Public Policy – A Means to the Moral Market

Responsa of the Week: Public Policy- A Means to the Moral Market

A weekly series by Dr. Meir Tamari about responsa regarding business ethics issues.

In order to demonstrate the work of the halakhic system and its moral considerations regarding a variety of issues in business and economics, I will present a number of responsa drawn from the literature. These represent questions addressed either by laymen or by rabbis or communities to rabbinical authorities and their answers. They cover a period of close to 2000 years and reflect Jewish life in all the countries of the Diaspora. Even though the answers may vary and conflict with each other so that one cannot draw behavioral conclusions from them, they demonstrate Jewish thinking and values in this field.

Jews have historically lived under a wide variety of social and economic systems. Yet there seems to be sufficient evidence that the rabbis understood and approved of the free competitive market as the most efficient system of creating economic wealth. There is no anti-commercial bias, nor is Judaism opposed to the free interplay of market forces. Capital as labor is entitled to its rewards and the private entrepreneurial spirit is recognized as the motivation for economic activity (Kuzari, 2:45-50). Not only is the private property provided halakhic protection against damage and theft, but communal ownership is understood to be inefficient (Bava Bathra, Mishnah chapter 2, mishnah 7; Rashi). Furthermore, such communal ownership is regarded as contrary to human nature and therefore not viable and leading to economic immorality (Minanah Avot, chapter 5, mishnah 10).

However, the rabbis also recognized the power of economic needs and wants and the propensity for evil and oppression inherent in the search for wealth. So rabbinic sources accept communal intervention in order to achieve the justice and mercy required by Judaism, thereby knowingly distorting free market efficiency. As in all other areas, so too economic freedom, efficient and desirable though it is, cannot be unlimited. Such a limitation is expressed both in halakhic rulings and in the political power of the social unit/community or king-state. It comes not only to prevent fraud, damage or theft in the market place, but also to promote social welfare, to protect the environment and to encourage spiritual development.

The Jewish framework imposed on the market regarding fraud and economic dishonesty is not simply an application of the principle that efficient markets are only achieved within an ethical framework. A closer examination shows that theological concepts in Judaism introduce elements at odds with those of the unlimited free market.

Theologically, the concept of enlightened self-interest as being sufficient to monitor the market or that moral business, being good business, will in the long term insure morality, is unacceptable in Judaism. These concepts, rooted basically in the belief in the innate goodness of man or in the efficiency of grace, are seen in Judaism as being only of limited ability to restrain and educate the economic Yetzer HaRah. Rather, law [halakha], public regulation and social pressure based on normative morality are essential, otherwise the power of the economic egoism will produce only pious slogans or in the best-case relative morality and situation ethics.

The caveat emptor concept, ‘let the buyer beware,’ is rejected in favor of a legal onus on all parties to a transaction, to make full disclosure of defects, conflicts of interest and even the creation of false impressions through suggestive advertising (Choshen Mishpat, section 228). Communities have the right to limit or to encourage free entry of new firms, based on considerations of communal welfare. (Chidushin Ri Ibn Migash, Bava Bathra 21b; see also HaMeiri, Bava Metziah 40b; Lechem Rav responsa 216). This involves balancing the gain to society from increased competition with the damage done by dislocations or temporary malfunctioning of the free market mechanism. The same considerations prompts the halachic right of the community-state to impose price controls on basic foods (Rambam, Hilkhot Mehirah chapter 14, halakhot 1-2), or to regulate the export of agricultural products (Bava Bathra 90b). Not only is one obligated to pay for any damages to other peoples persons or property, but one is also obligated to take all the necessary and reasonable steps to prevent it (Choshen Mishpat, section 155; Rambam, Nizkei Mamon, chapter 5, halakhah 1). This does not permit the common practice of causing damage and pollution on the understanding that possible future payment will be cheaper than the cost of prevention. However, there is a clear halahkic rejection of ‘nuisance’ claims, while the concept of the reasonable risk involved in the majority of people’s normal everyday living really reduces the abuse by injured parties.

Although everything in the world was divinely given to humans for their use and welfare, nevertheless, there is a custodian concept of that bounty that requires that the claims of future generations be protected and forbids wastage of natural resources; even of property by the owner when no damage is caused to others. Urban planning requires halakhicaly mandated small units providing green belts and the retention of natural belts. The community may not alter this. Economic growth at all levels- national and international alike-is not unlimited (Rambam, Smittah ve Yovel, chapter 13, halakhot 1-2, 4-5; S.R. Hirsch, Lev. 25:34 and Deut.36:1-5).

This system introduced concepts that require of the practicing Jew, economic behavior beyond the mere avoidance of unethical behavior. Sometimes these concepts were entrenched in regulation, rabbinic or communal; in others, they were norms for accepted behavior.

The biblical injunction against ‘the stumbling block in the path of the blind, but shall fear your G-d’ (Leviticus, 19:14), was understood by the rabbis as anything that helped other people to do something that they are forbidden to do, or enabling them to do that which was harmful to themselves spiritually or physically. This is expressed in legislation forbidding the sale or advertising of stolen goods, goods and services on which taxes were not paid, the trade in cigarettes, drugs and pornography, and interest bearing loans. The sale or provision of the ritual appurtenances of idolatry, or of weapons not for purposes of self-defense, are forbidden as “a stumbling block in the path of the blind,” because people are not allowed to worship idols or to wage non-defensive wars. One may not cause harm to oneself nor place oneself in undue risks, even in the return for increased wages for dangerous or unhealthy work (Nodah be Yehudah, Yoreh Deah, responsa 10; also Iggrot Mosheh, Choshen Mishpat, part1, section 104). This would preclude investment in industries, which at a given stage lack the technological knowledge to prevent health damages to the employees, even with their knowledge and agreement.

The fact that the buyer or user of goods or services knew of the potential harm and accepted or even perhaps welcomed it is irrelevant. If Torah forbade it, then the supplier was enabling a forbidden action, to which the other party was ‘blind’ wittingly or unwittingly.

This column presents general principles for approaching business ethics topics. For specific guidelines, please refer to a halachic authority.

Dr. Meir Tamari is the former chief economist of the Office of the Governor at the Bank of Israel, and the founder of the Business Ethics Center of Jerusalem.