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Bluebook 21st ed.

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Eliyahu Hirschberg, 'Monetary Law in the Modern Era of Monetary Instability' (1981)
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 Monetary Law in the Modern Era of
Monetary Instability

by
DR. ELIYAHU HIRSCHBERG

NOMINALISM AND LEGAL PROFESSION

Nominalism provides that the nominal value of money controls in legal

obligations is the foundation of monetary law, this branch of law regula-
ting obligations affected by changes of value of money.
A great deal of ignorance prevails concerning monetary law among
members of legal profession especially in the United States of America and
even in Europe. Many believe that is of interest only to economists who
should deal with it. Many do not realize that nominalism is a legal institu-
tion. Would it have been only a concept of political philosophy courts of
law would not have been entitled to apply it. Nominalism is not self evident
even if it is treated as such by many. In many instantes its application is
unjust, however las strives to promote the ends of justice. In our time
indexes were constructed and are regularly published which give a more or
less adequate picture of changes of value of money.
Gold was demonetized but its price has soared on the free market. What
the value of money is can be ascertained much more easily in our times that
formely. On the other hand our currency is not convertible any more into
precious metals. The dollar is floating in the exchange markets and the
Betton Woods systems whose mainstay was the dollar has broken down.
The gold standard does not prevail any more in practice, effect of change
should be taken account of at least in law. In fact economists do not deal
with monetary law. In contradistinction to the science of economics which
is preoccupied with economic efficiency, law is preoccupied with the quest
for justice which is its objetive. Perfect justice cannot be achieved in an
imperfect setup of modern world. However, quest for justice must go on.
Therefore monetary law is a legitimate object of study for the legal research
and the legal profession.
Monetary terms are used in taxation and tax laws. In an inflationary era
monetary law is one of the most important branches of modern jurispru-
 Revista de Derecho Puertorriquefto

dence, of interest to the whole legal profession and especially to the

academic community.
Legal practitioners cannot adequately advise their clients in an inflatio-
nary era without understanding of monetary law and monetry problems.
The reasonable man, the man who asks a legal advice concerning any of his
obligations, is nowadays a valorist at heart as he is interested in the real
value of money and not its nominal value, under monertary stability he
does not realize that the two are distinct from one another.
However, monetary law which is primarily a legal institution is an
economic and social institution too, of interest to economists, sociologists,
political scientiss and in fact to the well educated man in the street whose
interest are affected by its operative rules. Institutionalization entails
always restriction of individual freedom to act according to common sense.

MONETARY LAW AND MODERN JURISPRUDENCE

Monetary law in an inflationary era serves as one of the foundations of

law its basic approaches and operative rules very often defeat the aims of
justice. The nominalistic solution is at present the foundation of the
financial order, of bookeeping, of accountancy and of many institutions of
modern society. However, the foundation is weak, it is based on a fiction,
because the inflationary reality has undermined it. The nominal value
approach does not reflect the reality. The main problems arise: (a) the crisis
problem, (b) the long term reality in normal circumstances. Very grave
monetary crisis have happened in our era like the Great German Inflation
1820-1824, the very severe inflations in Brazil, Israel, Chile, Argentina and
other under developed countries. Monetary law must develop its own
attitude to hyperinglations and very severe inflations the practical result
would be that all savings and liquid private rights wil become practically
valueles and whole sectors and classes of the population will be ruined.
The solution suggested for such situations is valorism or revaluations.
However, even in ordinary, normal circumstances the process of decrease
of money goes on. What is treated as normal nowadays was treated as
abnormal in the nineteenth century. The whole body of monetary law must
be adjusted to modern reality through some compromise between the
nominal value and purchasing power approaches.
Therefore the problem of institutional development and reform of
monetary law must be throughly discussed and explored on the theoretical
level as a condition precedent for practical reforms, because otherwise it
would be very difficult to draw the line and to effect the compromise.
Theoretical discussion is a necessary first step. The object of discussion
should be both the theorical approaches and operative rules of monetary
law. Monetary law bears the imprint of absolutism in its basic approaches.
Nominalism which is the cornerstone of the existing law, was during the
sixteenth and seventeenth centuries, replacing metallism which was for-
mally applied. Nominalism provides that the nominal value of money, a
pound is a pound, a dollar is a dollar, not withstanding changes of econo-
 Monetary Law in the Modern Era of Monetary Stability

mic value in time or in space. It was adopted in the field of legal obliga-
tions as a corollary of the royal prerogative over coinage and to strenthen
it. However as a monetary asset in a contract serves, as a unit of account
and not as a medium of payment. Therefore if there is a divergence in
practice the theoretical assumptionof identity is misleading. It is a fiction
and very often defects the end of justice in an inflationary era.

PRACTICAL PROBLEMS FACING LEGAL PROFESSION IN DEVELOPED COUNTRIES

In Western Europe countries and the United States of America the rates
of inflation reached in the last five years unprecedented degree. Inflatio-
nary expectations influenced consumers' behavior, and even during econo-
mic stagnation like in 1974 and 1975 inflation continued. The modern
phenomenon of staginflation refutes one of the basic aporoaches of classic
economics that recessionis deflationary is still not adequately researched
by modern economics, became a fact of life. Therefore legal advisors must
adjust their professional activity to a fact of life namely past, present and
probably future monetary instability. Many partial solutions are avilable in
the field of law, that many members of legal profession are still no aware of
them. The most widely applied solution is including value classes in con-
tracts. The most widely used in Israel and also abroad form of protection is
cost of living index value clause. In Israel the rates of inflation reached in
the post war of Atonement Era were as follows:

1) 1974 56%
2) 1975 23.81/
3) 1976 38%
4) 1977 42.8%
5) 1978 48.3%
6) 1979 111.1%
7) The first quarter of 1980-January to March-
20%, 80% on a yearly basis, and in the whole
of 1980 133%.
Such rates of inflatin affected long terms contracts for ten years of more
expressed in nominal terms like life insurance, lease, mortgage, bond listed
on a stock exchange and they are practically valueless after a period on a
compound basis the real value of long terms nominal monetary obligation
very materially. Of course, many practical problems remain. However legal
profession even in countries which are beset by inflation and monetary
instability to a lesser degree should adjust their professional attitudes to
modern realitites, of the real world. Inflation has many causes and there are
many forms of inflations. Two main forms of inflation from the point of
causation are:
i) Demand pull inflation, when supply lags behind demand and prices
increase.
 Revista de Derecho Puerlorriquefto

2) Cost-push inflation caused by demands of organized labour for

wage which when satisfied are followed by increases of prices. The indus-
trialized economies of the west are too vulnerable both to domestic infla-
tion and to imported inflation caused by increase of prices of energy and
commodities (i.e.) basic raw materials.

CONCLUSIONS

My book ,The Nominalistic Principle,' and the ,Impact of Inflation

and Devaluation of Private Legal Obligations,,.' are at the same time
theoretical and informative books. Legal theorists should consider the
justification and application in practice of the theoretical solutions and
basic institutions of monetary law. However, an average member of legal
community should simply know that from theoretical point of view, other
alternative approaches are possible to the problem of the extent of mone-
tary obligations. The sweeping nominalistic solution in an inflationary era,
is unjust and ineffective in the long run. Monetary law is at present an
underveloperd branch of law adjusted to the social and individual require-
ments of our time. Part of the blame for this must be borne by legal research
with neglects it. From the theoretical point monetary law is very interesting
from the practical point of view its neglect may be responsible for many and
serious crises. Monetary law is a branch of modern jurisprudence and a
very important branch of it of relevance to private and public law, domestic
and international. Monetary law has a bearing on the law of contracts and
torts, commercial law, taxation, private and public international law and
ont he whole economic law. At present it finds itself in a no man's land
neglected by lawyers and economists. It can be neglected for long only at
our peril.
The study and research of monetary law should be instituionalized.
Research interests in it developed. The way for many practical reforms
prepared and paved. Monetary law is the legal dimension of monetary
problems and phenomena such as inflation and devaluation. Monetary law
and its solutions have a bearing on inflation and devaluation and their
effects. Monetary law its solutions influence resistance to inflation and
therfore affect growth and full employment. Monetary law and its solu-
tions have important bearing for better or for worse on financing of
progress economic and social. Progress, economic and social, has its price
in economic terms. Quality of life is expensive. Almost all attempts to solve
contemporary problems entail financial outlays. Therefore, they very often
cause or contribute to inflation under full employment. Monetary law and
its solutions are therefore of interest to everybody who is interested in the

i. Bar Ilan University, Ramat Gan, Israel, 1971.

2. Bar Ilan University, Ramat Gan, Israel, 1976.
 Monetary Law in the Modern Era of Monetary Stability 55

welfare of our society. In fact monetary law and its solutions are one of
major contemporary problems through its effect and bearing on inflation
and resistance to inflation and its effects social, economic and political.
However, first of all monetary law is an important branch of modern
jurisprudence and its solutions should be tested by the double test of quest
for justice and social effectiveness. However, the average member of legal
profession should realize that practical solutions are available in the field of
law to minimize the effect of monetary instability on private legal
obligations.