Jews and the Stock Market
Jewish ethics of stock-market investment and speculative activity
QUESTION: Gambling involves many ethical problems.
Isn't playing the stock market just another form of the same vice?
ANSWER: Most economists would probably insist that there is no connection between the dissipative activity of gambling and the vital constructive role of stock markets in the allocation of society's productive capital. These markets provide a needed way for individuals to invest their savings in productive assets.
However, this view is not quite unanimous. In 1935, the great English economist John Maynard Keynes looked at Wall Street and wrote that the capital development of the United States had become "the by-product of the activities of a casino," and added, "It is usually agreed that casinos should, in the public interest, be inaccessible and expensive. And perhaps the same is true of stock exchanges."
Despite the indignant protests of some orthodox economists, it is pretty unlikely that the experience of the intervening 70 years would have done much to persuade Keynes to change his mind. Plenty of stock market investors pay scant attention to capital development and continue just taking a ride on the stock-market roller-coaster.
However, before we draw any ethical conclusions from Keynes's observation, we should recall that the main objective of the Torah is not the efficiency of capital markets but individual spiritual development. From this point of view, there is still a vast difference between the two kinds of speculation.
The Talmud points out two ethical problems with gambling. The Mishnah states that a habitual gambler is disqualified from giving testimony. The Talmud then asks, What is it that a gambler has done wrong? The passage proceeds as follows: "Rami bar Hama said, 'Because it is a conditional commitment, and a conditional commitment is not binding.' Rav Sheshet said, This is not considered a conditional commitment. Rather, he is not occupied with settling the world."
According to Rami bar Hama, the problem with gambling is that the winner often takes unfair advantage of the loser, who is not always fully aware of the adverse odds he faces. The professional gambler is generally a hustler who preys on the ignorance and weakness of the amateur.
According to Rav Sheshet, habitual gambling leads to an easy-come-easy-go attitude toward money and an anti-social, underworld mentality of contempt for productive work. The gambler is unmoved by the ethical and legal sanctions against lying in court, because his whole life is just game and a gamble.
These are both valid ethical considerations that we need to keep in mind. One can easily see these elements at work in a casino, where many bettors are in over their heads and there is a general environment of vice and immodesty.
What about the stock market? Unquestionably, there are some excesses, as occasional media exposés about the securities business reveal. But on the whole these vices do not seem to be endemic in the financial markets.
Let us first examine the problem of exploitation. While there are many unfortunate cases where unscrupulous brokers or business executives take advantage of investors, the vast majority of trades are undertaken by individuals who are well informed about their investments.
If we turn to the social issue, we can see that most people who participate in the financial markets are assiduous individuals whose commitment to social stability is no different than that of workers in other professions.
Every profession has unique ethical challenges, and workers in the financial markets need to exercise special care to escape the maelstrom of greed that has so strong a hold on their line of work. (Regular Torah study would be a highly effective antidote). But there is nothing inherently unethical or problematic about their work.
Is speculation anti-social?
When speculators buy assets, they hope to profit from a rise in prices that may harm others. Economists tell us that speculators perform a vital economic function, but popular opinion views them with suspicion. Jewish tradition reveals that while speculation is not inherently unethical, there are genuine ethical considerations behind the popular sentiment.
QUESTION: Some people make a lot of money by speculating. Is it really ethical make money without producing anything, just by guessing which way prices are going to move?
ANSWER: Fundamentally, speculating is an economically productive activity. But it most certainly does present some ethical challenges.
The economic importance of speculation is that it encourages the efficient allocation of resources. For instance, when speculators hoard a commodity in anticipation of a future shortage, the result is that adequate stockpiles will be available when the supply shortfall occurs. In the framework of modern competitive markets, speculation contributes to the effective exploitation of scarce resources.
Given this obvious economic function, it may seem surprising that the sages of the Talmud looked suspiciously on this phenomenon and subjected it to various restrictions. For example, they limited hoarding to producers and forbade the participation of professional speculators. Why did our rabbis want to regulate such an important economic activity?
One obvious reason is economic. While speculation is efficient in competitive markets, one must acknowledge that markets are not always competitive and impartial. Sometimes speculators collude, cornering markets and creating artificial shortages in order to inflate prices. Even economists recognize that in this case speculation is extremely harmful; instead of alleviating hunger it will create hunger.
But there is also another, more profound, reason for the restrictions on speculation. In marketplace regulation as in so many other aspects of Jewish law, economic considerations were not in the forefront of the thinking of our sages. Most often, they put human considerations first. This principle applies to the restrictions on hoarding, as we can see from the source of the regulations.
The Talmud's censure of hoarding is based in the context of the following prophetic passage from the book of Amos: "Hear this, you who would swallow the needy and destroy the downtrodden of the land; who say, When will the month pass so that we may sell grain, and the Sabbatical year so that we may open our granaries?... so that we may buy the poor for money and the needy for a pair of shoes."
What worried the prophet above all was not the economic consequences of hoarding but the tragic human consequences, for it destroys the solidarity of society. The speculators, instead of sharing the general interest in relief, now have a private interest in continued distress, which will enrich them. They ask, "When will the month pass?" Rashi (the medieval Torah commentator) explains that they are waiting impatiently for the harvest season to pass, because then there will be a shortage of grain in the market and prices will rise.
Beyond this, the speculators are enticed to go beyond their desire for monetary enrichment, which is justifiable within bounds, and are seeking dominance over others: "So that we may buy the poor for money." This is a tendency that the Torah repeatedly condemns, since we are all servants of God. "For the children of Israel are slaves to Me"--slaves to Him, and not to other human beings. This ethical problem with speculation is very similar to Rav Sheshet's concern about gambling. The speculator becomes alienated from the concerns of working people, who depend on reasonable prices for commodities. The first result is that the common people are exploited, and the ultimate result is that they may be abused and enslaved.
It is a fundamental ethical idea that we should try to ally our economic and human interests so that our desire for gain does not lead us into betraying our ideals. A simple example illustrates this concept:
Imagine a member of a football team just before the Super Bowl. If his team wins, he will earn a huge sum of money; if they lose, his earnings will be far less. Economic theory states that in order to hedge his risks, the player ought to bet against his own team. But human nature would view such a bet as a shocking betrayal of loyalty, even if it were so small that it is not an incentive to throw the game.
Likewise, our sages were concerned that one particular kind of speculation--namely, betting on disaster--may sometimes have a negative effect on the solidarity of our society.
Most kinds of speculation are not regulated by Jewish law and are considered perfectly acceptable. However, each individual speculator should occasionally make sure that he has not created a situation where he is "betting against the home team" and subtly alienating himself from the community.
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