When the Joe Biden administration announced a comprehensive plan to forgive student loans, the public outrage was palpable. Although only a slight haircut for the government, conservative literati fretted that forgiveness was unfair both to students who repaid their loans and to the taxpayers, who derived no benefit from the Educational Industrial Complex. With Trump 2.0, student loan “forgiveness” may quietly return to its status quo ante. Viewed “under the aspect of property rights,” however, the repayment of student loans would be neither just, nor advance the cause of establishing a libertarian society.
In For a New Liberty, Murray Rothbard demonstrated the feasibility of erecting a just society based on absolute individual property rights. Parsing Justice Holmes’s famous dictum, Rothbard posited a two-step process for resolving social conflict: identify the property under dispute and determine whose rights are at stake. In 2022, Wanjiru Njoya modeled Rothbard’s method to identify “the normative values that should underpin the law” of land ownership. A property rights analysis likewise provides normative guidance for the student loan conflict.
In the The Ethics of Liberty, Rothbard argued that debt contracts were enforceable because the “creditor’s property is appropriated without his consent—i.e., stolen—if the debt is not repaid.” Between Brown and Green, Green’s promise to repay principal and interest on his loan created for Brown an enforceable “property in the debt.” However, not “all contracts, whatever their nature, must be enforceable.” In debating the issue, it is simply assumed that student loans are “properly enforceable” contracts. Yet, to be enforceable, contracts must be based on an exchange of real property—there must be real “property in the debt.” Consequently, the normative desirability of student loan enforcement depends on whether money is property.
Under natural law, individuals acquire private property by improving natural resources through labor. Apart from improvement, the only legitimate means for acquiring property are voluntary exchange, gift, or inheritance. Property cannot be created ex nihilo. “For no man,” Rothbard observed, “actually ever ‘creates’ matter,” rather, he takes “nature-given matter and transform[s] it by means of his ideas and labor energy.” Therefore, two essential characteristics define property: it must exist and be subject to scarcity.
In the Theory of Money and Credit, Ludwig von Mises adopted an “essentialist approach to defining money.” Money, in the narrower sense, or “money proper,” was limited to commodity money, credit money, and fiat currency. In the broader sense, money included unbacked money substitutes like token money, money certificates, or bank notes, also called “fiduciary media.” The essential qualities that Mises used to distinguish money proper from fiduciary media were, in fact, the same essential qualities that define property.
Commodity money and credit money are physical commodities, or notes representing a one-one correspondence to some quantity of that commodity, redeemable on demand, at par. Rehearsing Mises’s Regression Theorem, Rothbard demonstrated that only commodity-based money can be bona fide property:
...the cumulative development of a medium of exchange on the free market…is the only way money can become established. Money cannot originate in any other way… For embedded in the demand for money is knowledge of the money prices of the immediate past… But the only way this can happen is by beginning with a useful commodity under barter…
Rothbard considered it a “most important truth” that “money is a commodity...and like all commodities, it has an existing stock…” Existing and subject to the law of scarcity, only money proper is real property.
Somewhat counter-intuitively, fiat currency is classified as money proper. Although often conflated in discourse, fiat currency and fiduciary media are ontologically different. Mises’s Regression Theorem proved that it was “the common practice of all those who have dealings in the market, that creates money.” Although both nominally created by fiat, there is an “invisible hand process by which...fiduciary media mature into an independent money.” In the act of voluntary market exchange, fiduciary media become fiat currency, a commodity and, therefore, property.
Whereas money proper develops out of an existing commodity over time, fiduciary media are created, Rothbard often quipped, “out of thin air.” Whether issued as physical notes, or electronic digits, fiduciary media have no one-one correspondence with any existing physical commodity. Created ex nihilo, at will, fiduciary media do not meet the basic criteria that define real property. Having shown that only certain kinds of money can be property, the next step is to identify whose property rights are at stake in the student debt fracaso.
As an “imagined community,” the US government can neither own property nor possess property rights. The principle of methodological individualism affirms that, “a social collective has no existence and reality outside of the individual members actions.” Property ownership—the facts of possession and the intention to possess—can only be demonstrated through the actions of individuals. Governments cannot perform the actions required to exercise ownership. Nor, when defined as the “organization of the political means,” can governments legitimately acquire property. In seeking a libertarian resolution to the student loan conflict, any imagined property rights of the government may be dismissed outright.
Although imposed upon, taxpayers have no property rights at stake in the repayment of student loans. “All state intervention,” Rothbard observed, “rests on the binary intervention of taxes at its base…” The US government confiscates taxpayer property, not witless teenagers. The binary intervention of taxation necessarily precedes the redistribution of taxpayer property. Because the property violation occurred before its eventual redistribution—apart from the actions of any individual—no student loan policy could restore that property.
Only graduates face real threats to their property rights in the student debt saga. Once the privileged tax consumer becomes a property-less taxpayer, he is compelled to acquire scarce property, that is, fiat currency, by legitimate means. Along with the 25 to 30 percent confiscation suffered by all, the graduate’s property sustains the extra debt burden of around 39,000 dollars. Rothbard argued that any intervention in the economy necessarily diminishes individual utility. Facing both taxation and government student loans, young people—presumably most economically dynamic—will find their utility crippled by the compounded effects of the interventionist policies, to which—whether wittingly or unwittingly—they consented.
By contrast, the US holds three kinds of money, very little of which is real property. In 2024, the US government had 18.8 trillion dollars in cash on hand—6.9 billion in gold (2,622.00 per ounce), 4.5 trillion in tax revenue, and 13.6 trillion from selling US securities—nearly 5 trillion to the Fed and 8.6 trillion to foreign central banks. Of the 18.8 trillion, only 29 percent was held in real property, leaving 7.8 trillion, or 41 percent, as unbacked fiduciary media, which cannot be property. Even by this conservative estimate, there is no clear one-one correspondence between the fiduciary media and the real property, gold, and fiat currency held in US accounts. In reality, with a total debt of 31 trillion in 2024, the “full faith and credit” of the US exceeded its real property by 88 percent. In short, the US government is an insolvent lender. Therefore, any loans it may pretend to make are, prima facie, fraudulent and unenforceable.
That the fiduciary media held in US accounts cannot be the subject of legitimate contracts is evident in its origins. Neither Congress nor the US Treasury creates the fiduciary media fueling the US government’s unlimited spending. Rather, a central bank, the Federal Reserve, creates fiduciary media when it purchases US Treasury bonds. Bob Murphy explained that—in making these purchases—the Fed simply, ex nihilo, writes a check on itself, and therefore, “there are no limits operationally on how much [the Fed] can spend.” Clearly, then, the greatest proportion of US monetary holdings are a textbook case of fiduciary media and so not property at all.
In conclusion, having identified the real property and its rightful owners, it is clear that universal default on government-issued student loans would be the most libertarian course of action. Libertarian policies increase individual utility and diminish the interventionist power of the state. Any policy that allows government to pilfer property from the private sector will necessarily circumscribe individual action, draining resources from the individual that then further empower the interventionist state. Under the current state of intervention, default, by contrast, would keep more economic power in the hands of individuals, enhancing the utility of all with increased opportunities for voluntary market exchange.
Besides enhancing individual utility and free markets, universal student loan defaults would signal a manifest victory over a Leviathan predatory state that can—in the words of Alex Pollock—simply “print power.” Observing, in the sixteenth century, that all governments rule by consent, Étienne de La Boétie argued a tyrannical state could be “automatically defeated if the country refuses to consent to its own enslavement.” Default would show that the individual does not consent to the illegitimate appropriation of his property. Ultimately, as La Boétie observed, individuals always have the power to overthrow governments because, “by ceasing to submit,” they can, at any time, choose to “...put an end to their servitude.”
