If pressed to sum up their political philosophy in a single sentence, many libertarians will cite the following proposition, formulated by Ayn Rand in her essay “Man’s Rights”:
A civilized society is one in which physical force is banned from human relationships–in which the government, acting as a policeman, may use force only in retaliation and only against those who initiate force.
In a second essay, “The Nature of Government,” she expresses the same essential idea in a slightly different way:
The precondition of a civilized society is the barring of physical force from social relationships–thus establishing the principle that if men wish to deal with one another, they may do so only by means of reason: by discussion, persuasion and voluntary, uncoerced agreement.
The moral stance referenced above has come to be known as the “non-aggression principle” (or”axiom”).
Both Randians and a second group of libertarians who derive natural rights from the fundamental principle of self-ownership (the “anarcho-capitalists”) hold that fraud is a form of aggression or theft, and should be prohibited and punished on this basis. The purpose of this post is to examine whether these theorists have convincing grounds to do so within the confines of the intellectual frameworks under which they operate.
This is an important question because virtually all libertarians agree that fraud should be penalized, so a failure to demonstrate that this conclusion can plausibly be derived from their first principles would be a cause for concern about the soundness or at least the completeness of the ethical foundations they have adopted. I will suggest (without treating this subject in the depth it deserves) that there is no clear basis for deriving prohibitions on fraud from Randian ethics or from self-ownership, and will argue that a Nozick-style libertarianism, based on “respect for persons,” is a much surer route to this conclusion.
Rand does not discuss the issue of fraud in any detail, but it is clear that she regards it as akin to the initiation of physical force that is prohibited under her non-aggression axiom: “Fraud [like breach of contract] involves a similarly indirect use of force: it consists of obtaining material values
without their owner’s consent under false pretenses or false promises”
(from “The Nature of Government”). However, with all due respect to Rand, her effort to assimilate fraud to some sort of “force” is unsatisfactory.
There are at least two problems. First, the mechanism of fraud does not involve the use of force in the ordinary sense of that term. Rather, fraud is the inducement of trust through some form of misrepresentation or deceit. The crime is consummated when the victim hands-over his money or property to the perpetrator. In some sense the victim’s cooperation is required to effect the fraudulent transfer. By the time the fraud is discovered, the proceeds will often have been spent or dissipated, so there is not even an immoral use of force in holding onto the ill-gotten gains.
But there is a deeper problem. For Rand, the non-aggression principle is the product of a comprehensive philosophical system she called Objectivism. I have critiqued the ethical foundations of her theory in my book, Nozick’s Libertarian Project: An Elaboration and Defense, and so will not repeat it here. One of the basic problem I see is that Rand’s ethical system, contrary to conventional morality, locates the origins of our moral obligations not in the duties we owe others, but in the duty we owe ourselves to act “rationally” (in her particular interpretation of this notion).
So, it is unclear why we should punish someone for acting “irrationally,” i.e. by perpetrating a fraud. Didn’t the scam artist harm only himself? Moreover, even if we get past this problem, we can ask why the victim should be allowed redress for his failure to act rationally, i.e. to detect or prevent the fraud. More needs to be said here, but I think the preceding is at least sufficient to identify the difficulty I see with the Randian treatment of fraud.
I see similar difficulty for those libertarians (the anarcho-capitalists) who base their political morality on the idea of self-ownership and thereby derive a right to retain the fruits of one’s labor. In order to forestall any positive (welfare) rights, they hold that all rights are property rights. They then assimilate fraud to theft, in that both actions involve taking property without the consent of the owner, and thus justify punishment for fraud on this basis.
But fraud doesn’t, for the reasons outlined above, look anything like theft. Not only does the thief not need to create misplaced trust on the part of the
victim, but he need not have any interaction with him. The scam artist gets the “mark” to hand over his property, while the thief simply takes what he wants.
The result of fraud and theft may be the same, but the mechanism is distinctly different. Since the hallmark of fraud is deception, this calls into question whether this act may plausibly be viewed as the violation of a property right. And even if it is, then might not other behavior that libertarians regard as benign also be classified in this way? For instance, if A is in a much stronger economic position than B, and exploits this advantage to drive a very hard bargain, should B be allowed later to rescind the agreement on the grounds of an absence of true consent?
I believe that a Nozick-style libertarianism, which derives side constraints from Kantian notions of respect for persons as “ends-in-themselves,” offers a superior solution to the regulation of fraud. Due regard for the special moral status of individuals dictates that they not be intentionally used by others solely as a means of promoting some extraneous purpose, such as the redistribution of wealth. This constraint not only precludes the use of force or coercion (subject to a limited range of exceptions such as self-defense), but also justifies the punishment of fraud.
On this view, theft and fraud are wrong for the same reason, i.e. the perpetrator is using the victim entirely as a means of accomplishing his own selfish ends. Such conduct clearly fails to accord moral agents the deference due them, and for this reason both may be criminalized on Nozick’s principles.