It is now important to review and stress the fundamental differences between the irregular deposit contract and the loan contract, both with respect to money. As we will see later in different contexts, much of the confusion and many of the
legal and economic errors surrounding our topic derive from a lack of understanding of the essential differences between these two contracts.
THE EXTENT TO WHICH PROPERTY RIGHTS ARE TRANSFERRED IN EACH CONTRACT
To begin with, it is necessary to point out that the inability to clearly distinguish between the irregular deposit and the loan arises from the excessive and undue importance given to the fact that, as we already know, in the irregular deposit of
money or of any other fungible good we may consider that the ownership of the deposited good is transferred to the depositary, “just as” in the loan or mutuum contract. This is the only similarity between the two types of contract and it has led many scholars to confuse them without reason.
We have already seen that in the irregular deposit the transfer of “ownership” is a secondary requirement arising from the fact that the object of the deposit is a fungible good which cannot be handled individually. We also know there are
many advantages to putting a deposit together with other sets of the same fungible good and treating the individual units indistinctly. Indeed, as one may not, in strictly legal terms, demand the return of the specific items deposited, since this is a physical impossibility, it may appear necessary to consider that a “transfer” of ownership occurs with regard to the individual, specific units deposited, as these are indistinguishable from one another. So the depositary becomes the “owner,” but only in the sense that, for as long as he continues to hold the tantundem, he is free to allocate the particular, indistinguishable
units as he chooses. This is the full extent to which property rights are transferred in the irregular deposit, unlike the loan contract, where complete availability of the loaned good is transferred for the duration of the contract’s term. Therefore, even given the one feasible “similarity” between the irregular
deposit and the monetary loan (the supposed “transfer” of ownership), it is important to understand that this transfer of ownership has a very different economic and legal meaning in each contract. Perhaps, as we explained in footnote number five, it would even be wisest to hold that in the irregular
deposit there is no transfer of ownership, but rather that the depositor at all times maintains ownership over the tantundem in an abstract sense.
FUNDAMENTAL ECONOMIC DIFFERENCES BETWEEN THE TWO CONTRACTS
This variation in legal content stems from the essential difference between the two contracts, which in turn derives from the distinct economic foundation on which each is based. Thus, Ludwig von Mises, with his habitual clarity, points out that if the loan
in the economic sense means the exchange of a present good or a present service against a future good or a future service, then it is hardly possible to include the transactions in question [irregular deposits] under the conception of credit. A depositor of a sum of money who acquires in exchange for it a claim convertible into money at any time which will perform exactly the same service for him as the sum it refers to, has exchanged no present good for a future good. The claim that he has acquired by his deposit is also a present good for him. The depositing of the money in no way means that he has renounced immediate disposal over the utility that it commands.
He concludes that the deposit “is not a credit transaction, because the essential element, the exchange of present goods for future goods, is absent.”
Therefore, in the monetary irregular deposit there is no relinquishment of present goods in favor of a larger quantity of future goods at the end of a time period, but rather simply a change in the manner of possessing present goods. This change occurs because under many circumstances the depositor finds it more advantageous from a subjective standpoint (that is, more conducive to his goals) to make a monetary irregular deposit in which the actual good deposited is mixed with others of the same sort and treated indistinguishably from them. Among other advantages, we have already mentioned an insurance against the risk of loss due to inevitable accident and the opportunity to use the cashier services provided by banks to customers with a checking account. In contrast, the essence of the loan contract is radically dissimilar.
The aim of the loan contract is precisely to cede today the availability of present goods to the borrower for his use, in order to obtain in the future a generally larger quantity of goods in exchange at the end of the term set in the contract. We say “generally larger” because, given the logical time preference inherent in all human actions, which indicates that, other things being equal, present goods are always preferable to future goods, it is necessary to add to the future goods a differential amount in the form of interest. Otherwise, it would be difficult to find anyone willing to give up the availability of present goods, which is a requirement of every loan.
Hence, from an economic viewpoint the difference between the two contracts is quite clear: the irregular deposit contract does not entail the exchange of present goods for future goods, while the loan contract does. As a result, in the
irregular deposit the availability of the good is not transferred, but rather the good remains continuously available to the depositor (despite the fact that in a sense “ownership” has been shifted from a legal standpoint), while in the loan contract there is always a transfer of availability from the lender to the borrower. Furthermore, the loan contract usually includes an interest agreement, whereas in the monetary irregular-deposit contract, interest agreements are contra naturam and absurd. Coppa-Zuccari, with his customary insight, explains that the absolute impossibility of including an interest agreement in the irregular deposit contract is, from a legal viewpoint, a direct result of the right granted the depositor to withdraw the deposit at any time, and the depositary’s corresponding obligation to maintain the associated tantundem constantly available to the depositor. Ludwig von Mises also indicates that it is possible for the depositor to make deposits without demanding any type of interest precisely because the claim obtained in exchange for the sum of money is equally valuable to him whether he converts it sooner or later, or even not at all; and because of this it is possible for him, without damaging his economic interests, to acquire such claims in return for the surrender of money without
demanding compensation for any difference in value arising from the difference in time between payment and repayment, such, of course, as does not in fact exist.
Given the economic foundation of the monetary irregular-deposit contract, which does not imply the exchange of present goods for future goods, the uninterrupted availability in favor of the depositor and the incompatibility with an interest agreement arise logically and directly from the legal essence of the irregular deposit contract, which contrasts sharply with the legal essence of the loan contract.
FUNDAMENTAL LEGAL DIFFERENCES BETWEEN THE TWO CONTRACTS
The essential legal element in the irregular deposit contract is the custody or safekeeping of the money deposited. To the parties deciding to make or receive an irregular deposit, this is the most important aim or purpose of the contract, and it varies greatly from the essential purpose of the loan contract, which is the transfer of the availability of the loaned good to the borrower so he can use it for a period of time. Two other important legal differences arise from this essential dissimilarity in purpose between the two types of contract. First, the
irregular deposit contract lacks a term, the essential element identifying a loan contract. Indeed, while it is impossible to imagine a monetary loan contract without a fixed term (during which not only is ownership transferred, but availability is lost to the lender as well), at the end of which it is necessary to
return the tantundem of money originally loaned plus interest, in the irregular deposit contract there is no term whatsoever, but rather there is continuous availability in favor of the depositor, who may withdraw his tantundem at any time. The second essential legal difference refers to the obligations of the two parties: in the irregular deposit contract the legal obligation implied by the nature of the contract consists, as we know, of the conscientious custody or safekeeping (as would be expected of a good parent) of the tantundem, which is kept continually available to the depositor.20 In the loan contract this obligation does not exist, and the borrower may use the loaned amount with total freedom. Indeed, when we speak of the legal “transfer of ownership” in the two contracts, we allude to two very dissimilar concepts. Whereas the “transfer” of ownership in the irregular deposit contract (which could be considered a requirement of the fungible nature of the deposited goods) does not imply a simultaneous transfer of availability of the tantundem, in the loan contract there is a complete transfer of ownership and availability of the tantundem from lender to
borrower. The differences covered in this section are outlined in Table 1-1.
legal and economic errors surrounding our topic derive from a lack of understanding of the essential differences between these two contracts.
THE EXTENT TO WHICH PROPERTY RIGHTS ARE TRANSFERRED IN EACH CONTRACT
To begin with, it is necessary to point out that the inability to clearly distinguish between the irregular deposit and the loan arises from the excessive and undue importance given to the fact that, as we already know, in the irregular deposit of
money or of any other fungible good we may consider that the ownership of the deposited good is transferred to the depositary, “just as” in the loan or mutuum contract. This is the only similarity between the two types of contract and it has led many scholars to confuse them without reason.
We have already seen that in the irregular deposit the transfer of “ownership” is a secondary requirement arising from the fact that the object of the deposit is a fungible good which cannot be handled individually. We also know there are
many advantages to putting a deposit together with other sets of the same fungible good and treating the individual units indistinctly. Indeed, as one may not, in strictly legal terms, demand the return of the specific items deposited, since this is a physical impossibility, it may appear necessary to consider that a “transfer” of ownership occurs with regard to the individual, specific units deposited, as these are indistinguishable from one another. So the depositary becomes the “owner,” but only in the sense that, for as long as he continues to hold the tantundem, he is free to allocate the particular, indistinguishable
units as he chooses. This is the full extent to which property rights are transferred in the irregular deposit, unlike the loan contract, where complete availability of the loaned good is transferred for the duration of the contract’s term. Therefore, even given the one feasible “similarity” between the irregular
deposit and the monetary loan (the supposed “transfer” of ownership), it is important to understand that this transfer of ownership has a very different economic and legal meaning in each contract. Perhaps, as we explained in footnote number five, it would even be wisest to hold that in the irregular
deposit there is no transfer of ownership, but rather that the depositor at all times maintains ownership over the tantundem in an abstract sense.
FUNDAMENTAL ECONOMIC DIFFERENCES BETWEEN THE TWO CONTRACTS
This variation in legal content stems from the essential difference between the two contracts, which in turn derives from the distinct economic foundation on which each is based. Thus, Ludwig von Mises, with his habitual clarity, points out that if the loan
in the economic sense means the exchange of a present good or a present service against a future good or a future service, then it is hardly possible to include the transactions in question [irregular deposits] under the conception of credit. A depositor of a sum of money who acquires in exchange for it a claim convertible into money at any time which will perform exactly the same service for him as the sum it refers to, has exchanged no present good for a future good. The claim that he has acquired by his deposit is also a present good for him. The depositing of the money in no way means that he has renounced immediate disposal over the utility that it commands.
He concludes that the deposit “is not a credit transaction, because the essential element, the exchange of present goods for future goods, is absent.”
Therefore, in the monetary irregular deposit there is no relinquishment of present goods in favor of a larger quantity of future goods at the end of a time period, but rather simply a change in the manner of possessing present goods. This change occurs because under many circumstances the depositor finds it more advantageous from a subjective standpoint (that is, more conducive to his goals) to make a monetary irregular deposit in which the actual good deposited is mixed with others of the same sort and treated indistinguishably from them. Among other advantages, we have already mentioned an insurance against the risk of loss due to inevitable accident and the opportunity to use the cashier services provided by banks to customers with a checking account. In contrast, the essence of the loan contract is radically dissimilar.
The aim of the loan contract is precisely to cede today the availability of present goods to the borrower for his use, in order to obtain in the future a generally larger quantity of goods in exchange at the end of the term set in the contract. We say “generally larger” because, given the logical time preference inherent in all human actions, which indicates that, other things being equal, present goods are always preferable to future goods, it is necessary to add to the future goods a differential amount in the form of interest. Otherwise, it would be difficult to find anyone willing to give up the availability of present goods, which is a requirement of every loan.
Hence, from an economic viewpoint the difference between the two contracts is quite clear: the irregular deposit contract does not entail the exchange of present goods for future goods, while the loan contract does. As a result, in the
irregular deposit the availability of the good is not transferred, but rather the good remains continuously available to the depositor (despite the fact that in a sense “ownership” has been shifted from a legal standpoint), while in the loan contract there is always a transfer of availability from the lender to the borrower. Furthermore, the loan contract usually includes an interest agreement, whereas in the monetary irregular-deposit contract, interest agreements are contra naturam and absurd. Coppa-Zuccari, with his customary insight, explains that the absolute impossibility of including an interest agreement in the irregular deposit contract is, from a legal viewpoint, a direct result of the right granted the depositor to withdraw the deposit at any time, and the depositary’s corresponding obligation to maintain the associated tantundem constantly available to the depositor. Ludwig von Mises also indicates that it is possible for the depositor to make deposits without demanding any type of interest precisely because the claim obtained in exchange for the sum of money is equally valuable to him whether he converts it sooner or later, or even not at all; and because of this it is possible for him, without damaging his economic interests, to acquire such claims in return for the surrender of money without
demanding compensation for any difference in value arising from the difference in time between payment and repayment, such, of course, as does not in fact exist.
Given the economic foundation of the monetary irregular-deposit contract, which does not imply the exchange of present goods for future goods, the uninterrupted availability in favor of the depositor and the incompatibility with an interest agreement arise logically and directly from the legal essence of the irregular deposit contract, which contrasts sharply with the legal essence of the loan contract.
FUNDAMENTAL LEGAL DIFFERENCES BETWEEN THE TWO CONTRACTS
The essential legal element in the irregular deposit contract is the custody or safekeeping of the money deposited. To the parties deciding to make or receive an irregular deposit, this is the most important aim or purpose of the contract, and it varies greatly from the essential purpose of the loan contract, which is the transfer of the availability of the loaned good to the borrower so he can use it for a period of time. Two other important legal differences arise from this essential dissimilarity in purpose between the two types of contract. First, the
irregular deposit contract lacks a term, the essential element identifying a loan contract. Indeed, while it is impossible to imagine a monetary loan contract without a fixed term (during which not only is ownership transferred, but availability is lost to the lender as well), at the end of which it is necessary to
return the tantundem of money originally loaned plus interest, in the irregular deposit contract there is no term whatsoever, but rather there is continuous availability in favor of the depositor, who may withdraw his tantundem at any time. The second essential legal difference refers to the obligations of the two parties: in the irregular deposit contract the legal obligation implied by the nature of the contract consists, as we know, of the conscientious custody or safekeeping (as would be expected of a good parent) of the tantundem, which is kept continually available to the depositor.20 In the loan contract this obligation does not exist, and the borrower may use the loaned amount with total freedom. Indeed, when we speak of the legal “transfer of ownership” in the two contracts, we allude to two very dissimilar concepts. Whereas the “transfer” of ownership in the irregular deposit contract (which could be considered a requirement of the fungible nature of the deposited goods) does not imply a simultaneous transfer of availability of the tantundem, in the loan contract there is a complete transfer of ownership and availability of the tantundem from lender to
borrower. The differences covered in this section are outlined in Table 1-1.
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