With the United States and possibly the world economy teetering on the brink of recession, central bankers around the world have been feverishly trying to ensure that credit will remain readily available. Thus the continuing lowering of interest rates and the infusion of literally hundreds of billions of dollars into the marketplace in order to try and ward off a crisis that could wipe out millions of jobs and trillions of dollars if these attempts fail.
While the scale might be smaller, our Talmudic Sages, well versed in the workings of the marketplace, were not averse to instituting new laws to deal with a potential lack of credit. Perhaps the most far reaching was the waiving of the requirement to cross-examine witnesses in loan transactions. Biblical law requires that in order to collect on a disputed loan two witnesses, who would be subjected to harsh cross examination, testify as to the veracity of the monies owing. (If only one witness was produced the defendant
would be required to take an oath that no monies are owing in order to be exempt from payment.) Yet enforcing such a requirement might ultimately cause lenders to stop lending, worrying that the collection process be too burdensome and expensive. Thus “in order not to close the gate to debtors” (Sanhedrin 3a) our Sages dropped this requirement, opening up the credit markets in the process.
The enactment by Hillel (1st century BCE ) of the Pruzbool is another measure taken to keep credit lines open. The Torah rules that loans still outstanding at the close of the Shmitta year (the current one ends on September 30) are to be cancelled and furthermore forbids one from refusing to lend money in anticipation of the shmitta year. When Hillel saw that many were nonetheless refusing to lend money fearing the inability to collect –
in effect displaying a lack of trust in G-d - he instituted a legal mechanism by which loans were transferred to the Beit din (Jewish court). As only individual loans are canceled this device enabled people to collect loans after the shmitta year and thus the needy continued to have access to capital.
The ability of the Sages to “circumvent” Biblical law in monetary matters is a well established principle of Jewish law, based on the concept of hefker beit din hefker, that the court has the right to declare property ownerless and to transfer title from one party to another. This idea has found an echo in western legal tradition, which allow governments to expropriate property when deemed necessary for the public good. While the court has the right when necessary to transfer property against a person’s will, two willing
individuals may also “make a condition against the law of the Torah”. To cite one example; Torah law states that one who borrows an object is liable for damages, even if caused by events beyond his control, yet if the parties agree a condition can be inserted into the loan agreement exempting the borrower from such unforeseen circumstances.
While Jewish law tried to ensure that even the poor had access to credit, lenders were not required to take on unnecessary risk. Proper collateral could be demanded and debtors were expected to go to extraordinary lengths to repay monies owing; in fact Jewish law has no provision for bankruptcy. Yet at the same time Jewish law prohibits asking someone for a loan repayment when it is known they do not have the ability to comply. A creditor is even forbidden from going out of his way to greet the debtor as such
encounters can be a great sense of embarrassment to the debtor.