Eminent Domain: a legal and Economic Critique

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Eminent Domain: A Legal and Economic Critique

Nadia E. Nedzel, LL.M.

Assistant Professor of Law

Southern University Law Center

P.O. Box 9294

Baton Rouge, La. 70813-9294

ph: (225) 771-4900

FAX (225) 771-5913

email: nnedzel@sulc.edu
Walter Block, Ph.D.        
Harold E. Wirth Eminent Scholar Endowed Chair and Professor of Economics
College of Business Administration             
Loyola University New Orleans
6363 St. Charles Avenue, Box 15, Miller 318            
New Orleans, LA 70118          
c.v.: http://www.cba.loyno.edu/faculty.html    
office: (504) 864-7934 
dept: (504) 864-7944           
fax: (504) 864-7970            

Eminent Domain: A Legal and Economic Critique


Our thesis is that eminent domain is both legally impracticable and economically unnecessary for development and prosperity. We offer a brief history of eminent domain law. This law is then criticized on the grounds that all three of its main elements are highly problematic: takings, the public use exception, and just compensation. Finally, economic analysis shows that development and prosperity would be accomplished without the power of eminent domain because private parties’ self interest would be served by selling to developers who offer a fair price, and even where holdouts still refuse to sell, their holdings can usually be built over, under, or around.

Key words:
Eminent domain, expropriation, property rights, justice, takings, roads and pipelines
JEL category:
P14, R41

Eminent Domain: A Legal and Economic Critique

This article offers a legal and economic analysis and critique of eminent domain doctrine. The first section gives an overview of the historical development of the concept. Section II continues on to discuss major cases and problems with jurisprudential trends in U.S. Supreme Court interpretation of the Takings Clause, and Section III provides an economic analysis of the concept from a libertarian perspective. In Section IV, the article concludes quite radically that granting a limited government the power of eminent domain (or expropriation, as the concept is known in Canada), is unnecessary, ill-conceived, and should be eliminated.
I Historical Background
Plato and other ancient Greek philosophers saw no limits on governmental powers: all ownership interests derived from the ruler’s good favor, which could be revoked at will.1 The concept that governmental powers should be limited, including that of taking private property, developed out of Western Christian legal tradition, beginning with the concept that church and state should be separate.2 Grotius, the seventeenth century jurist, originated the term 'eminent domain.'3 Grotius held that the state possessed the power to take or destroy property for the public’s benefit, but he further believed that when the state so acted, it was obligated to compensate the injured property owner for his losses.4 Blackstone, too, believed that society had no general power to take a landowner’s private property, except on payment of a reasonable price.

So great . . . is the regard of the law for private property, that it will not authorize the least violation of it; no, not even for the general good of the whole community. If a new road . . . were to be made through the grounds of a private person, it might perhaps be extensively beneficial to the public; but the law permits no man, or set of men, to do this without the consent of the owner of the land.5

In practice, however, eighteenth-century colonial legislatures regularly took private property with little or no compensation, sometimes when the owner had failed to develop his property, but more often when the legislature wanted to build a public road.6 The first state constitutions lacked just compensation clauses, partly because of republican conceptions of property and of rights, but also because the drafters originally had faith in legislatures.7 Over time, however, the colonials justifiably lost this faith, and gained a new concern for the protection of individual property rights.8 The Vermont Constitution of 1777, the Massachusetts Constitution of 1780, and the Northwest Ordinance of 1787 all required just compensation for governmental taking of private property.9
Madison’s takings and just compensation clause, as incorporated in the United States Constitution’s Fifth Amendment, was built upon Grotius’s concept that a government is morally obligated to pay for its interference with private property: “private property [shall not] be taken for public use, without just compensation.” Thus, the Fifth Amendment imposes two distinct conditions -- two checks -- on the exercise of eminent domain: “the taking must be for a ‘public use,’ and ‘just compensation must be paid to the owner.’”10 Originally, this power applied only to the federal government, but the passage of the Fourteenth Amendment expanded its scope to include state and local governments as well.

As drafted that hot summer in Philadelphia, the United States Constitution did not include any reference to eminent domain. Nor was the lack of any such mention of concern to those who objected to the document. James Madison drafted the Bill of Rights, including the Fifth Amendment, in an effort to increase the chances of Constitutional ratification. The primary concern at the time was that the new federal government would be too strong, and the Bill of Rights was desired as a further check on it. Madison added the Takings Clause because he was keenly concerned with protecting private property rights,11 and it was adopted in a slightly modified form with little or no debate in Congress.12

Apparently the clause was not considered particularly significant because most members of the Constitutional Convention simply doubted that the federal government would exercise its power of eminent domain and that, therefore, consuming time with discussion of this trivial concern would make little sense.13 Rather, the debate centered around whether or not the Constitution should include a Bill of Rights. Those concerned with the protection of property from the Federal Government may have found convincing the argument that Madison advanced in Federalist Ten. Thus, they may have believed that the Bill of Rights, and the Takings Clause it contained, was “superfluous and absurd” because the structure of the national government as established by the Constitution adequately protected property interests and other rights14 A Bill of Rights was superfluous because it would merely state that “we should enjoy those privileges of which we are not divested.”15 Those in support of a Bill of Rights, however, had fears (now justified under Kelo v. City of New London16), that without a Bill of Rights, and even with one, the powers granted to the federal government under the Constitution were such that the inevitable result was tyranny.17 Nevertheless, at the time of the ratification, neither side was particularly concerned with the language of the Takings Clause included in the Fifth Amendment.

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