Fraud
Fraud is the obtaining of another person's property by false representation. In libertarian legal theory it is grouped with aggression rather than treated as a separate category of wrong, because the property so obtained was never voluntarily transferred: the defrauder secures consent to a transfer by misrepresenting the thing being transferred, and consent given on those terms conveys no title.
Why fraud counts as theft
Murray N. Rothbard argued that fraud is "implicit theft". A voluntary exchange transfers title because each party agrees to give up one thing in return for another. Where a party obtains goods by representing that he will deliver something he does not deliver, or by misdescribing what he hands over, the condition on which title was surrendered has not been met. The recipient therefore holds property that remains, in justice, the other party's, and recovering it is restitution rather than an act of aggression.[1]
This is why the non-aggression principle can be stated in terms of force alone without leaving fraud unaccounted for. Fraud is not an additional exception to the principle; it is an application of it.
What fraud is not
The definition is narrower than everyday usage, and three distinctions do most of the work.
- A lie is not necessarily fraud. False representation becomes fraud only when property is obtained by means of it. Lying with no transfer of property may be dishonest, but it is not a violation of anyone's rights on this account.
- A broken promise is not automatically fraud. Under the title-transfer theory of contract that Rothbard defended, a mere promise conveys no title and its breach is not theft. Failing to keep an appointment is not fraud. Failing to deliver goods already paid for is, because the money was transferred conditionally on delivery.
- A bad bargain is not fraud. A buyer who regrets a purchase, or who paid more than others would have, has not been defrauded. The question is whether the thing exchanged was misrepresented, not whether the terms were favourable.
Remedy
Because fraud is analysed as theft, the libertarian remedy is restitution to the victim rather than a fine payable to the state, and the measure is the property wrongly obtained rather than a penalty set by statute. Disputes about the appropriate multiple of restitution, and about how fraud should be proved, are live questions in the libertarian legal literature.