Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

2 Money, Bank Credit, and Economic CyclesTHE COMMODATUM CONTRACTCommodatum (from Latin) refers to a real contract made ingood faith, by which one person—the lender—entrusts toanother—the borrower or commodatary—a specific item to beused for free for a certain period of time, at the end of whichthe item must be restored to its owner; that is, the very thingthat was loaned must be returned. 3 The contract is called“real” because the article must be given over. An examplewould be the loan of a car to a friend so he can take a trip. Itis clear that in this case the lender continues to own the lentitem, and the person receiving it is obliged to use it appropriatelyand return it (the car) at the end of the arranged period(when the trip is over). The obligations of the friend, the borrower,are to remain in possession of the article (the car orvehicle), to use it properly (following traffic rules and takingcare of it as if it were his own), and to return it when the commodatumis finished (the trip is over).THE MUTUUM CONTRACTThough the commodatum contract is of some practicalimportance, of greater economic significance is the lending offungible 4 and consumable goods, such as oil, wheat, and especially,money. Mutuum (also from Latin) refers to the contractby which one person—the lender—entrusts to another—theborrower or mutuary—a certain quantity of fungible goods,and the borrower is obliged, at the end of a specified term, toreturn an equal quantity of goods of the same type and quality(tantundem in Latin). A typical example of a mutuum contractis the monetary loan contract, money being the quintessential3 Juan Iglesias, Derecho romano: Instituciones de derecho privado, 6th rev.updated ed. (Barcelona: Ediciones Ariel, 1972), pp. 408–09.4 Fungible goods are those for which others of the same sort may be substituted.In other words, they are goods which are not treated separately,but rather in terms of quantity, weight, or measure. The Romans saidthat things quae in genere suo functionem in solutione recipiunt were fungible;that is, things quae pondere numero mensurave constant. Consumablesare often fungible.