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Ownership and the Law
Lindy Davies

President Bush's announcement of his vision for an "ownership society" met with thunderous cheers at the Republican Convention, and much eye-rolling elsewhere. The Bush Administration would like to start by encouraging private ownership of our retirement funds and our health-care decisions. They want to get the heavy hand of government out of such things and unleash the tremendous efficiency of millions upon millions of Self-Interested Individual Actors, the husky, brawling, broad-shouldered capitalism that made this country great. Prosperity depends on the security of private property and the potency of individual initiative! This is the self-evident truth that has been obscured by Hollywood Socialists, Democratic Girlie-men and purveyors of the Homosexual Agenda.

We should realize, however, that this is hardly a new initiative. It is really just the latest wave of an argument that has raged throughout the history of the United States, about just what — if anything — and on what basis — if any — the government can require us to surrender what we possess. There are some people out there — and actually a fair number, after all — who don't view the Bush Administration's privatization proposals as extremist at all — but, rather, too soft.

If we think for a while about some of the ramifications of "ownership" — as we ultimately must, in a complex modern society — we find very little clarity on what we really mean by it. We find that we're actually not at all clear on the “rights, privileges and immunities” to which "ownership" entitles us. It's such a muddle that the most common strategy is to throw up one's hands, accept that ownership is whatever the law says it is at a given time, and move on.

Unfortunately, though, the law is not at all clear. Thomas Jefferson fudged the topic in the United States Declaration of Independence, inserting "the pursuit of happiness" where people expected the more loaded term "property". The Bill of Rights, however, is strong on property rights. It provides for security of "persons, houses, papers, and effects," that "private property shall not be taken for public use without just compensation" and that rights not specifically prohibited are reserved to the states or to the people. In fact, the US Constitution was so bullish on property that it provided for private property in human beings, a principle made explicit in Dred Scott vs. Sandford and many other cases.

Slavery was made unconstitutional by means of the 13th Amendment in 1865. This, however, left much to be resolved, and the Congress had a very difficult job — perhaps, in strictly logical terms, an impossible job — in drafting Amendment number fourteen. Indeed, the 14th amendment has always been controversial; there is a longstanding argument that it was never properly ratified (owing to doubts about the legitimacy of various reconstruction-era state governments). And to this day, there exists a sizable contingent who argue that the 14th Amendment created a new class of citizen (no longer spelled with a capital C, as the Constitution had previously done), but a person "subject to" the "jurisdiction of" the United States, because, essentially, he or she chooses to be. By renouncing one's "14th Amendment citizenship," argue these so-called "modern Patriots," one can remove many of the heavy burdens that modern government lays on citizens, including the obligation to pay the Federal income tax.

The 14th amendment reaffirms the rights of life, liberty and property, and binds the states to the same due process and equal protection restrictions as the federal government. However, it places the Constitution's first limit on the right of property, stating that the United States or any state shall not pay "any claim for the loss or emancipation of any slave." This could be seen as somewhat fishy in terms of the Fifth Amendment. After all the 13th amendment had taken the slaveholders' property three years before. Had not the Supreme Court ruled that slaves were property and had to be returned to their owners, even if they escaped to non-slaveholding states?

Although it would have been impracticable (to say the least) to enforce the Takings Clause to the tune of the market value of some four million human beings, that was what the Constitution required the government to do. The nation had fallen into a trap that the Framers set when they originally failed to define property. Of course, the Framers had foreseen that changing times would demand new interpretations of basic principles. However, the right to own property is supposedly one of those basic principles. If property is a fundamental right, it cannot change over time. Yet, because property was never defined, the Framers obligated future legislators to take up the question.

Thus, a three-year argument raged over compensation, forcing the government to decide the matter. It's no surprise that ratifying the 14th Amendment turned out to be a struggle.

Let’s return to the 14th Amendment's detractors for a moment. What is the essential difference between a “Sovereign Citizen” and a “14th Amendment citizen”? Why, 14th Amendment citizens are “subject to the jurisdiction of the United States” -- which includes its power to seize private property without compensation! Folks in the “Patriot” movement assert that the 14th Amendment is invalid; some even hold that all the subsequent amendments are invalid, that only the original Constitution and Bill of Rights qualifies as the Supreme Law of the Land. On this basis, they assert their "Sovereign rights as Citizens", claim their right to drive cars without bothering to comply with "optional, 14th-Amendment-citizen" rules such as licensing and registration, and refuse to pay federal taxes. That amounts, perhaps, to the ultimate in privatization.

The next amendment to the Constitution following the Reconstruction Amendments was another milestone in the debate over property rights. The 16th Amendment, ratified in 1913, allows Congress to “lay and collect taxes on incomes, from whatever source derived” — contravening the restriction of this practice that had been laid out in Article I. The “from whatever source derived” part has been making people scream bloody murder ever since. On its face, the 16th Amendment flew in the face of the Framers’ understanding of the right to property as an extension of the right of a free individual to exercise creative powers and to benefit therefrom. The power to levy a tax on income “from whatever source derived” effects a fundamental change in the Constitution’s definition of property rights. Ah, but since the Constitution never did define property (except for banning the fee simple ownership of human beings), that leaves us pretty much in the soup, doesn’t it?

The original advocates of the income tax (many of them Single Taxers) sought to tax accumulation, not industry and initiative. They saw that the massive concentration of wealth among a privileged few was harmful to the nation, and they persuaded the states to accept a progressive tax that would compel robber barons to pay for public goods while letting entrepreneurs gain from their contributions to overall prosperity. And yet, over the years, a tax on income “from whatever source derived” came, one loophole at a time, to be a tax on exactly those productive, hardworking, middle-class people that it was designed to help. I mean, if I go out and make a better mousetrap, and the world beats a path to my door, do I not have the right to the proceeds? If the government confiscates my mousetraps, or the profits therefrom, for public use, is that not a “taking”? Basically, after the 16th Amendment, the Constitution prohibits the taking of private property without just compensation -- unless it is taken by the IRS. No wonder the “Patriots” are arming themselves, burning their drivers’ licenses and heading for the woods.

Imagine their dismay when they get there and find that Green-Commie regulations to protect the habitat of little spotted bugs and corrupt governmental building-permit rules deprive them of their right to use and enjoy their private property! Up springs another arm of the "Patriot" movement: the Property Rights advocates, who want your grubby little hands off of Their Land.

In most people's minds, after all, land is the most solid and important kind of property; in fact, the word "property" in general conversation most often means "land". However, it has long been recognized that sometimes privately-held land must be taken for public purposes. The principle of eminent domain is not (particularly) controversial. If the state wants to put a highway through your house, it must pay you the fair market value of your property. This principle was a sensible check against the tyrannical power to seize private property at will, displayed by the likes of King George III. Property rights are protected, according to the Supreme Court, to keep government from "forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole." (Armstrong v. United States, 1960) In recent years, this principle has been extended beyond the physical seizure of real estate to regulations which take its value. The landmark case in this vein was Lucas v. South Carolina Coastal Council, 1992, in which the imposition of a state law restricting new construction on a stretch of beach removed the market value of a piece of land. Although the land itself was not taken, the law removed the property's value, and the US Supreme Court ruled that the landowner was owed compensation.

This decision was important because it extended the Takings doctrine beyond physical seizure to the taking of value -- but it was also relatively uncontroversial in that the state legislature had removed all of the parcel's market value. Such cases are fairly rare. Much more common -- and much more problematic -- are cases in this regulations remove some land value. After all, if private property cannot be taken for public use without compensation, the amount of property taken should not matter. And there is precedent: the Court has long held that physical invasion of property constitutes a taking, even if only a small portion of the property is seized. (For example, in Loretto v. Teleprompter Manhattan, 1982, a regulation requiring building owners to allow a cable company to install cable facilities on their buildings was ruled a Taking, even though the facilities only took up 1.5 cubic feet of space.) So, a partial physical invasion is a Taking under the 5th Amendment, but a partial diminution of value due to regulation is not. Where's the principle?

In fact, there is none: jurisprudence on the regulatory takings issue is a "crazy quilt pattern", according to one commentator. The courts have sought for some guiding principles, but they are hard to come by:

    The economic impact of the regulation on the claimant and, particularly, the extent to which the regulation has interfered with reasonable investment-backed expectations are... relevant considerations. So too, is the character of the governmental action. A 'taking' may more readily be found when the interference with property can be characterized as a physical invasion by government than when interference arises from some public program adjusting the benefits and burdens of economic life to promote the common good. (Justices Rehnquist and Stevens, in Penn Central Transp. Co. v. New York City, 1978)

The reason for this confusion is not hard to see. There are zillions of government actions that affect land values. The point of absurdity isn't hard to reach. Suppose, for instance, the local government lowers property tax rates, which raises land values in the short term. But then suppose that because of the revenue shortfall that results, the community scrimps on the police budget, and crime increases, thus lowering land values. Is that a Taking? Or, suppose the Fed (which is not, strictly speaking, part of government, but whose actions nevertheless have great impact on public policy) raises interest rates to fight inflation. This has the effect of lowering land prices! Do the landowners deserve compensation?

If government were to be held liable for every single action that took away a portion of real estate value, it could scarcely do anything at all. That might be how some of the most strident militia-folk would like it. However, it would certainly not suit real estate owners in general — who, while they might not enjoy paying for government, do benefit from the things that government does.

What the property-rights folks are forgetting (or disregarding) is that if a piece of land has a market value, that means that the net benefits conferred upon it by the community (which includes the government) are greater than the net costs. Location value is far and away the most important component of land value — and location value is almost entirely the result of services and infrastructure that the government provides.

How did this matter get so confused? Here's a telling paragraph, from a report issued by the "Defenders of Property Rights":

    The protection of private property receives such strong emphasis in the federal constitution because the right to own and use property was historically understood to be critical to the maintenance of a free society. To understand this concept, one must understand that property is more than just land. Property is buildings, machines, retirement funds, savings accounts, and even ideas. In short, property is the fruit of one's labor and the ability to use, enjoy and exclusively possess the fruits of one's labor is the basis for a society in which individuals are free from oppression....

That sounds good at first glance; it sounds like something John Locke would agree with. But wait a moment: "property is more than just land"? If property is the fruit of our labor, how can land be placed in that category? And if we remember this clue as we look back at the whole Takings debate, it become clear that land is the sticking point. As far as I can tell, there has never been much controversy over the propriety of compensation when physical property, one's buildings, cars, furniture, etc., is confiscated or destroyed. It's the land that makes the question difficult. Remember, in the most important regulatory-takings precedent, the Lucas case, there was nothing there but land — the owner had yet to make any improvements. What had been "taken" was land value — land value that had indeed been "given" by the surrounding community and its protection of, among other things, private property rights. (It is worth noting that although Mr. Lucas paid $975,000 for the land in question in 1986, the compensation he sued for, and ultimately received, was $1.2 million — which indicates that regulatory takings can extend even into unrealized gains in land value. Seeing as his land apparently rose in value by $225,000 in two years' time, would Lucas have been likely to build on the land in 1988 — when the "Taking" occurred — or years down the road?)

It's no accident that the issue of "regulatory takings" is such a stew of contradictions. Indeed, the terms of the argument deny the possibility of coherence (in much the same way as they did in 1868). Land is not the fruit of human labor, and its value is not the result of any actions taken by its owner. Therefore, private property in land is an entirely different sort of phenomenon than private property in the products of labor — and as long as the law fails to recognize this fact, it cannot hope to make sense of the issue of "regulatory takings".

Once again, the Framers dodged the tough question, leaving it to us to resolve. Thomas Jefferson recognized the problem — which is clearly one reason for his vagueness in the Declaration of Independence:

    A right of property in moveable things is admitted before the establishment of government. A separate property in lands, not till after that establishment. The right to movables is acknowledged by all the hordes of Indians surrounding us. Yet by no one of them has a separate property in lands been yielded to individuals. He who plants a field keeps possession till he has gathered the produce, after which one has as good a right as another to occupy it. Government must be established and laws provided, before lands can be separately appropriated, and their owner protected in his possession. Till then, the property is in the body of the nation, and they, or their chief as trustee, must grant them to individuals, and determine the conditions of the grant. (Batture at New Orleans, 1812)

It could be suggested that "the conditions of the grant" could, without doing any violence to the secure right of private property, require the payment to the community of the land's rental value, to cover the cost of the community's expenses which, in turn, provide the land's value in the first place. That would, of course, require a clearer definition of the moral basis of property that the United States has ever been able to come to. Yet — think of it for a moment — what would have happened if the original Bill of Rights had articulated the individual's absolute right to property only in the products of labor — and the community's right to the community-created value of the land?

It would have saved us an awful lot of trouble. True, the "slavery" states would have balked at joining the union under those rules. But under them, the nation would have been so prosperous that they would quite soon have seen the advantage of joining. We would have avoided the Civil War, and probably even World War I — it is dazzling to think about how different — and vastly better — our history would have been, had the Framers taken the brave step of setting forth the moral basis of property along these lines.

It's interesting that we use the word "own" to mean two different things: the sense of possession, and the sense of personal acknowledgment, as in "owning up" to one's responsibilities. The relationship between the two was once closer than it now seems to be; the word "ought" is an archaic past participle of "owe". As we consider how to arrange our "ownership society", we'd do well to remember what we "ought" — and bring the two senses of the word back together.


Lindy Davies is the Program Director of the Henry George Institute.

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Wealth and Want
... because democracy alone hasn't yet led to a society in which all can prosper