Monday, July 04, 2005

The "Fair Market Price" fallacy

The Supreme Court recently ruled in the case of Kelo v. New London, that the government can exercise its eminent domain to transfer private property into the hands of another private entity if this transfer will benefit the “public good.” Previously, the eminent domain provision of the Fifth Amendment, which reads “nor shall private property be taken for public use, without just compensation,” only allowed the taking of land that was necessary for public use, e.g. to build a highway or a military base.

But now, through the wonderful magic of the “living constitution” the “public use” provision has been “interpreted” to mean “private use.” Property rights are the cornerstone of all other rights and the basis of freedom. A nation that does not respect property does not respect men. Although Kelo will not cause local governments to suddenly seize all land in sight, it still deals a deep symbolic blow to our freedoms, which, when coupled with another recent SC case that defined the commerce clause out of existence, makes for quite the Independence Day gift, as Radley Balko points out.


Last Wednesday the Collegian ran a news story on Kelo, sympathetic to this grievous assault on our freedom. It noted the possible local effect of Kelo.

This decision hits close to home in Manhattan with the current downtown redevelopment plan. Had just one vote been the other way, a lot of pressure could have been added to Dial Realty. Jim Harpool, president of Dial Realty of Kansas City, said that even though they still have this option, he doesn't think they will have to use it.

"I think the city has challenged us to not use eminent domain, and we're going to try to do exactly that," he said.

They can't rule out all possibilities of having to use lawful authority though. There are always scenarios that would require its use, Harpool said.

This, effectively, IS using the new eminent domain power. It is simply a new bargaining chip that they can hold over the shoulders of any property owner that won’t be coerced into giving up their property. "We're going to have it one way or another bub, so better take our price now while we're being generous."

Also, as the Vodkapundit noted in the immediate wake of this ruling:

The localities are still required to pay "a just price" when one of these takings occurs, but the price even a willing seller would be able to get from his property just took a huge hit. All a developer has to do now is make a lowball offer and threaten to involve a bought-and-paid-for politician to take the property away if the owner doesn't acquiesce.

Later in the article, mention is made that people whose property is stolen will still be given “fair market price” and then the article ends with this chilling quote:

"I think the bottom line is nobody wants to get to that point, and I think all people are being reasonable, it doesn't need to get to that point," [Commissioner Mark Hatesohl] said. "Eminent domain steps in when people stop being reasonable."

Basically, you stop being reasonable when you refuse to accept the price that the government gives you for your property, even if they call it the “fair market price.”

But this is completely wrong. There is no such thing as an objective “fair market price.” To say there is is to completely misunderstand one of the most basic underpinnings of capitalism and the free market system: freedom. To understand why a “fair market price” makes no sense, you need only to realize that capitalism is synonymous with freedom. The “fair market price,” if such a thing can be said to exist, is the price that each party WILLINGLY, and of their own freewill, agrees to. You offer my five dollars for my hat. I say I want six for it. You then evaluate whether the hat is worth six dollars to you (some mythical "fair market value" being irrelavant) and then decide whether you will accept. If you do, then we will both simply have exercised our freedom and made a mutually beneficial exchange.

The fallacy of the “fair market price” arises because, when a market is mentioned, people tend to literally think of a giant market in which, like some heavenly, omnipotent Wal*Mart, everything has its own neat little price. Your house? Over there in the house aisle, with a price tag on it. But there is no such market in existence. The only way that a “fair” price can be arrived at is if both people agree on it.

To see why the “fair market price” of eminent domain supporters fails, picture this scenario. During the day, a man comes into your house and offers you a “fair market price” for your kitchen table. Why, the materials and craftsmanship put into your kitchen table are worth only $200 dollars, so you’d be unreasonable not to accept this amount when he offers it to you. But, you are rather partial to this table; it has been passed through your family for the last 100 years. On top of that, a former member of Jefferson Starship once ate at it. So you decide not to accept this price. Incensed, the man who offered you this “fair market price” simply pulls a gun on you and takes the table anyways.

This “fair market price” scenario seems obviously unfair and unjust. So why is it just when the state does it? Because its for the “public good?” Setting aside the fact that each individual has their own conceptions of the “good,” and so meeting the public good is impossible, this still doesn’t seem right. What if the person that stole your table then donated it to the local school or military base, thus benefiting the public good? Is this then just? And, with Kelo, remember, this table needn’t even be donated to some public entity, like a school or military base. This person could simply put the table in the restaurant he owns, because then he would make money off the table and be able to contribute more taxes.

Kelo was a monster grab on our freedom. And what does Fox have on? The kidnapping-of-the-week. But its in Aruba this time! How exotic!

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