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 The Spurious Constitutional Distinction Between Takings and

Eminent  Domain New Page 1

December 2010 11

The Spurious Constitutional Distinction Between Takings and

Regulation

By Richard A. Epstein*

Toward a Unitary Theory of Takings

The major question that I shall address in this short

talk concerns a fundamental fault line that is widely

embraced in modern American constitutional law.

My task is to figure out whether the American constitutional

law of takings has a uniform architecture that applies with

equal force to cases of government occupation in so-called

"physical takings" cases and government regulation in so-called

"regulatory takings" cases. For these purposes, I shall confine

my attention to real property, and thereby ignore such critical

issues as financial rate regulation of public utilities on the one

hand or the regulation of intellectual property on the other. In

the land context, the difference between these two scenarios is

usually not that hard to observe in most settings. A physical

taking is said to occur when the government occupies land that

was once in the possession of some private party. Or, in the

alternative, the government issues an order that allows some

private party to enter the land under its authorization. The

pivot point is found whenever an owner is allowed to remain

in possession, but is forced to share that possession with either

the government, or again, private parties who enter under

government authorization.1

On the other side of the line fall those cases of regulatory

takings in which the government leaves an individual in

undisturbed exclusive possession of his or her own property, but

nonetheless imposes restrictions on land use or land disposition

above and beyond those imposed under the common law. This

last qualification about the common law has two functions.

The first is to make clear that restrictions on nuisance-like

behavior do not require compensation. The second is to insure

that certain common law restraints on alienation like the rule

against perpetuities are not swept into the analysis.

To challenge the present divide between occupation and

regulation is to ask whether the rules of private law must be

carried over into the constitutional analysis of the Takings

Clause that makes explicit reference to it: "Nor shall private

property be taken for public use, without just compensation."

As a matter of private law, an owner of property can enter into

two kinds of transactions. The first might be called "clean" deals

in which there is an outright transfer of ownership from one

person to another, such that at the end of the day the original

owner stands in no better position against his transferee than

does a total stranger. That is just the position that all people

would be in if they tried to reenter a house that they have just

* Laurence A. Tisch Professor of Law, New York University School of Law,

The Peter and Kirsten Bedford Senior Fellow, The Hoover Institution,

Senior Lecturer, the University of Chicago.

......................................................................

sold. On the other side are complex details in which voluntary

transactions created divided interests in property. Private

property can be divided at any given point in time by creating

joint tenancies and tenancies in common. It can be divided

spatially to include mineral rights, surface rights, and air rights.

It can be divided on the plane of time, so that different persons

hold a variety of present and future interests. Private property

can be divided between an owner who keeps the equity of

redemption and a lender that has a lien on property. Moving

outward, private property can be divided between neighbors

through the law of servitudes, which includes restrictive

covenants on the one side and easements on the other. The great

flexibility within this system allows any given owner or group of

owners to enter into, simultaneously or sequentially, multiple

types of transactions on the same underlying asset. Nothing

is more common than joint owners taking out a mortgage on

property over which a neighbor has a right of way.

The central analytical challenge is to determine the status

of these divided interests under the Takings Clause. Does each

component of the original property retain the full measure of

protection, an equal dignity of right, with the original whole

of which it was a part? Or does the fragmentation of property

interests carry with it the implicit price that the holders of the

separate pieces receive less protection from government action

than the individual who retains possession of the entirety?

To give a concrete example, what happens when the

government decides to impose a height restriction by public

fi at? Should that regulation be analogized to the identical

restrictive covenant that a group of neighbors want to impose

upon the land? Privately, of course, the neighbors would be able

to obtain that height restriction only voluntarily. Typically they

would be required to pay for what they received. Normally these

transactions are not made for cash. Rather, they are imposed as

part of a common unit development by a common landlord,

in which the reciprocal nature of the obligations coupled with

appropriate adjustments in the sales price ensure that each



person gets to share in the gains from the cooperative venture.

The government of course does not act like the owner of a

common development anxious to maximize his gain from sale.

Rather, it enjoys the unique right to force the exchange on its

own initiative over the active opposition of the party on whom

the restriction is imposed.

The position that I’ve always defended is that any coherent

account of the Takings Clause insists that the government can

only force the exchange insofar as it is prepared to pay just

compensation to the owner for the loss of the property interest

in land. Partial interests in land can be taken in the same

manner as the entire land itself. The government’s unquestioned

right to take a partial interest in land for public use does not

Note from the Editor: The following article is an expanded version of a speech Professor Epstein gave during a debate

on regulatory takings with Dean William M. Treanor at the Fordham University School of Law. We will carry Dean Treanor’s

remarks in a future edition of Engage. (He was recently named Dean at the Georgetown University Law Center.)

12 Engage: Volume 11, Issue 3

excuse it from the duty to compensate, in cash or in kind, all

the individuals whose property is taken. Where it engages in a

scheme with reciprocal burdens and benefits, it can credit the

benefit that it supplies to any owner in that transaction against

the costs that it otherwise imposes. This use of implicit in-kind

compensation meets the requirements of the Takings Clause.

The Penn Central Fiasco: Does Competition Equal

Restraint?

Unfortunately, this effort to link public to private law

has been decisively rebuff ed by the Supreme Court in its 1978

decision in Penn Central Transportation Co. v. City of New

York,2 where Justice Brennan, at his ingenious worst, took a

different approach. Penn Central asked whether New York

City’s landmark preservation commission could, pursuant to

city ordinance, prevent the construction of a proposed new

Marcel Breuer tower over Grand Central Station without paying

compensation to Penn Central for its loss of air rights under

New York law. The first point about this case is that it shows

the fragile nature of the divide between the physical and the

regulatory takings. It is, for example, easy to think of this as

a physical taking in which New York City took the air rights

from the Penn Central, by denying Penn Central all use of

them, even though it made no use of them itself, except to keep

them open. The government engages in a physical taking if it

decides to leave vacant land that it takes from a private owner.

Air rights are no different. On the other hand, in both cases

someone could argue that so long as the government does not

use the air rights to build it is a mere restriction on use, similar

to other forms of restrictive covenants. The same could be said

of land which the government does not enter, but from it forbids

its former owner all rights of access or use. It seems odd that

the question of whether or not compensation is owing should

depend on any of these fine distinctions.

Within this framework it is easy to see what a legal rule

that told a given owner of land or chattels that the government

would not let him make any use of his property even though

he could not use it himself would count as a taking, followed

by a retirement of the land from active use. If the mere fact

of ownership still had value, it would reduce the level of

compensation owing by some miniscule amount, but the

literalism that says all regulations are out from under the Takings

Clause produces results that no one can credit as a proper use

of the English language.

The same point applies to chattels. William Treanor

has often used the example of a ball which belongs to his

daughter. He tells her that he will not take the ball, but that

she nonetheless cannot make any use of it for some definite

period of this time. Does his disavowal of the taking carry any

weight? I think that everyone would regard this set of regulations

as tantamount to a taking. If there were some residual value

to the child from the use of the ball, that could be an off set

against the level of compensation otherwise owing, but no one

in dealing with either land or chattels would ever think that

a total restriction on land use by either private or state action

does not amount to a taking of the subject property.

Th at same analysis applies to the air rights in the Penn

Central case, even though the overall situation is complicated

further because of voluntary division of rights in the Penn

Central parcel. Once the air rights were sold by the ground

owner, its new holder of the air rights lost all value, for the case

became a total taking of a divided interest. Yet if the air rights

had been merged with the surface rights, the transaction would

have only been a partial taking of the entire fee simple interest.

Should the taking of all of a part be different from the taking

of a part of the whole? Again this supposed fine line makes no

sense. As a matter of basic theory, these subtle characterizations

of the underlying rights should matter little for the overall

analysis. It does not matter whether we think of this as a total

or a partial taking. It does not matter whether we think of it as

an occupation of the air rights or a restriction on their use. In

all permutations, the loss in value to the owner is the measure

of compensation that is required, no matter which description

of the underlying facts is accepted. Rejecting all these fine lines

puts the government in the proper position for asking whether

the set of diff use social benefits that it seeks to create through

the landmark preservation law was greater or less than the

concrete economic losses (and possible amenity losses from the

construction of the new tower) that the regulation imposed on

the owner of the air rights.

Unfortunately, Justice Brennan paid no attention to any

of these doctrinal or functional issues. Instead he made the

inexcusable intellectual blunder of analogizing the losses from

these government restrictions on air rights to the economic loss

that any property owner suffers from market competition. By

way of example, on his view the loss of air rights is no different

from the losses that Penn Central would have suffered if the

shops inside its building suffered competitive losses when

its former customers patronized a new shopping center that

opened up across the street. In those cases, the owner of the

existing establishment has no right to compensation for those

losses. Brennan thought air rights should receive the same

treatment.

Th is supposed analogy between competition and land

use restriction is, however, deeply fl awed. The differences

between these two supposed equivalents becomes clear when

the two different types transactions are analyzed within a single

comprehensive conceptual framework. The question of what

counts as an "actionable" harm—that is an economic loss that

the legal system should recognize—cannot be resolved simply by

looking at what private or government actions make someone

better off and someone else worse off . That conception of an

externality is too broad for legal work. All actions that help

one person will hurt in this broad sense another person. The

necessary task is to seal off those subclasses of externalities

that should be regarded as actionable within the system, and

dismiss all others.

The modern English expression for this distinction puts

"pecuniary externalities" on one side of the line and "real

externalities" on the other. But the terms have to ordinary

understanding no verbal traction. Slightly better is the Roman

law view that certain harms are damnum absque iniuria, harms

without legal injury, but that definition also mainly points to

the distinction without grounding it more rigorously. What

is needed is a systematic approach that bolsters the intuitive

awareness that competition and the use of force lie at opposite

December 2010 13

ends of the spectrum. Looking at only the two parties to a

particular dispute does not supply that answer. The dispute has

to be put in a large social context, which operates as follows.

Competition generates a positive-sum game when the impact

on all persons, including potential customers and suppliers,

are taken into account. When customers move from one store

to the other, they get lower prices, a benefit which more than

off sets any loss by the existing fi m, which can of course lower

its prices or improve its products to meet the competitive threat.

In the end competition generates a set of transactions whose

quantities and prices squeeze the most out of scarce resources.

Any private right of action that is allowed to frustrate that

movement of resources to more productive uses thus creates

social inefficiencies. It is an ironic corollary to Justice Brennan’s

opinion that the worst of the New Deal legislative excesses

were routinely justified on the ground that they were needed

to protect established firms against "ruinous competition." In

short order that inflammatory rhetoric led to the cartelization

of the airline industry under the Civil Aeronautics Board, and

of the agricultural sector under the Agricultural Adjustment

Acts, both passed in 1938—a very bad year indeed.

The Political Dynamics of Land Use Regulation

Penn Central of course is not objecting to competitive

harm when it wants to use its air rights. Rather, it opposes a

very different kind of political dynamic in which government infl

icted losses on private property owners are devastating for

the property owner, without promoting any general community

well-being. Here is how the game plays out. Once everyone

knows that government has the ability to restrict land use and

land development without having to pay compensation, the

demand for these restrictions from neighbors (who have a clear

view of their own self interest) will rise steeply. That is what

always happens when people are able to obtain valuable rights

from others for free. Indeed, for a zero price they will insist on

all sorts of elaborate protections for which they would never

pay. We know this because in crowded urban areas few people

are willing to pay for the right to keep the plot of land next

door vacant. The combined value of two urban homes is greater

than the value of one home with a fancy side yard owned by

someone else who has no particular use of the barren land.

To be sure, restrictive covenants may be used to impose some

adjustments on light and air and the boundary line, but, as

noted earlier, these will typically be reciprocal, and naturally

constrained to the point where each party at the margin thinks

that what it loses in land use it gains in increased light and air

made possible by the less intensive use of neighboring land. But

once the reciprocal element is gone, that natural restraint which

operates market settings will disappear. Instead, overclaiming

the virtues of public amenities becomes the order of the day,

as private losses are ignored in the relentless pursuit of, well,

other private interests.

These maneuvers to impose these restrictive covenants on

land use necessarily impose real losses on owners, who would

in a private transaction demand real dollars or in kind benefits

to accept those covenants. But with politics it is always possible

to bypass the market and to use political means to obtain what

one wants at a lower price, namely, what it costs to assemble a

winning political coalition. The social cost calculations are thus

clear. The political costs of acquiring the interests of others are

low, but the externalities they inflict upon the users are great.

Real resources are used to move land from a higher to a lower

use so that the public loses both ways from these successful

eff orts at market circumvention. Resistance through politics is

possible as well, and may prevail but only at a cost. What the

eminent domain clause, with its just compensation requirement

does, is prevent the circumvention of voluntary markets for

private advantage. It eliminates the deadweight social losses

that arise through political efforts to gain, or resist the coercive

transfer of rights for no price, or indeed any price below their

fair market value.

One corollary of this unfortunate dynamic is that

market processes cannot survive when the law of regulatory

takes allows any stubborn group of neighbors a veto right over

anybody who wants to build on his own property. Just that

tragic outcome happens in cities like New York all the time. It

is quickly perceived that no total veto right is acceptable. So

the compromise that emerges is an elaborate administrative

process that creates a forum in which everybody may express

his or her views about what Jones can do with his land. There is

no unique decision maker, but a motley array of administrative

boards that gets to decide who is in a position to build subject

to what constraints. What are going to be the architectural

specifications? What about the densities? The amount of

affordable housing? Access for wheelchairs? At zero price every

interest group will make its grand entrance into the political

process.

The combined operation of these various restrictions will

retard development of any use project by as much as three to

fi ve years (in many cases more), assuming they get approval in

the fi rst place. There are many private agendas that converge

on the proposed project, each demanding its pound of flesh.

There need be, of course, little coordination among the various

parties seeking particular benefits. Once the separate exactions

are combined, therefore, it could easily turn out that the deal no

longer contains enough profit for the developer to want to move

forward. Ironically, marginal projects are shelved. The attractive

projects that remain are then denounced as proof of the greed

of real estate developers in a classic Catch-22 situation.

In this fevered environment, community boards, some

better than others, occupy a pivotal role. Sometimes they lead

the opposition that dooms the project. Sometimes they take on

the thankless task of capping aggregate demand for exactions so

that the project can move hesitantly forward with its backing. Yet

their job is made more complicated because every large project

will spawn a rejectionist wing whose main agenda is to make

sure that the cumulative exactions sink the project. The outcome

is never certain, but in some real fraction of cases viable projects

may be abandoned, after both public and private resources

are squandered. Failure in the first generation makes the next

generation of developers more gun-shy than predecessors. Over

time, the tax base is reduced, and the neighbors who like the

status quo are emboldened to use the same disruptive tactics

time and time again. The developer and its supporters cannot

respond with similar inflammatory tactics, because they have

to continue to work in the community when and if the project

14 Engage: Volume 11, Issue 3

goes forward, and thus cannot afford to alienate the key players

with whom they will have to cooperate on both this and other

projects. The opponents of development thus have a strident

freedom of action that developers cannot match.

From this political turmoil economic stagnation can

follow, for the dilapidated warehouses sitting on the property

remain in their faded squalor because nobody can agree on the

ideal configuration of townhouses or condominiums. The result

of these heavy costs is a chronic underproduction of housing

for new arrivals who might do much to revitalize commerce

or trade. Faced with these roadblocks, the major tactic to

expand supply in a place like New York is to subdivide small

apartments into still smaller units in order to lower the price to

the point where ordinary people can afford to buy them. The

800-square-foot apartment that once had two tenants now has

three. Perpetual gridlock in the new housing even hurts the

incumbents in the long run even if they happen to benefit from

the outcome of a particular dispute. They could well favor a

project located a mile away, but are powerless to steer it through

the local opposition, which gives pride of place to a powerful

breed of NIMBYism. The new way of business is so entrenched

that freedom to build in real estate markets is never thought of

as a viable option. The permit culture becomes a way of life.

Th is system produces other inequities which magnify the

advantage of initial entrant into a community. The common

law rules on first possession gave a person exclusive rights of use

and disposition of the land so possessed. But those rules never

prevented neighbors who arrived later from exercising the same

rights over their own land. The newer political economy gives

the early arrivals who develop their property an unwholesome

political advantage in the form of a near-veto right over later

developers that was no part of the traditional bundle of common

law property rights. But since rights are always scarce like other

resources, that veto advantage in the first-to-build hurts the

newcomers. The result is that local politics, say in the form

of rent stabilization (which should also be attacked under the

Takings Clause), creates a group of privileged incumbents

who can raise the value of their own homes at the expense of

others who are forced to find very marginal accommodations at

extremely high rents. The idea that these peculiar distributional

consequences from regulation are intrinsically desirable is a first order

intellectual mistake that drives Justice Brennan’s faulty

analogy between competition and legal restriction. The system

of land-use restraint has worse distributional consequences

than any open market for real estate that obeys the simple and

sensible constraints on private real estate development. The

dominant paradigm thus imposes major allocative losses in

order to solidify perverse distributional outcomes.

A Path For Reform

The present situation is ripe for change. The key question

is what would happen if New York City and other cities around

the country were to reverse course, such that the loss of a right

to build, which is a loss of a use right, is treated as a fully

protected species of private property instead of a nondescript

interest that the government can always toy with at its free will

and pleasure? At this particular point, the entire dynamic of the

political process will change and change for the better. In this

universe the opponents of new development will have only two

legitimate options. The first is that they remain able to enjoin

those activities that, if allowed to take place, would result in

harms for which the new developer could rightly be required to

compensate his aggrieved neighbors under the traditional law

of nuisance. No property owner can construct a building that

is likely to topple over only to smash on the pedestrians below.

I dare say there’s not a single builder anywhere in New York

State or New York City that proposes to engage in construction

that poses serious risk to life, limb, or property. Narrowly

tailored building codes that addressed these external risks could

withstand any constitutional challenge, without reintroducing

the set of destructive veto gates under current law.

Second, local governments should have the power

to coordinate new construction with existing and future

infrastructure. The question of how much off -site parking

is required for a large development, what kind of curb cuts

are needed to secure vehicular access without endangering

pedestrians calls for some measured degree of public regulation.

Yet these issues in virtually all cases turn out to be low-level

technical disputes that today rarely form the stumbling blocks

for new development. It is typically possible to relocate a garage

entry so that it does not open right next-door to an elementary

school.

Apart from nuisance and infrastructure, the correct legal

rule requires all local governments to buy for those extras

that existing landowners demand for themselves. Ideally

local governments should also have to pay for any extra delay

from stringing out the administrative process to interminable

lengths.

What changes in local government behavior should we

expect under this new legal regime. There are some glimpses.

Occasionally, some states like Oregon have flirted with legal

regimes that say that any increase in regulation that reduces

land values above a certain level must be paid for by the

government that imposes it. Demand for these regulations

typically disappears once the price tag is attached, which should

come as no surprise. The basic dynamic in all these development

settings is that the internal gain of the developer sets only the

lower bound on the amount of social gain that a particular

project will generate. Even if the developer is compensated

for his loss, the government restrictions could still prove too

severe. But the issue is usually academic. Even the prospect of

partial payment for direct developer losses is enough to sink

the political opposition.

Indeed, these observations reveal one common danger of

speaking about the interests of the "community" in land-use

disputes. This rhetorical trope consciously excludes the interests

of those outsiders who would like to move into the community

if only they could find a place to live. Those outsiders, of course,

would profit from the deals they make with the developer.

Any comprehensive social calculus has to include those gains,

which can be quite large once modest local adaptations are

made when the outsiders come in. The new apartment building

that is ferociously fought one year becomes part of the fabric

of the community the next year. Once these issues are put on

the balance, blocking the project looks like a negative sum

outcome, which turns hugely negative when the additional

December 2010 15

costs of administration, error, delay, and uncertainty are factored

into the equation. It is the modern tragedy of incurring heavy

administrative costs in order to secure allocative losses.

Matters need not always remain that way. Once the

price tag is added to the mix, the negatives and the positives

are now brought into alignment. Given that the opponents

of the project will have to pony up more money to stop the

project than they could gain from it, they won’t do it, even if

the costs of coordinating their venture are zero. It never makes

sense to expend $100 to secure a $50 gain. So understood,

much of local opposition should be understood as a form of

strategic "cheap talk." In case after case, once a compensation

requirement is put into place, the opposition slinks way.

Passionate indignation is in abundant supply. Dollars are not.

The moral of this story should be clear. Neither in New York

City or anywhere else should reflective citizens be prepared to

tolerate a situation where endless delays take their toll in time,

money, and uncertainty on those entrepreneurs who are trying

to expand the homes, offices, and shops where ordinary people

live and work, in order to let a few citizens objectors preserve

their own short-term serenity, leaving everyone else to gather

the scraps.

Unfortunately, the Supreme Court’s flaccid approach

to regulatory takings in Penn Central has created a huge void

in which property rights have become indefinite. It is that

indefiniteness of rights that in turn allows political intrigue to

flourish. My alternative approach cuts down on opportunities

for these illicit transactions without interfering with sensible

state functions like controlling nuisances, ensuring safety,

controlling infrastructure, and directing traffic. Yet, by the same

token, this alternative approach does signal an end to all sorts

of other exotic restrictions, which in effect can sap all the gain

out of real estate projects that could to be to the benefit of the

community at large if only allowed to go forward.

Originalism, Judicial Restraint, and Takings Law

One standard rebuttal to my position is that it may

represent sound policy, but not sound constitutional law. The

argument against constitutional protection of private property as

an originalism matter never did extend to the area of regulatory

takings. At this point, there is a familiar tension between the

historical instances that are said to have sparked the inclusion

of a particular guarantee into the Constitution and the scope of

the guarantee that is included into the constitution. It could be

said, for example, that the immediate instance of government

practices that sparked the Takings Clause was a fear of outright

seizure of land, or taking slaves from their owners without

compensation. But the constitutional text, which speaks about

private property in its widest signification, addresses a systematic

protection of a bedrock social institution.

Here are some relevant comparisons. When those

institutions are at issue in connection with speech under the

First Amendment, no one thinks that the Amendment should

be limited to government actions that shut down a newspaper,

whether or not they leave the owners in possession of their plant.

The legal rules quickly address permissible forms of taxation,

permissible forms of regulation short of an outright prohibition

on speech, and permissible rules of liability for defamation and

invasion of privacy. It is those same three dimensions that a

comprehensive theory of takings has to move as well. Similarly,

the Fourth Amendment protection against searches and seizures

has not been interpreted to tolerate all sorts of surveillance

that was not possible at the time of the finding. Once again

the fear of circumvention by wrongful government action

leads to the quick conclusion that eavesdropping is covered

by the Amendment even if it does not involve a trespassory

invasion of private property. The history does not impose

shackles on any interpretation of the other guarantees in the

Bill of Rights which is consistent with the text and the larger

purposes—the constraint of government abuses against which

it was directed.

The more difficult question is whether a rigorous analysis

that only looks to the original public meaning of the written

words of the text can be a faithful guide to constitutional

interpretation. No workable originalism could reject fidelity to

text. But by the same token no workable originalism can limit

itself to parsing the words of the text. Indeed, no one who has

ever steeped in classical interpretive methods ever defended the

view that a key governing text had to be complete and entire

unto itself. In all cases, the text was read and understood against

the backdrop of a strong interpretive tradition that dates back to

Roman times, and which was followed consistently throughout

the following centuries.

I know of no better way to understand this issue than to

refer to one of my favorite Roman texts—the Lex Aquilia of 287

BCE, which was written in stone, and thus not subject to easy

amendment. It showed how to make a flxible interpretation

of doctrine that avoids a rigid narrowness on the one hand and

the free-form discourse of Justice Brennan on the other.

The key feature of this approach is to start with a single

prohibition that in the case of the Lex Aquilia condemned the

unlawful killing of a slave or herd animal. That was it for the

written text. But the law of these killings went far beyond these

words, as the basic qualification prohibition was systematically

qualifi ed in two ways to meet the challenges of the discerning

skeptic. The first involves issues of strategic behavior. X knows

that he cannot kill Y without being punished. So he decides to

place poison in the milk which he places in front of Y. Y then

drinks the milk and dies. X defends himself by saying that he

did not kill Y who in ignorance of the risk chose to drink the

milk and thus in effect killed himself. It never works. To be

sure there was the act of Y that intervened between the act of

X and the death of Y, but the counter response is that anyone

who tries to circumvent a powerful norm will, in fact, be found

liable if the tactic he uses is sufficiently similar to the forbidden

tactic. Dutifully, the Romans developed the principle causam

mortis praestare, meaning "to furnish the cause of death," which

did not literally fall within the Lex Aquilia, but was subject

to the same treatment (some procedural details aside) as the

direct killing.3 The precise English analogy is the action on the

case—placing a log on a road—which grew up to supplement

the tort of trespass, which was confined to cases of the direct

application of force by one party to another.

This principle of statutory interpretation was well understood

and accepted by the Framers. To treat it as though

it is some foreign element that was to be expunged in the name

16 Engage: Volume 11, Issue 3

of originalism is to misunderstand the originalism. It is not

that careful textual interpretation of the words in the text can

be ignored. It is just that these words have to be read against

an interpretive tradition which in this instance has a powerful

social justification. Thus does anyone think that a decision by

government officials to blow up a private home is not caught

by the Takings Clause because the government does not enter

the land or allows the owner to retain possession of the rubble?

Just as private parties can be guilty of evasions of public law, so

public officials can be guilty of evasion of their constitutional

obligations.

The Lex Aquilia used a second nontextual move. Defenses

to killing were allowed, to cover such matters as self-defense,

assumption of risk and contributory negligence. Once again this

move has its precise constitutional analogue, which covers the

extensive development of the "police power" exception to the

Takings Clause, and indeed to every other major constitutional

protection of individual rights to cover regulations that deal with

matters of health, safety, morals and the general welfare. Once

again this critical element of the constitutional tradition has

no textual warrant in the Constitution. Nor, ironically, was it

seriously discussed during the founding period. But just as the

anti-circumvention rules expand the scope of the basic text, so

the police power move limits its scope. The government can,

for example, disarm somebody who’s about to kill a stranger.

The owner of the property cannot treat that as an unlawful

deprivation of the property. The control of common law

nuisances is a classic instance of a proper police power initiative

that allows for state restrictions on the private use of land,

without just compensation.

The careful originalist position also must be aware of

the overuse of physicalist images in determining the scope of

constitutional protections. For example, current property law

gives strong protection to patents, copyrights, and trademarks,

none of which can be seized physically by the government. But

essentially they are treated as seized, if somebody else is allowed

to use them in addition to the owner. There’s nobody who thinks

that that particular doctrine is not appropriate, notwithstanding

the absence of some physical interest at stake. Various forms

of electronic surveillance often are of dubious physicality, yet

they do not fall outside the scope of the Fourth Amendment

protections against searches and seizures.

Indeed, as I mentioned earlier, it is not clear Penn Central

should be treated as a regulatory taking case at all when it is

a confiscation of air rights under standard common law rules

under which these rights were severable estates that were capable

of being alienated, mortgaged, donated, or bequeathed. What

happened in Penn Central was an intellectual travesty. Once

the property owner complained that the government took

its air rights, the Court replied "no, no, no; so long as you,

Penn Central, retain the ground rights, the air rights don’t

count as protectable property rights, even when they are held

by some separate owner." The line between the physical and

the regulatory is vanishingly thin. Penn Central is probably

incorrectly decided because it does not follow the central

maxim of takings law which holds that state law determines

the nature and scope of the property interests that the United

States Constitution protects.

Fairness and Efficiency—Opponents or Allies?

In responding to originalist arguments, the opponents of

a broad reading of the Takings Clause make a different claim.

The Takings Clause should not be read in a crabbed sense so

that its sole objective is to protect some undefined notion

of economic "efficiency." The fairness element is a constant

theme in the public discourse on this issue, and it too should

be incorporated into the analysis so that due weight is also

given to community interests. I believe that this position

misunderstands the interrelationship between fairness and

efficiency. Indeed, one reason why the clause is susceptible to

a coherent and comprehensive interpretation is because of the

close correlation between fairness and efficiency when both

concepts are rightly understood.

First of all, on the efficienty side, the standard economic

definitions of efficiency are necessarily implicated by the

Takings Clause. The two standard definitions are closely related

insofar as both seek to combine the subjective states of different

individuals in order to create a composite measure of social

welfare. The first of these two definitions in the Pareto standard

which holds that a general kind of regulation will be Pareto

efficient if when all is said and done each person is at least as

well-off after the social program is implemented and at least

one person is better-off . The reason that this formula implicates

compensation is that various kinds of transfer programs can be

used to off set any skewed distribution that regulation otherwise

brings about. Th us suppose that a system of regulation moves

one person from ten to twenty and another person from ten to

eight. Th at system is not Pareto effi cient because of the shortfall

for the second person. But it can be made to be Pareto effi cient

if two units are paid over to the second party from the fi rst to

compensate the former for his loss. Indeed, it should be clear

that in this simple example, in the absence of transaction costs,

distribution of the ten units of surplus between the two parties

is consistent with the definition of Pareto efficiency. From this

example it is a very short stretch to note that if the state takes

the role of the fi rst party, it can take (or regulate) land so long

as it meets the just compensation requirement by paying off

two units to the individual owner whose property is taken. The

Pareto test thus maps easily into the constitutional standard.

In contrast, the Kaldor-Hicks formula builds off the same

basic insight that compensation between parties is one way to

insure overall social efficiency. But it does not require that this

compensation be paid with all the transaction costs that are

thereby imposed. It only requires some demonstration that

the winner from some government action be able to provide,

hypothetically, compensation to the loser and still be better off

himself. As a general intuition the higher the level of transaction

costs, the greater the appeal of the Kaldor-Hicks formulation,

which does not, however, meet the constitutional standard that

calls for the provision of just compensation.

As a normative matter, however, it is equally clear that

the higher level of perceived fairness comes with the Pareto test

under which no person is required to make on net a sacrifi ce for

the common good. Individual property may be taken against

an owner’s will but the off set will be supplied in some other

form. Indeed that is the precise logic that dictated the outcome

December 2010 17

in the important 1960 case of Armstrong v. United States,4

which articulated the most common fairness justification of the

Takings Clause when it wrote that "[t]he Fifth Amendment’s

guarantee that private property shall not be taken for a public

use without just compensation was designed to bar 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."

It is easy to see where the fairness reference comes from.

In that case Armstrong had a materialman’s lien United States

Navy vessel berthed in Maine waters. The United States decided

to dissolve the lien by sailing the vessel into international

waters. The construction of the boat was for the benefit of the

public at large, not the materialman alone. So it is just not fair

that he should pay the disproportionate cost of providing that

indubitable public benefit. Since the lien cannot be restored,

the government’s unilateral action did not let it go scot free.

Rather it transformed the government into a unsecured

debtor that had to pay the debt out of general tax revenues.

To be sure, this fairness standard might not apply in all cases.

Indeed, historically, asking when the Pareto standard should be

abandoned poses one of the great challenges of constitutional

theory. The correct answer usually is to do so only with

widespread social changes which we are confi dent generate

huge social gains, so that we can prevent the situation where a

complex set of legal transformations cannot go forward because

some uncompensable loss of ten units to one person blocks an

ambitious initiative that generates hundreds of units of gains

to everyone else. But short of those extreme cases the fairness

concern tends to point to the Pareto test, which is why the two

standards are operationally so closely linked together.

There is, moreover, one critical common feature that exerts

an immense influence in thinking about the proper role for

government coercion. Although the Pareto and Kaldor-Hicks

tests diff er in how they divide gains from government projects,

both of them unequivocally condemn the government initiation

of those projects that generate net losses, such that providing

compensation, hypothetical or real, becomes a definitional

impossibility. But the importance of this point is easy to

overlook. The common way of thinking about the Takings

Clause is to assume that it only regulates the distribution of

benefits or losses from those projects that do take place. But

in fact one of its most vital functions is to aff ord a general

all-purpose screen that blocks in practice those government

initiatives that should not be undertaken in the first place. The

price system in ordinary economics has, by way of comparison,

one desirable function of making sure that goods and services

do not get provided to the wrong people. The price mechanism

adopted under the takings clause has exactly the same effect. In

general every time that we can identify some public projects that

do not take place, we have good reason to praise that result so

long as the compensation measures are accurately set.

In practice therefore the Takings Clause in its multiple

guises prevents both inefficiencies and inequities at the same

time. Why then should any court want to back off its logical

structure and subject private ownership to the vagaries of the

political process? The usual argument in that regard comes

from the supposed belief that the principle of judicial restraint

demonstrates that it is not an appropriate function of courts

to intervene in, for example, land-use disputes no matter how

scandalous because courts do not have the expertise to so do.

Fortunately, that logic has never dominated across the board,

as many areas of law dealing with speech, religion, and searches

and seizures show that it is possible to develop coherent rules

under which judicial intervention is not an arbitrary expression

of political will. Th at is surely the case with the Takings Clause

once regulation and occupation are seen as part of a single

continuum that are governed by a uniform set of rules.

The key question in many cases is how to work out the

principles of compensation. In dealing with the occupation of

a single parcel by the state, cash compensation is the norm,

because there is no reason to think that the occupation in

question supplies any in-kind compensation to the dispossessed

landowner. The same is true of land-use regulation which is

directed to a single parcel. That form of "spot zoning" subjects

the landowner to immediate losses in uses for which there

are no off setting benefits. Yet the situation may change if the

regulations in question cover a large number of parcels, each

of which are benefitted and burdened in the same degree. As a

matter of first principle, the burdens on each parcel count as the

taking for which the benefits received from nearby parcels count

as the return compensation. In some cases the entire scheme

could leave each owner better off than before, at which point

no further compensation is required. But in other cases, the

compensation in question may amount to only a partial off set

of the loss from the parallel restriction, at which point some

cash compensation is needed to off set the difference.

In dealing with these cases, my rejection of the supposed

principle of judicial restraint does not imply that courts should

take over the world. There is, for example, no warrant for any

court to decide whether or not the state should, or should not,

condemn a particular parcel of land. Th at decision is a political

function, subject to the limitations of the public use requirement.

The proper role of the state is to be sure that the correct levels

of compensation are supplied once the compensation of the

property in question is determined. I do think, however, courts

should decide that the compensation is needed. The rejection of

the categorical distinction between occupation and regulation

in no way undermines that distinction, nor does it off end any

originalist position or force courts into any improper role.

There is no need to fear the proper reading of the Takings

Clause. There is much to fear in the current situations where

its commands are systematically ignored.

Endnotes

1 United States v. Kaiser Aetna, 444 U.S. 164 (1979).

2 438 U.S. 104 (1978).

3 For discussion, see Richard A. Epstein, A Common Lawyer Looks at

Constitutional Interpretation, 72 Bost. U. L. Rev. 699 (1992).

4 364 U.S. 40, 49 (1960).

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