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The Talmud and the Billionaire’s Money

Talmudic wisdom for charitable endowments

Jacob Siegel
February 03, 2022
Tablet Magazine
Tablet Magazine
Tablet Magazine
Tablet Magazine

There has been robust debate recently in the Jewish philanthropic community about Jewish communal endowments. Some have argued that endowments should, perhaps, cease to exist. The money, rather than accruing forever, to be disbursed in small sums by unaccountable trustees, should be spent down to meet immediate needs, as it was in the early years of organized Jewish life in the United States. Others believe our communal endowments are doing exactly what they are supposed to do, supporting our Jewish infrastructure in perpetuity. At the same time, a growing number of people today accept parts of the critique of endowments but seek to organize to deploy Jewish endowment money more purposefully, to transform our world away from the destructive trajectory it seems to be on.

Investment capital is powerful, and the most powerful form of investment capital is the money invested by institutions or communities—money invested in perpetuity, with only the profits being spent every year. As it happens, there are thousands of years of history of Jewish communities maintaining pooled endowment funds. And since the beginning there has been a debate about their role in social change. That ancient debate can contribute to how we look at endowments today. Money is only truly charitable, according to Jewish sources, when it comes under the control of the community. Once it does, it has a privileged place in a Jewish charitable ecosystem. And ultimately, all of our community’s investment decisions ought to be aligned with Jewish values.

The rabbinic discussion of communal endowments starts in the Talmud, centered around a very specific case—the trust funds of orphaned children. The conversation begins with a provocative claim made by Talmudic sage Rav Anan: “Shmuel says that it is fine to lend money belonging to orphans at interest.” The other sages object that even vulnerable orphans don’t have an exception from the Torah’s prohibition on charging interest. They instead offer the following compromise: “One may lend out the money of orphans ‘near to profit and far from loss.’”

It is important to take a moment to understand the idea of “near to profit and far from loss.” Suppose an investor invests money in a venture run by someone else. If the investment earns a profit, they agree the investing partner will receive half the profit and the partner managing the business will receive the other half. If the investment loses some amount, similarly, each partner agrees to absorb half of that loss. This is equitably shared risk. It represents the Talmudic ideal of a socially just business relationship. Both partners are “near to profit and near to loss.”

Suppose, instead, that the investing partner demands most of the profit—which he can get away with demanding, since he has the power as the one supplying the investment capital. He also demands that, if the business venture loses money, the managing partner will absorb most of the loss and only pass on a small amount of loss to the investor. Such an arrangement would be “near to profit, far from loss.”

In Jewish tradition, one who takes advantage of the power inherent in ownership of capital by forcing excessive risk onto the borrower is considered wicked. Instead, the appropriate practice is to share risk: If we profit, we both profit, and if the business venture fails, we both lose out. Yet there is an exception for orphans. According to the Talmudic passage quoted above, they are allowed to lend money “near to profit, far from loss.”

The Talmud continues to debate what exactly we do for orphans. Rav Yosef suggests the trust fund be held by the court to dole out money as needed. The sages object that failing to invest the money will cause the principal to be depleted before the orphans grow up. Rabba suggests finding a wealthy man with gold scraps, buying the scraps, and using them as the basis for a joint business venture—an option the other sages reject as too unlikely. Rav Ashi ultimately offers the accepted solution: “Find a person whose possessions are free of controversy, and who’s trustworthy, and pious regarding the law, and is not in bad graces with the sages. Then, in court, set up a joint business venture with them that is near to profit and far from loss.”

In Jewish tradition, one who takes advantage of the power inherent in ownership of capital by forcing excessive risk onto the borrower is considered wicked.

A few points emerge from the Talmudic discussion. First, the sages of the Talmud are clear that their concern is depletion of the orphans’ principal. The goal is not to grow a pot of wealth, but to make sure that the amount upon which the orphans are dependent does not decrease. And there are limits to what is allowed. Orphans’ funds cannot be lent in ways that violate the Torah’s prohibition on full-fledged interest. Instead, what is permitted for orphaned children is an imbalanced sharing of risk. The sages of the Talmud allow us to override the normal moral censure on inequitable risk-sharing if the investor is vulnerable and powerless and we are seeking to support them.

The Talmud also sets a high standard for those stewarding investment capital designated for the vulnerable. They ought to be free of controversy, scrupulous, and on good terms with communal leadership. They need to be engaged in an arrangement where, on the one hand, they have a stake in the orphans’ financial success (a shared business venture). On the other hand, they minimize their own profits for the benefit of the orphans, as they agree to be on the losing end of the “near to profit, far from loss” arrangement.

It was not only orphans who got special rules. The most expansive early list of institutions deserving preferred treatment came from Rabbi Asher ben Yechiel, also known as the Rosh (Spain, 1250-1327). The Rosh allowed communal funds to be invested with the special privilege of near-to-profit and far-from-loss, just like orphans’ trust funds, if they were dedicated funds for the poor, to support Torah learning and Torah scholars, for maintenance of synagogues or for their beautification, to support the prayer service, and to purchase and maintain a Torah scroll. The Rosh’s list was adopted in all the later legal codes. The Rosh added a reminder that such funds could still not be lent out at full-fledged interest.

Rabbi Azaria Figo (Italy, 1579-1647), in his work Gidulei Terumah, also understood the category of orphan expansively to include any individual unable to manage their own finances. This included people with mental or physical disabilities that prevented them from doing so. A widow whose husband had died was not given this exemption, on the assumption she was capable of managing her own money.

At first, the pools we’re discussing differed from today’s endowment funds. They were not designed for the principal to endure forever and the charitable giving to be accomplished with the interest, but instead were spent down on a regular basis. The practice of building permanent endowments became more widespread in the 1500s. As it grew, rabbinic authorities allowed permanent endowments to fall under the same special exemption as charitable orphans’ funds (near-to-profit, far-from-loss), expressing a comfort with capital accumulation for funds designated for the poor or vulnerable.

Today, our endowments are usually not invested in business ventures based on gold scraps. However, the rabbinic conversation offers an important Jewish values framework for approaching communal endowments.

Jewish law and tradition endorse communal charitable endowments. There have been communal endowments throughout Jewish history. In fact, the rabbis not only endorsed charitable funds maintaining investment portfolios; they allowed them to bend the rules to receive preferential risk-based treatment. This was justifiable because charitable endowments are funds dedicated to the most vulnerable members of society. We should not require them to shoulder a typical fair share of the risk.

However, Jewish tradition offers an important caveat. “Charitable dollars” are only truly charitable when they are under communal control. For example, the Talmud describes how tzedakah was always collected by no fewer than two officials working side-by-side. This was not because they were not trusted with the money, but because tzedakah collector was a role of communal authority and its honor demanded at least two representatives. Indeed, at the time of the Talmud, the community had the authority to force wealthy individuals who were acting stingy to give more, based on its assessment of how much was appropriate for each person to give. The community could even seize their possessions by force if they refused. (It would certainly be interesting to try reinstating this ancient Jewish practice.)

‘Charitable dollars’ are only truly charitable when they are under communal control.

Rabbinic authorities are clear that funds that an individual has promised to charity but that have not yet actually left his or her control are not considered charitable funds and receive no preferential treatment. This is true even if the promise is irrevocable (like the status of foundations in modern tax law). Money is only considered charity in Jewish law once it is placed under communal ownership or distributed to poor people. Actual charitable dollars get special treatment around investment risk; pledges do not.

The way philanthropy is practiced today in the secular world represents a radical shift. Wealthy individuals sometimes create foundations endowed in their names and receive an immediate tax deduction. They also frequently receive positive press for their generosity. Yet the wealthy individual—or their proxies, on the board of a closely held family foundation—remains in control of where to donate the money, and no money has yet made it to the hands of a needy person.

On the one hand, from a Jewish perspective, such foundations do not violate any prohibitions. Judaism sees no inherent problem with accumulating wealth and designating it for various purposes, as long as wealth is acquired in ethical ways and one’s focus in life remains on the things that are truly important (such as helping those in need, deeds of kindness, and studying Torah). On the other hand, in Jewish tradition, private foundations do not qualify as a communal charitable endeavor worthy of granting exemptions from the typical rules of equitable risk-sharing in investment. Foundations are really a form of private individual capital (intended for a charitable use). As such, Jewish tradition would encourage foundations to maintain a minimum payout rate in line with individual charitable giving: 10% for the average person, and up to 20% for wealthier people. This is a far cry from the average foundation payout rate today of 5% to 7%.

The conversation about communal endowments is also only a part of a broader conversation about Jewish values and how they ought to influence our investments. For example, Jewish law would prohibit investing in tobacco as a violation of the Torah’s precept to “not stand idly by the blood of your neighbor”—so, too, a Jewish endowment should avoid investing in tobacco. Similarly, Judaism exhorts us to do whatever we can to make a positive difference in the world, especially when doing so does not cost us anything, a principle known in the Talmud as zeh neheneh ve’zeh lo chaser (literally, “this one benefits while that one suffers no loss”). So, too, would Jewish ethics demand that 100% of our endowment capital be invested in ways that achieve positive impact, especially when impact investing does not require a sacrifice of financial return.

When I worked directly with Jewish institutions to transition their investment portfolios to Jewish values-based investing, I witnessed firsthand how pressure is mounting on Jewish institutions to move past “traditional” investing and transform our investment capital into a tool to positively impact the world. Some of that pressure is external, reflecting a growing awareness of the problems with business as usual—accelerating climate devastation, growing inequality, and the compounding effects of systemic racism. Some of the pressure is coming from within the Jewish community and organizational stakeholders, including young people of my generation (I am in my early 30s) who understand that change is easier than many might claim and are demanding that it happen faster.

Jewish institutions have been maintaining pooled endowment funds for thousands of years, and our community will maintain endowments for the foreseeable future. They ought to and increasingly are seeking to bring Jewish values into their decisions and to invest in a way that transforms the world toward a more sustainable future. And we all have a role to play to help them get there.

Rabbi Jacob Siegel is currently writing a book on Jewish wisdom and socially responsible investing. Most recently he served as Director of Engagement for JLens Investor Network.