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

The Legal Nature of the Monetary Irregular-Deposit Contract 3fungible good. By this contract, a certain quantity of monetaryunits are handed over today from one person to another andthe ownership and availability of the money are transferredfrom the one granting the loan to the one receiving it. The personwho receives the loan is authorized to use the money as hisown, while promising to return, at the end of a set term, thesame number of monetary units lent. The mutuum contract,since it constitutes a loan of fungible goods, entails an exchangeof “present” goods for “future” goods. Hence, unlike the commodatumcontract, in the case of the mutuum contract the establishmentof an interest agreement is normal, since, by virtue ofthe time preference (according to which, under equal circumstances,present goods are always preferable to future goods),human beings are only willing to relinquish a set quantity ofunits of a fungible good in exchange for a greater number ofunits of a fungible good in the future (at the end of the term).Thus, the difference between the number of units initially deliveredand the number received from the borrower at the end ofthe term is, precisely, the interest. To sum up, in the case of themutuum contract, the lender assumes the obligation to handover the predetermined units to the borrower or mutuary. Theborrower or mutuary who receives the loan assumes the obligationto return the same number of units of the same sort andquality as those received (tantundem) at the end of the term setfor the contract. Plus, he is obliged to pay interest, as long as anagreement has been made to that effect, as is usually the case.The essential obligation involved in a mutuum contract, or loanof a fungible good, is to return at the end of the specified termthe same number of units of the same type and quality as thosereceived, even if the good undergoes a change in price. Thismeans that since the borrower only has to return the tantundemonce the predetermined time period has ended, he receives thebenefit of temporary ownership of the thing and therefore enjoysits complete availability. In addition, a fixed term is an essentialelement in the loan or mutuum contract, since it establishes thetime period during which the availability and ownership of thegood corresponds to the borrower, as well as the moment atwhich he is obliged to return the tantundem. Without the explicit