The Price Is Right

by Eliezer Segal

News Item: December 2000-January 2001. The deregulation of public utilities in Calfornia, Alberta and elsewheres leads to power shortages and astronomical jumps in consumer electricity bills.

In our current global economy, in which all the players are united by their commitments to free enterprise and capitalism, it is not always easy to unravel the subtle differences between liberals, conservatives and other shades of political opinion. 

All sides seem to agree in principle that open competition works to the advantage of the consumer by lowering prices. Where the ideological paths seem to diverge, however, is on the degree of protection, if any, that should be granted to smaller businesses in their competitive struggles against the larger conglomerates whose scale of operations allows them to market their products at lower prices. 

Viewed politically, this often translates into a question of whether to protect local businesses against unequal competition from economic super-powers and multinational corporations, or to allow the economic laws to follow their Darwinian course.

In its own modest way, traditional Jewish religious law has had to deal with some of these difficult questions, to which the rabbis have taken a variety of different approaches.

A simple case was discussed in the Mishnah involved shopkeepers who hand out free gifts (toasted grain and nuts) to children who frequent their establishments.

According to Rabbi Judah, this practice ought to be forbidden, because it gives the seller an unfair advantage over the competition in luring the youngsters to the store. The children’s nagging can be counted on eventually to draw in many parents as well, thereby stealing business from the other shopkeepers.

The other sages, however, saw no problem with this practice. The Talmud explains that, according to the view of these sages, no one is preventing the rival businesses from offering their own freebies: “I am handing out nuts, and you can hand out prunes!” Therefore the competition is perfectly fair.

The same passage in the Mishnah records a similar dispute over the practice of competitive price slashing. Rabbi Judah forbids it, evidently out of concern for competing businesses who might not be able to bear the ensuing loss in revenues. The other sages approach the question from the perspective of the consumers, and declare that any merchant who offers lower prices deserves to be commended, not censured. The Talmud, like later exponents of free enterprise, explains that lowering prices will stimulate the market to the advantage of the general public.

Following the normal procedures governing talmudic disagreements, the opinions of the sages were accepted as normative in both disputes. In a modest way, this can be seen as a victory for the free-market economic model over the imposing of protective controls.

The Talmud’s laissez-faire approach could not be transferred automatically to other social and economic contexts. During the Middle Ages, European Jewish communities were often founded on monopolistic privileges bestowed by the local government. These vital privileges required protection against interlopers and upstarts, and much of the halakhic literature of the period was concerned with safeguarding the interests of established businesses. 

It is possible to discern a divergence in attitude between Halakhic authorities who lived in Christian countries where the presence of Jews was made possible by economic privileges, and the more entrepreneurial spirit that prevailed in Arab lands where Jews participated as equal competitors in a thriving international trade. 

One area in which these differences were apparent was in their respective attitudes towards out-of-town merchants who tried to make inroads into the local market by offering their wares at lower prices. Rabbi Joseph Hallevi Ibn Migash (1077-1141), who lived in Islamic Spain, reflected the typical approach of his society when he refused to grant protection to the local retailers, preferring to let the consumers benefit from the competitive pressure to lower prices. 

By contrast, Rabbi Moses Nahmanides writing from Christian Catalonia, insisted that the Mishnah’s encouragement of unfettered competition did not extend to foreign businesses who, if they were powerful enough, could cause grave damage to the local economy. Several later authorities, nonetheless, limited the scope of Nahmanides’ ruling to cases where the differences between the two prices was not a large one. 

In medieval Poland, the economic status of the Jews was frequently defined by their serving as arendars, stewards of the local nobility. In many cases this involved exercising a franchise for the sale of liquor in the lord’s domains.

Though medieval Jewish communities were zealous in defending the interests of their vested monopolies, the modern era brought with it a spirit of free enterprise in which individuals tried to compete with the established businesses. 

A nineteenth-century responsum described a typical problem: Two Jewish arendars were operating in adjacent villages, each subject to a different noble. One of these merchants was planning to sell his wares at bargain prices, a policy that would lure clientele from his neighbour.

The rabbi to whom this question was addressed was aware that the normative talmudic opinion seemed to encourage this kind of free competition. He nevertheless decided that the current situation was substantially different from the one that was dealt with in the ancient sources. The most important distinction lay in the fact that the Talmud assumed a dynamic price structure that varied with changes in supply and demand. This was not the case in contemporary Poland where the price of liquor was fixed by law, so that one arendar‘s lowering his prices would not result in a general advantage to the consumers. In any case, the chief beneficiaries of these bargains would be local peasants whose access to alcohol should not be actively encouraged. On the other hand, the rabbi argued, rival Jewish tavern-keepers would be unable to cope with the outside competition, and might find themselves impoverished and thrown to the mercies of ruthless creditors. 

A similar case was adjudicated by the Hungarian rabbinical leader Rabbi Moses Schreiber, the Hasam Sofer, in connection with an arendar who was selling liquor to customers from a neighbouring district. Rabbi Schreiber ruled that the operative question was whether the defendant was actively seeking out clients from outside his own local jurisdiction. Though it would be forbidden for an outsider to actively intrude upon the livelihood of a fellow merchant, there would be no legal objection if the out-of-town clients came to him of their own volition. A policy of this kind was adopted by Rabbi Isaac Aaron Ettinger of Lemberg, denying an arendar protection against a competitor in a nearby village who was able to undersell him on account of the lower licensing fee that he was paying.

Not all aspects of free competition were seen as benefiting the consumer. In another of his responsa, the Hasam Sofer was asked whether a certain printing firm should be awarded exclusive rights to the publication of the Talmud. Rabbi Schreiber argued that in this instance, where the size of the consumer base was fixed, and a lowering of prices could be achieved only by means of mass production, to fragment the market among several small firms would ultimately make their products more expensive and diminish the profitability of the enterprise. Under such circumstances, the public interest would be best served by conferring a monopolistic privilege upon a single publisher.

Some more recent scholars have extended Rabbi Sofer’s reasoning to additional realms. Of especial interest is the author of a 1980 work on Jewish business ethics who applied the Hasam Sofer‘s arguments to the realm of public utilities, and concluded that the deregulation of electricity, telephone service or public transit would result in higher output costs and poorer quality. 

As we study our utility bills this year, many of us will be wishing that our legislators had a better acquaintance with rabbinic responsa.

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• First Publication:
  • Jewish Free Press, January 25, 2001, pp. 18-9.
• For further reading:
  • Levine, Aaron. Free Enterprise and Jewish law: Aspects of Jewish Business Ethics The Library of Jewish Law and Ethics. New York: Ktav and Yeshiva University Press, 1980.
  • Warhaftig, Shillem. Diné Mis-har ba-Mishpat ha-‘Ivri. Jerusalem: Harry Fischel Institute, 1990.

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My email address is: [email protected]

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