THE LAW AND ECONOMICS OF THE PARABLE OF THE TALENTSStephen M. BainbridgeWilliam D. Warren Distinguished Professor of LawUCLA School of Law

The Parable

Matthew Luke

Servant A Given 5 talentsEarned 5 more

Given 1 gold coinEarned 10 more

Servant B Given 2 talentsEarned 2 more

Given 1 gold coinEarned 5 more

Servant C Given 1 talentBuried it/returned itThrown into outer darkness

Given 1 gold coinWrapped it up and hid itCondemned

Why Parables

Jesus’ parables were effective as teaching tools precisely because his listeners “could readily identify with the roles people filled, work that they did, relations that were broken and restored, losses they sustained and happiness they experienced.”

Simon J. Kistemaker, Jesus As Story Teller: Literary Perspectives On the Parables, 16 Masters Seminary J. 49, 52 (2005).

Would Jesus (and hearers) have known relevant law?

Jesus likely was not poor prior to start of His ministry.

The income of carpenters and others in the construction trades in the relevant period typically was well above the subsistence level.

It is therefore likely that, prior to the beginning of his ministry, Jesus actively participated in economic life.

Likely, He would have had at least some familiarity with the commercial norms and legal standards of the day.

Servants or Slaves?

• Opinion divided, but likely does not matter.

• They were fiduciaries:• Given control over assets• Trusted to preserve and

grow assets• Master vulnerable to

misconduct

• A fiduciary “exercises discretion with respect to a critical resource belonging to the beneficiary, whereas most contracting parties exercise discretion only with respect to their own performance under the contract.” • D. Gordon Smith, The Critical Resource

Theory of Fiduciary Duty, 55 Vand. L. Rev. 1399, 1403 (2002).

Nature of fiduciary law in the Parable

Proscriptive Impose “standards of conduct

that require the fiduciary to avoid acting, or to avoid situations where she might be tempted to act, other than in the interests of the beneficiary.”

Paul B. Miller, Multiple Loyalties and the Conflicted Fiduciary, 40 Queen’s L.J. 301, 304 (2014).

E.g., UK and Australia: An agent’s sole fiduciary duty

under their laws is that of undivided loyalty.

No duty to affirmatively benefit principal.

Prescriptive Impose affirmative duties,

instructing the fiduciary what he must do.

E.g., USA and Canada Proscriptive ban on conflicts of

interest, for example. Plus, an affirmative obligation

on the agent’s part to affirmatively act in the best interests of the principal.

• Buried– Under Jewish law of period, regarded as

best security against theft• In Parable, servant who buried talent thrown

into outer darkness.

• Wrapped• In Parable, servant who wrapped and hid

coin merely has it taken away from him.

Master clearly expected servants to not just preserve his wealth, as those who did so were punished.

Instead, he expected them to affirmatively and productively invest the money for his benefit.

Prescriptive

What did Master Expect?

Matthew Luke

Inference re fiduciary duties in the Parable

1st Century Palestine shifting from agrarian to commercial economy

Explains the reliance by the master on servants to conduct financial affairs.

“A non-commercial society, while it might have much use for servants,” after all, “would have little need of agents, empowered to represent the principal in business dealings with third persons."

Israel Herbert Levinthal, The Jewish Law of Agency, 13 Jewish Q. Rev. 117 (1922).

An emerging commercial society, however, would have needed servant-agents who could conduct trade on the master’s behalf.

Explains why the master expected his servants not only to preserve his assets but also to use them to earn more money.

But does not explain why the law would give that expectation effect.

Choosing between prescriptive and proscriptive

Many—most?—principals wish agents to do more than simply avoid conflicts; they may wish their agents to affirmatively act in specific ways.

A purely proscriptive approach suggests that an agent is invariably disloyal whenever he is conflicted.

Proscriptive systems rely on contract to specify affirmative duties.

As the Parable itself illustrates, however, it often will be impossible to identify ex ante what the agent ought to do.

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Theological Point?

Changing

Commerce

What About the Rewards?

Exploring the differences in Matthean and Lukan sanctions

Matthean version situated immediately before Parable of the Sheep and Goats

Punishment may have been intended to reinforce the fate awaiting the goats

Old rule preferring burying made sense when preserving value was critical (agrarian)

Punishing burial makes sense when increasing wealth is goal (commercial society)

In an agrarian economy, risk taking would be disfavored

In commercial society, it would be favored• Apparent rule promotes risk taking by rewarding

those who do so

The Severity of the Matthean Sanction

Given all we have said to this point, it remains an open question whether this parable, even in its basic elements, goes back to Jesus.If anything like the canonical version does, we are left to wonder how Jesus told a story so obviously given from the vantage point of the elite and so sharply out of touch with the peasant perception of the world.

• Richard L. Rohrbaugh, A Peasant Reading of the Parable of the Talents/Pounds: A Text of Terror?, 23 Biblical Theology Bull. 32, 37 (1993).

Breaches of fiduciary duty often met with harsh sanctions:

Especially where: The amount entrusted to the agent is high.

1 talent = annual pay of ~27 Roman legionnaires

The principal’s ability to supervise and control the agent is low.

He was out of country in 1st Century AD The discretion possessed by the agent is high.

Essentially no instructions.

On the other hand, Duty here is prescriptive.

Minimal if any sanctions (see, e.g., business judgment rule).

Harsh sanctions usually reserved for self-dealing.