Saturday, October 1, 2011

More Historical Evidence on the Mutuum Contract

This seems to be my week for discussing fractional reserve banking and the demand deposit.

Thomas Wood (1661–1722) was an English Doctor of Civil Law (New College, Oxford), eminent jurist and author of the leading work on English law in the 18th century. In the 4th edition of A New Institute of the Imperial or Civil Law (1730; 1st edn. 1704), we have this definition of the mutuum:
“Mutuum (a Loan simply so call’d quod de meo tuum fiat [sc. “because let what is mine become yours”])

It hath no one particular name in the English Language.

is a Contract introduced by the Law of Nations, in which a Thing that consists in weight (as Bullion,) in number (as Money,) in measure (as Wine,) is given to another upon condition that he shall return another thing of the same Quantity, Nature and Value upon demand. More than Consent is required, for the Thing, viz. Money, Wine, or Oil ought to be actually delivered, and more than what was delivered cannot be repaid; but less may be repaid by Agreement. This Contract forces men to be industrious and promotes Trade, and for this reason it may be greater charity to lend than to give. Creditum is a more general Word. In the case of Money, Silver may be repaid tor Gold, unless the Creditor is to be damnified by it; for it shall be understood to be the same kind of Money when it is of the same” (Wood 1730: 212).
What is most interesting here is the statement:
“he shall return another thing of the same Quantity, Nature and Value upon demand”.
The words “upon demand” seem to be entirely consistent with what we would expect if under English law mutuum contracts allow demand deposits (and not just time deposits).

One can also see this idea in the definition of mutuum in the Lexicon Technicum: or, An Universal English Dictionary of Arts and Sciences (1723; 2nd edn.), which is no doubt based on Wood’s treatise:
MUTUUM, in the Civil Law, is a Loan simply so called; or a Contract introduced by the Law of Nations, in which a Thing that consists in Weight, (as suppose Bullion) in Number, as Money: or in Measure, as Corn, Wine, Oil, &c. is given to another upon Condition that he shall return another Thing of the same Quantity, Nature, and Value, upon Demand.
So that this is a Contract without Reward, and admits, properly speaking, of no Recompence. And therefore where Use and Interest is agreed on, they arise from some distinct particular Argument, or by Custom of the Country. (s.v. “mutuum”).
A reading of the extended section of Thomas Wood’s A New Institute of the Imperial or Civil Law on the mutuum contract shows no evidence that a time deposit was held to the indispensible element in the contract (as Huerta de Soto argues).

The transfer of ownership of the money in a mutuum loan is explicitly stated by Wood above in the Latin phrase ...de meo tuum fiat (“let what is mine become yours”). This phrase (in the form quod de meo tuum fit) goes right back to Roman law (MacLeod 1902: 149) as a way of describing the mutuum loan, and is found as a definition of mutuum in the Digest (at 12.1.2.2) of Justinian (AD 530-533), part of that emperor’s Corpus Iuris Civilis (Body of Civil Law).

Over a century later in America, a case is recorded in the Court of Appeals of the State of New York involving Benjamin C. Payne, Executor, &c. vs. William Gardiner (impleaded with Oliver Slate, Jr.) in the 19th century. This was essence of the case:
“In May 1848, P[ayne] delivered to the firm of S. G. & H. $1,000, which they received and credited to him on their books, and delivered to him a paper signed by them, acknowledging the receipt of the money, and stating that the same was to P's credit on their books at six per cent interest. Held, that the transaction was a deposit and not a loan; and that the rights and liabilities of the parties were precisely the same as if the money had been in a bank; and hence there was no right of action against the depositaries until actual demand was made; and that the statute of limitations began to run from the same time, and not before. But that if the transaction was to be treated as a loan, then the paper signed by S. G. 8c H. was in effect a promissory note on interest, and payable on demand; and the statute of limitations would not begin to run in favor of any of the parties to it, until such demand was made. ....” (Tiffany 1865: 146).

“This action was commenced on the 27th November, 1861, to recover the amount deposited and interest thereon since 1859. Howell died before the commencement of the action. ....” (Tiffany 1865: 147).

“There was a verdict for the plaintiff for $1,177.16. The counsel for the defendant Gardiner then moved for new trial, on the judge's minutes, which was denied. He then appealed from the judgment, and from the order denying said motion to the general term in the second district, and that court affirmed both the judgment and order.” (Tiffany 1865: 148).

“The rule laid down in Merritt v. Todd, that notes on demand are continuing securities, and do not become overdue by the mere lapse of time, has always been accepted in the English courts; and yet, as we have seen, the rule that notes payable on demand, with or without interest, may be sued as to the maker instantly and without demand, was never shaken there. This contradiction and absurdity seem never to have occurred to bench or bar in that country.” (Tiffany 1865: 152).
There is a clarification of the nature of demand deposits here:
“A deposit of money with a bank or private person is what is known in the civil law as a mutuum or irregular deposit—the distinction between the two kinds of deposit not being recognized by the common law.

When money is borrowed, and no time of payment is fixed by the contract of loan, the debt, as already stated, is instantly due, and an action may be brought without demand — the bringing of the action being a sufficient demand to entitle the lender to recover. (Chitty on Contracts, 734; Norton v. JEUam, 2 M. & W. 461.)

Even if the debt is by the terms of the agreement to be paid on demand, yet no special demand is necessary; the money being due without it.
We would have to conclude that in the case of bank accounts where “no time of payment is fixed by the contract of loan” American law assumed the mutuum was a type of callable loan or demand deposit.

UPDATE
I have added some other sources from the 18th century to the discussion above.

BIBLIOGRAPHY

Harris, John. 1723. Lexicon Technicum: or, An Universal English Dictionary of Arts and Sciences (vol. 2; 2nd edn.), D. Brown, J. Walthoe et al., London.

Macleod, Henry Dunning, 1893. The Theory and Practice of Banking in Two Volumes (2nd edn.; vol. 1), Longmans, Green and Co., London.

Tiffany, J. 1865. Reports of Cases Argued and Determined in the Court of Appeals of the State of New York (vol. II), Weare C. Little, law Bookseller, Albany.

Wood, Thomas. 1730. A New Institute of the Imperial or Civil Law (4th edn.), J. and J. Knapton, London.

16 comments:

  1. There's no case to answer here LK. It's a matter of established fact that your are buying something not storing something when you use a modern bank.

    That is how they work. No amount of revisionism from the Scientologists of Economics is going to change that.

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  2. Hey genius,

    This was YOUR conclusion, wasn't it?

    "We would have to conclude that in the case of bank accounts where “no time of payment is fixed by the contract of loan” American law assumed the mutuum was a type of callable loan or demand deposit."

    Let me reinterpret this in layman's language.

    If it is a mutuum, is is a type of callable loan or demand deposit.

    Basics of logic tell us that if the causal relationship between 2 otherwise mutually independent events is given as "If A, then B", the only conclusions that can be drawn are

    A => B and B'=>A'
    B says nothing definite about A and A' says nothing definite about B.

    So, if a thing is a demand deposit, your conclusion says nothing about whether it is a mutuum. As usual, your post is ass-backward. Instead of starting with demand deposits and showing that they are indeed to be regarded as a mutuum, you start from the concept of mutuum and try to show the similarities between that and a demand deposit.

    Downright hilarious!! Keep at it. I am really enjoying watching you make a fool of yourself on your own blog.

    p.s. There are many more place where you have highlighted your inability to think logically, but I'l leave that for later and if necessary.

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  3. Funny that all bailments or "Will Pay to the Bearer on Demand X units of money" are debts, but grain warehouses that issue titles of ownership to a fungible (i.e NOT A SPECIFIC SET) can be bailments according to courts (and this is in modern times, hence the 1980 farm grain elevators paper). Leaves a great deal of room for legal confusion, eh?

    This is honestly going in circles and in going nowhere. FRB advocates say that all claims to money are really debts, and not bailments. Or that any claim to money that is not "earmarked" is not a bailment but a debt. But, why on earth is it different for grain warehouses? Why does banking receive this privilege?

    Lets not forget: "Farmer position. A farmer who has grain in storage with an elevator that files bankruptcy is not a creditor of the elevator. Instead, grain in storage remains the property of the farmer who stored the grain, with ownership of the grain evidenced by warehouse receipts and scale tickets. The storing of the grain establishes a bailee-bailor relationship.3 The relationship is unaffected by the fact that the bailee will return to the bailor grain of like quality rather than the identical grain.4 While it is easier to prove ownership with a warehouse receipt, both warehouse receipts and scale tickets are prima facie evidence of ownership of the stored grain.""

    This is not some ancient court case. this is Wyoming Law now.

    So there can be bailments and loans to grain warehouses, but only loans to banks? Seems a little weird.

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  4. Is this the law in other US states? If not, this is just a legal aberration: Wyoming law is confused on the subject.

    No one doubts that sometimes you get legal anomalies in the real world.

    Even if what you say is the law in other states, then this means only that many US state laws are just confused.

    If the farmer only receives back grain only of a "like quality rather than the identical grain", it is not possible to say that his original delivery of grain was a bailment/depositum/depositum regulare. That is sheer, blatant, absurd illogic.

    Centuries of civil law through Western civilisation would require that such grain warehouses are engaged in mutuum loans.

    And even if these grain consignments to grain warehouses were considered as a depositum irregulare, the law is clear that ownership (dominium) of the res fungibilis (fungible thing/good) is transfered to the person receiving it and given up by the person handing it over. The person taking ownership of it returns only something of eual valueor quantity.

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  5. "So there can be bailments and loans to grain warehouses, but only loans to banks? "

    This is bizarre:

    (1) of course there are bailment services offered by banks

    (2) there are examples of grain warehouses running on mutuum law contracts

    (3) there is no "special privilege" only enjoyed by "evil" banks; that is rubbish.

    Res fungibiles (fungible things/goods) are frequently lent in mutuum loans, and have been for over 2000 years.

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  6. "If the farmer only receives back grain only of a "like quality rather than the identical grain", it is not possible to say that his original delivery of grain was a bailment/depositum/depositum regulare. That is sheer, blatant, absurd illogic.

    Centuries of civil law through Western civilisation would require that such grain warehouses are engaged in mutuum loans."

    So now "Wyoming" is just confused. And if the other states agree, then "they are just confused as well". Seems that you are the one being stubborn now. And certainly, these centuries of law would have put an end to the erroneous practice of grain warehouses many years ago. But yet, it seems that they have not.


    "And even if these grain consignments to grain warehouses were considered as a depositum irregulare, the law is clear that ownership (dominium) of the res fungibilis (fungible thing/good) is transfered to the person receiving it and given up by the person handing it over. The person taking ownership of it returns only something of eual valueor quantity. "

    Nope, sorry. Lets look at the above quote:

    "The storing of the grain establishes a bailee-bailor relationship.3 The relationship is unaffected by the fact that the bailee will return to the bailor grain of like quality rather than the identical grain4."

    Sources for footnotes in quote.

    "3 U.C.C. § 7-102 (1)(a) defines “a bailee” to be the person who by a warehouse receipt...or other document of title
    acknowledges possession of goods and contracts to deliver them.
    4 See 54 A.L.R. 1166 (1928)."

    and:

    "Commingled grain stored in an elevator is deemed to be owned in common by persons storing the grain.5 As a result, absent a grain shortage, a depositor can obtain his or her grain in accordance with their warehouse receipt and/or scale ticket. A trustee in bankruptcy is not entitled to retain farmer-stored grain in the bankrupt’s estate so long as there is no shortage, because the trustee can only succeed to the rights that the bankrupt possessed, and stored grain is not property of the elevator. Under 11 U.S.C. § 725, the trustee, after notice and hearing, is allowed to dispose of property in which an entity, other than the bankruptcy estate, has an interest.6 Clearly, once a farmer proves ownership and pays all storage and other costs, the farmer is entitled to their grain."

    As I've said again and again, I do not deny that you can loan money (and release ownership) to grain warehouses. But to argue that when you deposit grain, or any other object in a warehouse that is not specifically earmarked, then it automatically becomes a debt is not true, as evidenced by plenty of other businesses (i.e, grain warehouses).

    Banks are not "evil" (again another strawman probably related to supposed Rothbardian "morals"), but to say they don't get deposit/loan legal theory in their favor is crap.

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  7. This seems to be my week for discussing fractional reserve banking and the demand deposit.

    Yeah, that tends to happen to people when they are refuted about something and then try to salvage it by twisting and misrepresenting the arguments and facts, so that your fallacious position can eventually be vindicated. It's the mark of a dishonest blogger.

    A mutuum loan that is payable "on demand" has qualities of demand deposits, namely, the requirement that the tantundem be paid on demand. But that does not make it the demand deposit that has been under discussion since the start. A demand deposit has the further requirement that the tantundem be safe AND AVAILABLE at all times. That is the only way that a demand deposit withdrawal on demand can be satisfied. A bank that does not have the tantundem available at all times cannot possibly claim that it is satisfying the "available on demand" characteristic of demand deposits. A FRB bank does not in fact have the tantundem available at all times. It has only some tantundem available at all times, which is then used to satisfy physical withdrawal requests of only a subset of the population of demand depositors.

    In total, the bank does not have the tantundem safe and available for withdrawal for all their demand deposit clients. It doesn't matter if demand deposit clients don't make 100% physical withdrawals all at the same time. Each demand deposit account, if it is going to be a demand deposit account, must have the tantundem available at all times. If the bank does not do this, then they are not providing services of demand deposits, but risky credit investments.

    Bala is AGAIN correct when he notes:

    "As usual, your post is ass-backward. Instead of starting with demand deposits and showing that they are indeed to be regarded as a mutuum, you start from the concept of mutuum and try to show the similarities between that and a demand deposit."

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  8. "But that does not make it the demand deposit that has been under discussion since the start. A demand deposit has the further requirement that the tantundem be safe AND AVAILABLE at all times."

    Cite one legal source for this statement, or don't bother spamming this thread with further nonsense.

    Of course, you will find no sources, because what you say is false.

    Your demand deposit is merely an IOU, a credit/debt instrument that requires that the bank pay you back money on demand up to the amount that is your current balance.

    The units/goods of the same type, quality and value that are returned to you (the tantundem) on demand do not need to be keep on hand or available at all times. That is nonsense.

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  9. "Your demand deposit is merely an IOU, a credit/debt instrument that requires that the bank pay you back money on demand up to the amount that is your current balance.

    The units/goods of the same type, quality and value that are returned to you (the tantundem) on demand do not need to be keep on hand or available at all times. That is nonsense. "

    Apparently not for the kooky grain warehouses.

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  10. Apparently not for the kooky grain warehouses."

    That has already been explained to you as a peculiar legal anomaly.

    Also, I asked you: do you have evidence that the way grain warehouses are legally defined in Wyoming is also accepted in other US states?

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  11. "That has already been eplained to you as peculiar legal anomaly.

    Also, I asked you: do you have evidence that the way grain warehouses are legally defined in Wyoming is also accepted in other US states? "

    You completely ignored this post, which showed evidence of legal court cases and documents not only


    "
    Nope, sorry. Lets look at the above quote:

    "The storing of the grain establishes a bailee-bailor relationship.3 The relationship is unaffected by the fact that the bailee will return to the bailor grain of like quality rather than the identical grain4."

    Sources for footnotes in quote.

    "3 U.C.C. § 7-102 (1)(a) defines “a bailee” to be the person who by a warehouse receipt...or other document of title
    acknowledges possession of goods and contracts to deliver them.
    4 See 54 A.L.R. 1166 (1928)."

    and:

    "Commingled grain stored in an elevator is deemed to be owned in common by persons storing the grain.5 As a result, absent a grain shortage, a depositor can obtain his or her grain in accordance with their warehouse receipt and/or scale ticket. A trustee in bankruptcy is not entitled to retain farmer-stored grain in the bankrupt’s estate so long as there is no shortage, because the trustee can only succeed to the rights that the bankrupt possessed, and stored grain is not property of the elevator. Under 11 U.S.C. § 725, the trustee, after notice and hearing, is allowed to dispose of property in which an entity, other than the bankruptcy estate, has an interest.6 Clearly, once a farmer proves ownership and pays all storage and other costs, the farmer is entitled to their grain."

    As I've said again and again, I do not deny that you can loan money (and release ownership) to grain warehouses. But to argue that when you deposit grain, or any other object in a warehouse that is not specifically earmarked, then it automatically becomes a debt is not true, as evidenced by plenty of other businesses (i.e, grain warehouses).

    Banks are not "evil" (again another strawman probably related to supposed Rothbardian "morals"), but to say they don't get deposit/loan legal theory in their favor is crap. "

    Source for Paper:
    http://www.econ.iastate.edu/~harl/RightsOfFarmersInFailedGrainElevators.pdf

    Firstly, this paper isn't about Wyoming. That was another source that I cited. This is a general paper talking about the grain failures in the 1980s across a multitude of states. Meaning not just Wyoming.

    U.C.C stands for "Uniform Commercial Code"-so its not endogenous to Wyoming.

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  12. In discussing this subject you appearto have missed some important point

    "However, problems usually arise when there is a shortage of grain in the elevator. In this case, the producer would receive a pro rata share in the remaining grain. Farmers who are not fully compensated become a general unsecured creditor of the elevator in bankruptcy court.

    Farmers typically sell grain to an elevator under the four types of transactions mentioned
    above. These are considered contractual agreements as opposed to the bailment
    relationship discussed above. Consequently, the grain producers who have delivered their
    grain to the elevator before it failed and entered into forward, deferred payment or deferred pricing contracts have relinquished their ownership of the grain to the elevator. In essence, the title to the grain has passed to the elevator and the seller becomes a general creditor with a limited right to reclaim the delivered commodity. Usually, grain producers
    under contract, except for a limited priority in bankruptcy, are considered unsecured
    creditors and typically do not fare well in this situation."


    "Grain Elevators Legal Issues Surrounding the Storage of Grain in Kansas," p. 5.
    http://www.kfb.org/commodities/commoditiesimages/GrainElevatorPaperFinal.pdf

    That first clause in bold is consistent with the idea that their claim was a mutuum one, not a bailment.

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  13. Now you are just grasping for straws here.

    Farmers typically sell grain to an elevator under the four types of transactions mentioned
    above. These are considered contractual agreements as opposed to the bailment relationship discussed above. Consequently, the grain producers who have delivered their
    grain to the elevator before it failed and entered into forward, deferred payment or deferred pricing contracts have relinquished their ownership of the grain to the elevator. In essence, the title to the grain has passed to the elevator and the seller becomes a general creditor with a limited right to reclaim the delivered commodity. Usually, grain producers
    under contract, except for a limited priority in bankruptcy, are considered unsecured
    creditors and typically do not fare well in this situation."

    Just on the same page:

    "A farmer who stores grain in an elevator that fails or files bankruptcy is not a creditor of the elevator. The grain that is delivered to be stored remains the property of the farmer who delivered the grain. The storage is evidenced by the warehouse receipts/scale tickets. The relationship created between the farmer and the elevator is a bailment. As a result of the elevator commingling grain from producers, it is deemed to be owned in common. The bailment relationship allows the farmer to retrieve grain of like quality from the elevator at reasonable time, minus a fee for storage."

    There can be loans to grain warehouses, but there can also be bailments, and bailments for not specific properties, but for a general good. To deny this is to deny how grain warehousing works. Banks, for some reason, get different rules.

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  14. "But that does not make it the demand deposit that has been under discussion since the start. A demand deposit has the further requirement that the tantundem be safe AND AVAILABLE at all times."

    Cite one legal source for this statement, or don't bother spamming this thread with further nonsense.

    Did you not just read what I said? I just said that appealing to positive law is not a valid premise when the discussion is economic principles.

    I don't speak the "statish" language.

    Most importantly, it is NOT "spamming" to correct your errors you dishonest creep. You're just trying to find an excuse to label counter-arguments as "spamming" so that you can pretend you have a laundry list of alleged "spamming" so that you can arbitrarily censor posters. Of course, this is your right as the blog owner, but you're being dishonest to claim that the rebuttals against you have been "spamming." If anything, that poster "Anonymous" has been spamming this blog to no end, the premises of the content just so happens to agree with yours, which is why you abstain from labelling him a "spammer."

    Of course, you will find no sources, because what you say is false.

    No, what I say is true. It is based on economic logic. It is IMPOSSIBLE for any party to claim that an account's money is available "on demand" at all times unless the possessor of the money actually has it available at all times so that whenever the client wants to withdraw their money, they can. A bank cannot claim that its client's money is available on demand unless the bank actually has the money available at all times!

    It would be like claiming that the car I have stored for you is available at all times for you to pick it up, but then I don't actually have the car in my possession.

    Your demand deposit is merely an IOU, a credit/debt instrument that requires that the bank pay you back money on demand up to the amount that is your current balance.

    No, a demand deposit is not an IOU. A LOAN is an IOU. A demand deposit is not a debt instrument. One is not investing in a bank or loaning money out to anyone with a demand deposit.

    The units/goods of the same type, quality and value that are returned to you (the tantundem) on demand do not need to be keep on hand or available at all times. That is nonsense.

    No, it is not nonsense. It is a contradiction to assert that money available on demand is not available at all times. You're speaking nonsense.

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  15. "I just said that appealing to positive law is not a valid premise when the discussion is economic principles."

    False. This isn't about "economic principles" - it about moral issues: the Rothbardian claim the FRB is fraud.

    "It is IMPOSSIBLE for any party to claim that an account's money is available "on demand" at all times unless the possessor of the money actually has it available at all times so that whenever the client wants to withdraw their money, they can."

    An demand deposit account is an IOU - a credit/debt instrument.

    This is the same ignorant, risible, contemptibly muddle-headed inability to understand that the demand deposit is not a depositum/bailment - it is a creditum/mutuum, a credit/debt instrument, a promise to pay a debt on demand.

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  16. "It would be like claiming that the car I have stored for you is available at all times for you to pick it up, but then I don't actually have the car in my possession."

    A wrong-headed exmaple - the right example would be: I have given you my car as your property. I receive a promise to provide me with a car of the same quality/value on demand, and in fact you can supply me with such a car from your car reserves, or possibly even borrowing one yourself/ selling your assets to buy one.

    ReplyDelete