “upgrade” its current use and economic yield; thus every piece of property in America is now effectively up for grabs. And what about future assessments of what might constitute an “upgrade” or “downgrade?” As things stand, we already know of environmental groups that claim a new factory built on previously-unoccupied land constitutes a “downgrade” of the land — the same groups which have called for tearing down hydro-electric dams so that salmon might again swim upstream, on the grounds that this would entail a land “upgrade.” How long will it be before a U.S. court validates the destruction of existing industrial structures by citing an “environmental impact statement” asserting a property “upgrade?”

One might suspect that the Court’s close decision yesterday (5-4) was made possible only by the existence of wealth-hating justices previously appointed by Democrat presidents. Not so. Three of the five justices who joined the majority opinion were previously appointed by Republican presidents: Justice Stevens (appointed by President Ford in 1975), Justice Kennedy (appointed by President Reagan in 1988) and Justice Souter (appointed by President Bush in 1990).[5] The Republican Party — allegedly the party of free enterprise, the rule of law and business — made this horrific ruling possible. What about the Bush Administration’s current judicial nominees — the ones who are being opposed so vehemently by the Democrats? One member of the Judiciary Committee, Democrat Senator Joseph Biden, admitted recently that the opposition stemmed, not from these nominees’ views on Roe v. Wade or prayer in the public schools, but from the fact that some of them strenuously defend private property rights — i.e., uphold the U.S. Constitution. How have Republicans, led by John McCain and Lindsey Graham, responded to such Democrat opposition? They’ve struck a “deal” with Democrats that jettisoned a number of the pro-property nominees.

In America today the unconstitutional taking and redistribution of property to politically-connected private parties isn’t limited to takings of acreage and homes. Since 1926 the courts have condoned zoning restrictions that impair property values. Since 1970 environmental laws have inflicted similar harm. The courts now routinely abrogate or transfer the hard-earned patents of pharmaceutical (and other) firms. Antitrust law also steals private property (see the theft of part of Microsoft’s proprietary computer code and its mandated delivery to rivals) or depresses its value (see restrictions on mergers and acquisitions). For decades labor laws have transferred billions of dollars of property from shareholders to labor unions, under the oxymoronic principle of “compulsory bargaining.” Regulations promulgated by the scores of “alphabet” agencies in Washington (and elsewhere) also entail unconstitutional takings; the Byzantine array of decrees stemming from merely one law (the Sarbanes-Oxley Act of 2002) already has cost shareholders $1.4 trillion dollars (14% of GDP) — and costs are still mounting.[6] But the latest assault on property, condoned last week by the U.S. Supreme Court, is one of the more egregious assaults in U.S. history. Until and unless judicial philosophy improves (see Appendix) this ruling’s wealth-depressing impact will be felt for decades to come.

Appendix: The Philosophic-Political-Economic Case for Property Rights

“The right to life is the source of all rights — and the right to property is their only implementation. Without property rights, no other rights are possible. Since man has to sustain his life by his own effort, the man who has no right to the product of his effort has no means to sustain his life. The man who produces while others dispose of his product is a slave. Bear in mind that the right to property is a right to action, like all the others; it is not the right to an object, but to the action and the consequences of producing or earning that object. It is not a guarantee that a man will earn any property, but only a guarantee that he will own it if he earns it. It is the right to gain, to keep, to use and dispose of material values.”

— Ayn Rand, Capitalism: The Unknown Ideal (New American Library, 1966), p. 288.

“It is the province of philosophy to trace the origin of the right of property, of legislation to regulate its transfer, and of political science to devise the surest means of protecting that right. Political economy recognizes the right of property solely as the most powerful of all encouragements to the multiplication of wealth, and is satisfied with its actual stability . . . The legal inviolability of property is obviously a mere mockery where the sovereign power is unable to make the laws respected, where it either practices robbery itself or is impotent to repress it in others, or where possession is rendered perpetually insecure . . . Nor can property be said to exist where it is not a matter of reality as well as of right. Then, and then only, can the sources of production — namely, land, capital and industry — attain their utmost degree of fecundity.”

“Who will attempt to deny that the certainty of enjoying the fruits of one’s land, capital and labor is the most powerful inducement to render them productive? Or who is dull enough to doubt that no one knows so well as the proprietor how to make the best use of his property? Yet how often in practice is that inviolability of property disregarded? How often is property broken upon for the most insignificant purposes . . . and flimsy pretexts? . . . There is no security of property, where a despotic authority can possess itself of the property of the subject against his consent; neither is there such security where the consent is merely nominal and delusive.”

“The study of political economy explains why the happy effects, resulting from the right of property, are more striking in proportion as that right is well-guarded by political institutions. . . . Of all the means by which a government can stimulate production, there is none as powerful as the perfect security of person and property, especially from the aggressions of arbitrary power. This security is of itself a source of public prosperity, which more than counteracts all the regulations hitherto invented for checking its progress. Regulations compress the elasticity of production; but want of security destroys it altogether.”

— Jean-Baptiste Say, A Treatise on Political Economy (1803), pp. 127-132, 202.

References


[1] See Kelo et al. v. .City of New London et al, No.04 –108; argued February 22, 2005; decided June 23,2005. In recent years the City of New London Connecticut had condemned and stolen 15 privately-owned houses and the 100 acres of land on which they stood; the owners declined to sell. The properties were handed to a private, non-profit corporation — a City-favored land developer — which was carrying out the City’s plan of alleged “urban renewal.”

[2] Fully-compensated takings for “public use” have always been permitted under the 5th Amendment to the U.S. Constitution, but until last week’s Supreme Court decision, such uses typically have included such things as public roads and highways, sidewalks, utility lines, schools, parks or sports stadiums — all of which were accessible to the general public. Not permitted (with some exceptions) were transfers of private property to other citizens or firms which would use the property exclusively without granting public access. Now the Court finds permissible takings which entail no subsequent public use whatsoever.

[3] For an excellent history, see Tom Bethel, The Noblest Triumph: Property and Prosperity Through the Ages (New York: Sat. Martins Griffin, 1998).

[4] See Richard A. Epstein, Takings: Private Property and the Power of Eminent Domain (Cambridge, MA: Harvard University Press, 1985). A professor of law at the University of Chicago, Epstein argues, for example, that taking property from high-income earners (through graduated income taxes) and handing it to welfare recipients is an unconstitutional taking, as it entails the taking of property from Private Citizen A to give it to Private Citizen B; such takings involve no broad, public use of the property and no compensation to the tax-payer, either. Epstein allowed, however, that taxes collected without any specific targeting of certain individuals (like high income-earners) and then spent on a valid public use — such as military bases, national defense orlaw courts — were valid takings under the 5th Amendment.

[5] See http://www.supremecourtus.gov/about/biographiescurrent.pdf.

[6] See Ivy Xiying Zhang, “Economic Consequences of the Sarbanes-Oxley Act of 2002,” William E. Simon Graduate School of Business Administration, February 2005.

Dr. Salsman is president of InterMarket Forecasting, Inc., an assistant professor of political economy at Duke University and a senior fellow at the American Institute for Economic Research. Previously he was an economist at Wainwright Economics, Inc. and a banker at the Bank of New York and Citibank. Dr. Salsman has authored three books: Breaking the Banks: Central Banking Problems and Free Banking Solutions (AIER, 1990), Gold and Liberty (AIER, 1995), and The Political Economy of Public Debt: Three Centuries of Theory and Evidence (Edward Elgar Publishing, 2017). In 2021 his fourth book – Where Have all the Capitalist Gone? – will be published by the American Institute for Economic Research. He is also author of a dozen chapters and scores of articles. His work has appeared in the Georgetown Journal of Law and Public Policy, Reason Papers, the Wall Street Journal, the New York Times, Forbes, the Economist, the Financial Post, the Intellectual Activist, and The Objective Standard. Dr. Salsman earned his B.A. in economics from Bowdoin College (1981), his M.A. in economics from New York University (1988), and his Ph.D. in political economy from Duke University (2012). His personal website is richardsalsman.com.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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