"Economic power is exercised by means of a positive, by offering men a reward, an incentive, a payment, a value; political power exercised by means of a negative, by the threat of punishment, injury, imprisonment, destruction. The businessman's tool is values; the bureucrat's tool is fear." ~ Ayn Rand
Eminent Domain and the Free Society
Exclusive to STR
Eminent domain has long been a contentious issue in American politics. The United States Constitution, under the Fifth Amendment, grants the government the authority to legally seize private property. It stipulates that such a seizure is warranted if the property will subsequently be used to serve the “public”. Moreover, the property owner must be justly compensated for his confiscated property. While these two stipulations may render eminent domain just on a superficial level, further introspection inevitably leads to the conclusion that this segment of the Fifth Amendment has been evoked to justify gross human rights violations.
Let us first turn to the issue of what types of projects warrant the exercise of eminent domain. Many instinctively contend that the power can be justly used when the project is a “public good”. Nobody can be prevented from using these “public goods” and one individual’s usage of such a good does not limit the possibility of others using it. These goods, they reason, bolster public welfare, which justifies the employment of eminent domain. Typical examples include roads, bridges, and police and fire stations, although there does exist considerable debate pertaining to what constitutes a “public good”. Let’s ignore the dynamics of this debate for the moment, as well as this author’s own views on “public goods”. Why is it appropriate for eminent domain to be used only when constructing “public goods”? There are certainly other noble projects traditionally considered “private goods” that have the potential to significantly increase the welfare of the public. A Wal-Mart brings jobs, increased economic activity, and lower prices to the community. A new movie theatre offers the public another entertainment option for Friday nights. Consumers wanting a quick, convenient, and tasty lunch would be well-served by a new McDonald’s. Is it really appropriate to confiscate a private citizen’s property so that another private party can establish a private business on that property?
The point is that goods do not have to be “public” to serve the public. Human creativity is such that there is no way to adequately limit the types of projects that justify the employment of eminent domain. As long as one can present a convincing argument that a particular project is in the interest of the public, the exercise of eminent domain is consistent with the Constitution. A recent U.S. Supreme Court decision supported New London, CT officials in their evocation of eminent domain to level a neighborhood in the city. The reason: to make space for a private business to construct a hotel, apartments, and offices. That is, one private party stole the property of another private party by means of exploiting the coercive machinery of government. There was understandably considerable outrage surrounding the decision. However, to direct one’s anger at the deciding judges is to grossly err. The decision was unambiguously consistent with the Constitutionally-grounded principle of eminent domain. The new buildings would indeed serve the public.
The most unsettling aspect of this issue, however, is obvious and requires no further elaboration: government oligarchs ultimately determine what projects warrant the exercise of eminent domain.
The second stipulation, that property owners must be compensated for the confiscation of their property, is equally dubious. The government typically uses the market value of the property as a standard to determine a just level of compensation. All would likely agree that it would be wrong for such compensation to be below the market value. But is the market value really an appropriate gauge of the justness of a given level of compensation? For those who understand the concept of consumer surplus, the answer is clearly no.
Property owners hold their property as long as the value they attach to it is greater than the market value. If the former happened to drop below the latter they would voluntarily sell it in the marketplace. For example, a certain house may be worth $500,000 on the free market. Let’s assume that the current owner’s great grandfather built the house with his bare hands. For sentimental reasons, the owner attaches a value of $2,000,000 to the property. This profound discrepancy in value judgments accounts for the owner’s steadfast determination to hold on to his property, or his decision not to sell it in the marketplace. Should it really be legal for the government to give the owner a check for a quarter of the property’s value (as perceived by the owner), bulldoze it, and grant a private party the right to build offices? Eminent domain unequivocally allows for such ridiculous phenomena.
The market value of a property, therefore, is not necessarily a reliable standard to determine a just level of compensation. Some property owners may even maintain that their property is “priceless”; perhaps it has been in the family for generations and no level of compensation is adequate. It is of course possible that the market value of a property is exactly the value that the owner attaches to that property. In this rare instance, the owner in our example would be indifferent between $500,000 and his property. If this were the rule rather than the exception, however, there would be little controversy surrounding eminent domain.
Eminent domain is simply inconsistent with the principles of a free society and must be done away with. While many libertarians haphazardly protest isolated injustices stemming from its exercise, they ultimately miss the point: eminent domain is inherently unjust. That is, eminent domain, not the various injustices emanating from its evocation, is the root we must strike.