Consumer Protection - Price & Wage Levels

       A. Preface: The Approach of the Halacha (General)

       B. Price and Profit Levels

                   1. Profiteering

                   2. Hoarding

                   3. Trading in Essential Items

                   4. Profit Limitation

                   5. The Market Price

                   6. Price Fixing

                               a. Minimum Price

                               b. Maximum Price

                   7. Ritual Items

                   8. Price Reductions

       C. Summation and Application

         

A. Preface

      

                   Awareness of the need for a strong consumer protection measures has been constantly increasing in the past two decades. Numerous organizations, both voluntary and government supported, claim to be the champions of the consumer, who has paid for goods or services offered in the marketplace.

                   The use of the term "protection" implies that the consumer is at a disadvantage and thus requires protection and assistance. This is especially true today, when varied and sophisticated consumer products are often manufactured and marketed by large or even monopolistic organizations.

                   In short, the danger exists that the manufacturer and the retailer will exploit the inexperience and ignorance of the individual consumer, who has neither the time nor the knowledge to adequately protect his own interests.

                   Beyond the need to protect the individual consumer, there are also implications for general economic policy. There are basically two systems of economic management. One is a free competitive market system, controlled by the laws of supply and demand without governmental interference. The second, practiced in socialist countries, advocates government distribution of the means of production, price control, etc. Essentially, this system seeks to protect the weaker classes from the arbitrary nature of the free competitive market .

 

The Approach of the Halacha (General)

 

                   Applying Talmudic classifications to modern economic situations presents several difficulties. The halachot of the Talmud reflect a particular economic background. To what extent are those halachot applicable to an entirely different economic situation? Did the Talmud itself intend that its economic halachot be mandatory at all times?

                   One might claim that the Halacha is indifferent to the problem of economic policy, presenting broad principles which are appropriate to any economic system. A close study, however, of the halachot themselves, such as the Torah prohibition of taking interest or the Talmudic laws of price control etc., indicates that the Halacha has what to say concerning the economic system itself.

                   On the other hand, there is no reason to believe that the Halacha calls upon us to recreate the exact economic situation that existed in Talmudic times. Why should we believe that the conditions in Talmudic Babylonia were ideal, especially since the Talmudic laws were not being applied to a sovereign people in its own land? Is there no positive value in the industrial revolution and techno-economical progress that has taken place since then?

                   The economic halachot of the Talmud are quoted by the authorities of all times as models for economic life. Nonetheless, it is necessary to distinguish between different halachot. There are laws which are concerned primarily with fair trade, such as cheating in prices, weights and measures, etc. These are generally universally applicable. There are other laws which relate primarily to economic policy, such as price fixing or profit limitation. These are not generally of Torah origin, and we must carefully examine them to determine if and to what extent they are of timeless import, or whether they are dependent, to one extent or another, on the given economic situation.

                   There are therefore two major areas to be examined in the field of consumer protection. This article will deal only with the first.

       a. Price and Profit. There is a policy of interference in the area of price and profit of essential products, designed to protect the consumer.

       b. Cheating and Deception. The violation here is private, between the seller and consumer. This applies to Torah violations such as shortchanging of weights, as well as to many rabbinic ordinances to prevent deceptive practices.


 

 

B. Price and Profit Levels

 

                   Generally, every product passes through a minimum of two stages on its way to the consumer, manufacture and sale. The manufacturer, agricultural or industrial, does not offer his product directly to the consumer. Rather, he sells it - at a profit - to a middleman, who then resells it - at a profit - to the consumer. Many products are traded at numerous intermediary levels, which results in a higher retail price.

                   Most products in advanced industrial conditions are mass-produced to a uniform standard, although there may be several levels of quality. Therefore, there is generally a fixed price for a given product, i.e., at a given time and place, it is sold for the same price to different people. The conditions of trade make it impossible for a retailer not to maintain a fixed price, at least for most customers. This permits us to speak of "the market price"; that is, the price of a product at a given time. How is this price determined? We have already indicated the two principle possibilities; a free-market price determined by supply and demand, or a government controlled price, generally legislated in order to prevent the seller from profiting excessively at the expense of the consumer. The question remains, what is an appropriate profit margin? This question applies both to the government agency which determines the price, and to an individual seller dealing with a product which does not have a standard price.

                   Once a price has been determined, there is a public interest to maintain the appropriate supervision in order to prevent artificial price hikes through manipulations, such as hoarding, monopolies, unnecessary wholesale trading, etc.

                   As previously mentioned, it is not possible to deduce the halachically preferred economic system from the sources. The laws in this sphere reflect an intermediate position. On the one hand, a free economy exists, while on the other hand, there is external interference concerning vital products.[1]


1. Profiteering

 

                   There is a highly negative attitude in the Halacha towards someone who causes prices to rise without economic justification. "Tanu  Rabbanan: Hoarders, usurers, shortchangers, and profiteers are the subjects of the verse (Amos 8,5), '...saying, when will the new moon be gone, that we may sell corn? and the Sabbath, that we may set forth wheat, making the measure small, and the shekel great, and falsifying the balance of deceit.'" (BB 90b) The text explicitly compares hoarders and profiteers to usurers and shortchangers, who transgress a Torah prohibition.

                   The Mishna (Ta'anit, 2, l) states, “We prefer not to declare a public fast on Thursday, so as not to cause profiteering." Rashi explains, "When the storekeepers see that the customers are buying food for two large meals on Thursday night, one for the night and one for Shabbat, they raise prices since they think that a famine is imminent."

                   Who is a profiteer? If the price has been set by the court, as is the opinion of the Rambam, a profiteer is one who raises the price without court authorization.

                   If the price has been determined freely, a profiteer is one who causes the prices to rise in an artificial manner. The Rashbam (BB 90b) explains that he declines to sell for a short time in order to effect a price rise.

                   There is a controversy concerning price control. The Tosefta (BM 6,4) states; "There was an official in Jerusalem. He was not in charge of prices but of weights and measures." A similar statement is quoted by the Gemara (BB 89a), where it serves as the basis for a legal ruling by Shmuel. However, the exilarch appointed supervisors of prices as well as measures, and when Rav was appointed and failed to supervise prices, he was jailed. The opinion of those who called for price supervision was eventually accepted. Karna, the disciple of Rav and Shmuel, quotes the ruling of Rebbi bar Chama in the name of R. Yitzchak, "We appoint supervisors both for measures and for prices because of the cheaters."

       The Gemara (Yom. 9a) also states that officials compelled the bakers to sell cheaply.[2]

                   The Rambam accordingly rules; "The court is required to appoint officials in every county and every city who will circulate among the stores and validate the scales and the measures and set the prices.... Anyone who profiteers and sells dearly is punished with lashes (until) he sells at the market price." (Hilchot Genaiva, 8,20; quoted in the Shulchan Aruch, ChM 231,20-21).

 

2. Hoarding

 

                   There are times when a merchant withholds a product until a shortage develops in order to cause a price rise. We have cited above the statement of the Gemara identifying this practice with usury. Rav Achai Gaon (She'iltot Vayigash) adds that there can never be atonement for this sin. The Netziv (Ha'amek She'ela, ad. loc.) explains that they are “robbers of the public" who cannot repent, since they are not able to make compensation to the individuals who suffered as a result of their activities.

                   The prohibition is quoted in Baba Batra (90b).

            “One may not hoard foods which are essential to life, such as wines, oils, and flours. Spices... are permitted. This applies to one who buys in the market, but it is permitted to withhold one's own produce. In Eretz Israel it is permitted to hoard for three years, namely the sixth, seventh, and eighth years of the sabbatical cycle. During a drought, one may not hoard even a kav of carobs, so as not to bring a curse on the prices."

                   Several conclusions can be drawn from this braita.

                   1. The prohibition applies only to essential products. We shall consider below the controversy concerning the scope of this category. In any event, this is the first example of limited intervention in the operation of the economy.

                   2. According to the version of the braita found in the Tosefta (AZ 5,1), as well as several readings in Baba Batra,[3] the prohibition applies only in the Land of Israel. The Rambam (Hilchot Mechira 14,5), however, explains that this is merely an example, and it applies "in the Land of Israel and also wherever there is a Jewish majority, since this phenomenon causes distress to Jews".

                   3. Under certain conditions, hoarding is permissible. One is not obligated to sell one's own produce promptly. Before the sabbatical year one may stock up on supplies. The Rashbam (ad. loc.) explains that this is meant to ensure that there will be foodstocks available during the seventh and eighth years.[4] On the other hand, during a drought, no hoarding at all is permitted. The Rashbam explains that this is meant to prohibit even hoarding for household use, which would normally be permitted. The She'iltot (op. cit.) explains that the intention is to prohibit the hoarding of nonessential items in drought years.

                   In modern economies, droughts with significant food shortages are rare. However, Rav Ezra Basri (Dinei Mamonot, 2, 2, 4) considers wartime to be a comparable case, and accordingly criticizes the panic hoarding that usually takes place when there are apprehensions of war.

                   The Talmud relates that Shmuel's father used to sell his produce immediately after the harvest, in order to establish a low market price. Shmuel, on the other hand, used to wait until the price had risen, and then would sell his produce at the original low price, in an attempt to lower the price. The Gemara states that the father's actions are preferable to those of the son, because any hoarding, even for the best intention, leads to a price rise. Once up, it is much harder to bring it down. According to the Rashbam, Shmuel's actions are permitted, though not preferred. However, the Netziv (She'iltot, op. cit.) claims that other authorities disagree with the Rashbam and prohibit any hoarding, even if done with good intentions and not for speculative reasons.

      

3. Trading in Essential Items

 

                   One of the contributory causes of high prices is excessive intermediary trading as every additional middleman adds to the final price.

                   "Tanu Rabbanan: In the Land of Israel, it is prohibited to trade in essential items, (e.g.,) wines, oils, and flours. It was said of R. Elazar b. Azaria that he would trade in wine and oil." The Gemara explains that R. Elazar felt that wine was not an essential item, and therefore there is no need to insure a cheap price. Oil was abundantly available and therefore trading in it was not restricted.

                   This source does not prohibit profit as such, even in essential items. The intention is only to prevent unnecessary price increases by limiting intermediary dealing. The Rambam (Hilchot Mechira 14,4) states; "One is not permitted to trade in essential products in the Land of Israel. Rather, each person brings his own produce and sells it, so that it will be sold cheaply. If oil is plentiful, it is permitted to trade in oil."

                   This ordinance seems to require every farmer to deliver his produce personally to the market. There is however a tendency to temper the severity of the law. First of all, it applies only when there is a shortage of the particular essential item, with oil being an example of an item which, at certain times, was not included in the law.[5] Secondly, the Rashbam (ad. loc.) declares that the law only restricts one who trades without expending additional effort on the object. "It is permitted to buy wheat and bake bread, since there is effort, but to buy and sell without change is prohibited, since the (original) owner could also sell it without effort." It is possible that in a modern economy, it is no longer true that the owner can sell to the public without effort, and therefore he is permitted to sell through a middleman. Since the middleman is expending effort to make the product available throughout the sales network, he is also entitled to a profit.[6]

                   Another source which restricts trading is the following (BB 91a): "Eggs should not be traded twice," One explanation in the Gemara is that the permissible profit is 100%. A second explanation is that there should be no more than one middleman between the producer and the consumer.

       The Rambam (loc. cit., 3) quotes the second explanation. It is unclear whether (and why) this prohibition applies only to eggs, or eggs are merely an example. The Tar (loc. cit.) follows the first explanation in the Gemara, and both are quoted in the Shulchan Aruch.

      

4. Profit Limitation

 

                   The discussion to this point has dealt with profiteering, assuming that there is a fixed price. We have not discussed how the price was determined, or whether there is a permissible profit margin. There is one Talmudic source - from the Amoraic period - which addresses this problem. "Shmuel said; one may not increase the weights or the coins by more than a sixth, and one may not profit more than a sixth." (BB 90a) The ensuing Talmudic discussion relates solely to the first part of Shmuel's dictum, but does not add anything to the second part. The Rashbam (ad. loc.) explains that it is a rabbinic enactment in order to prevent excessive price levels. The sixth is measured as a percentage of the final amount, i.e., one may raise the price by 20% (cf. Shulchan Aruch Harav, Hilchot Midot Umishkalot, 17).

                   An application of this law is quoted in Baha Metzia (40a). Rav Yehuda sold a barrel of wine. The Gemara understands at the outset that he profited less than a sixth, and poses Shmuel's halacha as a question. Rashi and the Tosafot (ad. loc.) explain that Rav Yehuda would presumably not voluntarily profit less than the permissible amount for no reason. The Ritva adds that it is not right for a scholar to waive a possible profit, leading to his eventual dependence on others for his support. From the Rach (ad. loc.) it appears that his text read “... Shmuel said; one should not profit more a sixth nor less than a sixth".

                   Following another computation, the Gemara reaches the conclusion that Rav Yehuda actually profited more than a sixth. The Gemara explains that "there is labor and costs of tapping (providing a spigot)", i.e., one may add to the base figure a fee for work done and additional expenses.

                   The dictum of Shmuel is quoted in the legal codes. However, there is a clear trend to limit its applicability.

                   1. Expenses - Referring to the permissibility of charging for work done, the Rosh (BM, ad. loc.) states; “We derive from this that the statement of Shmuel... applies where one sells the merchandise at one time without effort. But a retailer who sells piece by piece is compensated for his effort and all his expenses, and may profit a further sixth above this sum." This ruling is quoted in the Shulchan Aruch (231,20).[7]

                   2. Products Included - Although Shmuel's statement is unrestricted in the Gemara, the authorities state that it applies only to essential items, as we find in the prohibitions of profiteering, hoarding, and intermediary trading. This restriction is found in a responsa from the Geonic period (Otzar HaGeonim, BM 40a, Responsa, n. 170), in the Rambam (HilchotMechira 14,1), Rashi (BM 40a; Men. 77b), and the Shulchan Aruch (loc. cit.).

                   Naturally, the question is what are considered "essential items"? The Maggid Mishne limits this category to items that are vitally essential, excluding eggs for example; thereby explaining why the Gemara (BB 91a) permits a 100% markup in the price of that product. Similarly, the She'iltot (quoted above, see 2) mentions pomegranates and carobs as nonessential items.
      

                   The Kesef Mishne, however, disagrees emphatically with this opinion and claims that all foods are essential items. He tends to include even spices in the category of essential items. The Rashbam maintains an intermediate position, claiming that eggs "are not all that essential", implying that there are items of intermediate importance where some restriction of the permissible profit is justified, although not necessarily only a sixth.

                   The Sma (231, n.36) divides products into three categories:

a. The main foodstuffs, such as wines, oils, and flours, where profit is limited to a sixth.

b. Food additives, such as spices, where one may profit up to 100%.

c. Items which are not foods at all, such as frankincense, where there is no limitation of profit.

                   3. Market conditions - The law applies only if the present market price is unchanged. If the price has risen, he may sell at the prevailing price even though he will thereby profit more than a sixth (Shulchan Aruch, loc. cit.). Furthermore, the Ramma (Yad Ramma, BB ad. loc., and quoted in the Shulchan Aruch, loc. cit.) states that a merchant is obligated to abide by this law only if there is a supervisory mechanism to insure that all merchants conform to its provisions. If, however, the market is unregulated, one does not have to sell cheaper than others.

                   4. The Kesef Kedoshim (ChM, ad. loc.) proposes two additional distinctions. The first is to limit the law to items not abundantly available (as we find in the prohibition of intermediate trading). He further suggests that the law should apply only to foods ready to eat, but not to wheat etc. Both of these suggestions are open to question.

      

5. The Market Price

 

                   In order to fully comprehend Shmuel's law, we must consider the relationship between permissible profit and the market price. Is the market price itself limited by Shmuel's law? Does the market price serve as the basis for computing the seller's profit margin, and to what extent? It appears to me that there are two basic approaches in the halachic sources.

                   A. The Rashbam - This law is not intended as a means of setting the market price. The forces of supply and demand freely determine the market price. The law is addressed to the seller, prohibiting him from selling at more than a sixth above the wholesale cost that he paid, whatever that is. This applies where there is not yet a fixed market price, such as at the time of the harvest, or if the object is unique and not standardized.

                   It is possible that the same is true even where there is a wholesale market price. That price is determined by market factors; the retailer may profit by an additional sixth.

                   Accordingly, the producer is not restricted at all. He may sell to a wholesaler or retailer according to the rules of a free market, thereby setting the market price. This freedom is quite sensible. It is very difficult to determine a base price for a product, especially since a major part of the price must reflect the labor of the producer. Most often, the product will not be comparable to items produced by other producers. Only when the products reach the marketplace are they divided into different standards and given a final price. The retailer, on the other hand, generally only acts as a middleman, and therefore his profit is limited to a sixth.

                   B. The Rambam - The purpose of Shmuel's law is to set the market price and thereby limit permissible profit. The law is addressed to the court, calling on them to set the market price by using the permissible profit margin of one sixth. The Rambam states (Hilchot Mechira 14,1); "The court is obligated to set prices and appoint supervisors for that purpose, so that it will not be possible for each person to profit as much as he pleases. They should permit him only a sixth for his renumeration, and the seller shall not profit more than a sixth." The Rambam limits this law to essential items only, as mentioned above.

                   The additional clause at the conclusion, prohibiting the seller from profiting more than a sixth, can be understood either to refer to a situation where, for some reason, there is no price regulation by the court, or as the limitation of retail profits aside from the limitation of wholesale and producer profits which is accomplished directly by the court.

                   The disagreement of the Rambam and the Rashbam is reflected in their varying interpretations of profiteering, quoted above. The Rambam defines it as selling above the fixed market price; whereas the Rashbam, who does not recognize the existence of a fixed price, defines it as artificial price manipulation. The Rashbam (BB 89a, s.v. "Ain") relies on free competition to hold down prices, and explains the need for market supervisors only to prevent cheating. The Rambam contends that the purpose of market supervisors is to regulate the price.


6. Price Fixing

 

                   Although the market is free and prices are determined by the law of supply and demand, the possibility of price fixing exists, either by the public (through represention) or by the merchants.

            "The members of the community may compel each other to build a synagogue.... The members of the community may determine prices and measures and wages, and they may enforce their decisions.... The wool dealers and dyers may agree that all goods that arrive in the city should be shared by them all." (Tosefta, BM 11,12)

 

a. Minimum Price

 

                   Although an agreement among merchants or members of a worker's organization will usually concern only internal affairs, there may also be external ramifications. This is true where merchants fix a minimum price, beneath which no merchant is permitted to sell. The possibility exists that they will fix a high price without economic justification.

                   This problem is more severe today when the consumer is apt to find himself facing a giant corporation, perhaps a monopoly, and therefore is in need of protection from arbitrary price fixing.

                   Although the Talmud did not face the phenomenon of monopolistic corporations, it attempts to deal with this problem by restricting the power of guilds to regulate themselves. The Gemara (BB 9a) requires the assent of the local “important person” [8] in order to validate the internal regulations of a guild. This is meant to secure an objective review, which takes into account other concerns, such as the public interest, aside from the interest of the members of the guild (cf. Ramban, ad. loc.).

                   From the Meiri (BB ad. loc.) it appears that even with the concurrence of the "important person", regulations which are injurious to the community are invalid if they have not been agreed to by the citizens themselves. On the other hand, if there is no local "important person", there is no review of the decisions of the guild. How then, can the consumer's interests be protected?        


                   This question also exists where there has not been a formal enactment by the members of the guild, as they can always form a monopoly or voluntarily cooperate among themselves in order to fix minimum prices, at the expense of the community. There are many forms that this can take, and it is quite prevalent today.

                   The halachic remedy to this situation is to take countermeasures, either by inviting merchants or tradesmen from the outside to break the monopoly, or by organizing a consumer strike.[9] Practically, this is very difficult to organize successfully. The Halacha is able to enforce a consumer strike by use of a compulsorily binding agreement among the townspeople. We therefore must consider the power of the community to regulate itself. There are several examples.

      

b. Maximum Price

 

       The members of a community have the power to regulate the financial life of the community, including the fixing of prices and wages. This need not be done by the townspeople directly, but can be effected through elected or appointed representatives.

       This power can be used to protect the consumer by acting against arbitrary price fixing by merchants or tradesmen, as mentioned above. An example of such a regulation is found in Responsa Maharashdam (YD 117). In response to price fixing by the wool dealers, the community fixed a maximum price. This remedy was endorsed by the respondant.

       Another example is quoted in a responsa of Rav Yosef Shaul Natansohn Shoel Umeishiv, v.2, 4,89).

            "The butchers in our community have raised the prices of meat and are selling more dearly than (is common) in the area. We have decided that this is opposed to honesty and justice, and wish to make a firm agreement that no one shall buy meat from the butchers until they sell at the price prevailing in other communities of this area...."

 

                   Other examples, concerning ritual objects, will be considered below.

                   This power of the community could conceivably be used to unfairly harm the legitimate interests of the merchants. There are, however, opinions that the enactments of the community also must be ratified by an "important person". From some sources it appears that we do not view the community as a whole as an interested party, out to protect consumers, but as an objective body entrusted with the common good of all the inhabitants.[10]

 

7. Ritual Items

 

                   Should ritual objects be considered "essential items", regarding the halachot quoted above? Does the obligatory nature of these items constitute a sufficient reason to fix their prices, or at least to establish a permissible profit margin? The category includes such objects as a lulav, shofar, tfillin, etc., and, by extension, foods needed for ritual purposes, such as matza on Pesach, or even fish for Shabbat.  I could not find an explicit discussion of this point. A general approach can be derived from the following statement of the Tiferet Yisrael (Bech. 4,6, Boaz,1). "It is not proper to excessively burden people in any matter concerning the observance of Torah and mitzvot, which is the purpose of creation."

                   We can discern the attitude of the sages to this question by examining the way they responded to problems of profiteering in ritual objects. While they did not combat the problem directly, by setting the price, they took steps to indirectly bring about a reduction in the price. One method is by publicizing a lenient ruling that results in a lowering of demand. The Mishna (Ker. 1,7) recounts;

            "A woman who has given birth five times... (must bring five sacrifices). It happened that the price of a pair (of doves) in Jerusalem reached a gold dinar. Rabban Shimon b. Gamliel said, I shall not sleep tonight before the price will be a (silver) dinar. He entered the court and taught - a woman who has given birth five times... brings one sacrifice and need not bring the others.[11] That same day the price reached a quarter (silver) dinar." 

 

                   Asimilar story is told in Sukka (34b). Shmuel warned the sellers of hadassim (myrtle branches used together with the lulav on Sukkot) not to raise the price of undamaged branches, or he would publicize that clipped branches are also acceptable.

       Elsewhere, we find Shmuel threatening the potters that if they would not lower the price of pots after Pesach, he would permit the use of a pot after the holiday even if it had been used with chametz before Pesach. (Pes. 30a)

                   In more recent times, steps were taken to boycott some items, in order to lower the price.

                   The community of Nicholsburg passed an ordinance prohibiting the purchase of fish for two months, because the fishermen, knowing that the Jews traditionally purchased fish for Shabbat, had raised the price. Rav Menachem Mendel Krochmal, the local Rabbi, consented to the ordinance even though it constituted an affront to the honor of Shabbat, citing the Mishna in Keritut about R. Shimon b. Gamliel (Responsa Tzemach Tzedek, 28). In this case, a boycott is called against an item normally considered to be ritually obligatory.

                   The problem of profiteering in ritual objects is especially prevalent today before festivals - the four species before Sukkot and matzot before Pesach. It is sometimes claimed that the minimum level of observance can be achieved at a reasonable cost, while excessive prices are charged only for special nonobligatory features (hiddur mitzva). However, the precise border between the mandatory and the optional in these areas is very difficult to determine. Furthermore, the case of Shmuel in Sukka quoted above concerned a nonobligatory feature, according to one opinion of the Tosafot (ad. loc.).

                   In conclusion, it may be stated that this topic needs further research. How does the market actually operate in these areas? Is there a hidden monopoly? Who could supervise the market? It would seem that the rabbinic establishment should take an interest in this study.

      

8. Price Reductions

 

                   Were the need to ensure reasonable prices the only consideration for intervention, we would naturally encourage anyone who lowered prices. Nonetheless, we find that there are restrictions in this direction as well, with the purpose being to protect the interests of the sellers. It is possible that the protection of the merchant's interests is considered to be in the ultimate interest of the consumer public.  

                   We have already cited the passage in Baba Metzia (40a) which implies that a seller should not settle for less than a profit of a sixth.

                   A discussion of price reductions is found in Baba Metzia (60a). The Mishna reads; "R. Yehuda says, a storekeeper may not give away nuts or... (candy) to children, because this encourages them to visit him. The Sages (Chachamim) permit it. He should not lower the price. The Sages say, may he be blessed."

                   Concerning the first case, the Gemara explains the opinion of Chachamim by reference to the principle of free competition. The nut distributor can say to his competitor, "I give away nuts; you give away fruit." Concerning the second case, the Gemara states, "He encourages trade". Rashi explains, "Hoarders will see that the price is declining and will sell cheaply".

                   What is the nature of the controversy between R. Yehuda and Chachamim? While the Rambam and the Ramma interpret the disagreement in a different light,[12] Rashi explains that the basis of the controversy lies in the conflict between the interests of the merchants and those of the consumers. R. Yehuda represents the merchants, who are threatened by "unfair" practices. Chachamim reply that the seller has the right of free competitive practice. If this results in lower profits for the merchants, all the better, since the gain is that of the consumer public. The Shulchan Aruch (ChM 228,18) rules according to the opinion of Chachamim.

                   In Baba Batra (21b), the Talmud considers problems of trade competition from another angle. The discussion there mainly concerns the power of the community to prevent an outsider from opening a business in competition to an established interest. This requires a separate discussion. There are, however, authorities who, on the basis of that passage, limit the right of a merchant to lower prices. One opinion distinguishes between fruits and grains, where the reduction of one merchant can bring about a general lowering of the price, and other products.[13] Another opinion is opposed to reductions which other merchants are not able to match. The Aruch HaShulchan (228,14) writes; "It is definitely forbidden to cheapen merchandise excessively, for in this way orderly commerce is disrupted and others are ruined financially.... Only if the competitors can match (the reduction) is it permitted....”[14]

 

       C. Summation and Application

      

                   I shall summarize briefly the halachic attitude to the question of prices, and then consider the contemporary application of these halachot.

A. Price control of essential items. Although the market is essentially a free one, operating according to the law of supply and demand, there exists a measure of intervention and supervision designed to ensure that the lower economic classes will be able to purchase essential items at affordable prices. This intervention takes several forms. The prices of essential items are fixed by the authorities. Even according to the Rashbam who contends that the prices are set by the rules of the market, the profit margin of the individual seller is restricted. The authorities are also entrusted with ensuring that the price level not be artificially raised. Merchants are restricted in various ways - the prohibitions of hoarding, excessive intermediate trading - in order to prevent price rises.

            1. Definition of essential items. Which items are considered to be essential? We have seen above that the Kesef Mishne and the Maggid Mishne disagree, the first including all foodstuffs in the category, while the latter limited it to items essential to life. Contemporary halachic opinion tends towards the latter position. The variety of food items today has grown enormously, and a large portion of them have nothing to do with support of life. We should draw up a list of basic foodstuffs in our society, concerning which the halachic strictures will apply.

            On the other hand, one may ask why the category of essential items includes only foodstuffs. Permanent household appliances, which are generally bought only once for long periods, such as a refrigerator, oven, washing machine, or furniture, are definitely not included, despite their importance, as the halacha is designed to regulate the trade in items which are bought on a regular basis. However, various items of clothing, cleaning, etc., are bought regularly and are considered to be basic to a minimum standard of living. One factor relevant to the regulation of these products is the fact that often, especially in the case of clothing, it is difficult to establish a uniform standard. It is clear that the commentators considered the class of essential items to be limited solely to foodstuffs, which are literally essential to the preservation of life. We have previously seen that ritual items are not included in this category, despite their importance.

 

            2. Hoarding. The prohibition of hoarding is a means of combating price rises of essential items. The prohibition applies to the merchant and to the consumer; the producer is not obligated to sell his product immediately. The consumer is permitted to stock up for home use, and there is a special suspension of the prohibition on the eve of the sabbatical year. During a time of shortages, such as a drought, even hoarding for household use is forbidden, because of the resulting difficulty to the needy.

            A common occurrence in contemporary Israel is consumer hoarding and panic buying before anticipated government-mandated price raises, including such essential items as oil, sugar and chicken There is an important distinction between the various types of hoarders. The merchant, owner of a retail outlet, is generally hoping to profit by selling later at a higher price. It is true that in this case he is not responsible for the price hike, which has been ordained by the government, but it is doubtful if this consideration is sufficient to exclude his action from the prohibition of hoarding, as in any event he is exploiting the situation in order to obtain profits to which he is not entitled. It is noteworthy that generally the government prohibits the sale of products in inventory at the new price. There are perhaps cases of merchants who maintain a large supply in order to sell it to the needy at the old price, similar to Shmuel's actions as recounted in the Talmud (above, Sec. A,2). According to the Rashbam, this is permitted. Indeed, in this case, where the action of the merchant will not cause a rise in prices, all opinions will presumably concur with the ruling of the Rashbam.

            The private consumer, on the other hand, is apparently not prevented from buying as much as he can use, even a year in advance. There are, however, two points to be considered. First, in ancient times, people did not shop frequently, and it was quite normal to buy large amounts of basic items sufficient for several months. Today, when the housewife shops several times a week, why should a consumer be permitted to hoard a year's supply of oil? His motivation is not to ensure the availability in another month, but to profit.

            Secondly, if the prohibition is based on the harm caused to other consumers, as stated by the Rambam, this sort of hoarding causes shortages, i.e. others will go without while he saves a few cents.

            Another similar case is panic buying during emergencies or wars. This case is comparable to a time of drought, and the restrictions are consequently more stringent.

 

            3. Intermediate trading. It is extremely difficult to apply the prohibition of intermediate trading to a modern economy. The restriction applies only where there exists a shortage of a particular product, which does not generally occur today. We have also stated that a measure of wholesaling is justified in a large, organized market. On the other hand, the need to restrict and regulate the different levels of wholesaling in the distribution network exists in contemporary society as well. It is well known that the prices of fruits and vegetables are elevated by unnecessary intermediate trading. In a Torah ordered economy, we should consider ways to limit the amount of trading interposed between the producer and the consumer.

B. Profit margin. The permissible profit margin for essential items is one sixth, i.e., 20% above cost. For this purpose, cost includes direct expenses and the value of labor expended.

 

            1. Essential items. Since a retailer may include his expenses and the cost of his labor in the base price before adding on a sixth, the exact computation of the maximum permissible price is not easy.


While expenses such as taxes, transportation, etc. are relatively simple matters to compute, the price of the storekeeper's labor and effort is somewhat more amorphous. In any event, the storekeeper is obligated to set an honest price on the labor that he has expended, and not fix the price arbitrarily.

            According to the Yad Ramma, quoted above, if other retailers do not observe the halachic restrictions and sell at a higher price, there is no longer an obligation to sell at less than the market price. On the other hand, it would be preferable were an individual storekeeper to seize the initiative and attempt to influence the market so that all sellers would maintain a lower price. In many cases, a recommended price exists and therefore one should not hastily have recourse to the ruling of the Yad Ramma in order to charge more.

            2. Nonessential items. We have previously seen that there are opinions that refer to an intermediate category of moderately essential items, where there exists a measure of profit limitation. This serves as the basis for a general rule that the permissible profit margin should stand in inverse ratio to the degree of essentiality of the item. We have cited an opinion that dictates a maximum markup of 100% in the intermediate category. Today, we should perhaps include housing, basic household appliances, ritual items, and the like in this category.

C. Price reductions. Some opinions state that there exists a restriction in the opposite direction, namely, that a merchant should not lower prices in a manner injurious to other merchants. While there exists a source in the Talmud that one should not sell below a price which allows one to earn a living, the apprehension of the Aruch HaShulchan that underselling will disrupt orderly commerce does not seem very persuasive in a modern economy. In general, we can state that sales and promotions by retail outlets are desirable.

D. Supervision and enforcement. Although the sources dealing with supervision and enforcement are mostly concerned with fraud of weights and measures, we have already seen that supervisors are appointed for prices as well.

                   Concerning enforcement, the Rambam (Hilchot Geneiva, ch.8) states; "One who profiteers and sells dearly is (liable to) lashes, (until) he sells at the market price." The Shulchan Aruch writes; "We are permitted to administer lashes and punish him as he deserves."


       It is possible that in this area government supervision and enforcement will have the status of "the king's law", whereby civil administration is recognized halachically, and therefore it will not be necessary to follow all the technical ordinances of Jewish judicial procedure.

E. Price fixing. Although the market is basically free, there are a number of possibilities whereby a price is fixed in advance, either by the merchants or by representatives of the public.

                   Members of a merchant's or tradesmen's guild may fix a minimum price for their product, which will presumably be higher than the price which would have been determined under conditions of free competition. The halacha restricts the power of the guild by mandating the concurrence of an “important person” for all such agreements, even if the product is not an essential one, in order to protect the public interest.

                   In the state of Israel, the law has created a public council to examine, among other things, restrictive agreements of this type. The council includes a judge as well as a consumer representative. This law concurs with the idea of the “important person”, although under optimum conditions such a council should include a Torah scholar as well.

                   Where the agreement is not official or public, the problem of supervision is greater. The halachic solution lies in counter-agreements by the representatives of the public at large. This solution however depends on the controversy among the commentators whether such a public agreement need be unanimous or can rely on majority consent. Here too there are opinions that require the concurrence of the "important person".

                   A public agreement need not be legislated by the public at large. Elected representatives could be empowered to act in the name of the community. In the time of the Talmud, this institution was called "the seven leaders of the city". Therefore, the government has the power to fix prices in the name of the community. Even the opinion which requires unanimous consent for enactments of this type may agree that in a democracy the minority has accepted the right of the elected government to act legally, and therefore the government should be considered to be representative of all.[15]

                   Aside from the power of the community to regulate prices, the authorities may organize a consumer strike. This power is generally not accorded to governmental bodies in modern democracies, but the possibility still exists for a voluntary movement to organize the public for such a tactic. 

 

F. Ritual items. Although these articles are not considered to be essential items, the authorities should ensure that they be available at reasonable prices. The problem exists mainly on the eve of Pesach and Sukkot. The rabbinic authority can publicize various leniencies or enact certain ordinances which will lower demand and therefore cause a price reduction. In general, it seems to me that the rabbinic establishment should initiate the distribution of basic ritual items at a reasonable price, leaving the provision of more elaborate or more stringent items to private distributors. [16]

 

 

 



[1] A measure of balance between a free economy and protective measures to prevent an everwidening gap between the rich and poor can be seen in a number of laws in the Torah itself, such as the obligation of charity and interest-free lending, remission of debts in the sabbatical year, the return of patrimonial fields in the jubilee year, etc.

[2] Cf. Rashbam, BB 89b and the Maggid Mishne, Hilchot Mechira 14,1. Rashi (Yom. ad. loc.) however, contends that these were non-Jewish officials.

[3] See Dikdukei Soferim, ad. loc.

[4]Although this will cause prices to rise already in the sixth year, a moderate price increase over the course of the three years is apparently preferable to a sudden extreme price hike during the seventh year.

[5] It is possible that this law does not prohibit trading per se, but rather grants to the authorities of every generation the power to declare a shortage in a given essential product, and therefore it should be sold directly without middlemen. This may be the reason that the Tar and the Rosh do not quote the law. The Sma (231, n.42), it is true, explains the omission of the law as due to the fact that it applies only in the Land of Israel. The Rambam does not add that any place with a majority of Jewish inhabitants is equivalent to the Land of Israel, as he did in the previous case. However, there seems to be no reason to distinguish between the Land of Israel and any other Jewish settlement for the purpose of this law.

[6] From a comment of the Rashbam (ibid., s.v. "Ain Mistakrin") it appears that he maintains that the prohibition does not apply to professional wholesalers, but only to occasional sellers.

[7] The Rambam does not mention this ruling. The Bach contends that the Rambam disagrees with the Rosh.

[8] There is a difference of opinion concerning the identity of the "important person", whether the leader of the community, a Torah scholar, or both. cf. Shita Mekubetzet, ad. loc.

[9] Responsa Mabit, 1,231;cf. Response Maharival, 1,115; Lechem Rav, 216; Dr. N. Rackover, Haganat HaTzarchan, (Studies in Mishpat Ivri, v.16), p.30.

[10] cf. Responsa Mabit, 1,137; Responsa Alshich, 59.

[11] Rashi contends that R. Shimon ruled knowingly against the halacha in order to lower the price, in order to prevent a situation in which the women would desist from bringing any sacrifice. The Tosafot (BB 166,1) explain that he intended that the other sacrifices be brought at a later date, after the price declined.

[12] The Ramma (BB 89a, n.132) explains that the question is whether fraud is suspected. The subsequent discussion in the Gemara indeed revolves on the question of misleading appearances of products. This seems to be the Rambam's interpretation as well. "A storekeeper may give away nuts... and undersell the market price... and the (other) merchants cannot stop him. 'This does not constitute deception." (Hilchot Mechira 18,4)

[13] Responsa Panim Me'irot, 1,18.The Chachmat Shlomo 228,18 disagrees.

[14] The ruling of the Aruch HaShulchan is based on a passage in Baba Batra (91a) which states that prayers are instituted even on Shabbat if prices have fallen. The Gemara there limits this law to products that are essential to the economic life of a majority of the community, and to a decline of at least 60%. In any event, the principle is established that excessive lowering of prices can be considered to be a catastrophe. Apparently, the Aruch HaShulchan experienced this phenomenon in his time. He writes (ChM 231,26); "Today in our country we must protest against the merchants who lower prices on all sorts of products, thereby disrupting commerce and causing poverty. The Sages permitted one to profit a sixth even on essential items. On other items, one should profit much more. Today, they lower prices without intelligence and without wisdom."

[15] cf. Rav Uziel, HaTorah Ve-HaMedina, v. 5-7, p.17.

[16] In Israel, the Gerrer Rebbe has repeatedly intervened in this area. It is known that on one occasion he warned the "streimel" (chassidic hats) manufacturers that if prices would be excessive, he would order his chassidim to no longer buy that sort of hat. In recent years, he has ordered his chassidim not to pay more than a fixed price for an etrog. (In 1979, it was approximately five dollars).

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