Taking Issue with the State

Takings: Private Property and the Power of Eminent Domain, by Richard A. Epstein, Cambridge, Mass.: Harvard University Press, 362 pages, $24.95

Nor shall private property be taken for public use without just compensation.
—Eminent domain clause, US Constitution

The central proposition put forth by Richard Epstein in his much-discussed Takings is very simple. The only power government properly has that private individuals do not is the power to compel a transaction—to force an individual to sell (or buy) something. This power is limited in two ways. First, the government must pay to the seller, in cash or in kind, the full value of what it takes. Second, the government can exercise this power only "for public use"—the benefits of the forced sale must be fairly divided among all members of society.

In expanding and defending this claim, Epstein intertwines three separate lines of argument, one based on political philosophy, one on the US Constitution, and one on economic analysis of law. The result is an impressive and interesting book, but a difficult one to summarize.

Epstein starts by arguing that, without the power to force a transaction, government can neither come into existence nor do the things for which it exists—defend property rights and, more generally, provide public goods. Any attempt to form a government will be undermined by "free riders"—individuals who receive the benefits that government provides while refusing to pay for them. The government cannot respond by restricting the benefits, since they are public goods. An obvious example is national defense; there is no way to build an orbital satellite that will shoot down a missile aimed at Jones, who has paid his share of the bill for constructing the satellite, but will ignore a missile aimed at Smith, his next-door neighbor, who has not paid for the satellite.

But how can the government be prevented from using its power to simply steal property from one individual and give it to another? Epstein adds a requirement that the victim of a forced transfer must be fully compensated. Then, to prevent government from appropriating all of the gain produced by its actions, and thus to prevent a perpetual power struggle over who controls the government, he requires that any forced transfer be "for public use"—the benefits of government in general, and of any particular coercive act, must be divided among all members of the society roughly in proportion to how much they would have had if there had been no government or if the particular act of coercion had not occurred. The initial situation without government is, in his metaphor, a pie, with individuals having slices of varying sizes. Government violates individual rights in order to increase the size of the pie, but it must do so in a way that keeps the relative sizes unchanged.

This set of restrictions has several attractive features. Since the government must reimburse the victims of coercion, only the net gains are available to benefit others. Hence if there are no net gains, there will be no political pressure for coercion. Since the distribution of any gain is, in principle, determined in advance, there is no reason for individuals or interest groups to engage in costly struggles over who gets what.

But who is to decide what is or is not fair compensation? Who is to decide whether the benefits of government action are fairly distributed among the population? It appears that to enforce Epstein's proposed limit on government, we would need "government limiters" provided with unlimited resources of wisdom to decide what government can or cannot do, as well as the power to enforce their decisions. Of course, if we had such a body of omnipotent philosopher-kings to solve our problems, we would no longer require limits on government; we could simply turn the whole government over to the philosopher-kings and tell them to go out and do good.

This is the point where Epstein's real contribution to the argument becomes clear. While he has a good deal to say about both philosophy and economics, he is neither a philosopher nor an economist. He is a legal scholar, a professor at the University of Chicago School of Law. Lawyers are to economists and philosophers rather as engineers are to physicists and mathematicians; it is their business to take general principles and try to apply them to the problems of the real world.

That is precisely what Epstein does. In the early part of the book, he argues that his description of the limits of government is implied by political philosophy, makes sense in terms of economics, and is explicitly present in the eminent domain clause of the Constitution. In most of the rest of the book he tries to demonstrate that if the principle of eminent domain were accepted as a fundamental legal doctrine, it would lead, in a wide range of cases, to unambiguous conclusions regarding what government acts are or are not constitutional.

In reaching this conclusion, Epstein relies heavily on the existing body of "private law"—the legal rules that define the rights of individuals with regard to other individuals. By his account, the government has the same rights as a private individual, with the one difference that where a private individual who takes something by force is required to return it, the government is required to pay for it. Hence in deciding whether an act of government is legal, the first step is to ask whether it is something a private individual could legally do. If the answer is no, then the action can only be justified, if at all, as a forced transaction—in which case the government is required to compensate the coerced individual for the full value of what he is losing.

To see how stringent a restriction this is on government action, consider zoning. I own a parcel of land on which I intend to put up apartment buildings. The local government zones the land for single-family dwellings, greatly reducing the value of my land. For a private individual, this action would be illegal, since it would be taking by force a part of the bundle of property rights that make up my ownership of the land. Hence government zoning is a form of taking. Hence it can be done only if the government that enacts the zoning restrictions is prepared to compensate me for the reduction in value of my land—which is, to say the least, improbable. Under Epstein's reading of the eminent domain clause, virtually all existing zoning legislation is unconstitutional.

If government is compelled to pay the full value of what it takes, how can it collect taxes? There seems little point in the Internal Revenue Service collecting a thousand dollars from me, then returning the money as a compensation for taking it. Epstein's answer to this is that taxation is indeed a forced taking, hence the taxpayer must be compensated, but that the compensation need not be in cash. If the taxes collected are used to provide benefits to the taxpayer worth at least as much as what was collected, the taxpayer has been fairly compensated for what was taken.

This imposes severe restraints on what kinds of taxes can be imposed for what purposes. Any redistributive tax, designed to change people's relative incomes, is unconstitutional, since the benefits do not go to the people who are paying the tax. That includes the graduated income tax we have now.

These are two examples, culled from several hundred pages of legal analysis. They illustrate two general points about the book. The first is Epstein's claim that by combining his definition of what government is entitled to do with the system of legal rules that already exists to settle disputes among private individuals, one can, in a wide range of cases, produce an unambiguous judgment about what actions governments may or may not take. The second is that the author follows out the implications of his ideas with admirable disregard for existing legal doctrine; he is not in the least disturbed to discover that his conclusions contradict repeated decisions of the Supreme Court, or that much of the existing system of taxes and a majority of the acts of existing governments are by his standards unconstitutional.

This is not always an easy book to read. Epstein is writing in the middle of a running controversy among legal scholars, economists, and political philosophers, so a reader who is none of the above may find himself at a disadvantage. Even the economists and the political philosophers are likely to find that working out the implications of general principles by applying them to hundreds of real-world legal cases is heavy going.

Yet it is a book well worth reading. For some, even the limited role for government that Epstein outlines may seem too much. Perhaps it is. But if legal scholars accept Epstein's position as marking one point—perhaps an end point—in the accepted range of debate, then this book will have changed the tenor of that debate, and changed it in a direction favorable to the creation and maintenance of legal doctrines consistent with a free society.

David Friedman, author of The Machinery of Freedom and Price Theory, teaches economics at the Freeman School of Business, Tulane University, in New Orleans.