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The Trouble with "Just Compensation"

Mises Daily: Tuesday, December 05, 2006 by

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Ever since the Kelo decision, activists around the country have pushed for Eminent Domain reform. They've pushed ballot initiatives and legislative efforts to curb the despotic power of the state to seize private homes, businesses, land, and other assets.

Most of this legislation restricts or disallows the taking of private property for another's private use, since this is what the Supreme Court permitted states and localities to do. 

But what about public use? This was not addressed by the court. It is generally assumed that it is perfectly fine for the state to take property for this purpose. It is a peculiar distinction since all people who benefit from "public" services are, in the end, private individuals: government contractors, civil servants, politicians, bureaucrats, and members of the general population.

As well, many private institutions are just as open to the public as government facilities. In fact, which building is more welcoming of the public, the local courthouse or the local mall?

Land theft from middle-class families for the benefit of commercial interests is essentially a conspiracy between business and the state. It offends our sense of justice, but why should we look the other way when it is done to erect a new government bureaucracy or public library?  Theft is theft, even if for "public" purposes.

In fact, if we had to choose, wouldn't some think it better for the proceeds of theft to go toward building productive enterprises rather than feed the state? In any case, the entire institution of Eminent Domain is intrinsically hostile to liberty and property rights—no matter the purpose.

Just Compensation

There is another major difficulty in these reform proposals, as well as in all talk of Eminent Domain in general, and that pertains to the muddled concept of "just compensation."

What is economic justice? In the market, any compensation that is voluntarily agreed upon by both parties to a transaction is properly seen as just. If buyer and seller or employer and employee are both willing to make a deal, their freedom to do so, at any mutually agreeable price, is the fulfillment of justice in the world of economic exchange.

Interference with this freedom, in the form of wage or price controls, taxation, or the outright prohibition of certain goods, is an injustice, an attack on the foundations of private property and on civilization itself.

The state, unlike market participants, does not make its transactions through voluntary persuasion and bargaining, but through violence and the threat of violence. Certainly in the case of Eminent Domain — which means "supreme lordship" — we see that the victims of seized assets have never consented, otherwise a pure exchange could take place that requires no police power. No such coerced transaction can be said to entail "just compensation," since compensation is only just when the party being compensated agrees to the deal.

Oftentimes, the state claims it is offering a "fair market value" for the property it seeks to seize, but this is a sham. The market price for something is, by definition, the price that both parties consent to. In a fair market exchange, each party gives up something he values less for something he values more, or else he wouldn't agree to it.

It is only through such a voluntary transaction that we can determine what something's market value is in the first place. Market value is not universal, but particular to the assets exchanged in a specific transaction. For any given piece of property, there can be no market value without market exchange.

When the state has to rely on the coercive power of Eminent Domain, it is a sure sign that the property owner is not being given something he values more in exchange for something he values less, and it is a perversion of language to describe the compensation, however high, as having anything to do with the market.

Private Compensation vs. State Compensation

Surely some compensation is fairer than no compensation? Actually, it is not that simple. In the case of private theft, a thief owes his victims some restitution for his crime, and even though compensation does not forgive the immorality of the offense, it at least goes some way toward making the victims whole again. Being compensated by a thief does not eliminate your victimization, but it is better to have as much of your property restored as possible.

This principle of restitution does not apply so cleanly, however, to cases where the state is the aggressor. The state, unlike private criminals, has no assets of its own, has no capacity on its own to generate the income to pay off its victims. Rather, when the state distributes money, even to those who might deserve it for having fallen victim to government action, it obtains that money by confiscating it from other innocent individuals.

Even when a state buys assets from willing private interests, it cannot be said to be paying "just compensation," since the ones doing the compensating — the taxpayers — are not themselves acceding to the transaction voluntarily. The state is not a market player. It is a predator and parasite, which can only distort the market and the natural harmony among voluntarily interacting individuals by its use of force to compel at least one of the relevant parties, the taxpayer, into succumbing to all economic exchanges conducted by the state.

It is not clear that a rule forcing the state to compensate the victims of its Eminent Domain is consistent with liberty. All is means is that taxpayers are being forced to cough up to buy off another party that has been looted—two wrongs attempting to make a right, so to speak. Such a rule does mitigate some of the evil against the most conspicuous victims of the program, and yet it expands the aggression against other innocent people. If a burglar is made to pay back all the individuals he has robbed in his lifetime, and does so by stealing from yet another class of people, it cannot be called justice — or even an unambiguous step toward justice.

There is also a libertarian tendency to insist upon "just compensation" in the case of regulatory takings, where businesses lose wealth not in the form of property seized directly by the state, but rather in the form of diminished profits due to burdensome regulation. One problem with this, as in the case of standard takings, is that the compensator is the involuntary taxpayer.

Furthermore, as a practical matter, the regulatory damage done by the state is so vast and diffuse that there is no way to compensate its victims with anything approaching fairness. The state, given its huge destructive power and history of aggression against so many, has liabilities that far exceed the potential assets to be extracted from taxpayers.

Must we allow the state to continue regulating and seizing from private interests, all while its criminality is protected under a banner of "just compensation"? It is of course true that these private interests have a claim on what was taken from them, but their claim is against the guilty individuals — the politicians and bureaucrats — and not the taxpayers.

A system in which taxpayers are increasingly taxed to warm over relations between the state and businesses is a plan for further statism. Big business might even clamor more loudly for regulations to squash its competition in undetectable ways, all while getting tax-funded checks from the state for its own more visible losses.

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Any reform that establishes "just compensation" for regulatory takings runs the risk of further entrenching business as an interested party in regulation and takings. It would not be long before the state and its allies would find ways to seize money and assets from one business, only to give them to another (perhaps under the auspices of government contracts, assuming "private use" is ostensibly forbidden by statute), all while making the taxpayer bear the entire cost of the transfer. With such a reward system in place, it is plausible, then, that Eminent Domain reform will actually expand and encourage Eminent Domain.

Once we concede the idea that justice can be realized through the forcible redistribution of property, where do we draw the line? Perhaps Veterans benefits might be seen as "just compensation." Perhaps disabilities payments. Perhaps Medicaid. In fact, we might regard the whole of the welfare state as some form of just compensation for all the indignities we must endure at the hands of society, state, culture, tradition, the market or any other perpetrator we care to name. There is no end to this: if you take the notion of government-funded "just compensation" far enough, you can establish socialism.

So long as the state can steal from one to give to another, the capacity for it to do so in a "fair market" manner, or with "just compensation," is a logical impossibility. Instead of trying to fight Eminent Domain abuse, we must recognize that Eminent Domain is itself an abuse of property rights, one that is totally irreconcilable with the foundational mechanisms of the market and quintessentially compatible with the nature of the state. As in all other areas, the answer is not to change the way in which the state violently attacks property rights — to shuffle around victims and beneficiaries — but to reduce the extent of those attacks with a commitment toward the unmistakable, ultimate goal of ending them altogether.


Anthony Gregory is a writer and musician who lives in Berkeley, California. He is a research analyst at the Independent Institute. See his website for more articles and personal information. Send him mail. Comment on the blog.