• Intractable Justice in the Compensation For Taking of Property

    John Brätland
    Independent Scholar
    Email: john.c.bratland@gmail.com

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    Abstract: If one’s property is taken, one is promised ‘just compensation.’ Just compensation is presumably intended to render the owner ‘whole.’ But by what criteria can compensation truly restore ‘wholeness’? For example, payment of ‘fair market value’ necessarily means an absence of assent and implies a coercive transfer of property. Hence, in an ethical sense, the owner is not made whole. Alternatively, advocates of the taking power defend payment of the owner’s reservation value to render just compensation. But prior to the voluntary decision to sell, a reservation value does not even exist in the owner’s mind? Were it to exist, it would be subjective and not imputable from an epistemic perspective. As assent is the sole ethical criterion for determining just compensation, it is also the only valid epistemic criterion; hence, no compensation for a coercive taking can legitimately be deemed ‘just’ in the absence of assent on the part of the property owner.

    Keywords: Property takings, compensation injustice, impossibility restoration to wholeness

     Intractable Justice in the Compensation For Taking of Property

    In the United States, the term used for the government’s exercise of eminent domain is “taking.” In the United States, the Fifth Amendment to the Constitution promises “just compensation” for property taken for public use. The presumptive intent is to make the property owner “whole.” The takings clause in the Fifth Amendment to the Constitution promises “just compensation for property taken for public use. We could all agree the justice is a big topic with many facets. It’s at the heart of philosophy and jurisprudence. I don’t pretend to have addressed the full scope of the subject of justice. I’m only interested in the means by which we can conclude that a property owner has been accorded justice when the owner’s property is taken by a government.

    In Canada the term most commonly employed is “expropriation.” In Canada, expropriation is governed by federal or provincial statutes. Under these statutory regimes, public authorities have the right to acquire private property for public purposes, so long as the acquisition is approved by the appropriate government body. Once property is taken, an owner is entitled to “be made whole” by compensation for: the market value of the expropriated property, injurious affection to the remainder of the property (if any), disturbance damages, business loss, and special difficulty relocating (Boyd, 1988, 1-2). Owners can advance claims for compensation above that initially provided by the expropriating authority by bringing a claim before the court or an administrative body appointed by the governing legislation (Wikipedia, the free encyclopedia).

    But there are fundamentally intractable problems with the concept of just compensation and the promise of being made whole. By what ethical and epistemic standards can compensation restore ‘wholeness’? For example, payment of ‘fair market value’ implies coercion, which means that the owner is not in any ethical sense made whole. Alternatively, defenders of takings advocate estimation of the owner’s reservation value to render just compensation. But prior to the voluntary decision to sell, would any such reservation value pre-exist in the owner’s mind? If such a value were to exist, it would be subjective and clearly not imputable for obvious epistemic reasons. 

    The power to expropriate private property is tool employed by democratic governments obtain resources for ‘public use.’ One of the main themes of Hans Hoppe’s book Democracy: the God that Failed is that democracies do not protect property rights. But he goes even further. He makes a compelling case that democracy is incompatible with private property (Hoppe 2001, 124). Nothing serves more to prove Hoppe’s point than the existence of legally sanctioned taking of private property. My focus today bears on the intractable injustice associated with compensation to property owners in takings.

    My focus is on the ethics and epistemics of “just compensation” and the promise of “being made whole.” Now in pursuing this subject it is interesting to note that Murray Rothbard has stated, “taking of property by government is nothing more than licensed theft” (Rothbard 2004, 1139). So, the questions are (1) can compensation render the property owner whole if the exercise of the expropriation power is a form of officially sanctioned stealing? (2) Can the act of compensating dispossessed owners be made ‘just’ in a way that negates Rothbard’s charge of theft?

    II. Ethical Issues in Property Transfer

    A. Perspectives on the justice of property acquisition

    What are the ethical means by which property is acquired property? Following John Locke, we have: (1) original appropriation of un-owned resources by the self-owning individual (Locke 1948 [1688]); (2) receipt of voluntarily given gift; and (3) acquisition by mutually agreeable exchange. Robert Nozick refers to these actions as forming the “chain of just holding” or what he also describes as the “chain of just acquisition” (Nozick 1974, 151-153).

    The critical distinction made by Nozick is that the justice in this chain of just acquisition emerges out of the fact that acquisition is achieved through voluntary actions of individuals. Coercion and raw power play no role in this chain of just acquisition. But a taking is all about the coerced expropriation of property against the will of the owner at a price prescribed by the taker. In other words, a taking is, in essence, a coercive acquisition of property.

    How would these actions be viewed if undertaken by a private party instead of the government? In Black’s Dictionary of Law, one finds the following description:

    Obtaining property from another induced by use of actual or threatened force, violence, or fear or under the cover of official right is an act of extortion. A person is guilty of extortion if he purposely obtains property of another by threatening to inflict any harm on the property owner (Black 1979, 525).

    So we are looking at a form of action that if undertaken by private individuals would be considered a felony.

    Some contemporary writers recognize the ethical breach involved in the takings process and have recommended compensation at a level in excess of fair market value. Setting aside for the moment the issue of establishing such a value, this well-meaning suggestion has been rejected by governments. Resistance to paying value to the owner has been expressed as follows (Knetsch 1983, 38):

    (1) Such things as emotional attachment or sentimental value are not readily measurable.

    (2) Compensation equivalent to the owner’s value would be expected to vary in each case.

    (3) Such compensation would result in excessive claims and burden to taxpayers.

    (4) It goes against the owner’s duty to give up land that the community requires.

    Each of these reasons for governmental reversion to fair market value is a target for well-deserved and severe criticism. For example, in many cases, the property may be a homestead, or a residence in which the individual or family has emotional attachment and the dominant basis for the valuation of property on the part of the owner. By ignoring these concerns, the courts cast aside a truly ethical or just compensation. The other reason given for reverting to the ‘fair market value’ standard is that payment will vary between instances. In reality, valuations of a given resource vary across individuals, and each individual’s valuation of a given resource may differ across time. Moreover, there is no defensible rationale for limiting compensation in order to protect taxpayers from excessive burden. If transfer of the property truly serves the public interest, then the public’s willingness to pay should exceed any price acceptable to the owner. Taxpayers should pay the full price of the coercive takings that their elected officials presume to undertake. And if government officials take property, they should suffer the hostile opprobrium of taxpayers. There is no compelling reason why the property owner should unduly bear the pain of an involuntary property transfer.

    The fourth reason that Knetsch gives for governmental resolve to pay only fair market value is premised on the awkward notion that the owner has some sort of civic duty to surrender his land to the community. The grotesque nature of this argument is best captured in a 1918 report to the British government on property acquisition.

     [T]he exclusive right to the enjoyment of privately owned land necessarily carries with it the duty of surrendering such land to the community when the needs of the community require it. In our opinion, no landowner can, be entitled to a higher price than the fair market value…having due regard to the fact that he holds his property subject to the right of the state to expropriate his interest for public purposes (as quoted in Knetsch 1983, 38).

     But this same perspective is reflected in a 1949 opinion written by Justice Felix Frankfurter in which the latter states

    “the value of property springs from subjective needs and attitudes; its value to the owner may differ widely from its value to the taker … In view, however, of the liability of all property to condemnation for the public good, loss to the owner of nontransferable values deriving from his unique need for the property or idiosyncratic attachment to it, loss due to the exercise of the police power, … is properly treated as part of the burden of common citizenship” (Kimball Laundry v. United States (338 U.S. 1[1949]) as quoted in Benson 2005, 184).[1]

    The fall back policy in England and in the U.S. is the recommendation that the property owner be paid fair market value.

    B. What are the ethics of fair market value in takings?

    A typical definition of fair market value is the following:

    “Fair market value is the amount of money that a purchaser who is willing, but not obligated to buy, would pay an owner who is willing but not obligated to sell, taking into consideration all uses to which land is adapted and might in reason be applied” (Black 1979, 537).

    Now the definition makes reference to a circumstance, which, if fulfilled in any particular instance, would involve not only the payment of fair market value but also a just price.

    Why would it be just? Would we need to examine the amount paid to establish that compensation is just? Clearly the amount paid in the transfer of property is not the factor that establishes justice. The problem with the use of fair market value is that governments are applying the fair market standard to situations that do not conform to the condition specified in the definition itself. The standard makes reference to an owner who is not obligated to relinquish his property but clearly this is not the case in a coercive taking.

    One should note that limiting compensation to fair market value in a taking tends to negate compensation for other negative consequences that may be associated with dispossession. It also means that the property owner is not entitled to any of the increase in value arising from the government’s intended use of the property.

    C. Damage to Dispossessed property owner?

    I call attention to the awkward contrast between the way property law treats damage arising from contractual breach in real estate contracts and the virtual neglect of damage as it is viewed in the context of a taking. In looking at the issue of involuntary transfer of property, Jack Knetsch and Thomas Borcherding call attention to the following incongruity in the way in which property law deals with damage:

    “It is most interesting to note that real estate transactions are normally treated differently in the event of contractual breach. For breach of contract, courts favor an award of damages to the party suffering loss. In real property cases, specific performance is commonly ordered largely on grounds that real property usually has unique attributes for the buyer so that he or she cannot be expected to find a duplicate with a cash settlement” (Knetsch and Borcherding 1979, 242).

    Payment of fair market value does leave the owner in a damaged state that is properly recognized in other legal contexts. The damage can arise principally from (1) the fact that the owner has a special attachment to the property, (2) compensation in the amount of fair market value will not afford the owner of the means necessary to buy a comparable property yielding equivalent enjoyment, and (3) the property owner is the victim of an act of extortion which would be an assault on anyone’s sense of well-being. So from an ethical perspective, what are we left with as far as just compensation is concerned? Justice in compensation exists in an ethical sense if the property owner relinquishes his property under terms of explicit assent.

    III. What About Epistemics of Wholeness?

    As noted above, various writers have acknowledged the reality that property owners are damaged when paid fair market value in takings. They have proposed various solutions. One option focuses on payment of the owner’s ‘reservation price’ as a ‘just’ solution to the issue of compensation. Others have taken the position that the property owner should be paid a premium over fair market value to arrive at just compensation (Epstein 1985, 183; Ellickson 1973, 736-737: Knetsch and Borcherding 1979, 241; and Reisman 1996, 422-423). Not surprisingly, these alternatives lack epistemic means by which to impute a level of compensation to the owner that offsets damage and renders the property owner whole. In other words, both of these options face problems arising from attempts to apply an essentially empty theory of valuation. But this reality means that the true social cost of coercively transferred resources can never be estimated, imputed of reckoned in a scientifically legitimate way. This awkward fact is seen to work in the interest of public officials eager to present proposed projects as yielding greater social benefits than are possible in reality.

    The problem of ‘just compensation’ bears most directly on those who are unwilling to relinquish their property at the ‘fair market price.’ Economists have taken to referring to this unwilling property owner as the infra-marginal owner implying that owner would be a ‘potential seller’ at a higher price. This would seem to place the recalcitrant property owner on some pre-existing supply schedule. But even if the supply schedule were to ‘pre-exist’ in some manner, what epistemic basis exists by which to place a property owner’s decision to sell at one point on this schedule rather than another? Obviously, there is no way in which that can be done.

    But ignoring these difficulties, economists have contrived the notion of an imputed ‘imputed reservation price.’ Of course, in a taking, this reservation price, were it to exist, would be an ‘unexpressed price’ at which the owner would assent to the taking. Once imputed, this presumed ‘reservation price’ would be applied as the basis for compensation to render the property owner ‘whole.’ This thinking manifests itself in the well-meaning but misguided notion that the property owner must have an ‘existing reservation price’ that somehow pre-exists in his or her mind of the owner. This idea emerges out of the unfortunate fact that economists seem never to have fully abandoned the idea that valuation is something measurable or at least imputable.

    Just compensation is centrally dependent upon the dispossessed property owner being made ‘whole.’ But the underlying fallacy of just compensation is that ‘wholeness’ is somehow a quantifiable state of being that can somehow be “objectified.” However, wholeness of the property owner cannot be divorced from valuation meaning that compensation must be established in some epistemically legitimate way. But can this task be accomplished? The problem is that valuation is not imputable, it is not measurable and it is not in any way quantifiable. In fact, valuation for all people at all times in all situations is only a relative ranking of alternatives at a particular instant in time. This relative subjective ranking is all that can ever exist in the mind of a property owner at a particular moment in time.

    But the issue is even more tenuous than the last sentence would suggest. These rankings do not exist independently of an act of choice in which a preference is finally revealed. The ranking only emerges in the context of a demonstrated act of choice. It is not a mapping that exists in the mind independently of some observable act of exchange.

    Can the concept of ‘just compensation’ be reconciled with the coercive taking of private property? More specifically, can compensation for coercively taken property render the dispossessed property owner whole? From both an ethical and epistemic perspective, the answer is a clear ‘no.’ From an ethical perspective, one can assert that if the surrender of property is not voluntary, the presumption of injustice and harm is manifest. Ethical breach is evident. Compensation cannot be deemed just until the property owner accepts it without coercion. An absence of coercion necessarily means that the property owner has the right to refuse all offers up to the point at which the owner ranks the money offered more highly than his property. But from an epistemic perspective, the absence of assent bars any conceivable inference that compensation is just or that the property owner is made whole. Market based benchmarks or professional appraisals are epistemically irrelevant to those unwilling to sell. However, these estimates or surveys have no relevance whatever in gauging just compensation for the un-assenting owner.

    As assent is the sole ethical criterion for determining just compensation, it is also the only valid epistemic criterion; hence, no compensation for takings is ‘just’ in either an ethical or epistemic sense. Promises of ‘being restored to wholeness’ are epistemically empty. Hence, the taking power should not be in any constitution or governmental statute.

     

    References

    Benson, Bruce L. 2005. “The Mythology of Holdout as a Justification for Eminent Domain and Public Provision of Roads.” The Independent Review 10(2) pp. 165-194.

    Black, Henry Campbell. 1979 [1891]. Black’s Law Dictionary With Pronunciations, (Fifth edition). Minneapolis, Minnesota: West Publishing Company.

    Boyd, Kenneth J. Boyd 1988. Expropriation in Canada; A Practitioner’s Guide. Ontario: Canada Law Book Inc.

    Ellickson, Robert C. “Alternatives to Zoning: Covenants, Nuisance and Rules as Land Use Controls.” University of Chicago Law Review, 68(1).

    Epstein, Richard A. 1985. Takings: Private Property and the Power of Eminent Domain. Cambridge, Massachusetts: Harvard University Press.

    Hoppe, Han-Hermann. 2001. Democracy: The God that Failed. New Brunswick, NJ: Transaction Publishers.

    Knetsch, Jack and Thomas Borcherding. 1979. “Expropriation of Private Property and the Basis for Compensation.” University of Toronto Law Journal 29: 237-252.

    Knetsch, Jack. 1983. Property Rights and Compensation: Compulsory Acquisitions and Other Losses. Toronto, Canada: Butterworths, Inc.

    Locke, John. 1948 [1688]. “An Essay Concerning the True Original Extent and End of Civil Government” in J.W. Gough, ed., The Second Treatise of Civil Government and a Letter Concerning Toleration. Oxford: Basil Blackwell.

    Nozick, Robert. 1974. Anarchy, State and Utopia. New York, NY: Basic Books, Inc.

    Reisman, George. 1996. Capitalism: A Treatise on Economics. Ottawa, Illinois: Jameson Books.

    Rothbard, Murray N. 1998 [1982]. Ethics of Liberty. New York, NY: New York University Press.

    Rothbard, Murray N. 2004. Man, Economy and State with Power and Market. Auburn Alabama: The Ludwig von Mises Institute.



     

    [1] In the exercise of the police power, governments are not even obligated to pay anything for what amounts to a taking of property. The stated objectives of the police power focus on the health, safety, morals and general welfare of the community. Zoning restrictions are perhaps the most egregious example of property being essentially taken without any compensation to owners. A second flagrant example of institutionalized injustice is the exclusion from compensation of any enhancement in the value of taken property arising from government actions. A third example of institutionalized injustice is found in the lack of compensation for goodwill lost in the process of taking property.