[Avodah] economics 101

Zev Sero zev at sero.name
Wed Jan 9 10:51:13 PST 2013

On 9/01/2013 10:08 AM, Eli Turkel wrote:
> In Baba Mezia 40 the gemara states that one cannot make a profit of more
> than 1/6

On food.  And note that this 1/6 is "milegav", so it's really a 20% profit
margin, and that's after all expenses are taken into account.  Also note
that a retailer of small items such as eggs, which require a lot of work,
and also items such as spices which are not food in themselves, may make
a 100% profit.

> Ritva adds that a talmid chacham should charge the maximum 1/6 and it is
> better that he make his own living and not live off of charity
> Arukh Hashulchan (CM 231b)  complains that on the contrary in his country
> lower the prices below the 1/6 profit level which causes poverty and this
> makes no sense
> -----------------------------------------
> I am at a loss to explain these opinions. As one learns in economics prices
> are set by supply and demand. If a TC charges higher prices than others
> (but allowed by halacha) he wont have business.
> Businessmen are not charging less than a 1/6 profit because of generosity
> but because that is what the market bears.

I have always assumed that this is in a market which is poorly enough
supplied that would bear a greater profit margin, but the halacha requires
that when selling food to our fellow Jews we do them a favour and charge
less than the market price, limiting our profit to 20% (or 100% for some
items).  In modern market conditions this halacha is irrelevant, because
it's impossible to make such a high profit in the first place; if profits
ever got so high in any sector, more people would enter it and bring them
down.  But this depends on communication and transport, which were lacking
in Chazal's day.

In the case of the Ritva's advice to a TC, one could apply it even today;
he should charge prices that are significantly higher than everyone else,
and people should buy from him in order to support him bederech kavod.

Zev Sero               A citizen may not be required to offer a 'good and
zev at sero.name          substantial reason' why he should be permitted to
                        exercise his rights. The right's existence is all
                        the reason he needs.
                            - Judge Benson E. Legg, Woollard v. Sheridan

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