What Adam Smith’s Justice Teaches Us About Stealing Benefits

In the summer of 2009, I was teaching at a university in Bavaria. Visiting Munich one Sunday morning, I was late for my scheduled tour group of the Residenze museum, near City Hall. (Delightfully, Germans call City Hall the “Rathaus”.)

Coming to a large cross street, I saw the light was red. But in rural North Carolina, no one takes that seriously.  I indeed pushed my way through a group of Sunday school kids standing at the corner, but I was late.

Three steps out into the intersection, I heard a commotion, and then my elbow hurt. Turning, I saw a small, angry Oma; she was winding up to hit me with her umbrella again. She was also yelling: “Kindermörder! Kindermörder!” Child murderer.  

By walking through the children and crossing against the light, I was violating a deep norm. As a commenter on Travel put it, 

As a German - we simply do not jaywalk because we learned not do it. "Think about the children!" - it's all about being a role model for children not walking through a red light. As far as I and my friends and people I know are concerned - we really don't care about the [lack of] juridical consequences.

Now, I could have taken her: Oma was little and old. But my reaction was as emotional and irrational as hers had been. My face turned bright red; I spun around and tried to tell the children in my broken German that what I had done was wrong. Oma stopped hitting me, but she was still angry. The light changed, and the children crossed, with me lagging, rubbing my elbow.

Moral Sentiments

Humans evolved to have emotions. We are not rational; we are designed not to be rational in ways that benefit society. If “Homo Economicus” saw someone violate a social norm, s/he would not react: it’s not my problem. 

Fortunately, very few of us are Homo Economicus. If an actual human (not an economics graduate student) observes a norm violation, their body is immediately suffused with a cocktail of powerful chemicals, and they become angry, as the German grandmother had done. The violator acts embarrassed, hunching over to appear less physically threatening. The face reddens in an involuntary (and therefore unfakeable) blush, to acknowledge the norm’s significance. 

Understanding the nonrational significance of norms is one of the great achievements of the Scottish Enlightenment, especially as that approach was synthesized in Adam Smith’s Theory of Moral Sentiments. Smith had a vision of what he called “the system of natural liberty,” in which sentiments come first, and principles of law follow, as inference rather than deduction. But this system requires that people care about propriety, acting well, and receiving the approval of others in their society. As Smith says:

Our continual observations upon the conduct of others insensibly lead us to form to ourselves certain general rules concerning what is fit and proper either to be done or to be avoided. Some of their actions shock all our natural sentiments.... Other actions, on the contrary, call forth our approbation, and we hear every body around us express the same favourable opinion concerning them…They excite all those sentiments for which we have by nature the strongest desire; the love, the gratitude, the admiration, of mankind… 

By crossing a wide street, against the light, I acted imprudently, because it was dangerous. But on Sunday morning, it’s not very dangerous, and anyway, that’s on me. The incident occurred because I violated a social justice rule: I crossed in front of a group of children. The aggressive response of the Oma was justified, even required; I, as transgressor, had failed to exercise self-command, and must be called out. Anyone with that cultural background would have agreed.  

Self-command as Governance

Adam Smith saw propriety as the practice of behaving in accordance with justice, beneficence, and prudence. When combined with a fourth virtue, self-command, propriety becomes something more profound. Smith saw it as a theory of governance. That’s important: Smith’s “system of natural liberty” is not anarchy; rather, it is the claim that people are quite capable of self-government, starting with the self-command over their own actions and impulses. Backed by the social pressures of approval for praiseworthy acts, public humiliation and scorn for contemptible behavior, the need for formal legal enforcement is sharply circumscribed.

Left to their own devices, people will arrive at cultural norms about what is proper — meaning just, beneficent, and prudent. And they will exercise self-command to an extent that will make outside government largely unnecessary, if people share ideas about propriety. 

But what if notions of propriety are not shared? Unfortunately, then the prospects for the project of natural liberty are dim. As we recently saw in Minnesota.

Culture Clash: Minnesota Welfare Fraud

I have argued that social cooperation depends on predictable moral behavior, sustained by trust, in turn sustained by predictions that such behavior will be borne out. Humans are not angels, but “mutual sympathy,” Smith wrote, creates shared expectations about what counts as injury, obligation, fairness, and fraud. When such expectations diverge — when members of a group hold different understandings about acceptable conduct — self-government becomes impossible, and the state is called on to restore “order.” 

But that’s bad, because true order can never depend on the state: obedience to formal laws, secured by clumsy coercion, is never as effective as mutual respect for propriety, secured by self-command and trust. 

Much has been made in the past month about the large-scale fraud rings operated from within the Somali emigre community in that state. Prosecutors ultimately charged dozens of individuals — most of Somali ancestry — with stealing more than $1 billion, through brazen scams as diverse as fabricated meal programs for children, falsified homelessness-prevention services, fraudulent autism-therapy billing, and a whole dog’s breakfast of welfare subsidy grifts. 

It is unfair to blame this audacious piracy on “Somalis” as a group. Still, the concentration of Somali defendants, along with the size of the theft and the duration of the scams, evoked a visceral reaction. Some of the biggest scammers put off the authorities for months by threatening to make public accusations of racism if any funding request was examined closely, or if one of the fake operations was audited. 

Ahmed Samatar, a professor (and a Somali-born, naturalized U.S. citizen), put it well in an interview. First, he noted that “American society and the denizens of the state of Minnesota have been extremely good to Somalis.” It might seem that fraud on a farcically large scale is a cynical way to “thank” Americans for their charity, but Samatar notes that refugees saw stealing from Somalia’s dysfunctional and corrupt government as widespread, even expected. 

But Minnesota proved susceptible to rampant fraud precisely because it is, as Samatar noted ruefully, “so tolerant, so open and so geared toward keeping an eye on the weak.” Mixing groups in which no one steals with those in which everyone steals is a mismatch. 

That doesn’t mean that Somalis are innately morally bad, or that Minnesotans are good. Moral expectations are contingent, formed within social contexts. The problem is that when people with different social experiences and expectations live together, the group's capacity to exercise self-command is sharply diminished and may be destroyed outright.

Moral Community, Moral Order, and Moral Anarchy

The Minnesota welfare apparatus assumed honesty; a relatively small group of actors did not share that presumption, and the resulting disjuncture proved catastrophic. Adam Smith emphasized that when individuals no longer believe that others will behave reliably or honestly, the entire system of mutual aid and cooperation collapses: “Society… cannot subsist among those who are at all times ready to hurt and injure one another.” 

James Buchanan, elaborating Smith’s model in Theory of Moral Sentiments, noted that there are three levels or degrees of commitment to social interaction: community, order, and anarchy. Buchanan defined the levels as follows:

• Moral Community: A society bound together by shared values, norms, and moral consensus. Cooperation arises naturally because individuals internalize the same rules. Classical examples include small religious communities or tightly-knit traditional societies where we all know each other.

• Moral Order: A society held together by constitutional rules, institutions, and mutually agreed procedures. Individuals may not share substantive values, but they agree to abide by common rules for peaceful coexistence. This is the space of liberal constitutional democracy.

• Moral Anarchy: The breakdown of either shared values (community) or shared rules (order). Individuals pursue self-interest without self-restraint, leading to conflict, instability, or exploitation. As Smith put it, “Society… cannot subsist among those who are at all times ready to hurt and injure one another.” 

Communities may be best, but communities cannot operate at scale. Most effective is the moral order, in which knowing the norms creates expectations and self-command ensures compliance with those expectations. When moral order breaks down, because of the failure of shared expectations or the collapse of self-restraint, the result is anarchy. The only answer then is state control, which produces a moral chaos where there are no rules or norms save those enforced by the threat of punishment and violence. 

Smith would see in the Minnesota debacle a second-order erosion of trust: when some members of a minority violate shared expectations, the majority will — unjustly — lower its expectations of the entire group. But I suspect Smith would also see the whole affair as the predictable consequence of employing the state and taxpayer resources to supply the private activity of beneficence. 

The two points reinforce each other: having the government use taxpayer money to assist refugees is likely to lead to fraud, but even if that can be avoided, such forced “charity” will perpetuate dependence and isolation. At some point, everyone (including Somalis) must want to be incorporated into the larger culture that makes America possible. Maybe not enough time had passed for the immigrants to be entirely to blame in this case. But we can’t make excuses about how people are different. People are different, but the hard truth is that the American system, including our ethical norms, are better than the broken nations from which we take refugees. Such public support delays and can even prevent the required assimilation of immigrant communities.

The state of Minnesota (according to DHS records) spent more than $20 billion in welfare programs and entitlement transfers in 2024. As suggested in a recent Reason piece, that sum of money (and the giant dog’s breakfast of complex and redundant programs it funded) was being shifted around in a state with a population of fewer than 6 million people. 

Smith emphasized that justice, more than benevolence, is the foundation of social order. But benevolence is still essential. The debate over “blame Somalis” vs. “don’t be racist” misses the point. This kind of fraud is being carried out on a massive scale and a daily basis throughout the U.S. welfare system.  The result has been a lack of trust and a decline in the sense that other people are honest and hardworking. In 1972, nearly half of Americans thought “other people can be trusted”; in 2020, that number had dropped to one-third.

Liberalism is primarily a system of deference and self-command. But it is also a system that requires the individual to act prudently and take responsibility for their own lives. There is a constant tension in liberal systems between the shared trust necessary for the system's survival and the use of public entitlements paid for at public expense.

The Minnesota example is an illustration of the kind of trap that “generous” benefits can set, endangering both the sense of self-command that allows the state to be limited, and the ability of citizens to trust the government to focus on the smaller set of things the state should be providing. If Oma puts down her umbrella, liberalism is lost.

Michael Munger is Pfizer/Pratt University Professor of Political Science, and Economics, at Duke University. He is a past President of the Public Choice Society, and incoming President of the Philadelphia Society. His most recent book is The Sharing Economy, Institute for Economic Affairs, 2021.

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