Fraud
by Joseph Rowlands
Recently on SoloHQ, there's been a discussion on whether fraud is really a kind of initiation of force. This debate has come up a few times in the past, so it might be appropriate to go over the concept.
What exactly is fraud? The short answer is that it's a form of theft. Theft comes in a variety of forms. It can be the lone mugger who puts a gun to you and takes your wallet. It can be the burglar who sneaks into your home when you're away and takes your valuables. It can be the government requiring that you pay your taxes, or nationalizing your company. It ranges from in-your-face aggression where your life is at stake to a subtle and indirect form, where you may not notice you've been robbed, such as embezzlement.
The form doesn't particularly matter. Theft is just the act of taking someone else's legitimate property from them against their will. Whether you make lots of noise doing it doesn't change the essential nature.
So how is fraud a form of theft? Fraud, after all, is tricking someone to give up their property. Superficially, the victim of the fraud is willingly giving away the property. So can this really be considered a form of theft if the victim is willingly participating?
The problem with this view is that it ignores the difference between possession of a good and legitimate ownership. A fraud is based on an economic exchange. The two people decide to trade one set of goods or service for another. The problem is that one of the sides is not fulfilling their end of the exchange. Although the victim of the fraud may have indeed transferred possession of the goods to the other party, they did not transfer legal ownership.
And that's the key to understanding fraud. Because it's based on an exchange, the transfer of ownership is conditional. If the other party does not or cannot fulfill their end of the exchange, they have no right to the property.
This can be best illustrated with an example. Imagine I offer to pay you $100,000 for your car. You think it's a great deal, and agree to the exchange. I write you a check. If the check bounces, I don't get to keep the car. This is true even if you hand over the deed to the car. That's because the transfer is conditional. If I default on my part, I have not legitimately acquired the rights to your property. The fact that you have physically transferred possession of the car to me does not invalidate your rights to the car.
The two halves of a trade are inextricably connected. You can't separate them or treat them as independent parts. You can't treat it as if one person is giving a gift to the other, and that other person is coincidentally giving a gift to the first. The nature of an exchange is to trade one value for another. There cannot be half of an exchange.
Fraud is often used in a general sense to mean deceit. Sometimes people lie about their accomplishments or connections or any number of other things. Lying, though, isn't a violation of another person's rights. So we have to be careful when discussing fraud in the political sense. It specifically deals with a violation of property rights by not completing the terms of an exchange.
Fraud does not involve putting a gun to someone's head and demanding money. It's a soft, quiet form of theft. It's used to access someone's property that would be difficult to get at through more direct means of theft. That is, someone can steal your DVD player out of your house, but they'll have a difficult time accessing your life savings kept in banks or investments. But the fact that they don't sneak in at night, or they don't need to pull out a weapon doesn't change the fact that it is theft.
A similar kind of rights violation occurs with contracts. One party might provide a product or service based on the expectation of receiving some form of payment. If the other person fails to provide their side of the exchange, they have "broken the contract" and the first party has legal recourse. The principle is the same as that in fraud. Just because you've received a benefit or physically possess some goods, you haven't acquired the right to that property. Both sides of the exchange must be completed.
There are those who argue against fraud because direct force (like using a gun during a mugging) wasn't used. They think that it isn't actually a use of force, because violence was unnecessary. But these people are ignoring the fact that a violation of property rights is a form of force. Force is not limited to bodily harm or the threat thereof. It also includes attacks on property.
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