Introduction to the Hoover Classics Edition
“The specter of condemnation hangs over all prop
erty. Nothing is to prevent the State from replacing
any Motel 6 with a Ritz-Carlton, any home with a
shopping mall, or any farm with a factory.”
—Justice Sandra Day O’Connor
It has long been understood that secure property rights
provide the foundation for a free society. Protecting
property was of utmost importance to the people of En
gland who penned the Magna Carta and to our Found
ing Fathers who drafted the Declaration of Indepen
dence and Constitution. In the colonies, the
Revolutionary War was fought in part because of the
Crown’s abuse of property rights, evidenced in the orig
inal slogan of the Revolution: “Liberty, property, and no
stamps!” (Bowen 1966).
Since the Revolution, the United States has seen its
economy and its individual freedoms increase to a level
unsurpassed in world history. Per capita incomes have
doubled with every generation; slavery—the most ineq
uitable distribution of human rights and property
rights—was eliminated, and geographic, social, and ec
onomic mobility are virtually unlimited.
Despite these triumphs, all of which depend on the
sanctity of private property rights, state, national, and
international forces continue to threaten them. On June
23, 2005, for example, the U.S. Supreme Court handed
down a landmark decision in the case of Kelo v. City of
New London [545 U.S. 469] that allowed the city of
New London, Connecticut, to take Susette Kelo’s and
her neighbors’ houses (with compensation) to build a
private development that included a hotel, office build
ing, and condos—all in the name of community devel
opment and increased tax revenues. As the New London
residents discovered, the government’s power of emi
nent domain to take private property for “public use” is
practically limitless. In Ms. Kelo’s words, “This battle
against eminent domain abuse may have started as a way
for me to save my little pink cottage, but it has rightfully
grown into something much larger—the fight to restore
the American Dream and the sacredness and security of
each one of our homes.”
A month after the Kelo decision, the New York
Times (July 28, 2005) reported that towns, cities, and
counties that had development projects on hold pending
the Kelo decision, moved quickly to condemn homes
and businesses and replace them with stadiums, shop
ping centers, and condos. Arlington, Texas, for example,
sought to remove homes for a new Dallas Cowboy foot
ball stadium by filing “condemnation lawsuits” against
holdout property owners. In Santa Cruz, California, the
city began a legal action to seize a parcel of family
owned land that holds a popular restaurant, other busi
nesses, and a “conspicuous hole in the ground” to force
a sale to a developer planning to build fifty-four con
dominiums. The owner of the so-called hole in the
ground claims he is being penalized for trying to build
a unique house on his property. The city states that its
Introduction to the Hoover Classics Edition
condemnation is advancing because “the Supreme
Court gave us reassurance of our ability to proceed.”
During the year following Kelo, local governments
threatened or used eminent domain to transfer owner
ship of nearly 6,000 homes or businesses to private par
ties favored by political decision makers (Berliner 2006).
At the same time, Kelo imprinted the fragile nature of
private property rights on the American public’s con
science and inspired legislators in 47 states to introduce,
consider, or pass legislation limiting local governments’
power to use eminent domain for private development
(Mehren 2006). Property owners rallied behind the
claim by Justice Sandra Day O’Connor, in a dissenting
opinion, that the Court had abandoned a “long-held,
basic limitation on government power” and that “all pri
vate property is now vulnerable to being taken and trans
ferred to another private owner,” but the takings con
tinue.
In addition to eminent domain proceedings, prop
erty is also being confiscated by regulatory takings. The
government’s police power allows it to regulate the use
of property in the name of “health and safety,” even if
such regulation diminishes the value of the property.
Such regulatory diminution of property values begs the
question of how much must the value be reducedbefore
a taking occurs. In Lake Tahoe, years of construction
around the lake has led to extensive runoff of organic
material, increasing the growth of algae and decreasing
the clarity of the lake, arguably threatening human
health. Although existing development was clearly to
blame for the problem, a series of rolling moratoria
against new home construction forced owners of unde
veloped lots to swallow the entire cost of preserving Lake
Tahoe’s beauty.
In the case of Tahoe-Sierra Preservation Council Inc.
v. Tahoe Regional Planning Agency, [535 U.S. 040]
(2002), the U.S. Supreme Court upheld the moratoria
and ruled that it did not constitute a taking because of
the temporary status of the moratoria, meaning that the
property owners were not entitled to compensation for
losses in property value resulting from regulatory restric
tions. Tahoe-Sierra gave legislatures the option of de
priving property owners of the value of their property for
an unlimited amount of time as long as each successive
deprivation is “temporary” in nature (Levy and Mellor
2008). The Court assures the owners that a temporary
prohibition on economic use is not a taking because the
property will recover value as soon as the prohibition is
lifted. As Justice Clarence Thomas pointed out in his
dissent: “The ‘logical’ assurance that a ‘temporary re
striction . . . merely causes a diminution in value,’. . .
is cold comfort to the property owners in this case or
any other. After all, in the long run we are all dead”
(Tahoe-Sierra 2002, 356).
Whether through eminent domain or through reg
ulation, the value of private property has been reduced
by the government’s police power. Although some gains
have resulted from the use of the power, the question
is, who pays and who gains. Should only those unlucky
few who used their savings to buy development lots pay
for the public benefit of a pristine lake? Should Susette
Kelo and her neighbors who lost their homes pay for
Introduction to the Hoover Classics Edition
urban development and increased tax revenues? Justice
Holmes answered this question some eighty years ago
in Pennsylvania Coal Co. v. Mahon [260 U.S. 393]
(1922), when he explained that “a strong public desire
to improve the public condition is not enough to war
rant achieving the desire by a shorter cut than the con
stitutional way of paying for the change.”
Turning to the international front, consider invest
ing in land in a country such as Zimbabwe, where se
cure property rights no longer exist. Robert Mugabe, the
country’s ruler, has dominated the political system since
Zimbabwe’s independence in 1987. His chaotic land
redistribution campaign, which began in 2000 by taking
land from people who thought they had secure title and
giving it to others, caused an exodus of white farmers,
crippled the economy, and ushered in widespread short
ages of basic commodities. A nation that once fed itself
and exported corn and wheat to its neighbors has wit
nessed a government invasion of commercial farms—
leading to a 70 percent reduction in agriculture pro
ductivity (Rothberg 2002).
As a result, a tyrannical government, rather than re
source constraints, has destabilized economic and polit
ical institutions, causing a state of near collapse. By ne
glecting the rule of law, which underpins secure
property rights, Zimbabwe’s economy has rapidly trans
formed from one of Africa’s strongest to the world’s
worst, with the lowest real GDP growth rate in an in
dependent country, an 85 percent unemployment rate,
and spiraling hyperinflation of approximately 80 sextil
lion (1021) percent a year (CIA 2008). Although Zim
babwe is an extreme example, it emphasizes the impor
tance of secure property rights.
This book argues that property rights are central to
freedom and prosperity. This is clear in Zimbabwe,
once a prosperous country and now a nation faced with
starvation. The decision to take Susette Kelo’s house
seems pale in comparison, but it illustrates even govern
ments as stable as that of the United States can use their
eminent domain powers to advantage special interests
rather than protect the rights of citizens. And as we see
in Tahoe-Sierra, regulatory takings also set a dangerous
precedent for the erosion of property rights and there
fore future investment.
People tend to think of property rights in terms of
land, but the connection of secure property, freedom,
and prosperity holds for all property rights. Be it property
rights to oneself (human capital), one’s investments
(physical capital), or one’s ideas (intellectual capital),
secure claims to assets give people the ability to make
their own decisions, reaping the benefits of good choices
and bearing the costs of bad ones.
The link between freedom and prosperity is perhaps
best illustrated by slavery, which eliminates the possi
bility of freedom for those in bondage. If individuals do
not own themselves, they cannot be free. The same
point applies to all assets. When individuals invest in
goods, and when those investments are threatened by
takings, freedom is diminished and prosperity will de
cline.
The crucial connection among secure property
rights, freedom, and prosperity is elucidated in this vol
Introduction to the Hoover Classics Edition
We describe what property rights are (chapter 1),
what they do (chapter 2), how they evolve (chapter 3),
how they can be protected (chapter 4), and what their
future might be (chapter 5). This brief treatment of a
vast and complex subject studied by scholars from many
disciplines is not intended to cover all of the intricacies
of the subject but rather to provide a blueprint for how
societies can encourage or discourage freedom and pros
perity through their property rights institutions.
Much of the literature on property rights—and this
book is no exception—relies on lessons from history. We
have used many examples from the U.S. frontier, where
new resources, expanding populations, emerging tech
nologies, and a lack of formal government afforded a
crucible for property rights evolution and institutional
innovation. Although we have drawn examples from his
tory, the lessons they teach are applicable to the study
of property rights today. From the genetic structure of
living organisms to the open access of the oceans to the
far reaches of outer space, new frontiers where property
rights are undefined offer new opportunities for their
evolution.
How we have dealt with the evolution and protec
tion of property rights in the past and how we deal with
them in the future will determine how free and pros
perous we will be. The United States began with a Con
stitution that limited government power and protected
property rights. Those initial limits are eroding, making
property rights more tenuous and individual freedom
less secure. The question is, what can be done to restore
the founding vision of a free and prosperous nation?
If individuals are allowed more autonomy in the use
of their physical, human, and intellectual property, they
will have an incentive to invest in assets and to use them
productively. These incentives result if people are, as the
Nobel laureate Milton Friedman titled one of his books,
“free to choose.” We hope this book helps readers better
understand what property rights are and how important
they are to freedom, an asset that is all too precious and
scarce.