Does one have to take a Midrash/Aggadah literally?
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-- Rabbi Moshe Hauer.
Does that answer your question?
Rav Hai Gaon, Rav Sherira Gaon, Shmuel Hanagid, Rambam and others all tell us we cannot rely on aggados or take them literally. Where empirically disproven it is certainly unnecessary or even criminal to do so, e.g., Talmudic physiology and medicine. It is also logically impossible, considering that aggados are often mutually contradictory, and there are often several different versions of a story or saying within the literature.
The idea of infallibility "ad chasimas hatalmud" (which one rov told me) is completely 'opgefregt.' Rabbi Yehuda himself uses empirical observation to disprove "our view" in favor of the view of the gentiles, re. where the sun goes at night. His observation, regarding why springs are warm, is incorrect, but the main thing is that he decided based on observation. He would have been the first to deny the existence of a mouse that is half mouse and half earth (Mishna Hullin) if he had ever been to the Nile Delta and observed the rodents there. But since people said it existed at the time, the mishna tells you the halacha.
In other words, it doesn't do the Talmud any favors to insist on asserting the correctness or literalness of its fantastical, humorous, or pseudo-scientific/speculative parts. The Talmud is better off for it.
Here are some additional sources: אין מקשין על האגדה We do not ask questions regarding Aggada. Various sources expressing this idea: (Rashba Megillah 15a) (R' Saadia Gaon, R' Hai Gaon, Otzar HaGeonim, Chagiga 13; Otzar HaGeonim, Pesach, 3a) (Meiri, Magen Avot 1) (Shiltei Giborim, Avoda Zara, 6a) (Ramban in his Disputation, also brought in responsa Chatam Sofer 17) (Ramban Yevamot 71:) (Ritva, Shabbat 75:) (Rabbeinu Chananel, Otzar Geonim, Respona 50)
Rav Hai Gaon, in a more wordy responsa, "הוו יודעים כי דברי אגדה לא כשמועה הם, אלא כל אחד דורש מה שעלה על לבו בגון אפשר, ויש לומר לא דבר חתוך.. לפיכך אין סומכין עליהם.. ואומדנא נינהו." "We know that the words of Aggada are not like halacha; rather, everyone darshans whatever comes to his mind, like saying "It could be", "It's possible"; these are not exacts things... therefore we are not to rely upon them... they are merely estimations" (R' Hai Gaon, Otzar HaGeonim, Chagiga 13)
Rabbi Shmuel HaNagid on his introduction to Talmud in Berachot: "כל פרוש שיבא בגמרא על שום ענין שלא יהיה מצוה זוהי הגדה ואין לך ללמוד ממנה אלא מה שיעלה על הדעת.. מה שפרשו בפסוקים כל אחד כפי מה שנזדמן לו ומה שראה בדעתו ולפי מה שיעלה על הדעת מן הפרושים האלו לומדין אותם והשאר אין סומכין עליהם". "Any commentary that comes in the Gemara that is not a mitzvah is called Aggadah, and you shouldn't learn anything from it except for what comes to mind... their explanations on passages consist of what came to mind for each scholar and whatever seems reasonable we should learn from them, but the rest we do not need to rely upon them."
Rambam "כל אותן הדברים דברי הגדה ואין מקשין בהגדה וכי דברי קבלה הן או מילי דסברא אלא כל אחד ואחד מעיין בפירושן כפי מה שיראה לו, בו ואין בזה לא דברי קבלה ולא אסור ולא מותר ולא דין מן הדינין, ולפיכך אין מקשין בהן, ושמא תאמר לי, כמו שיאמרו רבים: וכי דברים שבתלמוד אתה קורא הגדה? כן! כל אלו הדברים וכיוצא בהן הגדה הן בעניינם, בין שהיו כתובין בתלמוד בין שהיו כתובין בספרי דרשות בין שהיו כתובין בספרי הגדה", (אגרות הרמב"ם לר' פנחס הדיין´)." "All of these things are Aggada, and regarding Aggada we do not ask questions. Are these words transmitted from Moshe? or rather personal thoughts of each scholar? - rather, everyone should study the explanations and according to what seems reasonable he should accept, and these are not 'divrei kabbala' (transmitted from Moshe), and not prohibitions, and not permissions, and not judgments, therefore we do not ask questions. Perhaps you'll ask me, like many others have asked: Are you calling words of the Talmud Aggada? Yes! All of these things are Aggada in their nature, whether they're written in the Talmud, whether they written as drashot" (Rambam, Letter to R' Pinchas HaDayan)
"שכך דרך בעלי אגדה על סמך כל דהוא בונים דבריהם" "That is the way of the makes of Aggada, on the smallest foundation they build their words" (Responsa of Rosh, 13 21)
That is to say, Aggada was intended for moral edification, teachings lessons, etc. It is not intended to augment historical statement or fact about the events discussed. It does not guarantee consistency with other texts.
The general view of the Geonim and Sephardi Rishonim was that not every Aggadta is authoritative or needs to be taken literally. Some Ashkenazi rishonim were more inclined to take a literalist stance for much of aggadata. The machloket continues to this day, with many haredim taking the literalist stance.
Specifics: Rambam was already cited. Ramban has a more complex position, but didn't take an extreme authoritarian or literalist view. For example, see his statements about aggadata from his disputation. The Ba'alei Tosafos were more literally inclined, in the more extreme form, they even believed in corporealism.
I think it would depend on which Midrash. I think the Rabbis throughout the generations understood that some Midrashim that are meant to be taken literally, and some aren't. However, which ones are to be taken literally and which ones are not may be a subject of debate.
Take for example, the Midrash that tells us that Avraham Avinu was thrown into a fiery furnace by Nimrod. As the Abarbanel points out, Rashi, Ramban, and the Ran all understand that Midrash is to be understood literally. On the other hand, the Abarbanel says that the Ibn Ezra does not believe the Midrash is to be taken literally.
Even the Ibn Ezra discounting the Midrash's literal interpretation shows (in my mind) that some Midrashim should be taken literally (if not, why bother discounting it).
To expand upon what I think the Rambam (quoted by Shalom) had in mind:
I think it is somewhat irrelevant whether or not what the midrash says actually happened. Midrashim are meant to give us ideas, not necesarrily facts. The midrash that says Avraham survived a furnace is telling us that Avraham was so great that he could have done that. Whether he actually did matters very little if at all. When it says Hashem held har sinai over bnei yisrael when giving them the torah, it is again irrelevant whether this actually happened. When we (or at least when I) read the story surrounding matan Torah, the first word to come to mind is not fear. The midrash is emphasising that what bnei yisrael experienced had a prominent element of fear, even without having a mountain suspended over their heads. Midrashim about good people are meant to tell us how we should act. Midrashim about bad people are meant to tell us how we should not act.
A couple more points:
A quick story to illustrate my point:
There was some famous Rabbi (I don't remember who exactly) who was accused of some crime (again, I don't know what). Anyway, during his trial, his students came to plead with the judge claiming that there rabbi had never sinned before in his life. The accusing lawyer asked the judge in amazement "Do you really believe that?" The judge replied "I don't know, but they don't say that about you and me."
(I just want to make this absolutely clear: This is my opinion and I have seen a fraction of a fraction of all the midrashim that are out there and I don't have any direct 'source' for this other than extrapolation from the Rambam)
the difficulty in answering your question is in understanding what literally means in context of medrish. for example there is a well known mishna about raba and rav zeira who werecelibrating and on shechted the other. came morning time rabba davens and rav zeira is revived. the next year rabba invites rav zeira over and he declines saying that one should not rely on a miracle.
one could understand this literally in two ways... 1)they were both very drunk and rabba cut off rav zeiras head and then preformed a miracle that brought him back to life
2)they were learning the great secrets of Torah of which Rabba was able to handle much more than Rav Zeira and in teaching Rav Zeira he "shechted" him and rav zeira passed away but there was a miracle that brought him back
the first explanation is silly and doesn't teach us much. the second explanation recognizes that there is the part of the story which is literally true and part of the story which alludes to something deeper.
So as to know what to understand literally and what not to it takes an understanding of what the story is and what the context for that story is as well.