9. Financial Laws - Part 1
Appreciating the Torah attitude toward wealth.
The biblical Jacob was an extremely wealthy man. Yet he jeopardized his life by crossing the Yabok River alone in order to retrieve some small utensils that he'd left behind.1 Why would someone so affluent be so concerned about petty possessions?
Further, there are numerous places in Jewish prayers (e.g. the blessing of the new month) that we ask God to provide us with material possessions and wealth. If Torah is a spirit guide, why are materialistic matters so important?
The answer to these questions is that material possessions are a means, not an end in itself.2 To facilitate our spiritual growth, God bestows upon us various resources like money, real estate, etc. If we appreciate that any material resource is meant to be used in the process of approaching God, then we will be careful to not waste our resources.
Effort vs. Predestined
Jewish philosophers are struck by a peculiar enigma. On one hand, God provides for the needs of all humanity. In fact, the Talmud teaches that a person's income for the entire year is determined on Rosh Hashana.3 In other words, we cannot increase our earnings and profits beyond the predestined decree.
On the other hand, the Torah exhorts us to pursue a reasonable livelihood by making whatever effort necessary, even though it is not our efforts that will provide the returns. So as hard as a person toils, he must firmly believe that it is God who is controlling his finances. Exercising this pursuit is a part of the spiritual growth process.4
Now we can understand why it is so futile to pursue any form of forbidden business activity. If all of one's income is provided by God, He certainly won't give you more if you cheat or take advantage of others. Even in a society where others may be applying unfair business practices, we must withstand the inclination to do likewise. When we live up to Jewish principles, we are certain to find favor in the eyes of God.5
Furthermore, according to the mystical sources, anyone who earns money through corrupt means will have to painfully reincarnate in some other form in order to return the misappropriated funds.6
Whose Money is it?
Just as material resources are part of our mission in the service of God, so too it is forbidden to desire someone else's possessions.7 Moreover, you may not pressure someone to sell you something that he owns,8 even if you are offering a high price. It is even prohibited to ponder how to acquire someone else's property through undue pressure.9
Peter was a collector of rare stamps. There was one very valuable stamp that he was trying to obtain for years. Finally, he heard of a private collector who owned that stamp. But the owner had no interest in selling the rare collectible. Peter is not allowed to make him "an offer he can't refuse." Peter is not even allowed to contemplate how to pressure him to sell it. Peter must learn how to be happy with the opportunities that comes his way.
Letter of the Law
Jewish financial laws differ significantly from that of secular law. Civil law is designed to protect people's rights and to keep others from infringing on those rights. But Jewish law, which teaches us how to engage in God-like behavior, contains an entirely different dimension.
Consequently, there are two levels of propriety in business matters. There is the strict "letter of the law" – i.e. that which can be enforced in a Jewish court of law. But there is another dimension called lifnim mishurat hadin (lit. beyond the letter of the law). This refers to situations where the basic law sways in your favor, but nevertheless the proper thing to do is to concede to the other party, i.e. to go beyond the letter of the law.10
Since all wealth comes from God, we have nothing to lose by being proper with others in financial matters, even if it is not something that technical Jewish law requires. In fact, the Talmud says that Jerusalem was destroyed in part because Jews were observing the technical laws, but not going beyond the letter of the law.11
Bear in mind that none of us wants God to judge us on a technical level. We hope that He will demonstrate mercy and give us leeway beyond the letter.12 It is a general principle that in the same manner you deal with others, God deals with you.12a So a good way to attain God's mercy is for us to go beyond the letter of the law when dealing with others.
NOTE: This class will present the general principles of Jewish financial laws, and not the plethora of details that exist in each case. Moreover, this guide discusses the technical obligation, and as we said, in many cases it is proper to go beyond the letter of the law. In real-life situations, it is important to consult with a rabbi for practical rulings.
Buying and Selling
It is forbidden to give a vendor the impression that you are interested in purchasing something if you have no interest in doing so.13 This would unfairly raise his hopes of making a sale. If you have no interest in buying, you can say, "I'm just looking today."
In making purchases, it is important to know at what point the product is considered the property of the buyer. Jewish law accepts any form of acquisition that is conventionally accepted in that locale as the finalization of a transaction. The most common form of acquisition is where the buyer lifts the item or moves it toward him. In some situations, for example on the diamond exchange, a handshake may be sufficient to complete an acquisition.14
If a person pays (either in part or in full) for a product, but has yet to make a formal acquisition, the item still belongs to the original owner. However, it is forbidden for either party to renege on the deal.15
If a verbal agreement is made to buy or sell something, although the sale does not take effect until an acquisition is made, nevertheless, the agreement should be upheld.16
Bob agrees to sell John his home for a set price, but they have not yet put anything in writing. Shortly thereafter, Bob gets offered more money from a different prospective buyer. The home still belongs to Bob, but Bob should keep his word and sell it to John at the agreed-upon price. 17
If a salesperson accidentally gives a customer insufficient change, it is the responsibility of the salesperson to contact the customer and correct the mistake.18
If a buyer discovers that the goods he purchased are defective, he has the right to demand a refund or a replacement.19 It does not matter whether the seller was aware of the fault.20 In Jewish law, this is true even if the item was used for years before discovering the imperfection. However, if the buyer continued to use the item after discovering the defect, he has forfeited his right to any claim.21
If there is any question whether the defect occurred before or after the buyer took possession, the burden of proof is on the customer.22
Of course, if the buyer knew at the time of purchase that the goods were defective, he may not return them.23 Moreover, if he did not examine the goods, but it was very easy for him to do so, he has forfeited his rights for return24 (unless he was specifically told that the items are not damaged).25
It is sometimes difficult to determine whether a slight imperfection is significant enough to consider the item "defective." For example, how would we regard a very minor scratch on a large piece of furniture? These types of issues are resolved based upon the standards of society. In other words, if the general public views this to be a defect, then the seller must exchange or refund the goods.26
What if a product is not defective, but is not the exact specifications the buyer understood he was buying? If the difference is significant, the sale is void.27 For example, someone who ordered for a certain size clothing and received a different size, may demand a refund or replacement.28
Competition and Advertising
The Torah advocates free trade. It is permitted to open a business that competes with an existing enterprise – providing that the new entrepreneur lives in the neighborhood of his business.29 In fact, it is even permitted to move to a new neighborhood in order to open up a shop where there is already an existing one.30
For over 25 years, Sam had a bait store near the bay. The fishermen liked his shop and he made a comfortable livelihood. One morning, he was shocked that next door to his local landmark, a new store had opened up called 'Baited Breath.' Astonished, he entered the new shop and discovered that they were selling all the same products at the same prices. If the owner of the new store lives in the neighborhood, Sam has no legal case against him.
If the owner of the new enterprise lives in a different area, the business may still be opened if it is ultimately providing a benefit for the local residents. For example, if the new store offers lower prices or better goods and services, it is permitted to open up in the location of an existing shop.31
Mrs. Robinson was furious. She shouted at Stanley, the owner of Peacock Dry Cleaners: "This is the second time you lost my garment, and the clothes I got back have more stains than when I gave them to you!" The store owner just shrugged. Everyone had complaints against his dry cleaners, but he was the only game in town.
One day, Stanley was surprised to find that a new dry cleaners had opened down the block. 'At Your Service Dry Cleaners' was owned by an out-of-town businessman who wanted to open a new branch. The service was far superior and the prices were more affordable. Peacock Dry Cleaners was forced out of business, with no claim against the new store.
Acceptable forms of business include:
- Undercutting the competition32
- Offering special gifts for new customers33
- Carrying out an aggressive (positive) advertising campaign34
"Positive advertising" means that it is permitted to point out the advantages of your product, but not the negatives of your competitors – even if it is true.35
Some acceptable statements (if they are true) are:
- "My materials are the best available."
- "Our prices are cheaper than the other vendors."
Some statements are not allowed, even if they are true:
- "They are using inferior materials."
- "They are over-charging."36
Over-Pricing and Under-Pricing
If a buyer offers a price for an item that is significantly higher than the "going price," the seller must inform him that this is the case.37 If he is still willing to pay that price, the sale is permitted.
Similarly, if a seller offers an item for sale significantly below its value, the prospective buyer must be sure that the seller knows.38
Brian was looking to buy a used car. A classified ad in the local newspaper led him to the home of Sarah. Apparently, Sarah's husband had recently passed away and she wanted to get rid of the car since she didn't drive anyway. Brian was surprised that the price she was asking was significantly below the "going price." He must inform Sarah of this.39
Regarding price-gauging: It is forbidden to charge higher prices for goods or services simply because the buyer desperately needs them.40 In fact, such a transaction may be annulled post-facto even though it was agreed upon by both parties.41
- Kosher Money by Rabbi Yoel Schwartz [Feldheim]
- In the Marketplace by Meir Tamari [Targum Press]
- Halachos of Other People's Money by Rabbi Y. P. Bodner [Feldheim]
- Torah Guide for the Businessman by Rabbi S. Wagschal's [Feldheim]
- Talmud – Chullin 91a
- Derech Hashem 1:4:4
- Beitzah 16a
- Michtav Me’Eliyahu (vol. 1, pg. 195)
- See Ha’emek Davar (Deut. 5:17)
- The Chafetz Chaim in Sefer Sefat Tamim (ch. 3-4)
- Deut. 5:18; Choshen Mishpat 359:10
- Choshen Mishpat 359:11
- Rashi (Deut. 6:18)
- Baba Metzia 30b
- See Talmud – Avoda Zara 4b
- Choshen Mishpat 228:4
- Choshen Mishpat 201:2
- Choshen Mishpat 204:4
- Choshen Mishpat 204:7
- Based on Rema – Choshen Mishpat 204:10. Other factors may affect the actual halacha.
- Wagschal (pg. 15)
- Choshen Mishpat 232:3
- Pischei Choshen 4:12:3
- Choshen Mishpat 232:3
- Choshen Mishpat 224:1
- See Choshen Mishpat 232:9-10
- Sma 232:10
- Mishpatei HaLevi 2:1:6
- Choshen Mishpat 232:6
- Choshen Mishpat 232:3
- K’nesset HaGedolah (Hagohat HaTur 332:12)
- Choshen Mishpat 156:5
- Rema – Choshen Mishpat 156:7
- Rema – Choshen Mishpat 156:7
- Choshen Mishpat 228:18. However, some authorities forbid the lowering of prices in a way that will force the competition to close up shop.
- Mesilat Yesharim (ch. 11)
- Choshen Mishpat 228:6
- Wagschal, pg. 26
- Aruch HaShulchan 227:1
- See Choshen Mishpat 227:24
- Choshen Mishpat 227:7