The Torah's Approach to Economics

  • Rav Chaim Navon

YHE-HALAKHA: TOPICS IN HALAKHA

 

 

THE TORAH'S APPROACH TO ECONOMICS

Rav Chaim Navon

 

 

PLANNED ECONOMY OR FREE MARKET

 

            When we come to analyze the nature and conceptual foundations of the economic system described in the Torah, we encounter difficult problems. The Torah relates to an economic system that is totally different than our own, and thus it is difficult to draw from it meaningful conclusions regarding the economic questions facing us today. It is, however, fitting to cite in this context the words of the economist, Prof. Yehoshua Lieberman:

 

It is difficult to accept the argument that the economic behavior of the individual regarding basic commodities underwent an essential change over the course of the generations. On the contrary, it stands to reason that basic market theories have similar characteristics in all places and at all times… The Posekim's familiarity with the existence of a market mechanism, with its components and with some of its positivistic dimensions, justifies a certain measure of theoretical micro-economic treatment of their writings. (Y. Lieberman, Tacharut Iskit ba-Halakha, p. 17)

 

            Lieberman tries to justify the analysis of halakhic rulings with the aid of modern economic models. Our mission is even less problematic: we shall focus on the moral dimensions of the economic system, and these have not changed very much from the time of Chazal to our own day.

 

            The main issue that we shall address is the basic nature of the Torah economy: planned economy or free market. These are the two most important economic models in the modern world, when today the free market school is much more accepted.

 

            The proponents of the two approaches disagree on two issues. One disagreement relates to facts: which economic system is more efficient? Those who support a centralized economy claim that in a free market economy there is a great deal of waste, which only central planning can prevent. Central planning allocates resources according to the true interests of the population, and does not consider individual interests.

 

            In contrast, those who support a free market claim that centralized planning will always be less efficient than an allocation of resources arrived at in a natural manner through free competition. A free market, despite the fact that it not subject to any control from above, behaves as if an "invisible hand" were guiding it. According to free market advocates, a person is most strongly motivated by his own personal interest. In a truly free market, a person knows that his rewards will stand in direct relationship to his success, without the restrictions of production quotas, closed markets, or fixed prices, and therefore he will work harder. Accordingly, the exploitation of resources in a free market is optimal, and the market's efficiency is greater. Putting aside the issue of motivation, we are also dealing here with a kind of natural selection: If despite all his efforts one of the competitors fails to produce his product cheaply and efficiently, he will be pushed out of the market, and only his more efficient competitors will survive.

 

            In addition, there is another advantage to the free market: In a planned economy, appointed bureaucrats decide about the allocation of resources and production output. But they don't always correctly assess the needs of the market, and they are almost always plagued with corruption. In contrast, in a free market the allocation of resources automatically suits itself to the true needs of the market, with the help of the pricing mechanism: when a particular product is needed in the market, its price will rise, and as a result many will rush off to produce it. According to free market proponents, the wisest economic policy for a state is to interfere with market forces as little as possible: "laissez faire" (French for "let [people] do [as they please]").

 

There is also a second disagreement between proponents of a free market and supporters of a planned economy – a disagreement in the realm of values, rather than about facts. Let us put aside the question which economy is more efficient. There is another question: which economy is more moral. Proponents of a free market believe that a free market is also more moral, because it does not impair an individual's liberty. A planned economy forces the individual to work in a particular field or to limit his economic activity in accordance with governmental directives. A free market allows every individual to exploit his skills and talents to the limit of his ability and desire.

 

Those who support a planned economy argue against them that while upholding the value of liberty, a free market undermines other values, most notably the value of equality. A free market leads to the situation in which the most talented are also very wealthy, and the less talented are trampled by unbridled free competition. Even the value of liberty often remains only on paper: what liberty does a wretched pauper who is forced to engage in wearisome labor for a pittance of a wage enjoy? Is he really free to change trades? Can he go out and establish a successful hi-tech start-up?[1]

 

A free market does not allow the economy to be shaped in accordance with any values, not even national values. In a free market there is no reason for anyone to build a factory on the Lebanese border, if he can build it in Tel-Aviv. In a totally free market nobody will provide incentives to invest in border zones or in areas of economic distress. Accordingly, the policy of laissez faire also hurts national values. But what is most impaired by a free market are social values: equality, brotherhood, and personal dignity.

 

Proponents of a free market are not evil, and they don't want the poor to die of hunger. They argue, however, that support of the poor must come from private individuals, of their own free will, and not from the state in a centralized and regulated manner. In the United States there is a highly developed culture of private charity, stemming from, among other things, the fact that state support of those in need is more limited than in other countries. Shortly after he first took office, Prime Minister Ehud Barak called upon the citizens of Israel "to open their refrigerators" to the poor, and thus allow the state to decrease the public welfare budgets. According to free market proponents, charity given by private individuals does not lead to the employment of an inflated public bureaucracy, it does not distort the structure of the economy through support of non-productive sectors, it allows for the individual support of the truly needy, and it gives each person the right to determine on his own where his money will go. The previous disagreement should also be remembered: according to the free market advocates, a planned economy is detrimental to the efficiency of the market, and in the end hurts the needy themselves. (For example, if factory owners pay higher taxes in order to finance government support for the poor, less factories will be opened, and thus fewer jobs will be available to the poor.)

 

Why don't the supporters of a planned economy accept these arguments? There are two reasons: 1) Public planning of welfare policy is far more efficient in reducing poverty and privation. Public allowances, encouragement of investment in development zones, a network of social workers – can serve a much broader population than can private charitable organizations. 2) Private charity that is given from one person to another, or from a private organization to an individual, humiliates the recipient. A public system that is based on public allowances and on other means such as incentives for investment - does not leave the recipients with the feeling that they are beggars. When the government increases the egg quotas of farmers living in affected areas along Israel's northern border, they do not feel like panhandlers going from door to door. Just imagine what they would feel if generous citizens living in Ramat ha-Sharon would send them care packages filled with basic commodities.

 

In actual fact, there is no country in the world at either one of these extremes – free market or planned economy. All countries locate themselves somewhere in the middle, with an inclination toward the free market. The former Soviet Union is no longer a communist country with a planned and regulated economy, and the United States, since the days of the great Depression in the 1930's, has also turned into a welfare state in which there is a certain measure of public support for the needy. Important differences do, however, still remain between the various countries; and it is important to clarify the Torah's position on this question.

 

EQUALITY

 

            Socialists greatly emphasized the need for equality in the control of means of production. On this point the Torah presents us with a revolutionary approach. The Torah establishes that once every fifty years, there is a redistribution of the primary, and almost exclusive means of production during the biblical period – land:

 

And you shall number seven sabbaths of years to you, seven times seven years; and the space of the seven sabbaths of years shall be to you forty nine years. Then shall you cause the shofar to sound on the tenth day of the seventh month, on the day of atonement shall you sound the shofar throughout all your land. And you shall hallow the fiftieth year, and proclaim liberty throughout all the land to all its inhabitants: it shall be a jubilee for you; and you shall return every man to his possession, and you shall return every man to his family. A jubilee shall that fiftieth year be to you: you shall not sow, neither reap that which grows of itself in it, nor gather in it the grapes of your undressed vine. For it is the jubilee; it shall be holy to you: you shall eat its increase out of the field. In the year of this jubilee you shall return every man to his possession. (Vayikra 25:8-13)

 

            Expression is given here to a revolutionary idea whose aim is to prevent entire generations from drowning in abject poverty: every fifty years land returns to the family to which it had originally belonged, and the family members are given another opportunity at economic success.[2] This is not communism, where the means of production belong to the collective; this is not even insistence on a constant equal allocation of the means of production. Halakha recognizes that free competition is critical in order to guarantee a state of general welfare. But Halakha sets limits on this free competition. This has an economic price: real estate transactions will clearly be influenced by the fact that land is sold for only fifty years at the most. Surely the rich will also have less motivation to achieve economic success, when the most productive assets that they can buy – real estate – will not remain in their possession for the long term. Halakha is prepared to pay this economic price.

 

            The same objective is found in another important law – the release of debts in the seventh year:

 

At the end of every seven years you shall make a release. And this is the manner of the release; every creditor that lends anything to his neighbor shall release it; he shall not exact if of his neighbor or of his brother; because he has proclaimed a release to the Lord. (Devarim 15:1-2)  

    

            Here too we find the same principle: a second chance. Every seven years all debts are released, and every person receives a second chance to extricate himself from his troubles. This law as well has a considerable economic price – it limits the credit market. Historical testimony teaches that the people of Israel had difficulty practicing the law governing the release of debts in the seventh year, and in the end Hillel made it irrelevant by instituting the prozbul, after he understood that limiting credit created an untenable situation, especially for the poor. Without a doubt, however, from here we can learn the moral inclinations of the Torah, which as a rule accepts free competition as a driving force from an economic perspective, but makes sure to repair at fixed intervals the damage that this causes.

 

            Emphasis should be placed on a difference that was already noted above: The mitzvot of the jubilee year and the release of debts in the seventh year are not the same as the mitzva of giving charity. We are not dealing here with a private contribution on the part of one person on behalf of another, but rather with an all-embracing and uniform public system. Such a system is more efficient and also spares the poor person the humiliation of begging at his neighbor's doors.

 

CENTRALIZED PLANNING AND OVERSEEING

 

DEALING WITH PRICE GOUGING

 

            The primary mechanism of free competition is price. Theories regarding the free market maintain that, under normal conditions, the price that is automatically set by the free market reflects the optimal balance, in which both producers and consumers benefit the most, and the means of production are exploited in the most efficient manner. From the perspective of a free market, any external interference with prices will lead to an impairment of the efficiency of the economy. The issue of price controls is, therefore, of great importance for understanding Halakha's viewpoint on the matter of a free market. We shall deal with the way Halakha deals with price gouging.

 

            The Gemara in Bava Batra (89a) cites a disagreement whether superintendents should be appointed only over weights and measures (that they be accurate, similar to the superintendent over weights and measures who operates today out of the Office of Commerce and Industry), or also over prices. This is the way the Rashbam understands the consideration not to appoint superintendents over prices:

 

It follows logically that it is not necessary [to appoint a superintendent over prices], for if this one wishes to sell at a high price, someone who needs the money will sell at a low price, and the buyers will go to him, and [the first seller] will be forced to sell at a lower price. (Rashbam, Bava Batra 89a)

 

            As is explained by the Rashbam, there is a view in the Gemara that there is no need to oversee prices, for the market mechanism will lead to a natural balancing. This is the Gemara's conclusion:

 

Market officers are appointed to [superintend] both measures and prices, on account of swindlers ("mipnei ha-rama'in").

 

            The Gemara implies that even those who require supervision over prices maintain that such supervision is only necessary "mipnei ha-rama'in," which it would seem should be understood in accordance with its plain sense, in order to protect against swindlers. But this is not the way the Rambam understood the matter:

 

The court is obligated to appoint officers in every city and in every district to visit the shops, calibrate the scales and measures, and set prices. If anyone is found with a defective weight or measure or with dishonest scales, they have the authority to beat him or to fine him as the court sees fit to reinforce the matter. If anyone raises the price and sells dearly, they beat him and compel to sell at the market price. (Rambam, Hilkhot Geneiva 8:20)

 

            According to the Rambam, "mipnei ha-rama'in" means "because of those who arbitrarily raise prices"; according to him, we do not rely on market forces, but rather the court is obligated to oversee prices and make sure that they are not being arbitrarily raised to the detriment of the consumers. The Rambam does not relate here to the question how "the market price" is determined.  He seems to imply that the court only intervenes in cases of extreme deviation, but it does not intervene to set the prevailing price. Elsewhere (Hilkhot Mekhira 14:1-2), however, the Rambam rules, following the Gemara in Bava Batra 90a, that the court also sets the prices of certain commodities. And so too rules the Shulchan Arukh in his wake:

 

The court is obligated to appoint superintendents over prices, so that people not profit as they desire, for on basic life-sustaining commodities, such as wine, oil, and flour, a person should only earn a profit of a sixth. When does this apply? In the case of one who sells his merchandise wholesale without effort. But regarding a shopkeeper who sells his merchandise in small amounts – we assess his efforts and expenses, and over and beyond them he may profit by a sixth. When does this apply? When the price did not go up, but if the price went up, he may sell at the higher price. And this only applies when there is a court that instructs all the merchants to sell at this price. But if everyone sells at whatever price he can charge, this one by himself is not obligated to sell at a low price. (Shulchan Arukh, Choshen Mishpat 231:20)

 

            The Shulchan Arukh rules that with respect to basic commodities, there is a limit to the profit that the seller may make. According to free market theory, under normal circumstance and in the long term, prices will find their proper balance and artificial price hikes will disappear on their own. It seems that Chazal and the Rishonim had doubts about the efficiency of free market mechanisms, or else they maintained that the short-term damage caused to consumers until the market balances itself justifies artificial interventions in the marketplace. Economic efficiency is sacrificed here on the altar of consumer welfare.

 

            It should be noted that are very few references in the responsa literature to the issue of raising prices, and it would seem that there was little supervision of prices in actual practice.[3] Already the Shulchan Arukh relates to the situation in which the court does not supervise prices, when the Shulchan Arukh rules that in such a case even the God-fearing merchant is exempt from complying with the principles that were codified as law.

 

            Besides establishing maximal prices, Chazal established other limitations that were meant to deal with the problem of price gouging:

 

Life-sustaining produce must not be stockpiled in Eretz Israel, and so too in any place where the majority of the inhabitants are Jews, for this leads to the distress of Jews. When does this apply – when a person buys in the marketplace. But a person who brings in his own [produce] may stockpile it. (Rambam, Hilkhot Mekhira 14:5).

 

            Chazal established that vital commodities may not be stockpiled for the purpose of selling them after the price rises. Chazal also added a prohibition to act as a middle-man with respect to vital commodities in Eretz Israel, and an obligation to sell them directly from producer to consumer (Rambam, Hilkhot Mekhira 14:4). All of these limitations reflect basic skepticism regarding market mechanisms that are meant to prevent price gouging. Chazal saw a need to deal directly with the problem, and also to thwart certain business practices, such as stockpiling and regulating the supply of merchandise.

 

LIMITING PRICE WARS

 

            As we have already noted, the primary mechanism that regulates activity in a free market is price. Prices rise and fall in accordance with supply and demand, they influence investments and production, and in the end they lead to the optimal situation from the perspective of general economic efficiency. We saw above that the Rishonim and the Posekim related favorably to intervention and the setting of maximal prices. There exists also the opposite problem: Should a minimal price be established? Just as buyers should be granted protection, sellers should also enjoy protection. It would seem that here the problem is much more urgent and important. With regard to buyers, the system will eventually balance itself and arrive at a realistic price for the product. As for the sellers, the consequences of competition are far more critical: The system will become balanced and more efficient as a result of competition, but greater efficiency means that the less efficient producers and sellers will be ejected from the system and forced out of work.

 

            Here lies the moral dilemma of the free market in its full acuity: the collective interest is that only the most efficient producers should survive in the market. This will guarantee products of the best quality and at the best price. But is the general benefit derived by the community, which is generally minute with respect to each individual member, worth the tragic personal price paid by a failing producer who turns into a wretched pauper? Chazal, the Rishonim and the Posekim deal with this issue at length:

 

Mishna: Rabbi Yehuda says: A shopkeeper must not distribute parched grain or nuts to children, since he accustoms them to come to him, but the Sages permit this. And he may not lower the price, but the Sages say: He is remembered for good…

Gemara: What is the reasoning of the Sages [regarding the distribution of nuts]? Because he can say to him: I am distributing nuts, and you may distribute plums… What is the reasoning of the Sages [regarding the lowering of prices]? Because he eases the market price. (Bava Metzia 60a-60b)

 

            The Halakha was decided in accordance with the Sages, and according to them, competitive advertising through the distribution of gifts is permitted, because it does not involve any impropriety, and all the competitors can adopt the same methods. The Sages' second assertion is more interesting: A shopkeeper may undersell his competitors, and what is more, he merits the blessing, "He is remembered for good." Why so? Because he lowers the market price. This seems to imply that that the Sages welcome price competition, because it benefits the consumer. This, however, is the subject of disagreement. The Arukh ha-Shulchan fiercely objects to free competition in advertising and pricing:

 

And similarly he can sell at a lower price, and the other sellers in the market cannot prevent him from doing so. It seems to me, however, that this is limited to grain, because by selling at a low price, others will also sell at a lower price, and thus those who have stockpiled will sell at a lower price (Rashi, ad loc.). But to lower the price of merchandise is absolutely forbidden, because it ruins business and causes others to lose money (proof from Bava Batra 91a). And so too I found that one of the leading authorities writes the same thing. It is also slightly implied by the Gemara that one is forbidden to engage in a circumvention, and that one is only permitted to do something that other merchants can also do (from the fact that that the Gemara asks what is the reasoning of the Sages). (Arukh ha-Shulchan, Choshen Mishpat 228:14)

 

            The Arukh ha-Shulchan establishes that price competition is only permitted when the result will be that all merchants will lower their prices. But one is forbidden to lower prices below a reasonable limit, because some of the merchants will be unable to compete, and the merchant who lowers his prices will "cause others to lose money." The allowance here is because he causes the price to drop from an inflated level to a reasonable one. But it is absolutely prohibited to engage in competition when one of the competitors will be unable to survive. How this spirit contradicts the spirit of modern business!

 

            The Arukh ha-Shulchan is, indeed, extreme in his approach. The approach of Rav Chayyim of Zanz is more widely accepted:

 

Where he does not perform any action, only that damage is caused by itself, that his fellow will also have to sell at a lower price – this is merely gerama (indirect damage) which according to all authorities is permissible. And therefore it seems that selling at a lower price is permitted. But who will come after the king, the Rema, of blessed memory, who explicitly writes in a responsum, no. 10, that selling at a very low price all agree is forbidden. (Divrei Chayyim, I, Choshen Mishpat, no. 19)

 

Rav Chayyim of Zanz himself inclines to permit all price competition, without any limits; in practice, he does not dare to rule against the Rema who ruled that one should not engage in murderous price competition, but only in moderate competition. This is the more widely accepted approach in practice: permitting price competition, with certain limitations.

 

ENCROACHING UPON ANOTHER PERSON'S LIVELIHOOD - A COMPETITOR FROM A DIFFERENT TOWN

 

            Now let us examine the limitations placed on competition in the context of choosing a profession. Chazal referred to this as "hasagat gevul," or "encroaching upon another person's livelihood." The main discussion of this issue is found in Bava Batra 21b. The law has been decided that the resident of a particular town can only restrain the resident of a different town from setting up a competing business in the same town, but he cannot impose similar restraints upon another resident of his own town. We have here a delicate balance between a person's right to earn a livelihood in his own town, and the right of producers and merchants to earn a respectable living. Occupational competition between residents of the same town should not be limited, both because a healthy economy cannot be run without some measure of competition, and because young people and people who have lost their incomes should be allowed to find work. But people from the outside should not be allowed to open up a competing business in that town, thus pushing out the locals. The Rishonim, however, have a very important disagreement about the matter.

 

            The Ri Migash argues that when the local townsmen will benefit from competition between two professionals, no restraints should be placed on a person from the outside who wishes to set up a competing business in that town. According to him, where there is a clash between the best interests of the sellers and the welfare of the buyers, we give preference to the buyers. Only when it makes no difference to the buyers, and the two sellers will sell their wares at the same price, do we show preference to the local sellers. In practice, however, the Ri Migash turns the Gemara's limitation into something unrealistic: For economic reasons, increasing the number of sellers in a particular town will always bring the prices down. The Ramban raises this objection. He rejects the Ri Migash's argument, and insists that we must limit the entry of outside competitors even if this means economic inefficiency and withholding benefit from the buyers.[4] The Rema in the Shulchan Arukh brings (as "there are those who say") the view of the Ri Migash (156:6), but in his responsa he accepts a compromise:

 

Even though R. Yehosef Halevi writes that they can only object when [the outside competitor] doesn't offer a lower price to his customers, but if he offers a lower price to his customers, they cannot object and prevent him from offering a lower price, as is stated by the Rosh, the Nimukei Yosef, the Mordekhai, and the rest of the Posekim in his name. In any event, surely the Mordekhai writes that his words do not seem right, and so too writes the Ramban that his words do not seem right, and so too writes the Nimukei Yosef that his words do not seem right, unless the [outside competitor] offers his wares at a great discount, in which case there is a great loss to the buyers. If so, we can say that even though the Rosh and the Tur don't argue with the Ri [Migash], and they record his position without specifying, they are only dealing with a case where the [outside competitor] offers a great discount. But in a case such as ours, where the discount is not significant, and he merely lowers the price, all agree that [the locals] can object. (Responsa ha-Rema, no. 73)[5]

 

            It seems, however, that in our time it more common to rule in practice in accordance with the Ri Migash, among other reasons, because in cases of doubt, the burden of proof falls upon the plaintiff. But we certainly cannot disregard the rationales of those who disagree with him, at least not on the conceptual level.

 

ENCROACHING UPON ANOTHER PERSON'S LIVELIHOOD – COMPETITION IN THE SAME TOWN

 

            In the same town is there a problem for one person to set up a business that competes with the business of a fellow townsman and puts his livelihood in jeopardy? The Gemara reproaches "one who encroaches upon his fellow's livelihood":

 

David came and reduced them to eleven [principles], as it is written: "A Psalm of David. Lord, who shall abide in Your tent? Who shall dwell in Your holy hill? He that walks uprightly, and acts justly, and speaks the truth in his heart. He that does not slander with his tongue, nor does evil to his fellow, nor takes up a reproach against his neighbor. In whose eyes a vile person is despised, but he honors them that fear the Lord. He that swears to his own hurt and changes not. He that does not put out his money on interest, nor takes a bribe against the innocent. He that does these things shall never be moved. "He that walks uprightly" - that was Abraham, as it is written: "Walk before Me and be you whole-hearted." "And acts justly" - such as Abba Chilkiyahu. "Speaks the truth in his heart" - such as Rav Safra. "He that does not slander with his tongue" - that was our Father Ya'akov, as it is written: "My father perhaps will feel me and I shall seem to him as a deceiver." "Nor does evil to his fellow" - that is he who does not encroach upon his fellow's livelihood. "Nor takes up a reproach against his neighbor" - that is he who befriends his relatives. (Makkot 24a)

 

            The Gemara denounces one who encroaches upon another person's livelihood. On the face of it, this passage implies that encroaching upon another person's livelihood is forbidden. But what are the parameters of this prohibition? What is forbidden and what is permitted? The authorities disagree on this issue. The Chavat Yair (no. 42) argues that there is no prohibition to encroach upon another person's livelihood; refraining from doing so is merely an act of piety. He proves his position from the very passage cited above, which according to his understanding, does not bring actual laws, but only pious conduct that is not legally binding. His position, however, is not generally accepted. The Chatam Sofer (V [Choshen Mishpat], no. 61) argues that in the extreme case there is a prohibition. According to him, the prohibition of encroachment applies when there is no room in the town for another craftsman plying the same trade, so that if a new craftsman enters the field, he will perforce drive out one of the veterans.[6] In such a case the more efficient craftsman would survive, and the less efficient one would fall away, but our Sages preferred to leave the veteran in place, and waive on economic efficiency.[7]

 

            It seems that in addition to concern about the veteran craftsman, which from a humane perspective it is clear why he should be preferred over a newcomer who wishes to enter the field, there is also concern for the new competitor, and for the character of society as a whole. Competition between producers and sellers is acceptable, and perhaps even desirable. But life-or-death competition, which we know will bring one of the competitors to bankruptcy, is destructive from a moral perspective, and nurtures passions that Judaism does not value. In another responsum, the Chatam Sofer emphasizes this principle:

 

Now Reuven's first claim regarding the past is nothing, for the law of legal monopoly does not apply here, and anyone who wishes may draw customers to himself and the like, and nobody can raise any objections. On the other hand, strife will increase and livelihood will decrease and ruin lies in the waiting. And it is fitting that ordinances be enacted so that people not conduct themselves like the fish of the sea that swallow one another. And if this is impossible by way of a Jewish court, they should take advantage of state ordinances enacted by the government, as did the members of the community of … according to Shimon. And they did well in doing so. (Responsa Chatam Sofer, V [Choshen Mishpat), no. 44)

 

            The Chatam Sofer argues that even in a case where by right a person is permitted to compete with another person, "it is fitting that ordinances be enacted so that people not conduct themselves like the fish of the sea." He seems to imply that he is concerned not only about the practical consequences, but also about the social and moral atmosphere that unbridled competition creates. It is proper to limit competition, assuring that it remain moderate and constructive and not become destructive. This is a critical and unique element in the Torah's economic outlook. The Torah does not content itself with concern for an efficient economic system, or with concern with a morally correct division of economic resources. The Torah fashions an economic system that considers moral factors on the individual level as well. An economic system of a particular bent encourages people to develop particular traits and characteristics. The Chatam Sofer emphasizes that according to the Torah the economic system must encourage people to develop the traits of mercy and compassion, rather than rapacious competition. This is a consideration unique to a religious outlook. At the beginning of this analysis we wrote that the proponents of a planned economy argue that a totally free market is inefficient, and that it divides up resources in a morally distorted manner. We now put forward a different argument: An absolutely free market economy nurtures the development of negative character traits on the part of the individual.

 

            Adam Smith, the prophet of the free market, explicitly writes that his economic theories assume that human beings act in an egotistical manner:

 

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love… Nobody but a beggar chooses to depend chiefly upon the benevolence of his fellow-citizens.[8]

 

            In a free market, people do indeed give charity, but their conduct in the economic realm is openly egotistical. A free market economy does not encourage the consumer to buy from a poor petty shopkeeper, but rather from the cheaper supermarket. The free market mechanism goads a person to open up a store across the street from the very same kind of store, for only in that manner will the prices go down. The stronger party will survive; this is the theory of human evolution, this is the natural selection of economics. But this is not the way of God's Torah. The Chatam Torah asserts that even in the economic realm it falls upon us to encourage personal conduct marked by compassion and lovingkindness. Unrestrained and unbridled competition is unfit not only because of what will happen to the loser – that he will lose his livelihood, but also because of what will happen to the winner – that he will lose his human sensitivity and moral consciousness.

 

CONCLUSIONS

 

            As we already noted at the very beginning, it is difficult to draw inferences from the words of our Sages, even those who lived two hundred years ago, regarding today's economic reality. Without a doubt, however, we can derive several fundamental principles regarding Halakha's approach to the moral issues underlying economic life.

 

1)      Halakha recognizes the necessity of free competition for the maintenance of a working economic system. It would be better were people prepared to invest their money and act for altruistic reasons. But since this is not the case, there is no escape from rewarding people according to their economic skills and success.

 

2)      Halakha limits competition in order to fix its detrimental consequences and to protect the weakest strata of society who are unable to compete in a free market. A classic and early example is the law of the jubilee year. For fifty years there is free competition regarding the means of production – land. But once every fifty years the means of production are redistributed, thus providing another opportunity to those who had failed in the previous round.

 

3)      At times we also find skepticism regarding the absolute efficiency of the free market mechanism. Thus, for example, Chazal require a mechanism of supervision over prices, even though theoretically a natural balance is supposed to be created. It is possible that Chazal were not prepared to absorb the short-term social damage that will be incurred until the market balances itself, even if this would ensure a more efficient economy over the long term.

 

Halakha limits competition not only to protect those who would be injured by its harsh consequences, but also because Halakha has reservations about the competition itself, regardless of the consequences. Life that is excessively competitive leads to jealousy and hostility, and therefore Halakha tries to temper competition with reasonable limitations. A society in which competition goes unbridled is an aggressive society, and not a humane one.

 

 

(Translated by David Strauss)

 

 

[1] Another argument put forward by proponents of a welfare economy is that "a man's right to his personal property" is a distortion of reality: That person acquired his property by virtue of the labor of workers, the protection offered by policemen, the legislation passed by lawmakers, the policies adopted by treasury bureaucrats, etc.; that is to say, the assets which an individual acquires are to a certain degree communal property, and therefore society has the right to oversee how it is used. We shall not expand upon this argument in the present forum.

[2] See, R. Samson Raphael Hirsch, commentary to Vayikra 25:34.

[3] Y. Rosenberg, "Emdat ha-Halakha kelapei Tacharut ba-Shuk," Dinei Yisrael 12 (5744-5745).

[4] Prof. Y. Lieberman argues that the Ramban was driven by economic logic: outsiders are exempt from town taxes, and therefore their merchandise is cheaper; accordingly, it would be unfair to show them preference. This explanation is difficult, and to the best of my knowledge it does not appear in the writings of the Rishonim or Posekim. Moreover, how do we know that these outsiders don't pay taxes in their own towns?

[5] It should be noted that this responsum of the Rema is not the same as the Rema's responsum cited by the Divrei Chayyim (see above). There we are dealing with competition regarding prices among the craftsmen of the same town, whereas here we are dealing with the very entry into the profession on the part of craftsmen from a different town.

[6] It should be noted that in our day the Iggerot Moshe ruled in accordance with the Chatam Sofer, against the Chavat Yair.

[7] It should be noted that it is precisely in the field of education that Chazal gave priority to free competition between teachers, because "the jealousy of scholars increases wisdom" (Bava Batra 21b; Shulchan Arukh, Yoreh De'a 245:22, though the situation to which this ruling relates is unclear). It stands to reason that regarding such a vital realm, the benefit to the public afforded by free competition outweighs the possible damage caused to any particular teacher.

[8] Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, Book 1, Chapter 2.

 

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