Rabbi Sacks on Free Market and Judaism

JInsider (March 2010)

It’s very interesting that Judaism is quite pro free market. And it’s interesting why. Number one, there’s a fascinating law in economics discovered by a Jewish economist in the 18th century called David Ricardo. And it’s called the law of comparative advantage. And the law of comparative advantage says, you may be better than I am at everything, but so long as you are better at some things than others, and I am better at some things than others, then we will both gain if we work at what we’re best at and then we trade. Now, isn’t that a beautiful idea? It means that you’re a better fisherman than I am. You’re better at making axe heads than I am. But so long as you are better at making axe heads than at fishing, and I’m better at fishing than making axe heads, you specialise in axe heads. I specialise in catching fish, and we trade. That means that there’s something that I can contribute, something that everyone can contribute to the economy. And it all benefits us all.

So Judaism loves the market economy because it means we each have a contribution to make. It benefits as well in another way. And we sometimes forget this. The single greatest force for peace in the world is trade. When two different cultures meet and clash, they can do two things. They can fight one another, or they can trade with one another. If they fight with one another, somehow they will both lose. If they trade with one another, they will both win. Now that is an extraordinary saying.

And let’s go further. Not only does trade constitute the greatest single force against war, it has also historically been the greatest single source of tolerance. You look at the history of tolerance in the world, it tracks exactly the trajectory of the world’s great trading nations. So the most tolerant place in the world in the 16th century was Venice. The most tolerant place in the world in the 17th century was Holland, 18th century Britain. Why? Because they were trading centres, and trade has been not just a force for peace, but the greatest single force for tolerance. So we respect the market economy.

But, and there’s a but, it maximises general welfare, but it doesn’t guarantee a fair distribution. In the market economy, some people can get very rich and many people can get very poor. Therefore, the Torah says periodic redistributions. The whole Torah welfare system of the tithes and the year of release and cancellation of debts and returning of ancestral property – a bit like international debt relief. So what we have here is market economy is great in terms of utilising each of our talents for the general good, but equitable distribution needs a little occasional intervention in the market economy. And there is of course, a wide range of debates about whether that should be big time, small time between the classic Keynesian economists and the classic welfare economists on the one hand and the Milton Friedman guys on the other.

But the principle of the market economy with periodic or systematic corrections so that there’s basic justice, that is the basis of a free society that is tolerant, and that recognises human dignity. Each of us because of the law of comparative advantage, having something to contribute.