Ownership and the Law

by Lindy Davies

What constitutes the rightful basis of property? What is it that enables a man justly to say of a thing, “It is mine!” From what springs the sentiment which acknowledges his exclusive right as against all the world? — Henry George, Progress and Poverty

Alas, many questions that seem quite simple — to children, say, or to idealists — get all muddled in the world of grownups (and lawyers). The more people talk about the ramifications of “ownership” in modern society, the less clarity they find on what it really means. There are so many things that might be possessed or controlled, the rights to them assignable to some degree, or in some way, by means of convention, contract, transaction, confiscation… What can one do but throw up one’s hands, accept that ownership is whatever the law says it is, and move on?

Well, you could do that — if the law did actually say what property is. But it doesn’t. In fact, it has been refusing to do so for over two hundred years.

Confusion regarding the question of ownership began early. Thomas Jefferson fudged the topic in the Declaration of Independence, substituting “the pursuit of happiness” for the more loaded term “property”. The Bill of Rights, however, is bullish 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. The Constitution also provided for private property in human beings, a principle made explicit in Dred Scott vs. Sandford and many other cases.

It took a Constitutional amendment to outlaw slavery — the 13th, in 1865. That was all, however, that the 13th amendment did — leaving unresolved the matter of compensation for slave owners. This left Congress 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 contention that it was never truly ratified (owing to doubts about the legitimacy of various reconstruction-era state governments). 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. If one renounces 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 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.

Let’s return to the 14th Amendment’s detractors for a moment. What is the essential difference between what they call a “14th Amendment citizen” and a “Sovereign 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 hold the 14th Amendment (and, some say, that all the subsequent amendments) to be invalid. On this basis, they assert their “Sovereign rights as Citizens”, to drive cars and bear arms without bothering to comply with “optional” rules such as licensing and registration.

The next amendment after 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 shift 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.

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; they wished to compel robber barons to pay for public goods while letting entrepreneurs gain from their contributions to overall prosperity. 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 profits? If the government confiscates my mousetraps 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 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 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 hands off of Their Land.

After all, land is usually thought to be the most solid and important kind of property; the word “property” in general conversation often means “land”. Nevertheless, it has long been recognized that sometimes privately-held land may be taken for public purposes — if the owner is paid the fair market value of the seized 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 of compensation for public Takings 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. 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, for the law 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 stew with many flavors. The courts have sought for 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 hesitation is not hard to see. There are zillions of government actions that affect land values. Suppose, for instance, the local government scrimps on the police budget, and crime increases — which lowers land values. Is that actionable? Or, suppose the Fed raises interest rates to fight inflation, and 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 acceptable to the most strident militia-folk — but it would certainly not suit real estate owners in general. They might not enjoy paying for government, but they 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 are greater than the net costs — or in other words, the government’s Takings are less than its Givings. The vast majority of land value is the direct result of benefits provided to the site by the government — including, among many other things, the right of secure tenure.

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….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 all right, doesn’t it? Almost like something out of Progress and Poverty. But I tricked you. Here is the sentence that goes in place the ellipsis above: “To understand this concept, one must understand that property is more than just land.”

More than just land! That’s rich. What does land have to do with the clear and admirable definition of property given above? If we bear this in mind as we consider the “Takings” debate, it becomes clear that land is the sticking point. 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 into unrealized gains in land value — or in the words of Rehnquist and Stevens, “reasonable investment-backed expectations”. Since his land apparently rose in value by $225,000 in two years’ time, it is not surprising that Lucas had not yet deemed the time ripe for making improvements.)

It’s no accident that the issue of “regulatory takings” is such a contradictory brew. Indeed, the terms of the argument deny the possibility of coherence — in much the same way as they did in 1868. 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)

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, it 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 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 conditions. But the new nation would have been so prosperous that they would quite soon have seen that the advantage of joining the Union far outweighed that of keeping their slaves. 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 “own”. 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.

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