Money and credit in common law

The Romans created the system of money and credit upon which our laws today are based. This article charts the history of gold in common law and why it is still relevant.

Introduction

It is a mistake to underestimate modern disinformation and ignorance on the topics of money and credit. It will seem extraordinary to those not versed in finance that even economists of the various schools of thought with their PhDs are utterly clueless on this vital topic, an ignorance which extends even into staff economists at central banks. Few of them understand the role of commercial banks in creating bank credit, assuming that either they are simply agents deploying deposits into loans, or that they operate on a fractional reserve system. Neither is true.

This article is not here to debate modern banking, but to describe the evolution of money and credit throughout history, and how they came to be defined in every nation’s common law. It started with the Romans. The first system of Roman law was the Twelve Tables of 448 BC, which established methodical habits of business.

The legal distinctions of money and credit

What interests us in this topic is the system of recording transactions, which following the Twelve Tables were divided into two classes, res mancipi, and res nec mancipi. The former refered to a small list of physical property transferred by a formal ceremony of mancipation, or transfer: bronze-copper ingots (the physical form of money at that time), lands and houses on Roman soil, beasts of burden, slaves, agricultural rights, and other rights over land were res mancipi. By this definition only a bronze-copper ingot weighing a Roman pound, the aes, was corporeal money and the final payment for discharging debt obligations. It was conveyed formally in the presence of five witnesses of full age and the aes would be weighed on scales in front of the witnesses and handed to the seller in payment.

Everything else were termed res nec mancipi, including incorporeal debt obligations, which were always entered in to be finally settled in aes in due course. The relationship between money and credit, always the other side of a debt obligation being the future final payment, was thereby defined in Roman law.

At the time of the Twelve Tables very few Romans were literate, agriculture dominated, and settlement practices reflected this. The strict formalities of a property transfer in res mancipi were abolished by Emperor Leo in 469AD, reflecting the economic and social advances in the eight centuries since the Twelve Tables. Other forms of money, principally the silver denarius and gold aureus coins entered into use during that time, replacing the earlier aes. The distinction between items confined to res mancipi and res nec mancipi was finally abolished in Justinian’s Pandects in 520AD. But reflecting the rulings of jurors Ulpian and Paulus in the second and third centuries AD the relationship between money and credit was crystalised in their original relationship.

Out of the Roman Empire evolved the colonising nations whose common laws were based on Justinian’s Pandects and the later Basilica translation of them in Greek (AD892). Following the fifteenth and sixteenth centurys’ global discoveries by Spain and Portugal, their colonies and those of the colonising nations that followed them all adopted Justinian’s legal distinction between money and credit in their common laws. Spain’s discoveries in the New World brought gold and silver into greater circulation, as did Britain’s guinea from West African gold introduced in 1663.

Following independence, the USA adopted UK common law through Blackstone’s Commentaries on the Laws of England, including the inherited relationship between money and credit crystalised in Justinian’s Pandects. And when in evidence to Congress in 1912, John Pierpont Morgan the greatest banker at that time said that “Credit is evidence of banking but it is not the money itself. Money is gold, and nothing else”, he was stating correctly the legal position defined in common law from Roman times.

Credit today