On Wednesday, the Supreme Court heard oral arguments in the most important property rights case since the controversial Kelo v. City of New London ten years ago. The case, Horne v. Department of Agriculture has dramatic implications for the application of the Fifth Amendment’s Takings Clause and property rights in general. Horne concerns the government’s ability to seize large amounts of raisins (to control prices) without guaranteed compensation beyond the “benefits” of the price control.

Horne leaves us with a disturbing question that we must examine further: do we really control our own private property?

Horne: A Matter of Raisins

The facts of the case might be comical if it weren’t for the decision’s potentially dire consequences. The Agricultural Marketing Agreement Act of 1937 allows the Department of Agriculture (USDA) to regulate the sale of raisins, which is done through the Raisin Administrative Committee (RAC). The RAC requires raisin “handlers” to withhold some of their product each year, which Breitbart cites as 47% of total raisin production in 2002-2003, and and 30% in 2003-2004 (the years prompting the lawsuit). Failure to comply with the reserve requirement may lead to criminal and civil penalties.  The federal government then seizes control of these raisins in the name of price control and “stabilization,”. If the government sells these reserved raisins, it covers certain administrative costs and then provides “handlers” with a “pro rata” share of the proceeds, which could range from zero to “significant.”

The plantiff, Marvin Horne, processed 3 million pounds of raisins, but refused to send his “resquite portion” to the RAC’s withholding reserve.  Thereafter, the USDA began administrative proceedings (by assessing monetary penalties) against him. In response, Horne claimed that the Fifth Amendment required “just compensation” for property seizure.

After the Ninth Circuit decided that Horne lacked standing to use a Fifth Amendment defense, Horne appealed to the Supreme Court, who unanimously ruled that Horne’s defense could proceed. This forced the Ninth Circuit to reconsider the full merits of the case. When the Ninth Circuit reconsidered the case, they ruled against Horne again, on grounds that there was no “taking” in Horne’s case. In the words of the court:

Here, the reserved raisins are not permanently occupied; rather, their disposition, while tightly controlled, inures to the Hornes’ benefit. Coupled with Lucas’s distinction between real and personal property, this assures us the diversion program does not work a per se taking… The Secretary did not authorize a forced seizure of the Hornes’ crops, but rather imposed a condition on the Hornes’ use of their crops by regulating their sale.

The Ninth Circuit’s logic was predicated on the idea – supported by precedent in Lucas v. South Carolina Coastal Council – that personal property does not receive the same protection afforded by the Fifth Amendment to private property, which reads: “…nor shall private property be taken for public use, without just compensation.” For the Ninth Circuit, Horne’s argument that the government failed to sufficiently compensate “handlers” is irrelevant because the property was not taken.

The Nature of Private Property

Let’s consider the implications of this ruling by considering the meaning of property itself.

Both American and international bodies have recognized property rights, though they have not detailed their breadth. The United Nations’ own Universal Declaration of Human Rights enshrines property rights in its Article 17. In the United States, this right to property ownership is indirectly protected by the Fifth Amendment, which declares that no citizen should “be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.” The Founders saw property ownership as one of many fundamental rights for citizens, protected the common law of the states, thus property ownership is not explicitly mentioned in the Constitution.

The right to own property is a fundamental right, one essential to a free economy and society. Economist Armen Alchian provides us with a clear explanation:

The fundamental purpose of property rights, and their fundamental accomplishment, is that they eliminate destructive competition for control of economic resources. Well-defined and well-protected property rights replace competition by violence with competition by peaceful means.

Humans exercise their rights to “life, liberty, and pursuit of happiness” by acquiring and using property. This security allows greater economic action in a free market.

However, mere ownership of property is not the only aspect of property rights. Roger Pilon’s excellent analysis of property rights discusses the rights of use, especially as such use may affect someone else (which is perhaps the largest gray area in property rights theory). Using the example of a homeowner who builds an extension that blocks his neighbor’s ocean view, Pilon argues that the builder does not violate his neighbor’s rights because the second did not “own” the view. The corresponding reduction in the neighbor’s property value is not the loss of a right in a free market society. Pilon acknowledges that use of property may also create true externalities, such as when “we expose others to noise, particulate matter, vibrations, odors, and other forms of nuisance; and to the risk that our actions may go awry and injure others.” Externalities do constitute an infringement on our neighbors’ rights, and certainly require political law, common law, and regulation to ensure that other citizens have their rights protected.

This defense of property rights is just an application of the harm principle: one may use one’s property as one sees fit, provided that use “[takes] nothing that belongs free and clear” to another. In summation, property rights allow one to own and use property as matter of fundamental human rights, ensuring a just society and effective market economy.

How Horne Could Get Property Wrong

How is this lengthy defense of property rights relevant to Horne? Because the Constitution allows governments to “take” “private property” for “public use.” Since Horne does not address the matter of “public use,” I will leave that vital matter for another column. However, it is clear that if the Ninth Circuit’s ruling is upheld, the definitions of “taking” and “property” will be unjustly narrowed.

The Fifth Amendment makes no differentiation between “personal” and “real” property. The Founders recognized that there were different types of property, and yet chose to make no distinction between them when drafting the Amendment. In Federalist No. 10, James Madison notes that different property exists, and that all types deserve protection from the tyranny of the many:

“The diversity in the faculties of men, from which the rights of property originate, is not less an insuperable obstacle to a uniformity of interests. The protection of these faculties is the first object of government. From the protection of different and unequal faculties of acquiring property, the possession of different degrees and kinds of property immediately results”

Considering the “factions” and the use of “kinds of property,” Madison saw the Constitution as a guarantee of justice in the protection of different economic actions and types of properties. The early American economy still had farmers, financiers, tradespersons, and many other economic actors with different interests. Therefore, protection of a minority faction from abuses of the majority (tyranny of the many) is a major goal of the Constitution, and especially the Bill of Rights. Thus, the Fifth Amendment would hardly discriminate property types, or else certain factions would be favored (i.e. a farmer’s land would receive more protection than a seaman’s ship). In Horne, therefore, the fruit of land and labor should not be seen as less deserving of protection than the land itself.

The government action in Horne constitutes a “taking” of property by moral standards. A “taking” occurs when the government actually takes possession of a property (such as eminent domain) or through regulatory actions that restrict or prohibit certain uses to pursue a public interest, not including preventing harm to others. In the purely philosophical sense, the fundamental nature of property rights leads to the conclusion that if a private person or public entity wants to use someone’s property, that other person deserves compensation if they so choose. Five other federal circuit courts have agreed to this simple logic. In this case, the seizure of a significant portion of the raisins, the fruits of capital and labor, ought to be justly compensated.

In the American judicial system, judges have created a myriad of tests and rulings to define a “taking” and the extent to which a property is “taken” when determining compensation. A chronology of Supreme Court “takings” cases, prepared by the Congressional Research Service, can be found here. Courts have recognized that “takings” can occur through physical appropriation or regulations, but have decided that only seizures and regulations “that go too far” qualify as “takings.” Importantly, courts have noted that a lesser government restriction of land use “can trigger a Fifth Amendment right to compensation.”

But what about in Mr. Horne’s case?

The government and its allies have claimed that this case does not constitute a “taking,” and if it does, that the resulting inflated market price of raisins provides compensation to Horne. Horne’s brief, however, shows that the market benefits do not outweigh the loss of so much product. So can the government now seize any manufactured product and then fail to pay compensation because the market value of the remaining products has gone up? A Wall Street Journal column published this week makes this argument, using cars as its example. By the Ninth Circuit’s “logic,” it seems that personal property can be seized for government’s use without direct compensation, provided that the market value increases.

The Future of the Fifth Amendment

The facts seem clear: the government’s seizure of raisins–or the fines it imposed on Horne when he refused to hand them over–constitutes a taking of property. Raisins, product of land, labor, and capital, is property and the Fifth Amendment clearly states “property,” not land, since the Founders realized that different financial interests and properties needed protection under the law. The government took what Horne produced, and did not fully (if at all) compensate him for his loss. The Fifth Amendment needs to be applied without dilution.

As John Adams wisely said, “The moment the idea is admitted into society that property is not as sacred as the law of God, and that there is not a force of law and public justice to protect it, anarchy and tyranny commence.” With Kelo allowing governments to use eminent domain power to transfer private homes to other private businesses for the purposes of “economic development,” the nation moved one step closer to tyranny. If Horne allows uncompensated and unrecognized restrictions to preserve a price hegemony, the United States will have taken antother leap toward tyranny.