Rabbi Hillel the Elder, the Credit Crunch, and the Bailout

It’s not too difficult to give a Christian argument against government bailouts of any form, but have you ever heard a Jewish argument against it? Here’s an article from the Wall Street Journal Online written by Robert Schonberger regarding a fascinating instance in the history of Israel.

Essentially, two thousand years ago the “financial markets” of Israel were in turmoil. Why, pray tell? Well, there was a credit crunch caused by lenders not wanting to lend because of the Sabbath year coming up. You see, under Jewish law, debts were forgiven every seventh year. From Deuteronomy 15: “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.”

But, the markets were in trouble and something had to be done! Enter Rabbi Hillel the Elder, who made a “modification” to Jewish law that permitted the “nationalization” of private debts called a “prozbul.” In other words, he created a loophole!

Schonberger thinks that a just society needs to periodically forgive the debts of the poor. I believe he is mistaken in this assessment – “society” cannot forgive anything, only individuals can. And whereas one might argue that it is a highly moral action for an individual to forgive the debt of a debtor in a time of great need, to force other people to pay off that debt and “nationalize the risk” is quite heinous as well as economically unsound.

Nevertheless, Schonberger’s article is a good read, so check it out below…

It’s well known that the world’s oldest religions have a lot to say about that most timely of concerns, money. If we’d all followed the Muslim ban on lending with interest, for example, we wouldn’t have this credit crunch. (Of course, we also wouldn’t have credit.) But what’s less well known is that religions have dealt specifically with credit crunches before. Judaism came up with one answer surprisingly relevant to our own day.

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.

Centuries of apologetics among rabbinic scholars ensued, teasing out the propriety of Hillel’s apparent subversion of Torah law. How could Hillel seemingly ignore the explicit dictate of his foundational moral text for the sake of a credit crisis?

A thousand years after Hillel, this question was still pressing enough that the great rabbinic scholar Maimonides felt moved to explain that Hillel’s prozbul was only temporarily valid. Maimonides made it clear that some day in the future, the original moral order as dictated in Deuteronomy would take precedence again.

Without overplaying the parallels of Hillel’s debt crisis to our own day, it is worthwhile to reflect on Hillel’s ancient struggle to accommodate the demands of his moral system while also remaining responsible for the practical realities of keeping an economy going. Hillel saw that letting his own debt crisis continue was not without moral costs. Not unaware of the potential problems of the Sabbatical year, Deuteronomy follows its mandate to forgive debts with the following: “Beware that there be not a thought in thy wicked heart, saying, ‘The seventh year, the year of release, is at hand’; and thine eye be evil against thy poor brother, and thou givest him nought; and he cry unto the Lord against thee, and it be sin unto thee.”

Hillel knew that if he did not offer a public bailout for lenders, not only would the poor suffer, but he would be leading both rich and poor to moral as well as economic ruin. Nevertheless, the Torah prophecy remains clear that a truly just society ought to engage in periodic debt forgiveness, and it is hard to view Hillel’s move as anything other than a pragmatically driven outright abandonment of Deuteronomy’s view of economic justice. The prophetic text requires tremendous largesse from lenders. In the frozen debt markets of his day, Hillel realized that a concession to lenders was necessary. His moral code required fundamental modification in light of the realities he saw.

Fast forwarding to our own times, Henry Paulson’s attempted bailout of the debt markets is a bitter moral pill for most Americans to swallow. His proposal for the nationalization of private debts can be viewed as an enormous effort — one is tempted to say of biblical proportions — to institute a Sabbatical year not for the poor among us, but rather for Wall Street bankers. The tempting alternative would be for us to demand that the people who make bad investment choices pay an appropriate financial penalty and capitalist justice be served.

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.



Dr. Schonberger holds a master’s degree from the Jewish Theological Seminary and is an anesthesiology resident at Yale Medical School.