printIn “Jews Against Judaism,” I highlighted The Jerusalem Institute for Market Studies’ efforts to educate about Judaism’s philosophical affinity with the free market.
Now JIMS, with which I am affiliated, has inaugurated the Center for the Study of Judaism and Economics.
Delivering the inaugural lecture was Nobel laureate economist Professor Robert (Yisrael) Aumann. Professor Aumann addressed the role ascribed to economic incentives in the Torah and Talmud—for example, “unfettered price competition” and the imprimatur to collect on loans.
Professor Aumann also talked about the many discussions of the moral hazard problem in the Torah and Talmud, and how moral hazard is currently at the heart of the faulty proposals currently being offered to solve the current financial crisis. The term moral hazard is used by economists to describe the fact that when an individual, a firm or an institution is “insured”, there is an incentive to act less carefully and take harmful risks.
This should not surprise anyone who appreciates the centrality of justice in the Jewish tradition. What are economic laws if not natural laws? And what is the natural law if not immutable and just? It follows from this that to adhere to the economic laws of nature is to be faithful to truth and justice.
“Justice, justice shall you pursue.” (Devarim 16:20)
I wonder whether Professor Aumann has ever discussed the other moral hazard of insurance, price gouging. Many people who are scrupulously honest in personal relationships will overcharge a large, impersonal institution, e.g., an insurance company or a government, without compunction. Insurance companies and governments do little about price gouging, except to increase premiums or taxes. Services commonly covered by insurance tend to be much more expensive than they otherwise would. Automotive body work and medical care are examples.
Ms Mercer: You are venturing into very interesting territory here. (As a Christian, I naturally grant the Torah far greater weight in this matter than the Talmud.) You are correct, though: There is a great moral void in today’s business world (which is collapsing). Perhaps not coincidentally, there have been increasing calls of late for the West to adopt Islamic banking principles. I think we should return to our own moral base (the Bible), rather than to a source (Islam) that is totally foreign to our country’s heritage. P.S. There is a built-in balance in the Torah: See the “Year of Jubilee.” (There is no evidence, however, that the Year of Jubilee was ever observed.)