Natural Rights Libertarianism and Fraud

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.

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10 Responses to Natural Rights Libertarianism and Fraud

  1. Ein Kunsthausmann says:

    NRL, you wrote that “the moral stance referenced above has come to be known as the “non-aggression principle” (or”axiom”).”

    Is it the only nonaggression principle? Well, no. In fact, I have encountered one in which only initiatory force is condemned’, and this condemnation is expressed clearly as such. I forget who was given credit for formulating it, but that’s beside the point. The axiom you cite is a nonaggression principle, but it is by no means the only principle called a nonaggression principle. If you meant to quote someone who used the phrase ‘the non-aggression principle’, you should have been more careful with the quotation marks. I think it’s important, also, to bear in mind that aggression and force are not synonyms.

    As for the paragraph quoted from Rand’s essay, “Man’s Rights”: It’s obvious that Rand was writing from both sides of her mouth. In just one sentence she asserts that “physical force is banned” but contradicts herself by claiming that “the government, acting as a policeman, may use force”. In other words, governors may use force, and everyone else, not. Her principle is not only a nonaggression principle but an aggression principle, too. The government will have to be funded, after all, and if the civilized masses won’t hand over voluntarily wealth sufficient to that end, well, by golly, they’ll need to be encouraged by “the government, acting as a policeman”.

    Rand’s aggression principle is a license that a clique of oligarchs and their sycophants would find most useful for carrying out robberies to obtain wealth with which to keep theirselves in power. It would be useful for conscription, too. Resisters could be jailed on the pretext that the governors are entitled to manpower sufficient to the purpose of government, which includes warding off foreigners who resort to force. I have no doubt that draft dodgers who resisted violently would be smeared as criminals in a world that operates according to the Randian nonaggression principle. (I am reminded now of the bad attitude of a conservative in my own family. He’s not Randian, but he is entangled in the affairs of the Pope’s ecclesia and in the Federalist Society, too. This is significant since long ago a pope asserted that the temporal sword is in the power of his ecclesia to control. It’s to be wielded for Pope and ecclesia by government.) Of course, Rand’s perverse principle establishes a significant moral hazard and makes it seem as if the victims of government would be uncivilized if they fought back. What a confused little girl she was.

    In a way, her error is ironic. She condemned in that same essay the moral double standards employed by rulers in ancient times, and, furthermore, she was so preoccupied with contradiction that she refers to contradiction in the titles of Part I and Part II of Atlas Shrugged. Yet she failed to uproot contradiction from her own thinking. Every copy of Atlas Shrugged ought to be stamped with the phrase, “Beware of John Galt”, on the inside of the front cover and opposite to the picture of Atlas that appears on some editions.

    You are correct that a swindle requires no force; scams like the pigeon drop require not force against the mark but instead that the mark be stupid, gullible, and feebleminded. Failure to recognize this fact about fraud is a large gap in the thinking of many people who identify as libertarians. This, too, is ironic given that so many use the phrases “force or fraud” and “force and fraud” and are fans of Spooner’s essays titled “No Treason”, in which the phrase “force and fraud” appears.

    I haven’t read Nozick, but your remarks about fraud lead me to believe that its time to do so. Thanks for the suggestion.

    • Mark Friedman says:

      Ein,
      You make a number of valid points, although I am more charitable towards Rand than you are. I agree with you that there are “non-aggression axioms” that predate Rand. However, when libertarians use this term they generally have in mind the two quotes from Rand that I cite. Since I am a libertarian, I followed this convention rather than spell everything out.

      I also agree that Rand did not articulate a persuasive reason for favoring minimal state libertarianism over a form of anarchy premised on respect for property rights (Rothbard’s “anarcho-capitalism”), and thus could not justify governmental coercion to fund military defense and law enforcement. Sadly, Nozick did not do much better here, which is a flaw I try to remedy in my book.

      However, I cut Rand a lot more slack then you do. There were not many intellectuals taking a strong moral stand in the late 1930s and early 1940s against the ideology motivating what was surely one of the worst tyrannies in human history–Stalinist Russia. Hayek’s “Road to Serfdom” was not published until 1944. Her arguments may have been flawed, but her heart was in the right place, which counts for a great deal in my book.

  2. Daniel Shapiro says:

    Hi Mark,

    Are you familiar with James Child’s piece in Ethics in 1994 “Can Libertarianism Sustain a Fraud Standard?” May be of interest to you.

    • Mark Friedman says:

      Hi Daniel:
      Thanks for the suggestion. I did in fact read Child’s piece before posting my mini-essay. Given the limited scope of the post, I didn’t want to get into a point-by-point response to his piece, but my conclusion was that his logic was more effective against the Randian rationale for punishing fraud than what I take to be Nozick’s. However, as I hope I made clear in the post, my views are tentative and I am happy to hear a contrary opinion. So, if you disagree with my analysis feel free to let me know.

  3. Mark Friedman says:

    This comment was left on September 19, 2014, by Arthur Krolman. I had to post it in order to remove an ad inadvertently embedded in Arthur’s comment.

    I wrote the below piece a couple of days ago and now come across your excellent essay Mr. Friedman. Thanks. I hope that you and other readers coming across this page might find that it contributes to this discussion about achieving libertarian consistency. I grant you unlimited copyright with no attribution required.

    A LIBERTARIAN CASE FOR LEGALIZING FRAUD

    A majority of libertarian thinkers includes fraud along with initiation of violence against person or property as a violation of the non-aggression principle, the sine qua non of libertarianism. But this is a contradiction because
    1. Libertarians oppose the initiation of violence against person or property.
    2. Fraud is not violence.
    3. Anti-fraud court decisions legalize violence against fraudsters’ property.

    What is fraud? Libertarian thinkers taking the anti-fraud position have defined fraud as a trick to obtain consent from another to voluntarily engage in a trade not defined by contract. The essential goal of the trickster is to make deceitful representations to encourage the dupe to voluntarily believe that he will likely receive a subjective value unbelievably greater than the subjective value of the property he offers in return.

    Fraud is perhaps unpleasant, perhaps immoral and perhaps bad for smoothly functioning markets. But these are not arguments to proscribe it in a true libertarian society. To the contrary, societies that seek to establish rules beyond the non-aggression principle to enforce their subjective definition of what is pleasing, moral and utilitarian cannot call themselves libertarian societies.

    An apparently stronger argument against fraud is that it negates voluntary consent, and hence the legitimacy of the property transfer, because one party of the trade was tricked. This argument must be deconstructed to reveal its error. Firstly, was the trade voluntary? If we can confirm that the threat of physical violence against person or property was not involved, then the trade was indeed voluntary. Secondly, was there consent to the trade? Consent was given but not for what one party believed they were consenting to. In other words, consent was given but one party was in a confused state while giving consent. We assume they made a trade while being in a confused state without fully realizing they were confused, otherwise they would not have proceeded with the trade. But how is that possible? Is this person a child? We assume no. Are they mentally ill? No. Gullible? Perhaps. Ill-informed? Perhaps. Too lazy to perform due diligence? Perhaps. Too much in a hurry to perform due diligence? Perhaps. But how does justifying force to protect such a person concern libertarianism? It does not.

    Should libertarianism stamp out the gullible, ill-informed, lazy and time-constrained? Or stamp out anyone who actively encourages these behaviors to enrich themselves? This does not concern essential libertarianism.

    Contract, rather than anti-fraud law, solves the problems of property transfer conflicts better. And most importantly, it is completely compatible with libertarianism. Contract has a long tradition in common law and is very simple to follow: 1. a bargained for position, 2. a promise and 3. consideration.

    Libertarians in favor of outlawing fraud may think that this is the only way to ensure that private property markets, required for the survival of all humans on earth, can function smoothly. But they forget that profit-seeking entrepreneurs can solve problems like this creatively and without any need to resort to the initiation of violence. Furthermore, a libertarian society that threatens violence against fraud may discourage entrepreneurs afraid of being falsely labeled as tricksters. So promoting anti-fraud law to help markets is both counterproductive and pointless.

    One more reason that libertarians should have a tolerant position towards fraud and deceit is in acknowledging that every trade always contains a degree of bilateral fraud. This is because
    1. No trade occurs unless each trader believes they are receiving value in excess of what they are giving up.
    2. No trader reveals to their counterpart that they are exchanging unequal values because they self-interestedly want the trade to proceed. Each is secretly willing to give up a certain additional amount but invariably keeps this information hidden.
    3. Therefore, both parties in every trade are deceivers.

    Anti-fraud libertarians should also consider whether they are themselves unwitting dupes of a fraud to promote democracy and socialism, i.e. a system where it’s legal for some people to take other people’s stuff by force. Certainly both one-man-one-vote and anti-fraud laws both further this system, both under the guise of noble-sounding ideals.

    In summary, the libertarian case against fraud is weak, contradictory and pointless. Libertarians should recognize that there are two parties to every fraud: the trickster and the dupe. Without both the deceitful actions of one and the due-diligence refraining actions of the other, the fraud would not occur. Both parties are at fault, especially for engaging in trade with no contract. Furthermore, libertarians should be reminded that the fraud occurs with consent on a voluntary basis with no initiation of violence or threats of violence on the part of the trickster. It is therefore perfectly compatible with the sine qua non of libertarianism: the non-aggression principle.

    • Mark Friedman says:

      Hi Arthur,
      Thanks for the interesting and provocative comment, but I am far from convinced. You should start by asking how we justify the institution of punishment. One common answer given by philosophers, to which I subscribe, is that we punish agents because they deserve it, with the severity of the punishment matching the seriousness of the crime. A person who, for example, uses lies to intentionally cheat another out of their life’s savings quite plausibly deserves punishment. You don’t actually give an argument showing why acts worthy of punishment should be limited to those involving force.

      The closest you come is to in effect “blame the victim” by observing that adequate due diligence or contract might have prevented the fraud. But this won’t wash. If I leave for work without locking my front door and a thief takes advantage of this lapse to steal my stuff, 100% of the moral blame and guilt is still his, even if the crime would not have occurred had I had remembered to lock my door. I’m not sure this theft even involves “force” or “violence,” but I don’t think I need to argue this point in light of the above.

      • For the sake of argument, let’s define punishment as initiating violence against the person or property of someone who has not initiated violence against the person or property of anyone else. My essay supports the logic that punishment violates essential libertarianism with its sine qua non, the non-aggression principle.

        “You don’t actually give an argument showing why acts worthy of punishment should be limited to those involving force.”

        The reason why acts in a libertarian society should be so limited is so that the society does not violate essential libertarianism: the non-aggression principle. Societies that have laws justifying force against people who do not initiate violence against person or property (trespass is violence against property, for example) are not libertarian societies.

        “If I leave for work without locking my front door and a thief takes advantage of this lapse to steal my stuff”

        The thief committed violence against your property first by trespass and then by assuming property title of your stuff without your voluntary consent. He also may have made you and your family feel scared and insecure. Retaliatory force against the thief is justified in a libertarian society to compensate you for your loss of property and the emotional duress he caused. Under my definition above, the thief is not punished.

        • Mark Friedman says:

          Arthur:
          I’m sorry, but I can’t spend much more time on this. The NAP is a nice slogan, nothing more; see, e.g. http://bleedingheartlibertarians.com/2013/12/the-dialectical-impotence-of-the-non-aggression-principle-redux/. The NAP is only as powerful as the underlying moral theory that serves as its foundation. You can’t just start with it, then argue that a certain act shouldn’t be subject to punishment because it is not an initiation of force or violence. You might benefit greatly from reading Nozick’s Anarchy, State, and Utopia.

          • Arthur Krolman, CFA says:

            Mark,

            Not sure if Nozick is relevant to this discussion about fraud because he says very little about it according to Prof. Wolff, (former Harkness Fellow at Nozick’s Harvard, department head and now dean at University College London) per this search result:

            “Robert Nozick: Property, Justice, and the Minimal State
            books.google.com/books?isbn=0804718563
            Jonathan Wolff – 1991 – ‎Political Science
            Nozick’s analysis, then, allows him to add the necessary detail to his principle … must also be protected from fraud, an issue about which Nozick says very little.”

            Anyway, I acknowledge that you don’t have time to continue thinking about this. No problem.

            Cheers, Arthur

          • Mark Friedman says:

            Just to be clear, my point was not that Nozick had an airtight justification for punishing fraud, but that there is WAY more to libertarian philosophy, and to the libertarian justification of rights, than the NAP. It is this underlying moral dimension you might find useful.

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