Sunday, October 2, 2011

What British Law Says about the Mutuum Contract

We can cite the The Laws of England: Being a Complete Statement of the Whole Law of England (vol. 2; 3rd edn.; 1964):
“The contract of mutuum differs from that of commodatum, in that in the latter a bare possession of the chattel lent, as distinguished from the property in it, vests in the borrower, the general property in it still remaining in the lender; where in mutuum that property in the chattel passes from the lender to the borrower. Mutuum is confined to such chattels as are intended to be consumed in the using and are capable of being estimated by number, weight, or measure, such as money, corn, or wine. The essence of the contract in the case of such loans is, not that the borrower should return to the lender the identical chattels lent (for such specific return would ordinarily render the loan valueless), but that upon demand or at a fixed date the lender should receive from the borrower an equivalent quantity of the chattels lent.” (Halsbury 1964: 112).
This clearly entails that in the case of a mutuum demand deposit in a fractional reserve bank:
(1) Ownership of the money passes from the client to the fractional reserve bank;
(2) The bank returns only money up to the same value (a tantundem), not the original money;
(3) By the terms of the mutuum contract, the money can be returned either at a fixed future date or on demand.
And it should be noted that as early as the 18th century, the fundamental terms of the mutuum contract as stated above are already described in exactly these terms by the jurists:
“Mutuum (a Loan simply so call’d quod de meo tuum fiat [sc. “because let what is mine become yours”]) ... 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.” (Wood 1730: 212).
Another two points should be stressed:
(1) British common law was the basis of American law, so the legal status of fractional reserve banking in the US must have been developed under the British common law framework: there is no evidence that it was held to be illegal in the US;

(2) Fractional reserve banking had been revived on a significant scale by London’s goldsmiths from the middle of the 17th century onwards (roughly 80 years before passage was written), and there remains not one convincing shred of evidence that the goldsmiths were guilty of fraud or embezzlement when they engaged in the practice (Selgin 2011).

BIBLIOGRAPHY

Halsbury, H. S. G. 1964. The Laws of England: Being a Complete Statement of the Whole Law of England (vol. 2; 3rd edn.; ed. G. T. Simonds), Butterworth, London.

Selgin, G. “Those Dishonest Goldsmiths,” revised January 20, 2011
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1589709

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

8 comments:

  1. Once again, what about the grain warehouses? You completely ignored my last post in the prior section. Nor did you ever post my reply, and I take that as a low blow.

    I'm fine with FRB, but the paper receipts that circulate the economy have to be contractually recognized as such. You are taking the side, contrary to the way grain warehouses operate, that any bailment on a fungible (i.e not earmarked) good automatically becomes a debt. You can cite all the legal evidence you want, but the fact that it does not operate this way in grain storage and instead with money (banking) only shows how ambiguous the legal system is.


    Again, the fact that Carr v. Carr in 1811, Devaynes v. Noble (1816) and Foley v Hill and Others (1848) occurred in English courts shows that there was some ambiguity and controversy over the laws. Not to mention there was Peels Bank Act in 1844. There was clear controversy over FRB.

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  2. "You are taking the side, contrary to the way grain warehouses operate, that any bailment on a fungible (i.e not earmarked) good automatically becomes a debt. "

    No, I am not.
    The decision whether it is a mutuum loan is made freely by contract by the parties in question.

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  3. "Again, the fact that Carr v. Carr in 1811, Devaynes v. Noble (1816) and Foley v Hill and Others (1848) occurred in English courts shows that there was some ambiguity and controversy over the laws."

    And in these cases the law was clear what a mutuum contract was and its consequences.

    And I have answered your grain example many times: it is clear legal anomaly.

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  4. "And I have answered your grain example many times: it is clear legal anomaly. "

    Well from this, its clear that technically neither side is "right" then, because neither side will agree. Anything that goes against their viewpoint is just a "legal anomaly". No use for either party to continue the discussion. Both have their legal institutions to back them up.

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  5. LK claims that grain bailment on fungible goods becoming a debt is "a legal anomaly."

    Well, anti-FRB advocates claim that lending out money from demand deposits and calling demand deposits a loan is a "legal anomaly" that has persisted in statist systems because of the state's power to externalize the costs of it onto everyone, thus making it seem like the business cycle is inherent in the free market economy.

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  6. "Well, anti-FRB advocates claim that lending out money from demand deposits and calling demand deposits a loan is a "legal anomaly" that has persisted etc. etc."

    LOL... Then all that needs to be done is to refer to it a "callable loan."

    If the clients of the bank and the bank - all parties - contract to have a callable loan in precisely the way I have described in the next post, where is the fraud?

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  7. "Well, anti-FRB advocates claim that lending out money from demand deposits and calling demand deposits a loan is a "legal anomaly" that has persisted etc. etc."

    LOL... Then all that needs to be done is to refer to it a "callable loan."

    In which case you'd be evading the requirements of a tantundem demand deposit.

    If the clients of the bank and the bank - all parties

    "All parties" is false, because you're ignoring the third party merchants who are required by the government's law to accept these bills as legal tender, which means even if merchants knew of the fact they are credits, not money, they still would not be able to avoid it.

    contract to have a callable loan in precisely the way I have described in the next post, where is the fraud?

    A "callable loan" is not a demand deposit.

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  8. ""All parties" is false, because you're ignoring the third party merchants who are required by the government's law to accept these bills as legal tender,"

    Red herring. I am referring to my situation in the next post.

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