Weingast B.R., Wittman D. The Oxford Handbook of Political Economy

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chapter 19

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THE PROTECTION

OF LIBERTY,

PROPERTY, AND

EQUALITY

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richard a. epstein

In his Second Treatise on Government, John Locke argued that the purpose of gov-

ernment was to protect the “lives, liberties and estates” of the people over whom

it exercised political control (Locke 1690, 66 §123). Stated in the broadest terms,

constitutional theory has been a tug of war between the claims of liberty and property

on the one side, and rival claims made in the name of the public interest on the

other. The division is deep, as some writers (Blackstone 1979;Claeys2003; Epstein

2003;Sellers1994) stress property protection, and others (Wood 1969;Novak1996)a

broad conception of public interest. This tension holds fast whether we speak about

property, contract, or equal protection of the laws. In an ideal constitution, the overall

social objective is one that allows for state intervention when it produces some net

social beneﬁt, without leaving any individuals worse oﬀ than they were before the

state acted. That condition is most easily satisﬁed when state powers are directed

to national security, to the control of private violence and fraud, to the regulation

of monopoly, and to the provision of the needed infrastructure on which these

activities can take place. The implicit corollary is that legislative interference with

competitive markets should be prohibited even when done in the name of health and

safety.

Striking that ideal balance between markets and regulation depends on having the

right substantive provisions in a constitution. A socialist constitution that guarantees

richard a. epstein 343

all persons state supplies of food, clothing, shelter, and housing will degenerate be-

cause the state guarantees will make it impossible for the rules of supply and demand

to determine the quantity and price of ordinary goods. The United States Consti-

tution, for all its imperfections, rightly starts from the opposite pole. Its implicit

assumption is that government powers are limited and enumerated in large measure

to forestall the deadly operation of faction, or the political competition over resources

that results in social losses. Its major subtext is to sanction public intervention only

where it promises to be a source of net social gain. Obtaining these results through

purely democratic processes is highly improbable because of the perverse way in

which self-interested political factions can undermine the overall advancement of the

public good. Hence the use of judicial review as a check on majoritarian political

processes. To be sure, the United States Constitution was drafted long before any

explicit development of public choice theory (see Buchanan and Tullock 1962), but

the central lessons of public choice theory do much to explain the basic structures

of the US constitutional order. It is convenient to think of the Constitution as a

master agreement that allows the political branches to supply public goods while

discouraging the rent-seeking and factions that rip societies apart.

The achievement of this overarching goal depends not only on the proper objects

of protection—liberty and property, chieﬂy—but also on the second non-textual

element of constitutional law: choosing the correct standard of judicial review for any

federal or state statute, regulation, or order that is challenged as violating one of these

guarantees. In theory, we might expect some uniform standard of review to govern

all challenges regardless of the clause under which it is made. But from its very outset,

the Supreme Court has operated loosely, if erratically, under three diﬀerent standards

of review when considering legislation with diﬀerent origins, which in modern times

have been conceptualized as follows. The ﬁrst standard of strict scrutiny holds that

a statute passes constitutional muster only if the limitation it poses on a protected

constitutional interest is justiﬁed with reference to some compelling state end, and

achieved by the means that are precisely calibrated to that purpose, so that they are

neither overly broad nor under-inclusive. At the other extreme, government actions

under a rational basis standard pass constitutional muster so long as a rational person

would think that some justiﬁcation for the regulation could be advanced in light of

the history and tradition of the United States, even for laws the court ﬁnds foolish or

oﬀensive. That is, ﬁnd one reason to support the statute, and the court will overlook

the full range of objections raised against it. The standard of intermediate scrutiny

occupies the middle ground, and requires that the state use reasonable means to

achieve a substantial social end. These verbal formulations are of course elusive, but

the bottom line is that the higher the standard of review, the more likely it is that the

statute will be struck down, either on its face or as applied to the particular case. Until

very recently, the implicit rule of thumb was “strict in form but fatal in fact,” while

the rational basis test was tantamount to “proper in form, then valid in eﬀect.” Only

with intermediate scrutiny, which in practice lies closer to strict scrutiny, was there

any real uncertainty as to which way a constitutional challenge would come out. In

all cases, the court engages in some type of “balancing” between the protected private

344 the protection of liberty, property, and equality

right and the oﬀsetting government interest. Sometimes the balance is decided on a

case-by-case basis, and sometimes by category. As the number and complexity of the

cases increase, the number of feasible permutations rapidly grows as well.

Unfortunately, the Constitution is silent on the question of how to choose that all-

important standard of review. Today, with an implicit nod to public choice theory,

the basic judicial approach rests on three elements. First, when the court has some

conﬁdence in the legislative or administrative processes, it is likely to defer to their

judgements. Second, when the court thinks that certain classes of claimants, namely

those individuals who are found in “discrete and insular” minorities, are unable to

protect their interests within the political process, then these persons will receive

greater protection than others whose access to that process is regarded as suﬃcient to

defend their interests (see Carolene Products Co. v. United States 1938, 152 n. 4). Third,

those constitutional rights that are regarded as essential to maintaining an open

and democratic political process will in general receive greater protection than those

which are not. Now, what remains to be determined is how this framework applies to

various substantive areas. The appropriate line of division is as follows. We ﬁrst look

at areas involving political issues, which contain large pockets of “preferred freedoms”

(e.g. speech) or “suspect classiﬁcations” (e.g. race) that attract higher standards of

review. We then look to the economic and property interests that, subject to some key

exceptions, are subject to lower, often rational basis review. A central defect of modern

law is that it uses a lower standard of review in dealing with economic liberties and

property rights, notwithstanding the omnipresent dangers of faction discussed above.

Accordingly, this chapter will trace the pattern of judicial review as it applies ﬁrst to

political, social, and moral issues, and then move on to the parallel discussions for

matters of economic liberty and private property. Its central theme is not that the

standard of review is too high in the former cases, but that it is too low in the latter,

noting the anomalies that arise along the way.

1 Political,Social, and Moral Issues

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Freedom of speech. The court has oﬀered strong protection of freedom of speech,

especially on controversial political issues. The initial struggle over this principle

was tested by various political protest movements that were subject to criminal

prosecution for being a grave threat to public order and safety, by inciting violence

in the form of riots or civil disobedience. One such successful prosecution in the

aftermath of the First World War gave rise to Justice Holmes’s stirring dissent in

Abrams v. United States (1919, 624). The Court upheld a twenty-year prison term

for Russian anarchist leaﬂeteers. Holmes insisted that the state show a clear and

imminent danger of harm before punishing speech, a position that became American

law during the Vietnam conﬂict in Brandenburg v. Ohio (1969). Rules on conspir-

acy and aiding and abetting the commission of speciﬁc oﬀenses involving treason,

richard a. epstein 345

violence, and fraud fall securely within the scope of the police power; the abstract

(i.e. unrelated to a call for immediate action that threatens the life or property of

others) and public advocacy of some unpopular or alien cause does not, because the

fear of government suppression of dissent is too great. The simple insight here is

that protest is inconvenient to political elites but informative to the citizenry in the

formation of public opinion and their participation in elections and public aﬀairs.

The kinds of actions that can be proscribed under the police power as crimes are

all actions that would be considered torts when directed against private individu-

als. There is good reason why social welfare is advanced when the state can halt

or punish activities that produce often catastrophic net social losses. But ordinary

individuals cannot squelch criticism against their own conduct precisely because it

allows other individuals to form better estimates of their overall performance, which

in turn will allow reputable individuals to advance at the expense of their more

dubious rivals. The same logic applies to public aﬀairs where honest and accurate

criticism improves performance in the public sector where direct competition is hard

to come by.

The police power also received a narrow reading in New York Times v. Sullivan

(1964), arising out of civil rights protests in the South. Here the court provided

ample constitutional protection against defamation suits brought against individuals

who criticize public oﬃcials. These critics may only be sued for statements uttered

with “actual malice,” which covers only statements known to be false or those made

with reckless disregard of their truth, as proved by clear and convincing evidence.

That protection is surely warranted with respect to true statements of fact and broad

statement of opinions, but New York Times is in fact diﬃcult to justify to the extent

that it allows for the destruction of reputations without recourse (Epstein 1986).

The appropriate question to ask is whether the gains from free speech are oﬀset by the

greater reluctance of able people to enter the political arena knowing that they have

no redress for hurtful false statements made without actual malice. There is some

reason to think that the New York Times actual malice standard is too protective of

speech.

Recently, the Supreme Court, however, took the wrong turn when it sanctioned ex-

tensive government regulation of political speech that is neither false nor defamatory.

Thus, in dealing with the regulation of political campaigns, the court in McConnell v.

Federal Election Commission (2003) held that the private interest in the funding of

speech undertaken by others is weaker than direct participation in political discourse,

while the danger of the corruption of the electoral process, real or apparent, by mon-

eyed interests justiﬁed extensive congressional regulation of campaign expenditures.

The perceived risk (which was at best weakly documented) led to a judicial relaxation

of the traditional strict scrutiny standard normally applicable to political speech,

even for legislation that systematically favors incumbents and is subject to evasion

by issue-oriented groups who operate independent of political parties. As a matter

of eﬃciency, there is no reason to favor contributions of labor over those of capital,

which this law does. The theory of public choice suggests that the court confused

interest group politics with public-regarding legislation.

346 the protection of liberty, property, and equality

Strong First Amendment protections of “expression” also extend to literary and

artistic forms that go beyond printed materials and broadcasts to include painting,

dancing, theater, movies, and the like, whether political or not. The court believes

that censorship or suppression of these activities impoverishes the common culture

even for speech that some regard as indecent or oﬀensive. Even obscene speech,

spurred on by the rise of cable broadcasting, receives more protection today with

the liberalization of community norms. It is only when the state interest involves the

protection of minor children from forced participation in pornographic acts that the

balance tips to the other side. As Justice Scalia noted in his pointed McConnell dissent,

today the marketplace of ideas appears to be more open to defamers, pornographers,

or ﬂag burners than to organized participants in the political process.

The Supreme court has also ruled that the First Amendment protection covers

“commercial” speech leading to the sale of products, as opposed to the expression

of political opinions by business entities (Virginia Board of Pharmacy v. Virginia

Consumer Council 1976). But even with ordinary advertisements, the court itself has

proved sharply divided in the level of protection oﬀered. The ability to obtain infor-

mationaboutvariouscommoditieshasbeendefendedasessentialfortheoperation

of the general economic and social system, especially with advertisements for legal

services. Yet generally state regulation is permissible (in contrast with political speech)

in order to block false and misleading advertising claims to ordinary consumers.

The controlling belief is that factual statements about truth and falsity can be found

with products but not in politics. But that distinction is hard to maintain when

false political speech is directed to speciﬁc, factual matters such as who voted for or

against speciﬁc legislation. Likewise, the antitrust laws and non-discriminatory taxes

may be applied to speechlike activities so long as they are not singled out for special

burdens. Stated simply, the law has become highly complex because of diﬀerent forms

of protected speech on the one side and the wide range of potential justiﬁcations for

its limitation on the other. The judicial suspicion of big business and concentrated

wealth accounts for the disparities in the level of protection aﬀorded diﬀerent forms

of speech.

Equal protection of the laws. The same tough attitude that has applied to speech

has carried over to laws that classify individuals on the grounds of race, where the

weapon of choice has been the equal protection clause. Thus, Brown v. Board of

Education (1954) overruled the infamous “separate but equal” decision in Plessy v.

Ferguson (1896). The court in Brown invalidated the long-standing practice of seg-

regated schools and other facilities, even though the historical evidence that the

Fourteenth Amendment was intended to bar segregation was mixed and controver-

sial. The vulnerability of black citizens to a white-dominated political process led

the court to reject decisively the standard police power justiﬁcation that segregation

maintained civil order and ensured the purity of the races. Over a decade later, in

Loving v. Virginia (1967), the court struck down an anti-miscegenation law that had

been defended on similar grounds. In contrast, in Grutter v. Bollinger (2003), the court

upheld Michigan’s aﬃrmative action program, showing deference to state oﬃcials

even under a (softened) strict scrutiny standard because diversity in state education

richard a. epstein 347

counted as a compelling state interest that justiﬁed a departure from the color-blind

rule in Brown.

The equal protection clause has also been applied, but under an intermediate

scrutiny standard, to invalidate a wide range of distinctions between men and women,

including sex-based rules that deal with the ability to serve as administrators of estates

or receive dependent military or social security beneﬁts (Reed v. Reed 1971). But eﬀorts

to attack economic classiﬁcations have generally foundered because the court does

not see in these regulations the risk of political domination and oppression that has

been found in more sensitive classiﬁcations.

Consistent with the basic eﬀort to prevent rent extraction, there is much to applaud

judicial intervention to protect discrete and isolated minorities. But there is no reason

to withhold that same kind of scrutiny from other forms of regulation that often have

blatant protectionist motives. There is no a priori reason why ordinary businesses,

both large and small, cannot come out on the losing end of political struggles. Thus a

deferential Supreme Court went astray when it rejected an equal protection challenge

to a statutory ban on plastic milk containers at the behest of paper manufacturers

(Minnesota v. Clover Leaf Creamery Co. 1981). The statute looked like naked protec-

tionism thinly disguised by an appeal to environmental justiﬁcations whose weakness

was belied by the widespread use of plastic containers everywhere else.

2 Constitutional Protection of

Contract and Property

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The relaxed attitude of the Supreme Court to equal protection challenges to eco-

nomic regulation comes at the end of a long history of judicial action on the topic.

Before the New Deal revolution of 1937, the court gave less protection to social and

political rights, and greater protection to contractual rights, economic liberties, and

private property. Today the protections have ﬂipped. What explains the demotion of

economic interests, and the diﬀerence between various classes of rights?

Contracts clause. The court’s foray into economic rights before the Civil War in-

voked the contracts clause to limit state action. The court quickly and sensibly held

that the clause limited the state’s ability to discharge individuals from indebtedness

incurred before the passage of law that delayed the creditors’ right to collect on

indebtedness, or to discharge a debt under an insolvency or bankruptcy law that

was passed subsequent to the creation of the debt. But the Supreme court refused

to recognize any individual right to protect a contractual entitlement against an

insolvency statute that was passed before the formation of a contract, which was then

created with reference to the statutory form. The earlier position exhibited hostility

to the retroactive limitation of contract rights but not to their prospective limitation

(Epstein 1984). That split held roughly until the Great Depression when the Supreme

348 the protection of liberty, property, and equality

Court upheld certain mortgage moratoria statutes intended to supply comprehensive

debtor relief against immediate foreclosure (Home Building & Loan Ass’n v. Blaisdell

1934). At that point, the court invoked larger police power justiﬁcations for social

stability to sustain some, but not all, of these statutes. Since then, the protection for

vested rights under individual contracts has ebbed and ﬂowed, but there is today

no per se prohibition against the retroactive undoing of contractual protections for

completed transactions. In Usery v. Turner Elkhorn Mining Co. (1976), the court

upheld a retroactive imposition of liability on coal mining ﬁrms whose workers

suﬀered from black lung disease, even in the absence of any liability at the time of

the exposure. But in Eastern Enterprises v. Apfel (1998), a sharply divided court struck

down a compensation scheme that reached deeper into the past, and imposed more

substantial liabilities.

The distinction between Tur ne r and Apfel is tenuous at best. Much may be said

for a simple rule that would ban all retroactive imposition of liability, and which

would comport with elementary notions of individual fairness. Economically, that

rule would stabilize expectations and reduce the level of political intrigue that arises

in an eﬀort to redo the past by making it more diﬃcult for one interest group to

shift costs to another. Nor does opening up closed transactions advance the health

and safety of workers by improving working conditions. Accordingly, any question of

compensation for injured workers or other individuals should be a matter of general

public support, as with the special fund for the victims of 9/11, whose validity has

been aﬃrmed.Buttherewasnotsuﬃcient political clout to attract contributions for

general revenues, either here, or in the much larger current dispute about compensa-

tion for the victims of asbestos-related diseases, for whom a political solution has yet

to be worked out.

Economic liberties. The scope of state power was radically changed by the passage

of the Civil War amendments to the Constitution. On its face, the privileges or

immunities clause reads as though it limits the power of the state to pass prospective

regulation that limits the rights of citizens. (“No state shall make or enforce any law

which shall abridge the privileges or immunities of Citizens of the United States.”)

An important antebellum decision, Corﬁeld v. Coryell (1823), held that Article IV

§ 2 (“The Citizens of Each state shall be entitled to all Privileges and Immunities

of Citizens of the several States”) meant that a state which conferred the right to

contract on its own citizens had to recognize an equal right in the citizen of another

state. In and of itself, that clause created a non-discrimination rule that did not protect

any prospective entitlement to enter into contracts. But the parallel language in the

Fourteenth Amendment reads as though it creates a right to contract for “citizens,”

but not for all “persons,” with its ﬂat prohibition against certain forms of state

action. Nonetheless, in the epic Slaughterhouse Cases (1872), a sharply divided court

eﬀectively read this clause out of the Constitution by holding that only the rights that

individuals held as United States citizens, such as the right to cross state boundary

lines or to petition the United States government, were covered by the clause.

Once the natural line of development was blocked, the defenders of economic

liberties turned to “liberty of contract” under the due process clause to gain their

richard a. epstein 349

revenge (Allgeyer v. Louisiana 1897). That clause was broader than the privileges and

immunities clause because it was not limited to citizens, but applied to all persons,

including aliens. Yet this broad reading of the due process clause had to overcome two

objections: ﬁrst, that the scope of “liberty” only embraced the ability to move about

without hindrance; second, that due process referred only to procedural rights such

as notice and fair hearing. The rejections of both limitations were a self-conscious

eﬀort to undo the initial error in Slaughterhouse. But under either clause, the police

power limited freedom of contract, but not for “labor” or, as we would say, “anti-

competitive” restrictions on contractual freedom, which fell outside the health and

safety provision of the police power. Accordingly, this interpretation struck down

federal and state statutes that required private employers to bargain with union

representatives as improper interferences with liberty of contract (Adair v. United

States 1908; Coppage v. Kansas 1914), or which prevented employers with more than

ﬁve employees from hiring more than 20 per cent aliens (Truax v. Raich 1915). The

most famous and controversial decision of the period, Lochner v. New York (1905),

held that a statute prohibiting some bakers from working more than ten hours

per day could not be justiﬁed on grounds of health. Lochner has been widely but

mistakenly condemned as an improper interference with legislative power. Sunstein

(1987) has suggested that the decision showed an undefended preference for common

law baselines that were wrongly thought to be “prepolitical” in nature. But Lochner

committed no such vice, for its functional justiﬁcation was that competition worked

in the long-term interests of employers and employees alike, and that courts must

guard against the factional intrigue that distorts the smooth operation of markets

at both the federal and state level. Strauss (2003) rejects Sunstein’s argument, only

to urge that Lochner was wrong because of its inordinate aﬀection for contractual

freedom. But here too the evidence suggests otherwise. Lochner never challenged the

power of the state to suppress conspiracy, bribery, or extortion, all of which have

negative social consequences. Nor did the court strike down the legislative abolition

of the laissez-faire defense of assumption of risk or the state creation of workers’

compensation schemes. The court also upheld the antitrust laws against claims that

liberty of contract protected cartel formation (see United States v. Addyston Pipe &

Steel Co. 1899). Lochner’s real sin was to repudiate the progressive movement’s fervent

belief that diﬀerences in wealth between employer and employee made fair con-

tracting impossible. But this canonical progressive position involves the elementary

confusion between market power, which is dangerous, and ﬁrm size, which is not. To

its credit, Lochner represents a view that high levels of judicial scrutiny are needed to

combat legislative abuses—the very attitude that proves so inﬂuential in many First

Amendment cases.

To this day, there is no real evidence of any economic dislocation attributable to

Lochner’s view that, absent monopoly, the terms of private contract should be left

to the parties and not to the minimum wage, labor, or anti-discrimination law. So

Lochner was an eﬃcient decision that was repudiated by the New Deal conviction

that the choice between monopoly and competition was one for legislative choice, not

constitutional structure. The overwhelming weight of legal opinion is, alas, contrary

350 the protection of liberty, property, and equality

to Lochner. In part the dominant position rests on the deep suspicion of systematic

exploitation in labor markets, and in part on the superior expertise of legislative

bodies over courts. Needless to say, the risk of faction is always downplayed in

these evaluations. A return to the earlier legal regime would require an enormous

revamping of current legal arrangements, and the force of time makes that change

most unlikely no matter how justiﬁable as a matter of ﬁrst principle.

Contracts aﬀected with the public interest. Similar to freedom of contract is the

ancient doctrine allowing the state to impose controls on that subset of contracts

described as “aﬀected with the public interest.” In its early English form, that doctrine

allowed the state to regulate the rates of those ﬁrms with legal or natural monopolies.

Thus, in Allnut v. Inglis (1810), the King’s Bench held that the sole customs tax-exempt

warehouse, which was licensed to store goods intended for export, could charge only

reasonable rates for its services. The fear was that if left unregulated it would raise

rates eﬀectively to nullify the customs exemption, a clear eﬃciency explanation. As

incorporated into American constitutional law in Munn v. Illinois (1876), the court

upheld the rate regulation for the grain elevators with their “virtual monopoly”

over storage facilities. But in Smyth v. Ames (1898), the court backed oﬀ Munn and

held that any rate restrictions must not be conﬁscatory, because they had to allow

railroads, and by implication other natural monopolies, to recover their costs and

make a reasonable proﬁt. Thereafter, the court allowed the states to choose whether

to treat the “rate base” as only that invested capital that was used or usable within

the business, or to allow returns on all capital invested, regardless of its wisdom. To

this day, there is no clear consensus on the best form to regulate monopoly, but no

powerful constitutional constraint on the form of regulation chosen so long as “the

bottom line” allowed the ﬁrm to avoid conﬁscation by making a reasonable rate of

return on the business (Duquesne Light Co. v. Barasch 1989).

The court repudiated the traditional view of contracts aﬀected with the public in-

terest in Nebbia v. New York (1934), where the state was allowed to set rates to prop up

local cartels. More concretely, New York was allowed to set minimum rates for milk in

an intensely competitive environment. A weak nod to a traditional health justiﬁcation

was not supported by any evidence that low prices led to health hazards that ordinary

inspection programs could not control. As with the labor cases, the court accepted

the even-handed wisdom of democratic processes would work within the state. The

demise of the “aﬀected with the public interest” doctrine reﬂected the same New

Deal-type unhappiness that surrounded Lochner. Even before the watershed events

of 1937, there were clear cracks in the classical literal framework.

The earlier doctrine aﬀorded constitutional protection to competitive structures,

but, as with labor regulation after 1937, the New Deal Court treated the choice between

competition and monopoly as wholly within the legislative purview, notwithstanding

the standard economic demonstration of the superior welfare eﬀects of competition.

The contrary position (held by a tiny minority, including this author) is that this

economic rationale is suﬃciently powerful that a permanent, i.e. constitutional, pro-

hibition against the state formation of cartels makes good sense as a way to stabilize

entitlements and foster a market economy. Such a doctrine is indeed used to this

richard a. epstein 351

very day with the dormant commerce clause, which, absent any contrary command

of Congress (which rarely comes), makes sure that no state imposes anti-competitive

restrictions on the goods and services from other states. Indeed, shortly after Neb-

bia, the court struck down taxes on out-of-state dairy products that threatened to

undermine competitive federalism. The eﬃciency gains from competition were well

understood as between states, but not between ﬁrms (Baldwin v. G.A.F. Seelig, Inc.

1935). And it has maintained that position consistently; for example, by striking down

systems of uniform taxation that supply rebates only to in-state dairy producers (West

Lynn Creamery, Inc. v. Healy 1994).

Takings. The rate-making cases, with their explicit concern with conﬁscation, segue

neatly into the general discussion of the takings clause, which today applies to both

the federal government and the states. The basic distinction under this law is between

physical and regulatory takings (Michelman 1967; Epstein 1985). Is there an economic

explanation for the diﬀerent treatment? The former involves situations where the

state challenges the exclusive possession that an owner can make of his property. It

arises not only by ordering an owner to vacate all or part of his property, today or

in the future, but also by requiring the owner to allow others to use that property

jointly with him, even in some limited capacity, such as installing a small cable box

on a landlord’s property (Loretto v. Tele prompter 1982). Regulatory takings, on the

other hand, encompass those situations where the state allows the owner to remain

in possession of his property but restricts his power to use or dispose of it. Examples

of regulatory takings include height and set back restrictions or a zoning rule that

prohibits commercial development.

This distinction is subject to serious objections. First, the line in some cases is

not all that clear: a rent control statute that allows a tenant to remain in possession

of leased property looks as though it denies the landlord exclusive protection of

property, but nonetheless it is still treated as a regulatory taking (Ye e v. Escondido

1992). Second, the rationale for this distinction is unclear. The court has defended

its view on the ground that the distinction is historically rooted, and that physical

takings are easy to identify and few in number, which makes the high standard of

review administrable. But a zoning ordinance that reduces the value of a valuable plot

of land by 80 per cent or more is far more potent than and may be every bit as selective

as the small physical intrusion in Loretto. Most importantly, the forces of faction are

every bit as powerful with regulation as they are with cases of direct occupation.

Notwithstanding the weaknesses of its underlying analytical framework, this phys-

ical/regulatory distinction plays a vital role in setting the standard of judicial review

in takings cases. Physical takings are virtually per se compensable for the fair market

value of the property taken. The entire action therefore turns on whether the property

may be taken, and if so, how much compensation ought to be provided in these

instances. On the former question, everyone concedes that land may be condemned

for roads and public buildings and parks. The standard rationale for this power is

that it allows the state to overcome the holdout power of individuals by requiring

the taking, but prevents expropriation (and the negative impact it would have on

investment) by oﬀering them just compensation for their losses. In addition, however,