The first credit crunch
The shemitah year ended a couple months ago, but thanks to the financial crisis, it’s still making the headlines. A recent opinion piece in the Wall Street Journal by Dr. Robert B. Schonberger draws a parallel between the rabbinic economy of 2000 years ago and our modern economy.
Two thousand years ago, Rabbi Hillel the Elder, the head of the rabbinic court during the reign of King Herod, faced a liquidity crisis in the debt markets of his day. Hillel saw that the rich were refusing to lend money to the poor because biblical law mandated debt forgiveness during the Sabbatical year. Deuteronomy 15 declares: “At the end of every seven years thou shalt make a release. And this is the manner of the release: Every creditor that lendeth ought unto his neighbor shall release it; he shall not exact it of his neighbour, or of his brother; because it is called the Lord’s release.” With this dictate in mind, lenders would refuse to do business with debtors as the Sabbatical year approached.
In response, Hillel inaugurated a controversial legal construct known as a “prozbul,” which effectively nationalized private debts. In so doing, he allowed lenders to bypass the dictates of Deuteronomy, which demanded debt forgiveness only between individuals — debts owed by a person to the community at large were exempt. This sweeping transformation of privately held debts into publicly held obligations is recounted in the Mishnah, the great codification of Jewish law from Hillel’s time.
I’m not sure this characterization of the prozbul is entirely apt. The primary function of the prozbul is simply to allow creditors to continue to collect debts after the shemitah year (and therefore make it less risky for them to lend in the first place) — i.e. to let the economy function the same way it would if shemitah didn’t exist, while paying lip service to the praiseworthy yet unattainable ideal of living without long-term debt. The beit din signs off on the prozbul in order to effectuate the legal construct, but no public funds are involved. The beit din isn’t buying out the loans, or providing any guarantee to the lender if the borrower fails to pay back the loan.
But in any case, Schonberger concludes that something is seriously backwards with the contemporary bailout:
Perhaps Maimonides was right that some day in the future we would return to the system of Deuteronomy, but in America today we are returning with a historical irony that is hard to miss. Mr. Paulson’s plan is, after all, a rejection of the morals of modern finance in favor of the morals of Deuteronomy, but with a perverse role reversal between rich and poor, lenders and debtors.
The loans that the Prozbol would have extended were lent without interest, so that while they may be relevant in terms of debt forgiveness, the effects of long term debt would have been far less devastating. Lending money was a service to the poor, and not a way of making money off of another persons economic hardship, as it is today. In our times some jews still operate free loan societies to continue to perform this mitzvah. See http://www.hfls.org as one example.