I will quote here some useful sources on the mutuum contract in the US and British law.
First, we can turn to the work of the American jurist John Bouvier (1787–1851) in his compendium of American law called The Institutes of American Law (4 vols, 1851) on the nature of mutuum in US law in the 19th century:
This is clearly the legal framework under which fractional reserve banking was conducted in the US, and obviously English law influenced American law on this point.SECTION 2. OF GRATUITOUS LOAN FOR CONSUMPTION, OR mutuum. 1089. Mutuum, or loan for consumption, is a contract by which the owner of a personal chattel, of the kind called fungibles,(c) delivers it to another by which it is agreed that the latter shall consume the chattel, and return at the time agreed upon, another chattel of the same kind, number, measure or weight, to the former, either gratuitously or for a consideration; as if Peter lends to Paul one bushel of wheat, to be used by the latter, so that it shall not be returned to Peter, but instead of which Paul will return to Peter another bushel of wheat of the same quality, at a time agreed upon.
By fungible, in this definition is meant any personal chattel whatever, which consists in quantity, and is regulated by number, weight and measure, such as corn, wheat, oil, wine and money, (a)
The person who delivers the article to be used is called the lender, the other is called the borrower.
1090. This contract differs essentially from a loan for use, or commodatum. In the latter the title to the property in the thing lent remains with the lender, and, if it be destroyed without the fault or negligence of the borrower, the loss will fall on the lender, the rule res perit domino, applying in such case. On the contrary, by the loan for consumption, or mutuum, the title to the thing lent passes to the borrower, and in case of loss, he must bear it. Mutuum bears a strong resemblance to barter or exchange; in a loan for consumption the borrower agrees to exchange with the lender a bushel of wheat, which he has not, but expects to obtain, for another bushel of wheat which the lender now has and is ready to part with.
§ 1.—Of the nature of the contract of loan for consumption.
Art. 1.—What constitutes the essence of this contract.
1091. There must be, 1, something lent which is consumed by use; 2, that it be delivered to the borrower; 3, that the property in the thing be transferred; 4, that the borrower agree to return as much in kind; and, 5, and lastly, the parties agree on all these things.
1092.—1. There cannot be a loan for consumption unless there be a thing loaned, which is to be consumed, and it must be lent for that purpose.
1093.—2. It is also of the essence of this contract that the lender deliver to the borrower the thing lent. But there are some exceptions to this rule; if Peter agrees to lend to Paul one thousand dollars, which money has been already delivered by Peter to Paul on a special deposit, the agreement will of itself change the property; while it was on deposit it was at the risk of the depositor, but the moment the contract is turned to a loan, the money is at the risk of the borrower, the title to it being then in him.
1094.—3. The title to the thing loaned must be transferred to the borrower; a transfer of the possession without an intention of transferring the property, would not oblige the borrower to return other property of the same kind. It is sometimes difficult to say when the transfer has been made so as to convey the title.(a)
1095.—4. The borrower who receives the things loaned must agree to return the same quantity, weight or number, of the same kind of goods. If Peter were to borrow of Paul one hundred bushels of corn, and agree at a future time to pay him in money, for the corn, one hundred dollars, the contract would not be a loan for consumption, but a sale; and if, instead of money, he agreed to return to him seventy-five bushels of wheat, the contract would be a barter or an exchange.
1096.—5. As in all other contracts, the parties to this must agree upon all the essential matters which belong to it.” (Bouvier 1851: 441–443).
Henry Dunning Macleod in his Theory and Practice of Banking (6th edn; 1902) also gives us a very good summary of the legal principles (writing as he was in the UK):
“When a man lends a book, or any other chattel, to his friend, he never parts or dispossesses himself of the property in it. He is entitled to have that very book, or the very chattel, back again. There is no exchange, and no new property created. And only one party can have the use of the book, or the chattel. But in all cases whatever of a loan of money, the lender absolutely cedes the property in the money to the borrower, and it becomes his absolute property. What the lender does acquire is the right, or property, to demand back an equivalent amount of money, but not the specific money. A loan of money, is therefore, always an exchange, and in all such cases, there must, by necessity, be a new property created; and this property may be sold and transferred like the money itself.Appendix
In the loan of a book, or a chattel, the right to it, or property, of the lender, is never severed from it; in a loan of money, the right, or property, of the lender in it is always severed from it, or rather, transferred to the borrower; and the new right, or property, created in the lender is termed a Debt, or Credit, and when the debt is paid, or, in common language, the loan returned, this new property is destroyed.
Hence we see that there are two distinct species of loan: the one where the lender has the right to have the very thing returned, the other where he has only the right to demand to have an equivalent amount returned. Now all commercial loans are of the latter species: they are all sales, or exchanges, and they are never of the former sort; and all the confusion on the subject has arisen from not observing this distinction.” (MacLeod 1902: 81).
There are some other useful sources below. And it should be noted that European law was itself based on Roman law, where the mutuum was also understood as a loan where ownership of the money passed to the bank; this was the legal framework for money loans that were recallable on demand by the creditor in ancient Rome (Gamauf 2006).
(1) Alexander Pulling in the British journal The Bankers’ Magazine (1851):
“The English term loan has a variety of meanings. It is used to designate, 1st, the commodatum of the Roman law … a transaction by which an article of use, such as a book, a horse, &c, is gratuitously delivered by the owner to another for his mere use or accommodation, on the simple condition of the borrower returning it in the same state in which he received it. 2ndly. The mutuum, or gratuitous loan of those things which in the phraseology of the Scottish law are called fungibles, and can be used only by actual consumption or expenditure, such as corn, wine, money, or the like, the lender of which absolutely abandons the ownership on condition of the borrower substituting by way of return the specific value in number, weight, and measure. 3rdly. The foenus, or loan at interest, which in most countries has been the subject of artificial regulations.” (Pulling 1851: 202).(2) In a case called Dawson et al vs. the Real Estate Bank that came before the Supreme Court of Arkansas in 1845 we have a test case clarifying the nature of money left at a bank:
“In order to ascertain what power the bank had over the funds of Dawson, and the duty enjoined upon her by law, it is necessary first to determine whether they were held as a special or general deposit. If the funds were held as a special or general deposit, the authorities all agree that the bank had no right to use or dispose of them; but was bound simply to keep them and restore to the depositor the identical funds deposited. If they were held either as a general or irregular deposit, the rule appears to be equally well established that, upon such deposit being made, the legal interest in the money or thing deposited, became immediately vested in the bank, and the relation of debtor and creditor was thereby created between the parties; that is, as between the bank and Dawson, the latter became the creditor and the former his debtor, to the amount or value of the deposit. And in such case, the bank having acquired the absolute property in the thing deposited, could lawfully dispose of them in any manner she pleased, her obligation being only to restore to the depositor the like sum or value in kind with interest, but not the identical thing deposited. Commercial Bank of Albany vs Hughes, 17 Wend. 94 Foster et al. Ex’s vs. The Essex Bank 17 Mass. R. 477. Story Com. on Bailment 60. lb. 66.Although the language is unusual, it seems that the “special or general deposit” must be the depositum and that “general or irregular deposit” refers to a mutuum. The tradition of sealing money in a bag, chest or box to indicate that it was to be held in safekeeping as a depositum (not as a mutuum) goes right back to English banking practices that have been examined by Selgin (2010).
From a careful consideration of the authorities on this subject, we understand the general rule to be, that where money, not in a sealed packet, or closed box, bag or chest, is deposited with a bank or banking corporation, the law presumes it to be a general deposit, until the contrary appears; because such deposit is esteemed the most advantageous to the depositary, and most consistent with the general objects, usages, and course of business of such companies or corporations. But if the deposit be made of any thing sealed or locked up or otherwise covered or secured in a package, cask, box, bag or chest, or any thing of the like kind of or belonging to the depositor, the law regards it as a pure or special deposit, and the depositary as having the custody thereof only for safe keeping, and the accommodation of the depositor.” (Pike 1845: 296–297).
(3) In April 1843 a case called Downes vs. The Phoenix Bank of Charlestown came before the New York circuit court where the nature of mutuum is also an issue:
“The usual course of such business is, for the dealer to deposit his money with the bank, to be repaid upon his checks or drafts, or in taking up his notes or acceptances made payable at the bank. It is not strictly a deposit, nor a bailment of any kind; for the same thing is not to be returned, but another thing of the same kind and of equal value. In the civil law it is called a mutuum, or loan for consumption. Except where the deposit is special, the property in the money deposited passes to the bank, and the relation of debtor and creditor is created between the parties. (Commercial Bank v. Hughes, 17 Wend. 94.) Still, the commonly received opinion is, that the banker cannot be sued for the money until after the customer has drawn for it, or in some other way required its repayment. Mr. Justice Story says, the bank is to restore the money ‘whenever it is demanded.’ (Story On Bailm. 66, § 88; and see Marzetti v. Williams, 1 Barn. Ad. 415; Chit. On Bills, 547, ed. of1839; Chit. Jr. On Bills, 44.) Judging from the ordinary course of this business, I think the understanding between the parties is, that the money shall remain with the banker until the customer, by his check, or in some other way, calls for its repayment: and if such be the nature of the contract, the banker is not in default, and no action will lie, until payment has been demanded. No one could desire to receive money in deposit for an indefinite period, with a right in the depositor to sue the next moment, and without any prior intimation that he wished to recall the loan.” (Denio 1845: 299).BIBLIOGRAPHY
Bouvier, John, 1851. Institutes of American Law, R.E. Peterson, Philadelphia.
Denio, H. 1845. Reports of Cases Argued and Determined in the Supreme Court and in the Court for the Correction of Errors of the State of New-York. Vol. VI., Gould, Banks and Co. New York.
Gamauf, R. 2006. “Mutuum,” in H. Cancik and H. Schneider (eds), Brill’s New Pauly: Encyclopaedia of the Ancient World (Vol. 9), Brill, Leiden. 382–383.
MacLeod, H. D. 1902. Theory and Practice of Banking (6th edn), Longmans, Green, Reader, & Dyer, London.
Pike, A. 1845. Reports of Cases Argued and Determined in the Supreme Court of Law and Equity of the State of Arkansas Volume V. B. J. Borden, Little Rock.
Pulling, Alexander. 1851. “The Law of Money Lending—No. I.,” The Bankers’ Magazine; Journal of the Money Market 11: 202-208
Selgin, G. “Those Dishonest Goldsmiths,” April 14, 2010
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1589709
I am amazed that you fail to see the discrepancy between this
ReplyDelete"Mutuum, or loan for consumption, is a contract by which the owner of a personal chattel, of the kind called fungibles,(c) delivers it to another by which it is agreed that the latter shall consume the chattel, and return at the time agreed upon, another chattel of the same kind, number, measure or weight, to the former, either gratuitously or for a consideration; as if Peter lends to Paul one bushel of wheat, to be used by the latter, so that it shall not be returned to Peter, but instead of which Paul will return to Peter another bushel of wheat of the same quality, at a time agreed upon."
and this
"There must be, 1, something lent which is consumed by use; 2, that it be delivered to the borrower; 3, that the property in the thing be transferred; 4, that the borrower agree to return as much in kind; and, 5, and lastly, the parties agree on all these things."
Why do I get the sneaking suspicion that the last 5 words of the first paragraph identified are conspicuous by their absence in the second one? Why do you (LK) prefer to gloss over this glaring omission? Why do I get the sneaking suspicion that it is because it suits your purposes?
Why do I get the sneaking suspicion that the last 5 words of the first paragraph identified are conspicuous by their absence in the second one?
ReplyDeleteIf this is supposed to mean I have supressed something in Art. 1. 1091-1096, then go and read it for yourself:
http://books.google.com.au/books?id=6QU9AAAAIAAJ&pg=PA442&dq=%22There+must+be,+1,+something+lent+which+is+consumed+%22&hl=en&ei=SQeGTpOZC4qSiAfBkrCkDw&sa=X&oi=book_result&ct=result&resnum=1&ved=0CC0Q6AEwAA#v=onepage&q=%22There%20must%20be%2C%201%2C%20something%20lent%20which%20is%20consumed%20%22&f=false
Art. 1. 1091-1096 is the essence of the contract. The time deposit is not an element listed there.
Of course the contracts now are not going to be "fraudulent" in what they say on the document. If banks were really issuing multiple claims to the same piece of property, then some lawyer and a client would have made a bonanza in a court case decades ago. People nowadays either don't know, or don't care, because they correctly figure if their bank were to go bust, the government would bail them out. Even if the FDIC only insures up to a certain amount in deposits, if push came to shove and massive bank failures occurred that wiped out the government's tiny insurance fund, the government WOULD do something to protect depositors (or "loaners"). People get the best of both worlds in a government sponsored FRB bank, aka a place to store funds and some pitiful interest (along with debit cards, checks, etc).
ReplyDeleteThe problem lies in how banking really started, how the public perceives the banks and their money substitutes, and whether the evolution of FRB banking and the distinction between a demand deposit and a loan were heavily related to government involvement in the financial sector.
The Bank contract between a depositor and a lender may be "kosher" between them, but what about the bank notes/checks from demand deposits that circulate the economy? Do these monies people exchange say that "If you go to our bank and try and cash in this bill, you may or may not receive X dollars or X units of gold?" No, instead they say "2 Ounces of Gold to the bearer ON DEMAND". When someone writes a check, it just says X dollars. Not "You are receiving a title to money that may or may not be there." The language is kept intentionally ambiguous which has allowed banking to become muddled in legal theory and created many problems.
In the early history of the United States, as well as England, there were court cases that concerned debates over what a bank deposit exactly is. This is proof that there was a clear ambiguity/unclear nature to what a banking deposit was. And as time went on, people cared less and less as the government allowed banks to suspend specie payments, banks had to back their notes with government bonds, and government became more involved.
I'm not against voluntary private contracts that harm no one. Fractional Reserve banking can be legal, if the money banks create is explicitly labeled as quasi investments that cant always be redeemed for the par value of money. But I have doubts that in a society without any government involvement to protect these banks they would survive.
Lord Keynes, you've made the Greivous error of referring to demand deposits on the planet Earth. The discussion heretofore has apparently been limited to "demand deposits", "fraud", and "initiation of force" as they exist on the planet Rothbardia and the Moons of Mises.
ReplyDelete"The Bank contract between a depositor and a lender may be "kosher" between them, but what about the bank notes/checks from demand deposits that circulate the economy?"
ReplyDeleteAs long as people freely accept them in payment and understand that there might be the possibility of them not being honoured, then you cannot object to them on mere moral grounds.
"And as time went on, people cared less and less as the government allowed banks to suspend specie payments, banks had to back their notes with government bonds, and government became more involve"
Cannot banks themselves insert the option and discretion into their demand deposit contracts that in some circumstances they will exercise their right to suspend payments temporarily until they can obtain the liquidity they need for meeting their obligations? Of course they can - and banks in fact did do this. You don’t need the “wicked” or “evil” government to enforce temporary suspensions of specie payment:
“Historically, bankers have developed innovative contracts to attenuate the likelihood of panic runs. One example is the ‘option clause’ that came to be a standard provision in private bank notes circulating in Scotland during its 18th ‘free banking’ era ...
The option clause gave the bank directors the right to suspend specie payment for up to six months, but the bank then promised to pay a high rate of interest on the notes during the period of suspension. This clause allowed the banks to stop "panic" runs and to have more time to adjust to negative-liquidity shocks ...”
If that “option clause” was in your contract and the bank decides to suspend for a temporary period, that isn't fraud - it is free contract.
These “option clause” were used in Scotland from 1730-1765; Sweden from 1864-1903 and Canada during the 19th century (Selgin, Bank Deregulation and Monetary order, p. 247).
http://books.google.com.au/books?id=mAHsmzdUbsIC&pg=PA30&dq=%22Historically+bankers+have+developed+innovative+contracts+to+%22&hl=en&ei=hR-GToGVPJOeiQeK5bG1Dw&sa=X&oi=book_result&ct=result&resnum=1&ved=0CC0Q6AEwAA#v=onepage&q=%22Historically%20bankers%20have%20developed%20innovative%20contracts%20to%20%22&f=false
Do these monies people exchange say that "If you go to our bank and try and cash in this bill, you may or may not receive X dollars or X units of gold?" No, instead they say "2 Ounces of Gold to the bearer ON DEMAND".
ReplyDeleteI just pulled a $1, $5, and $20 out of my pocket and looked at them, and nowhere does it say anything about "gold" or "demand". It says "legal tender".
In a free banking system, the only thing that makes dollars worth anything is the reputation of the bank. If you accept the currency and then it turns out you can't do anything with it, you're just a sucker. That's capitalism.
"As long as people freely accept them in payment and understand that there might be the possibility of them not being honoured, then you cannot object to them on mere moral grounds."
ReplyDeleteAgain, it is not explicitly stated on the bank notes and checks, so contractually the banks are actually saying they will pay the bearer on demand. That is the real problem.
Certainly banks can themselves insert an option clause, and certainly fractional reserve banking can be an honest business if their money substitutes circulate and stated as not 100% backed. But can this generally occur without government aid? One of the problems with Scotland is that they generally had the power of the British government behind them, and they suspended specie payment when England did, and generally had the backing of the Bank of England. Same with Canada.
Not all FRB is "fraudulent", as I explained in my first post. The question is whether the "honest" FRB with its money substitutes that are explicitly labeled as such can be of much success without central bank/government involvement from the country or other allied countries.
"The question is whether the "honest" FRB with its money substitutes that are explicitly labeled as such can be of much success without central bank/government involvement from the country or other allied countries. "
ReplyDeleteThe question of its economic viability is separate from the Rothbardian moral objection to it.
“I just pulled a $1, $5, and $20 out of my pocket and looked at them, and nowhere does it say anything about "gold" or "demand". It says "legal tender".
ReplyDeleteIn a free banking system, the only thing that makes dollars worth anything is the reputation of the bank. If you accept the currency and then it turns out you can't do anything with it, you're just a sucker. That's capitalism.”
Your looking at a U.S fiat dollar, and your misunderstanding what a dollar used to mean a hundred years ago. A dollar was a measurement for a specified weight of gold and silver. The dollars back in the day used to say “The United States of America WILL PAY TO THE BEARER ON DEMAND One Dollar”. One Dollar referring to a specific weight of gold and silver. Private bank notes back then also said a similar thing. The problem is when a bank has 5 of these bills circulating around, but much less gold to back up these “receipts”.
Even if a check circulates an economy and says “100 gold ounces” or “100 dollars”, then contractually it says it is a title that can always be exchanged for a piece of money, whether it be gold or dollar bills. Despite what the contract says between a depositor and the bank, the banks “contract” on its money substitutes is a whole other deal. The money substitutes are explicitly listed as, function, and are treated as warehouse receipts, or bailments. And that’s where the problem lies.
“The question of its economic viability is separate from the Rothbardian moral objection to it.”
Yes, but it is a very important argument in the FRB debate among free marketers. If the type of FRB that can exist in a free market society will be economically unattractive and can only exist with government aid, then whats the point in advocating it from a free market perspective?
"The money substitutes are explicitly listed as, function, and are treated as warehouse receipts, or bailments. And that’s where the problem lies."
ReplyDeleteA cheque and bank note are not warehouse receipts. When coming into possession of one, it is not a receipt for gold/money you left as a bailment with someone at all.
Cheques and bank notes are credit instruments.
A credit instrument is a promise to pay money on demand or in the future, and as such it can function as menas of payment/medium of exhange (money substitute), just like the bill of exchange.
"The bank note is thus, legally, a form of credit instrument, which acts as a substitute for gold coin as a medium of exchange and, therefore, economizes the use of that metal."
ReplyDeleteRoy Lawrence Garis, Principles of money, credit, and banking, p. 134.
"Earlier than the cheque, another credit instrument arose in business intercourse, which, however, is farther removed from money than the bank note or the cheque. This is the bill of exchange, of which the cheque is a specialized form."
James Stephenson, The principles of business economics p. 95.
Your looking at a U.S fiat dollar, and your misunderstanding what a dollar used to mean a hundred years ago.
ReplyDeleteI wasn't doing much banking a hundred years ago, so I'm not sure what point you're trying to make. The OP stated that money presently in circulation said one thing, and I had a look and saw that it didn't. End of story.
Again, the "legality" of a bank note now, or even when they were legal back in the 1800s is not in question. Of course they have to be legal, or else someone would have made a bonanza in a court case! And the fact that there were numerous court cases (Carr v. Carr, Devaynes v. Noble, Foley v. Hill to mention a few) shows that there were inconsistencies and ambiguities in legal theory. Rothbard and anyone else worth their salt in legal theory admitted that banking is not "fraudulent" now in the sense that modern banks intentionally deceive their customers, nor that anyone willing to spend a weekend sifting through current banking contracts will be able to find some inherent contradiction that could reap them a fortune by pointing it out. In a bank case now, or then, an insolvent bank would of course be treated as a legitimate insolvency rather than a embezzler!
ReplyDeleteAgain, the interpretation of a bank note/check you state and cited comes from legal theory that has developed over time from early British and American court rulings on FRBs. However, 100% reserve advocates would advocate that these were bad rulings, since they did not adequately solve the dilemma of bank notes contractually/publicly functioning as claims to money. Why do bailments to other types of goods that are payable on demand be protected while banks paper which claims to pay the bearer when he wants the money receive special treatment?
"However, 100% reserve advocates would advocate that these were bad rulings, since they did not adequately solve the dilemma of bank notes contractually/publicly functioning as claims to money."
ReplyDeleteThe whole history of capitalism is the use of IOUs or promissiory notes, mere promises to pay in the future, that are then used as a means of payment/medium of exchange, and even held as financial assets by banks.
The bill of exchange was a credit instrument that fulfilled that function for centuries. Are you saying that credit instruments (promises to pay in the future) which are "contractually/publicly functioning as claims to money" are immoral? You're saying that all use of bills of exchange in the past are immoral too?
"Why do bailments to other types of goods that are payable on demand be protected while banks paper which claims to pay the bearer when he wants the money receive special treatment? "
ReplyDeleteWhat special treatment is that?
If you mean governments allow suspension of specie sometimes, while that is true, most of the time governments have legislated to stop banks from inserting "option clauses" in their demand deposit contracts allowing them suspend specie payments for a temporary period.
This is shown clearly by Selgin, Bank Deregulation and Monetary order, p. 247.
"The whole history of capitalism is the use of IOUs or promissiory notes, mere promises to pay in the future, that are then used as a means of payment/medium of exchange, and even held as financial assets by banks.
ReplyDeleteThe bill of exchange was a credit instrument that fulfilled that function for centuries. Are you saying that credit instruments (promises to pay in the future) which are "contractually/publicly functioning as claims to money" are immoral? You're saying that all use of bills of exchange in the past are immoral too? "
No, because credit instruments that are actually loans are for certain intervals. And government bonds and can only circulate as quasi money at best. What defines a money is something that the public perceives as always redeemable for a fixed value (the par value of money). If any asset that could be sold for a unknown amount of money (until the time of sale) be counted as money, then practically all asset prices would be added to the money supply figure.
And I'm not saying FRB is "immoral". Your invoking a straw man there. Or are you assuming that anything which is illegal is immoral? Be more specific.
"What special treatment is that?"
If I had a receipt for a wheat warehouse that said they promised to pay me 20 bushels of wheat on demand, and I went to them, and they said they didn't have the wheat because they loaned it out, would this constitute a criminal activity?
"If you mean governments allow suspension of specie sometimes, while that is true, most of the time governments have legislated to stop banks from inserting "option clauses" in their demand deposit contracts allowing them suspend specie payments for a temporary period."
Again, I have no problem with option clauses. but the crux of the problem is how bank notes circulate in the economy, and how they are contractually perceived by the public.
No, because credit instruments that are actually loans are for certain intervals
ReplyDeleteA time element is not the essence of fiduciary media. Sight drafts can also function like bills of exchange. There are obviously degrees to which credit instruments/financial assets can function as a means of payment/medium of exchange:
"One degree more exchangeable than a government bond is a bill of exchange ; one degree more exchangeable than a bill of exchange is a sight draft; while a check is almost as exchangeable as money itself."
Irving Fisher, The Purchasing Power of Money, p. 10.
""One degree more exchangeable than a government bond is a bill of exchange ; one degree more exchangeable than a bill of exchange is a sight draft; while a check is almost as exchangeable as money itself.""
ReplyDeleteBut again, taken to its logical conclusion, we can make any asset have a "degree" of liquidity and exchangeability and therefore count as money. The whole definition of money would break down and the idea of money would then be useless. This is why economists always have such a hard time trying to figure out just exactly what is the money supply. Using arbitrary degrees of exchangeability, virtually anything can be thrown in the money supply. Eventually what is chosen is that which just correlates best with national income.
Notice Fischer says a check is "almost" as exchangeable as money itself. Correct me if I'm wrong, but I think Fischer back then didn't associate checking deposits as money substitutes. The Austrians hold that checks are money because the public perceives them as always redeemable for a fixed amount (the amount the check says).
"But again, taken to its logical conclusion, we can make any asset have a "degree" of liquidity and exchangeability and therefore count as money. The whole definition of money would break down and the idea of money would then be useless. "
ReplyDeleteThat is simply not true. The various higher-level monetary aggregates M2 and M3 do in fact include certain types of financial assets.
We can in fact define the "money-thing" (as Chartalists say) according to its degree of liquidity and ability to be used with the traditional functions of money, from reserves at the central bank, cash in hand, demand
deposits, etc., on narrow ro broader level definitions, corresponding to M0, M1, M2, and M3.
"If this is supposed to mean I have supressed something in Art. 1. 1091-1096, then go and read it for yourself:"
ReplyDeleteNo, genius. Read what I said. Here it is once again.
"Why do I get the sneaking suspicion that the last 5 words of the first paragraph identified are conspicuous by their absence in the second one? Why do you (LK) prefer to gloss over this glaring omission? Why do I get the sneaking suspicion that it is because it suits your purposes?"
Note that I am saying that
1. there is a glaring omission in the second paragraph I highlighted
2. that you have glossed over it
Neither of these is untrue. I am just adding the point that this glossing over may be fairly deliberate. Of course, I could be wrong in accusing you thus and you may, on my pointing out, now come to understand that those offending (by absence) last 5 words in the first paragraph I highlighted are important after all and change your mind, but then I'd like to see that happen before I say that you are honest indeed.
Having said that, let me come to the substance of my criticism. The definition of mutuum that YOU presented includes "at a point in time" as an important part of its definition.
However, the list of points that you use to justify the claim that demand deposits are a mutuum excludes the point "at a point in time".
Hence, by your own definition of mutuum, a demand deposit cannot be a mutuum. Nuff zed.
Oops... Just replace "at a point in time" with "at a time agreed upon". Frankly, it only makes my point stronger.
ReplyDelete"That is simply not true. The various higher-level monetary aggregates M2 and M3 do in fact include certain types of financial assets.
ReplyDeleteWe can in fact define the "money-thing" (as Chartalists say) according to its degree of liquidity and ability to be used with the traditional functions of money, from reserves at the central bank, cash in hand, demand
deposits, etc., on narrow ro broader level definitions, corresponding to M0, M1, M2, and M3. "
Yes. But why stop at the assets the government says? If some assets can be interpreted as "quasi monies", then why not the rest of it? Arbitrary degrees really don't solve the problem at all.
But once we start adding in multiple assets (such as whats done in M3) then aggregate becomes less valuable. Those aggregates can be misleading because they can depict rising asset prices as actual inflation (talking about the increase in M.S here) when none is occurring.
Like Huerta de Soto etc, you are mistaken that time deposits are a fundamental element of mutuum contracts.
ReplyDeleteArticles 1. 1091-1096 above which give you the essence of the mutuum contract have no time deposit specification. Nor is that surprising: the callable mutuum loan of money is known from the time of ancient Rome (Gamauf 2006), and was explicitly dealt with by jurists under mutuum real contracts (contracts re).
The earliest British goldsmith notes, forerunners of later private bank notes, were negotiable credit/debt instruments payable on demand ("I promise to repay upon demand ..."), not certificates of bailment (Selgin 2011: 11).
Gamauf, R. 2006. “Mutuum,” in H. Cancik and H. Schneider (eds), Brill’s New Pauly: Encyclopaedia of the Ancient World (Vol. 9), Brill, Leiden. 382–383.
Selgin, G. “Those Dishonest Goldsmiths,” revised January 20, 2011
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1589709
Frankly, it only makes my point stronger.
ReplyDeleteYes, the point that you, like Rothbard, Huerta de Soto, etc., show gross ignorance of Western legal contract theory and banking practice.
Hey genius,
ReplyDeleteStop trying to escape by creating new lines of irrelevant discussion. The point is this.
The definition of mutuum that YOU presented includes "at a time agreed upon" as an important part of its definition.
However, the list of points that you use to justify the claim that demand deposits are a mutuum excludes the point "at a point in time".
Hence, by your own definition of mutuum, a demand deposit cannot be a mutuum.
Why, instead of addressing this gaping hole in your post, do you go around dragging Jesus Huerta de Soto, Rothbard's ghost, et al into this discussion?
"The definition of mutuum that YOU presented includes "at a time agreed upon" as an important part of its definition"
ReplyDeleteIt includes a specified time in one exmaple at 1089.
It does not - repeat not - include it in the essence of the mutuum contract, Articles 1. 1091-1096.
And as any fool knows, the mutuum contract can include loans repayable on demand, and that has been both part of the legal concept and banking practice since Roman times, as, for example, in the Institutes of Gaius (161 AD):
The agreement enforceable as mutuum could only be for the restoration of an equal sum of money or of goods equal in quantity and similar in quality to those lent, at a date named or, if no date was named, on demand.
Francis De Zulueta, The Institutes of Gaius, Part 2, p. 149.
"Yes, the point that you, like Rothbard, Huerta de Soto, etc., show gross ignorance of Western legal contract theory and banking practice."
ReplyDeleteI never claimed to be an expert in the areas of Western legal contract theory or banking practice. However, I don't need to be an expert in either of those to point out that the definition YOU ENDORSE does not support YOUR conclusion. That is just a matter of simple logic. So, stop trying to argue by intimidation.
"I ... point out that the definition YOU ENDORSE does not support YOUR conclusion. "
ReplyDeleteI see. The accepted definition I have pointed to above, particularly as carefully explained by Henry Dunning Macleod (MacLeod 1902: 81) - being a mutuum contract that transfers ownership of money to a bank that is required to return either at a specified time or on demand money to a similar amount/value, the generally accepted definition through centuries of European and even Roman law - does not support my conclusion.
Do not waste any more of my time.