Jews and the Stock Market

Jewish ethics of stock-market investment and speculative activity

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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.

Speculative Activity

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.

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Rabbi Asher Meir

Asher Meir received his Ph.D. in economics from MIT, and received his rabbinic ordination from the Israeli Chief Rabbinate after 12 years of study at Israeli Rabbinic Institutions.