Alert: error in the Jewish money Law (Sjoelchan Aroech)

All instances where a person has a chance to make profit from giving
money (or even anything) under the control of another person is
wrong. It is extremely dangerous to allow it, because it has the
capacity that in a percentage of such cases the `boss who gives his
employees little' is preferred by the financier over `a random boss'
and certainly over `a friendly boss,' thus creating higher chances of
profitability on the invested sum (Hetter Iska). Once a financier
profitability scheme of whatever kind is legal, those financiers
who select `bosses who give their employees little' become richer,
and so do these bosses invested in. It is the employees who pay for
this profit for financier and boss, it is also the employees who
will typically not know the details of the business they work for,
thus being unable to claim their right. The "Hetter Iska" (according
Sjoelchan Aroech a legal "investment contract") is a `contract where
the financier can make a profit,' it therefore induces the mentioned
problem. It does not matter in how many cute terms this Hetter Iska
is described, how many oath and how many witnesses, how nice not to
give more profit then a certain amount. The problem still occurs.

All `Hetter Iska' are at the "bottom line" (what ultimately happens)
lending on interest. That the Torah does not explicitly mention a
`Hetter Iska' contract can be because the Hetter Iska follows the general
terms of a money lending deal: money changes hands and is later to
come back at a hoped for profit to the financier. I would posit the
Torah does not list all types of money contracts that currently exist
in the world, because they did not exist at the time, and because it
is easy enough to reduce them all to "for profit money lending."

A more correct way to invest in a business is to lend non-profit,
without looking at the potential loss, where the loss would for
instance count as Tzedakah merit for the financier. Even such loans
have the capacity for the mentioned effect on businesses, because a
boss `who gives his employees little,' has a higher chance of survival
in the markets, and therefore has a higher chance to pay back the
loaned sum ! Even that is suspicious lending activity.

An area where lending does not seem to pose this risk is lending
for the purchase of consumer goods, especially to a person who does
not run a business and is therefore unlikely to receive the money
in preference because he would give his employees little. This does
not extend to the situation of a person who runs a single person
business, as money and success may result in having employees later.

It should be noted that these are laws of a Nation that hold for
everyone. It is not enough to say that one loaned money to a nice
person who would never deny employees a justified share, since once
the for profit investment mechanism (of whatever form, lending or
Hetter Iska, it makes no ultimate difference) is allowed for one,
it is also allowed for people who would use it in the problematic
way.

Conclusion: Hetter Iksa is wrong and should therefore be illegal.
Not only is it wrong, but the effects of money lending on interest
(under which Hetter Iksa falls, even when it is claimed this is not
true: I demonstrated the problem and assume the argument makes sense
so that it is now proven that it falls under illegal contracts) are
devastating over the course of time, mostly on a scale of centuries.
Illegal money trades have the capacity to destroy a Nation and
turn it into tyranny. If this type of Hetter Iksa contracts were
allowed in the time of the last Temple, it would (in all likelihood)
have helped in the destruction of the Israelite Nation, causing the
current exile of the Jews.

*

Innovation, replacement:

To avoid the mentioned problem of for-profit investment, while
retaining a flow of investment credit into business and markets,
a system is needed that does not promote bosses that deny workers
their share. A system which does not react negatively to good
working conditions for employees, but which is either neutral or
reacts positively to employee conditions.

An obvious way to do this is to make employees have power over
where investments are going to be made. In practice this will
mean the majority of people. A group of people can then make sure
that businesses get the funding they need to start and expand,
while preventing the mentioned problem. The source of the principle
sum for the investment entity can be gathered together from the
participating people, who will then become buyers of a "socially
directed" investment service over which they should make sure
they have sufficient influence. The persons that invest the money
should be shielded from the return on these investments, so that
they will not be tempted to select investment opportunities
based on the chance of being payed back. The obvious solution is
to have two streams of money. One stream flows from the people
who participate in the social investment fund ("the employees,"
"the majority"). This stream is used to buy the services of
the investor persons directly, it is their monthly wage, it is
their building and the cost of running their business from day
to day. This money in the form of a monthly due is a strong way
to keep the investors under the influence of the participants.
If the investors do badly, they may lose participants and that
means losing income.

The other stream will be the investment tool, the money that is
lend to business. This money will also come from the participants.
If loans are payed back, it could occur that the sum total remains
stable, or only requires the occasional correction payed for
by the participants. The participants will not pressure the investors
in majority to select profitable contracts, which would invite the
finance abuse problem back in, because the participants being the
employees ("majority of people") are the people against whom the
finance abuse is directed, at least in general. Even if not this
system allows for more control and transparency about where the
investment money is being placed. All people who may benefit from
socially invested money are also potential participants of the
future, widening the success of the investment fund itself in the
number of participants, providing more job-security for the investors.

In practice it may be useful that the investment tool money is
under the control of a separate entity, who takes care of actually
handing over the investment money that the investors have decided
will be invested somewhere. This separate entity will then be funded
for providing the service of keeping everything proper and accountable.
It can give accurate investment information to all participants. The
separate entity can be a trusted person or specialized separate business,
so that the investors do not control the investment tool money directly.
This will make the scheme itself less likely to be abused.

There are a number of ways in which the investors can make certain
the businesses are in fact not denying the employees fair income.
Methods that I'd personally suggest: make a contract that if the
business is successful enough that it comes to have more then a number
of employees X (for instance 9 or 10), that it will then be sold to
the employees as a group at the time that the previous business owner
retires for whatever reason. Another method is to make up a contract
that employees and boss/owner will not diverge in monthly income and
profit more then a percentage X%. Another method is to seek out people
who are known not to be greedy. Another method is funding with favor
businesses which present a group democracy protocol for making decisions
which extends into working conditions and what to do with the profit.

This way the finance issue is re-directed toward a social aim, while
markets and businesses remain well funded. With the investment fund
under employee/majority control, the goals of the businesses funded
may very likely change from pure profitability and becoming rich to
in many cases provide jobs and fair conditions for everyone.

The "Hetter Iksa" is a breach in the Torah law, please strengthen it.
The replacement should work, no void in general finance should result.

Counter arguments appreciated. I'm not an expert on Torah law. The
logic here is not derived from Torah, but Torah seems to agree with it
in law ("seek no rent") and logic (make sure Justice is done, each has
their fair income).
Source: Kitsoer Sjoelchan Aroech, Chapter 66 Iska. Profit seeking money!
Profit must come from work and trade, not gambling with money while
others work. If the money could be loaned away for profit, it could also
be loaned for no profit, as it can apparently be missed in both cases.
Finance gambling is not work. Case closed, IMHO.

See also http://www.jhwh.be/~joshb/soundinvestment.html
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