Law and Inflation 9781512809022

Table of contents :
CONTENTS
Acknowledgments
Tables and Figures
Table of Cases
Table of Statutes and Decrees
International Treaties and Conventions
Abbreviations of Non-English Periodicals and Reporters
Preface
1. Inflation's Causes and Cures
A Brief Historical Perspective
Causes of Inflation
Remedies for Inflation
The Likelihood of Chronic Inflation
Conclusions
Notes
2. The Measurement of Inflation
The Price Indexes
Limitations of Existing Price Indexes
Conclusions
Notes
3. The Value of Money for Legal Purposes
The Development of Coinage
The Doctrine of Metallism
The Ascendancy of Nominalism
The Development of Paper Money
From Legal Tender to Inconvertible Paper Currency
The Rise of the Gold Standard
The Demise of the Gold Standard
The Creation of the International Monetary Fund
The IMF in Transition
The Emergence of Valorism
Conclusions
Notes
4. Statutory and Judicial Revision of Inflation-Distorted Contracts
Legislative Revalorization
Summary
Judicial Relief from Inflation-Distorted Contracts
Civil Law Frustration Doctrines
Judicial Revalorization of Contracts in Post–World War I Germany
Summary
Laesio Enormis or Lesion
Relief Under Anglo-American Law
Conclusions
Notes
5. Protecting Contracts from Inflation
The Shunning of Fixed-Priced Contracts
Guesstimating the Inflation Rate
Stabilization Clauses
Conclusions
Notes
6. Long-Term Credit Transactions, Insurance, Pensions, and Annuities
Inflation and the Credit Market
Maintenance-of-Value Provisions in Long-Term Bonds
Linkage of Loans and Bank Deposits
Variable Rate Mortgages
Alternative Mortgage Financing Techniques
Inflation's Effect on Insurance
Adjusting Pensions and Annuities to Inflation
Difficulties Associated with Indexing Credit Transactions, Insurance, and Pensions
Conclusions
Notes
7. Monetary Compensation and Inflation
Tort Damage Awards
Contract Damages
Bankruptcy Debts
Eminent Domain Awards
Summary
Damage Limitation Provisions
Conclusions
Notes
8. Value Maintenance in the International Sphere
Gold Clauses
Gold Clause Limitations in International Conventions
Multiple Currency Clauses
The European Unit of Account
Currency Cocktails
Other Forms of Value Maintenance
Conversion of Foreign Currencies
Conclusions
Notes
9. Income Taxation and Inflation
Inflation-Induced Distortions of Business Income
Inflation-Induced Distortions of Personal Income
The Effects of Inflationary Distortions
Inflation Adjustment Techniques
Capital Gains
Summary
Technical Problems of Inflation Adjustments
Conclusions
Notes
10. Indexation: Inflationary Anesthesia or Adrenaline?
Theoretical Implications of a Perfectly Indexed Economy
Comprehensive Indexation—The Experiences of Brazil, Finland, and Israel
Summary
Implications of the Brazilian, Finnish, and Israeli Experiences for the Developed Nations
Should Developed Countries Index?
An Enlargement of Friedman's Indexation Proposal
The Desirability of This Partial Indexation Proposal
Is Indexation Inflationary?
Conclusions
Notes
APPENDICES
SELECTED BIBLIOGRAPHY
INDEX

Citation preview

LAW AND INFLATION

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LAW AND INFLATION KEITH S. ROSENN

UNIVERSITY OF PENNSYLVANIA PRESS Philadelphia 1982

Portions of chapter 5 appeared in The Business Lawyer. Copyright © 1978 by the American Bar Association. All rights reserved. Reprinted with the permission of the American Bar Association and its Section of Corporation, Banking and Business Law. Portions of chapter 9 appeared previously in the Texas International Law Journal.

Copyright © 1982 by Keith S. Rosenn All rights reserved Library of Congress Cataloging in Publication Data Rosenn, Keith S. Law and inflation Bibliography: p. Includes index. 1. Money—Law and legislation. I. Title. K4431.R67 343'03 ISBN O-8122-7807-0 342.33

2. Inflation (Finance) 81-51139 AACR2

To My Mother and Father

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CONTENTS Acknowledgments xi Tables and Figures xiii xv Table of Cases xxiii Table of Statutes and Decrees International Treaties and Conventions xxxii Abbreviations of Non-English Periodicals and Reporters xxxiii Preface xxxvii

1. Inflation's Causes and Cures A Brief Historical Perspective Causes of Inflation Remedies for Inflation The Likelihood of Chronic Inflation Conclusions Notes

2. The Measurement of Inflation The Price Indexes Limitations of Existing Price Indexes Conclusions Notes

3 4 7 11 12 15 17

21 21 27 32 33

3. The Value of Money for Legal Purposes 36 37 38 38 40

The Development of Coinage The Doctrine of Metallism The Ascendancy of Nominalism The Development of Paper Money vii

viii

CONTENTS

From Legal Tender to Inconvertible Paper Currency The Rise of the Gold Standard The Demise of the Gold Standard The Creation of the International Monetary Fund The IMF in Transition The Emergence of Valorism Conclusions Notes

4. Statutory and Judicial Revision of Inflation-Distorted Contracts Legislative Revalorization Summary Judicial Relief from Inflation-Distorted Contracts Civil Law Frustration Doctrines Judicial Revalorization of Contracts in Post–World War I Germany Summary Laesio Enormis or Lesion Relief Under Anglo-American Law Conclusions Notes

5. Protecting Contracts from Inflation The Shunning of Fixed-Priced Contracts "Guesstimating" the Inflation Rate Stabilization Clauses Conclusions Notes

42 45 48 51 52 57 59 62

72 73 83 84 84 90 93 94 98 110 115

130 130 131 132 153 155

6. Long-Term Credit Transactions, Insurance, Pensions, and Annuities 167 Inflation and the Credit Market Maintenance-of-Value Provisions in Long-Term Bonds Linkage of Loans and Bank Deposits

168 170 179

ix

Contents Variable Rate Mortgages Alternative Mortgage Financing Techniques Inflation's Effect on Insurance Adjusting Pensions and Annuities to Inflation Difficulties Associated with Indexing Credit Transactions, Insurance, and Pensions Conclusions Notes

7. Monetary Compensation and Inflation Tort Damage Awards Contract Damages Bankruptcy Debts Eminent Domain Awards Summary Damage Limitation Provisions Conclusions Notes

190 191 192 196 200 207 209

220 220 234 238 238 246 247 250 252

8. Value Maintenance in the International Sphere 267 Gold Clauses Gold Clause Limitations in International Conventions Multiple Currency Clauses The European Unit of Account Currency Cocktails Other Forms of Value Maintenance Conversion of Foreign Currencies Conclusions Notes

9. Income Taxation and Inflation Inflation-Induced Distortions of Business Income Inflation-Induced Distortions of Personal Income The Effects of Inflationary Distortions

267 268 273 275 277 280 281 288 289

295 296 301 304

X

CONTENTS

Inflation Adjustment Techniques Capital Gains Summary Technical Problems of Inflation Adjustments Conclusions Notes

311 335 341 342 350 354

10. Indexation: Inflationary Anesthesia or Adrenaline? 371 Theoretical Implications of a Perfectly Indexed Economy Comprehensive Indexation—The Experiences of Brazil, Finland, and Israel Summary Implications of the Brazilian, Finnish, and Israeli Experiences for the Developed Nations Should Developed Countries Index? An Enlargement of Friedman's Indexation Proposal The Desirability of This Partial Indexation Proposal Is Indexation Inflationary? Conclusions Notes APPENDICES SELECTED BIBLIOGRAPHY INDEX

371 375 387 388 393 393 395 396 403 405 411 425 437

Acknowledgments

Many people helped in the preparation of this book, and I am deeply grateful for their assistance. Three of my former colleagues at Ohio State University, Professors Douglas Graham, Earl Finbar Murphy, and Claude Sowle, offered numerous helpful suggestions on early chapters. Professor Leo Raskind, professor of Law at the University of Minnesota, graciously critiqued chapter 9. My colleagues at the University of Miami's Law and Economics Center, Louis De Alessi and Kenneth W. Clarkson, have given me many helpful hints. I owe a special debt of thanks to Arnold Wald, professor of Civil Law at the Law School of the University of the State of Rio de Janeiro, for the many stimulating discussions about monetary correction. Parts of chapter 5 appeared in The Business Lawyer, volume 33, no. 2 (January 1978), 729-47. Parts of chapter 9 appeared in the Texas International Law Journal, volume 13, no. 2 (Spring 1978), 165-97.1 am grateful to the publishers of both journals for permission to use the material that appeared in these articles. I am deeply indebted to two of my former students at the Ohio State University College of Law, Jeffry Goldsmith of the Class of 1979 and Adrienne Cantor Lalak of the Class of 1978, for their invaluable editorial and research assistance. Norman Nadorff of OSU's Class of 1980 performed yeoman service in checking my citations. I am also deeply indebted to Matt Dee, Nancy Miller, Ruth Kessler, and Gay Grumpier of the OSU Law Library for their help in obtaining the necessary research materials. I am most grateful to the secretarial pool at OSU College of Law, where the initial drafts of the manuscript were typed, and to my secretaries at the Law and Economics Center, Evelyn Bavonese, Joanne Davis, and Melanie Vidales, who did the numerous revisions. I would like to acknowledge a special debt to the University of Miami's Law and Economics Center for financial support to enable me to complete the revision and updating of the manuscript. My largest debt is to my wife, Silvia, for displaying that notably common Brazilian quality paciencia in an uncommonly large quantity while I worked on this book.

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TABLES AND FIGURES Table 1. Annual Percentage Changes in World Consumer Prices, 1950-79 Table 2. Changes in Pensions, Average Weekly Wages, and Consumer Price Indexes in Eight Industrial Countries, 1960-74 Table 3. Comparison of Par Values and Exchange Rates in Terms of SDRs of Nine IMF Members on April 30, 1975 Table 4. Impact of Inflation on U.S. Income Tax Burdens in 1979, Assuming No Changes in the 1972 Tax Law Table 5. Changes in Marginal Tax Rates United States 1975 Table 6. Comparison of Effective U.S. Tax Rates between 1972 and 1979

Figure 1. Changes in Real Disposable Incomes with Constant Real Gross Incomes (1961-62—1972-73) United Kingdom Figure 2. Changes in Real Disposable Incomes with Constant Real Gross Incomes (1961-62—1972-73) United Kingdom

xiii

7 199 271 302 305 308

304 307

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TABLE OF CASES Cases discussed in the text are italicized. Cases discussed in the notes or simply cited are in roman type. In some of the civil law countries, case names are infrequently used or are unavailable. Cases cited only by court and date have been omitted from this table. ARGENTINA

Admn. Gral. de Obras Sanitarias de la Nacion v. Torquinst y Bernal Atlas S.A. v. Valentine Aycor S.A. v. Paronne Azpillaga de Rodriguez Moreno v. Municipalidad de la Capital Barder de Magni v. Municipalidad de la Capital Bentivoglio v. Arana de Jordan, L.I. 156n.l6, Bustillo v. Cafe Paulista Cabal v. Madero Correa v. Lo Valvo Dir. Gral. de Fabricaciones Militares v. Scheinin Erifa, S.C.A. v. Waterling, S.R.L. Gobierno Nacional v. Dumas Gobierno Nacional v. Iribarren de Olariaga Grau Bassas v. Fernandez La Amistad S.R.L. v. Iriarte Martin de Dursi v. Teitelbaum Maturana v. Elma Piran de Flores v. Dose y Cia Ponzano v. Banco El Hogar Argentine Provincia de Santa Fe v. Nicchi Staudt y Cia. v. Padua Tomelleri v. Murua Valdez v. Gobierno Nacional Vieytes de Fernandez v. Provincia de Buenos Aires

263n.l22 158n.41 121n.89 263n.l25 12In.88 164n.l05 163n.l03 120n.79 121n.88 12In.88 121n.89 263n.l22 263n.l22 120n.79 260n.91 120n.88 259n.91 120n.79 120n.79 263n.l24 120n.79 121n.89 259n.91 259n.91

AUSTRALIA

O'Brien v. McKean Parente v. Bell

257n.64 257n.64 xv

XVI

T A B L E O F C A S E S

Stanwell Park Hotel Co. Ltd. v. Leslie Tanner v. Stocks & Realty (Premises) Pty. Ltd.

161n.68 165n.l27

BELGIUM

DeLeeuw v. Ville de Lierre Vaxelaire et Consorts v. Steens Veuve D'Hoosche et Consorts v. Wauters et Desmet

263n.l 18 125n.l38 125n.l38

BRAZIL Albino de Cruz Ferro 217n.l28 Auerback v. Coelho Pinto 120n.84 B. Prates & Cia. Ltda. v. Toyota do Brasil S.A. 218n.l28 Banco Americano de Credito S.A. v. Espolio de Pinto de Macedo 120n.84 Beckhauser v. Pascoa Ceccato 120n.84 Carlos Conteville & Cia. v. Maison F. Eloi & Cia. 120n.81 Companhia Vale do Rio Doce v. Decio Silviano Brandao, Engenharia 121n.89 Constructora Imobiliaria Comercial S.A. v. Orlando France 120n.84 da Rocha v. Central Electrica de Furnas, S.A. 265n.l55 de Oliveira v. Rio Light S.A. 255n.32 120n.82 Durante v. Teixeira ECAL v. Araujo Pereira 120n.84 Estado de Minas Gerais v. Banco Uniao Sucriere de L'Aisne S.A. 264n.l43 Figueiredo v. Gutierre 2l7n.l28 Ignez Correa Constantino v. Prefeitura Mun. de Sao Paulo 264n.l41 Lustman v. da Costa Barros 120n.84 Picard v. Uniao Federal 263n.l22 Prefeitura Municipal de Santos v. Daniel Domingos & Irmaos, Ltda. 120n.86 Rede Ferroviaria Federal S.A. v. Pampillon 211n.24 Santos Filho & Cia. Rodrigues Tavares 120n.82 Silva Ramos v. Rede Ferroviaria Federal S.A. 255n.32 Viagao Nove de Julho Ltda. v. Cromopel-Comercio e Industria de Papel e Papelao 255n.35

xvii

Table of Cases CANADA

258n.75 Andrews v. Grand & Toy Alberta Ltd. 258n.75 Arnold v. Teno Commonwealth Savings Plan Ltd. v. Triangle "C" Cattle Co. 218n.l35 Ltd. Keizer v. Hanna 258n.75 Thornton v. Board of School Trustees of School District No. 57 (Prince George) 258n.75 CHILE

Avedano Cueto v. Allesandri Altamarino Blanco v. Carvacho CiufFardi, Emilio v. Corporacion de Mejoramiento Urbano Cohen, Marion Cesar Del Canto Puissegur, Margarita y Pedro Juan Escobar, Angelica Farkas G., Desiderio Gomez T. v. Cantillana V. Guzman v. Empresa de los Ferrocarriles del Estado Jungk S. v. Wagner Sch. Lama, Abraham Lopez Sabino v. Consejo de Defensa del Estado Macera Dellarossa, Carlos v. Fisco Mujica v. Vergara Perez Moscoso v. Valdes Ossa Perlwitz v. Zambrano Schwarz v. Cortazar Wagemann Ehrenfeld, Julio

125n.l40 260n.93 264n.l47 254n.l9 264n.l47 254n.l9 244 125n.l40 226, 229 125n.l40 254n.l9 264n.l47 264n.l46 156n.l6 260n.93 125n.l40 158n.41 218n. 130

FRANCE

Association Aeronautique du Centre Inter club de Saint- Cyr-Beynes v. Dame 270 Veuve Thierache Collel v. Wild 161n.75 Colombo v. Catapodis 159n.47 86 Compagnie Generale d'Eclairage de Bordeaux v. Ville de Bordeaux Compaign v. Pavageau 161n.76 Consorts Bernat v. Vigneron 159n.44 Consorts Vidal v. Dame Pradier 125n.l42

Xviil

TABLE

OF

CASES

Dame Goffet, Veuve Henry v. Dame Desmarais 125n.l42 Do-Delattre v. Scouteten 156n.l4 Epoux Couasse v. Consorts Lemoux 162n.87 Epoux Faure-Brac v. Societe Civile Immobiliere 162n.86 Epoux Marechal 162n.86 Gabert v. Epoux Lovera et Cravero 162n.86 Gilly v. Ste des Grands Moulins de la Mediterranee 162n.87 Guyot v. Praquin 135, 144, 227 Paralitici v. Dame Leroy 162n.86 Rolland v. Fournet 156n.22 Societe E.F.E.C. v. Girbal 159n.49 Soc. de Gestion des Magasins du Midi v. Veuve Maynial et Brambilla 162n.87 Sourdonnier v. Gallien 256n.48 GERMANY

G. Co. v. J.G.R. & S. M. & Co. v. ST. v. R.

124n.l25 121n.l03

91-93

Transarctic Shipping Corp., Inc. Monrovia, Liberia v. Krogerwerft

United States of America v. INDUS, G.m.b.H. GREAT

271

121n.l01

BRITAIN

Anderson v. Equitable L. Assur. Soc. 98, 194 Beverley Corpn. v. Richard Hodgson & Sons Ltd. 128n.l92 Birmingham City Corporation v. West Midland Baptist (Trust) Association 240-41 Cookson v. Knowles 252n.6, 258n.67 Davis Contractors Ltd. v. Fareham Urban District Council 101 Denny, Mott & Dickson. Ltd. v. James B. Fraser & Co. 127n.l63 The Despina R. 285-86 Feist v. Societe Intercommunale Beige d'Electricite 156n.l6 Fletcher v. Autocar and Transporters Ltd. 257n.64 The Folias 286 Foxcraft v. Wade 64n.24 Gilbert v. Brett (Case de Mixt Moneys) 39, 64n.24 Grigby v. Oakes 66n.41 Joseph Constantine S.S. Line, Ltd. v. Imperial Smelting Corp. 127n.l63

Table of Cases

xix

Krell v. Henry 126n.l51 Mallett v. McMonagle 257n.64, 258n.74 Martin-Baker Aircraft Co. Ltd. v. Canadian Flight Craft Equipment Ltd. 128n. 192 Miliangos v. George Frank (Textiles) Ltd. 158n.41, 285, 288, 292n.56, 293nn.76 & 77, 294n.90 Mitchell v. Mulholland 257n.65, 258n.67 Paradine v. Jane 126n.l47 221 Philips v. Ward Pong v. deLindsay 64n.24 Re Spenborough Urban District Council's Agreement 128n.l92 Re United Railways of the Havana and Regla Warehouses Ltd. 293n.68, 294n.85 Schorsch Meier G.m.b.H. v. Hennin 284-85, 294n.79 Staffordshire Area Health Authority v. South Staffordshire Waterworks Co. 109-10 Taylor v. Caldwell 126n. 150 229 Taylor v. O'Connor Walton v. Waterhouse 126n.l47 Winter Garden Theatre (London) Ltd. v. Millennium Productions Ltd. 128n. 192 Young v. Percival 257n.64, 258n.67 ISRAEL

Horowitz v. Ports Authority of Israel Ritberg v. Nisim Rosenbaum v. Zeger, C.A. Yardenia Ltd. v. Ofer Bros. Ltd. Yekutieli v. Berman

254n.20 129n. 198 63n.ll, 203 254n.20 128n. 196

NETHERLANDS

Hornlinie v. Societe Nationale des Petroles Aquitaine

269-70, 272, 290n.l8

SWEDEN

272

Saga v. Sagoland SWITZERLAND

Hinrichsen et Cie v. Brann et Cie Rogenmoser v. Tiefengrund A.G.

122n.l04 123n.l23

XX

TABLEOFCASES UNITED

STATES

Aluminum Co. of America v. Essex Group, Inc. 105-07, 151 American Bank and Trust Company v. Community Hospital of Los Gatos-Saratoga, Inc. 257n.62 American Trading & Prod. Corp. v. Shell Int'l Marine Ltd. 107 Atkins v. United States 7In. 110 148-50, 164n.l07, 202-03 Aztec Prop. v. Union Planters Nat. Bank Barnett v. Trinity Universal Ins. Co. 257n.65 Beaulieu v. Elliot 233 Bethlehem Steel Co. v. Zurich Ins. Co. 159n.51, 290n.26 Bronson v. Rodes 135 Brubrad Company v. United States Postal Service 125n.l46 Butler v. Horwitz 155n.8 City of St. Louis v. International Harvester Company 26In. 112 City of Vernon v. City of Los Angeles 100 Columbus Ry. & Power v. Columbus 125n.l46 Department of W. & P. v. Okonite-Callender C. Co. 165n.l23 282 Deutsche Bank Filiale Nurnberg v. Humphrey Doca v. Marina Mercante 258n.74 Dougherty v. Equitable Life Assurance Society 125n.l45 Eastern Air Lines, Inc. v. Gulf Oil Corp. 108 Eastern Air Lines, Inc. v. McDonnell Douglas Corp. 105 Effinger v. Kenney 116n.22, 126n.l48 Emery Bird Thayer Dry Goods Co. v. Williams 157nn.29 & 30 English Transcontinental, Limited v. Puebla Tramway, Light and Power Co. 159n.52 Equitable Life Assur. Soc. v. Grosvenor 158n.32 Faw v. Marsteller 115n.4 Feldman v. Allegheny Airlines, Inc. 231, 258n.74 Feldman v. Great Northern Ry. Co. 158n.32 Firestone Tire & Rubber Company v. U.S. 165n.l26 Fleeman v. Case 165n.l24 Frankel v. Heym 257n.64, 258n.77 Frankel v. U.S. 258n.77, 259n.85 Gay v. Seafarer Fiberglass Yachts, Inc. 105 Guaranty Trust Co. v. Henwood 149, 159n.51, 290n.26 Gutor International A.G. v. Raymond Packer Co. 293n.67 Halloran v. New England Telephone & Telegraph Co. 257n.65 Hampton v. State Highway Comm. 259n.80

Table of Cases

xxi

Henderson v. Mann Theatres Corp. 158n.32 Hepburn v. Griswold 66n.45 282 Hicks v. Guinness Holyoke Water Power Co. v. American Writing Paper Co. 149, 155n.lO, 157n.30 Hughes v. Brown 258n.77 Iowa Elec. Light & Power Co. v. Atlas Corp. 128n.l91 Jacobellis v. Ohio 62n.l Johnson v. Penrod Drilling Co. 257n.64 Johnson v. Serra 257n.64 Kansas, Oklahoma & G. Ry. Co. v. Grand Lake Grain Co. 127n.l59 Kantor v. Aristo Hosiery Co. 17n.2 Kaufman v. Shere 165n.l24 Knox v. Lee (Legal Tender Cases) 66n.38, 66n.45 Liberty Nat. Bank of N.Y. v. Burr 17n.2 Librairie Hachette, S.A. v. Paris Book Center, Inc. 293n.70 McWeeney v. New York, N.H. £sf H.R.R. Co. 230-31 Mansfield Propane Gas Co. v. Folger Gas Co. 104 Maple Farms, Inc. v. City School District of the City of Elmira, New York 107-08 99-100 Mineral Park Land Co. v. Howard Mishara Construction Co., Inc. v. Transit-Mixed Corp. 105 Norman v. Baltimore & Ohio Ry. Co. 149, 155n.9, 157n.28 Normand v. Thomas Theatre Corp. 257n.65 Northern Corporation v. Chugach Elec. Ass'n 127n.l59 Nortz v. United States 157n.28 Olwine v. Torrens 202-03 Paris v. Central Chiclera, S. de R.L. 283 Parker v. Davis (Legal Tender Cases) 66n.38, 66n.45 Perry v. United States 68n.77, 157n.28 Pierce v. New York Cent. R.R. Co. 259n.80 Publicker Industries Inc. v. Union Carbide Corp. 108 Renner v. Sentle 258n.77 Rives v. Duke 126n.l48 Schnebly v. Baker 259n.80 Scruggs v. Chesapeake & Ohio Ry. Co. 257n.65 Sleeman v. Chesapeake & Ohio Ry. 257n.64 Stewart v. Salamon 126n.l48 Thorington v. Smith 126n.l48 Tillman v. National City Bank 125n.l45

XX11

TABLE

OF

CASES

Tillman v. Russo Asiatic Bank 125n.l45 Township of Wayne in County of Passaic v. Cassatly 262n.ll3 Tramontana v. S.A. Empresa de Viagoo Aerea Rio Grandense 248-49, 250, 293n.67 Transatlantic Finance Corp. v. United States 107 Transbay Construction Co. v. City and County of San Francisco 100 United States v. Bankers Trust 157n.28 United States v. Blankinship 262n.ll3 United States v. English 259n.78 United States v. Gen. Douglas MacArthur Sr. ViL, Inc. 126n.l52 United States v. Klamath and Moadoc Tribes 261n.lll United States v. Miller 261n.l 11 United States v. Will 7In. 110 United States v. 100 Acres of Land 262n.ll3 United States v. 161.99 Acres of Land 261n.ll2 United States v. 158.76 Acres of Land 26In. 112 Utility Trailer Mfg. Co. v. United States 212n.40, 363n.93 In re Washington Heights-Highbridge Park Community Development Area 262n. 113 In re Westinghouse Electric Corp. Uranium Litigation 109 Willard v. Hutson 257n.65 Willardv. Tayloe 113, 126n.l48, 134-35 Williams v. United States 257n.64 Wilmington and Weldon R.R. v. King 116n.22, 126n.l48 Yodice v. Koninkilijke Nedenlansche Stoonboot Maatschappij 258n.70 Yost v. West Penn. Ry. 258n.77 URUGUAY

E.F.M. v. B.F.S. Ferrari, Britos v. Frigorifico Modelo S.A. Freijo de Reyes, Galvan v. Dominguez J.A. v. Camara del Bien Raiz Municipio de Montevideo v. Marin Municipio de Montevideo v. Pedro Rivero Onda S.A. v. CUTCSA

253n.l7 254n.l8 253n.l7 253n.l7 264n.l32 264n.l32 253n.l8

TABLE OF STATUTES AND DECREES ARGENTINA

Civil Code, art. 619 Civil Code, art. 954 Capital Gains Tax Law Law No. 12.910 of May 19, 1947 Law No. 15.272 of 1959 Decree No. 6.590 of 1962 Law No. 17.335 of 1967 Law No. 17.711, Apr. 22, 1968 Law No. 19.414 of Dec. 31, 1971 Law No. 19.742 of Jy. 25, 1972 Law No. 19.978 of Nov. 28, 1972 Decree No. 8.626 of Dec. 7, 1972 Law No. 20.046 of Dec. 28, 1972 Decree No. 754 of Feb. 24, 1976 Law No. 21.281 of Apr. 2, 1976 Law No. 21.284 of Apr. 2, 1976 Law No. 21.308 of My. 7, 1976 Decree No. 439 of My. 14, 1976 Law No. 21.481 of Dec. 30, 1976 Law No. 21.488 of Dec. 30, 1976 Law No. 21.489 of Dec. 30, 1976 Law No. 21.499 of Jan. 21, 1977 Law No. 21.508 of Feb. 21, 1977 Law No. 21.894 of Oct. 27, 1978 Law No. 21.911 of Dec. 19, 1978

63n.l6, 254n.22 124n.l34 367n.l56 120n.78 359n.45 209n.5 359n.45 120n.80, 124n.l34 367n.l57 359n.45 212n.35 359n.45 365n.l23 212n.35 370n.214 367n.l57 363n.94 212n.35 365n.l23 261nn.l07 & 108 361n.75 263n.l25 215n.83 364n.ll7 369n.205

AUSTRALIA

Income Tax Assessment Law, sect. 82B-D Income Tax (Rates) Act 1976 Income Tax (Rates and Assessment) Act 1979 xxiii

361n.76 365n.l22 369n.201

XXIV

TABLE

OF

STATUTES

AUSTRIA

Civil Code, art. 988 Scaling Law of 1811

63n.l6 77

BAVARIA

LandrechtIV, c.15 §12

118n.61

BELGIUM

Civil Code, art. 1895 Royal Decree of Apr. 11, 1935 (Gold Clause Act) Law of Jan. 15, 1976 (Program Law) Law of Mar. 30, 1976, art. 57 Law of Dec. 24, 1976, art. 11

63n.l6 157n.25 365n.l37 163n.94 163n.96

BOLIVIA

Decree-Law No. 11.154 of Oct. 26, 1973 Decree-Law No. 12.853 of Sept. 12, 1975 Supreme Decree No. 14.460 of Mar. 25, 1977

360n.55 360n.55 360n.55

BRAZIL

Air Code, art. 102 248 Code of Civil Procedure of 1939, arts. 911, 912 255n.34 255n.34 Code of Civil Procedure of 1973, art. 602 Civil Code, art. 1061 243 Civil Code, art. 1246 88 , 120n.83 Decree No. 23.501 of Nov. 27, 1933 150, 159n.43, 164n.ll6 Law No. 28 of Feb. 15, 1935 159n.43 Decree-Law No. 869 of Nov. 18, 1938 124n.l35 Decree-Law No. 4.565 of Aug. 11, 194 255n.34 Decree-Law No. 6.650 of Je. 29, 194 159n.43 Law No. 1.521 of Dec. 26, 1951 124n.l35 Law No. 4.221 of My. 8, 1963 265n.l66 Law No. 4.330 of Je. 1, 1964 407n.29 Law No. 4.357 of Jy. 16, 1964 211nn.25 & 27, 322, 324,362n.81, 363n.95, 367n.l58, 370n.208 Law No. 4.380 of Aug. 21, 1964 214n.63 , 362n.81

Table of Statutes

xxv

Law No. 4.506 of Nov. 30, 1964 362n.81 Law No. 4.633 of Je. 3, 1965 363n.96 Law No. 4.686 of Je. 21, 1965 243 Law No. 4.728 of Jy. 14, 1965 (The Capital Markets Law) 186, 214n.66, 362n.81 Decree-Law No. 15 of Jy. 29, 1966 217n.ll4 Law No. 5.107 of Sept. 13, 1966 213n.59, 406n.l8 Law No. 32 of Nov. 18, 1966 (New Air Code) 265n.l65 Decree-Law No. 62 of Nov. 21, 1966 323-24, 325, 363n.98 Decree-Law No. 73 of Nov. 21, 1966 216n.l01 Decree-Law No. 94 of Dec. 30, 1966 367n.l59 Decree-Law No. 185 of Feb. 23, 1967 120n.87 Decree Law No. 234 of Feb. 28, 1967 265n.l65 Decree-Law No. 326 of My. 8, 1967 370n.209 Law No. 5.441 of My. 24, 1968 164n.ll8 Law No. 5.451 of Je. 14, 1968 409n.91 Law No. 5.488 of Aug. 27, 1968 216n.l01 Decree-Law No. 401 of Dec. 30, 1968 324-25, 364n.l01, 366n.l44 Decree-Law No. 403 of Dec. 30, 1968 214n.68, 362n.81 Decree-Law No. 433 of Jan. 23, 1969 364n.l03 Decree-Law No. 857 of Sept. 11, 1969 159n.43 Law No. 5.670 of Jy. 2, 1971 265n.l54 Decree-Law No. 1.302 of Dec. 31, 1973 358ri.40, 364n.l04 Decree-Law No. 1.338 of Jy. 23, 1974 214n.70, 325, 362nn.82 & 83 Portaria No. 544 of Oct. 15, 1974 325 Decree-Law No. 1.351 of Oct. 24, 1974 369n.206 Decree-Law No. 1.381 of Dec. 23, 1974 367n.l59 Law No. 6.205 of Apr. 29, 1975 214n.64, 2l7n.ll4, 255n.35 Decree-Law No. 1.410 of Jy. 31, 1975 362n.84 Decree No. 76.186 of Sept. 2, 1975 (Income Tax Regulations) 366n.l44, 370nn.209 & 210 Decree-Law No. 1.452 of Mar. 30, 1976 214n.73 Decree-Law No. 1.494 of Dec. 7, 1976 214n.69 Law No. 6.404 of Dec. 15, 1976 (New Corporation Law) 325, 364n.l07 Decree-Law No. 1.510 of Dec. 27, 1976 367n.l59 Law No. 6.423 of Je. 17, 1977 147, 163n.97, 212n.33, 255n.35, 265n.l57

XXVI

TABLE

Decree-Law No. 1.598 of Dec. 26, 1977 Decree-Law No. 1.641 of Dec. 7, 1978 Decree-Law No. 1.704 of Oct. 23, 1979 Law No. 6.708 of Oct. 30, 1979 Decree-Law No. 1.782 of Apr. 16, 1980 Decree-Law No. 1.790 of Je. 9, 1980 Law No. 6.899 of Apr. 8, 1981

OF

STATUTES

325, 364n.l09 214n.69, 367n.l60 326 161n.67 362n.82 367n.l60 254n.26, 259n.89

CANADA

Act of Apr. 10, 1937, 1 Geo. 6, c. 33 (Gold Clause Act) 157n.25 Act of Jy. 27, 1973, 21-22 Eliz. II, C. 30 365n.l34 CHILE

Civil Code, arts. 1888-91 124n.l31 Civil Code, art. 2199 63n.l6, 148, 163n.99, 260n.93 Law No. 8.419 of Apr. 10, 1946 364n.llO Decree-Law No. 210 of 1953 216n.lOO D.F.L. No. 357 of Jy. 25, 1953 210n.l3 Law No. 11.575 of Aug. 14, 1954 365n.l20 D.F.L. No. 2 of Jy. 31, 1959 182 Law No. 13.305 of Apr. 6, 1959 364n.llO D.F.L. No. 205 of Apr. 25, 1960 182, 213n.52 D.F.L. No. 211 of Apr. 6, 1960 213n.50 Law No. 15.077 of Dec. 17, 1962 213n.50 Law No. 15.163 of Feb. 13, 1963 213n.52 Law No. 15.564 of Feb. 14, 1964 364nn.llO & 111, 368n.l67 Law No. 16.391 of 1965 213n.52 Law No. 16.640 of 1967 (Agrarian Reform Law) 239, 261n.llO Decree-Law No. 162 of Nov. 26, 1973 183 Decree-Law No. 455 of My. 25, 1974 148, 159n,54, 163nn.lOO-02, 183, 218n.l38, 260n.93, 362nn.79-80 Decree-Law No. 670 of Oct. 1, 1974 160n.60 Decree-Law No. 824 of Dec. 27, 1974 327-28, 358n.41, 361nn. 78 & 79, 364n.ll2, 365nn.ll4 & 115, 369nn. 202-04 Decree-Law No. 910 of Feb. 24, 1975 358n.41, 361n.79 Decree-Law No. 1.533 of Jy. 26, 1976 163n.lOO Const. Act. No. 3 of Sept. 11, 1976 245 Decree-Law No. 1.604 of Nov. 24, 1976 361n.78, 364n.ll2

Table of Statutes Decree-Law No. 2.448 of Feb. 1979 Const, of 1980, art. 64

xxvii 217n.ll5 392

COLOMBIA

Civil Code, arts. 1946-54 124n.l31 Income Tax Law, arts. 55-57 355n.9 Decree-Law No. 687 of Apr. 20, 1967 212n.39 Decree-Law 19.308 of Mar. 7, 1972 363n.91 Decree No. 677 of My. 2, 1972 215n.75, 363n.9l Decree No. 678 of My. 2, 1972 215n.75 Decree No. 1728 of Aug. 12, 1974 189 Decree No. 2053 of Sept. 30, 1974 363n.91 Decree No. 120 of 1974 363n.91 Decree No. 2247 of 1974 189, 359n.46, 368n.l65 Law No. 54 of Dec. 23, 1977 359n.46, 365n.l26 Law No. 20 of Apr. 16, 1979 359n.46, 365n.l26, 368n.l65 Decree No. 664 of 1979 189 FINLAND

Law No. 207 of Apr. 9, 1968 (Economic Special Powers Act) 146, 162n.88, 384 1977 Currency Act Amendment 406n.l5 FRANCE

Civil Code, art. 208 256n.44 Civil Code, arts. 887, 1079, 1674-81, 1684 124n.l29, 125n.l41 Civil Code, art. 1675 96, 125n.l38 Civil Code, art. 1895 39, 63n.l7, 119n.70, 143, 144 Civil Code, arts. 1896, 1897 143, 144, 161n.73 Scaling Statute, Apr., 1796 76 General Tax Code 367n. 161 Law ofje. 26, 1796 HSn.lO Law ofjy. 9, 1796 HSn.lO Lawofjy. 16, 1796 116n.l2 Lawofje. 23, 1797 116n.l4 Law of Dec. 1, 1797 116n.l3 Lawofjy. 8, 1907 124n.l30 Law of Jan. 21, 1918 (Loi Faillot) 118n.70

xxviii

TABLE

Law of Je. 25, 1928 Law of Mar. 10, 1937 Decree of Jy. 1, 1939 Ordonnance of Oct. 17, 194 Law of Apr. 22, 1949 Law of Nov. 28, 1949 Law of Jy. 18, 1952 Law of Apr. 15, 1953 Decree No. 53-700 of Aug. 9, 19 Decree of Sept. 30, 1953 Law of Sept. 2, 1954 Decree of Jan. 4, 1955 Ordonnance No. 58-1374 of Dec. 30, 19 Decree of Jan. 7, 1959 Ordonnance No. 59-246 of Feb. 4, 195 Law No. 62-848 of Jy. 26, 1962 Law of Jy. 10, 1963 Law of Jy. 13, 1963 Law No. 65-559 of Jy. 10, 196 Law No. 70-600 of Jy. 9, 197 Law No. 72-73 of Jan. 3, 197 Law No. 74-1118 of Dec. 27, 197 Law No. 75-619 of Jy. 11, 197 Law No. 76-660 of Jy. 19, 197

OF

STATUTES

157n.25 124n.l30 162n.81 162n.81 119n.70 125n.l38 162n.81 162n.81 162n.81 162n.81 162n.81 162n.81 144-45, 161n.80 162n.82 144-45, 161n.80 264n.l49 256n.43 162n.83 264n.l51 162n.84 256n.44 256n.49 260n.99 368n.l63

GERMANY

Civil Code, art. 138(2) 95, 96 Civil Code, art. 242 80, 91, 92, 122n.l09 Third Emergency Tax Ordinance of Feb. 14, 1924 80, 82 Revalorization Act of Jy. 16, 1925 80-82, 83, 217n.l21

WEST

GERMANY

Currency Law of Je. 20, 1949 Law on Foreign Trade and Payments

146, 163n.90 163n.90

Table of Statutes GREAT

xxix

BRITAIN

51 Geo. Ill, ch. 127 52 Geo. Ill, ch. 50 56 Geo. Ill, ch. 68 23-24 Geo. V, ch. 13 Finance Act of 1975, art. 18 Finance Act of 1977, sect. 22

66n.42 66n.42 67n.50 293n.75 318 366n.l38

GREECE

Civil Code, art. 388 Law No. 263 of Je. 4, 1945

87 163n.89

ISRAEL

Mandatory Ordinance of 1943 245 Remedies Law of 1970 236 Tax Reform Act of 1975 320 Yalkut Hapirsumim 2158 of Oct. 20, 1975 264n.l48 Law for the Encouragement of Industries of Jy. 30, 1978, Amend. 6 361n.76 Adjudication of Interest and Linkage Law, Amend. No. 3, 1978 224, 254n.21, 261n.l09 Income Tax Amendment No. 32 of 1978 363n.85 ITALY

Civil Code, art. 1224 235, 243, 260n.94, 263n.l21 Civil Code, art. 1277 63n.l6, 236 Civil Code, arts. 1458, 1467, 1468, 1469 87, 119n.75

LIBERIA

Code of Laws, Tit. 35, §120

355n.9

MEXICO

Civil Code, art. 2389 Income Tax Statute, art. 346 Income Tax Statute, art. 71

63n.l6 355n.9 368n.l79

TABLE

XXX

OF

STATUTES

NETHERLANDS

63n.l6 157n.25 334

Civil Code, art. 1793 Act of My. 24, 1937 (Gold Clause Act) Law No. 259 of Apr. 23, 1971

PERU

Decree-Law Decree-Law Decree-Law Decree-Law Decree-Law Decree-Law

No. No. No. No. No. No.

18.275 18.815 19.653 21.694 21.953 22.493

of of of of of of

May 15, 1970 1971 1972 Nov. 16, 1976 Oct. 7, 1977 Apr. 11, 1979

159n.42 359n.53 366n.l39 359n.53, 360n.61 159n.42 360n.54

POLAND

Scaling Laws of 1924 1933 Code of Obligations, art. 269

78-79 86-87

PORTUGAL

Civil Code, art. 727 Civil Code of 1966, arts. 551 and 567(2)

63n.l6 256n.53

PRUSSIA

Allgemeines Landrecht I. 5, §378

118n.61

SPAIN

Civil Code, art. 312 Ley de Expropiacion Forzosa of Dec. 16, 1954, art. 58 Law No. 76 of Dec. 23, 1961 Decree No. 445-63 of Feb. 28, 1963 Ministerial Decision of Apr. 30, 1963 Decree-Law No. 12 of Dec. 1, 1973

63n.l6 263n.l30 359n.51 359n.51 359n.51 359n.51

SWEDEN

Sale of Goods Act of 1905, sect. 24

123n.l21

Table of Statutes

xxxi

SWITZERLAND

Code Code Code Code

of of of of

Obligations, art. Obligations, art. Obligations, art. Obligations, art.

21 106 269 373

95 260n.97 123n.l23 123n.l23

UNITED STATES

Federal Act of Apr. 2, 1792 (Coinage Act) 47, 67n.58, 281-82, 292n.59 U.S. Joint Resolution of 1933 (Gold Clause Resolution) 136, 139, 148-49, 157nn.28 & 30 Pub. L. 93-110, Sept. 21, 1973 158n.31 Pub. L. 93-373, Aug. 14, 1974 158n.31 Pub. L. 94-440, 5 U.S.C. §8340 166n.l30 Pub. L. 95-147, Oct. 28, 1977 150, 158n.33, 290n.29 Pub. L. 95-216 (1977) 217n.ll7 Pub. L. 96-221 (Depository Inst. Dereg. & Mon. Control 203-04, 218n.l Act) Internal Revenue Code §11 355n.l2 Internal Revenue Code §116(a) 355n.l4 Internal Revenue Code §174 368n.l82 Internal Revenue Code §911 355n.l3 Internal Revenue Code § 1245 354n.4 State Model Act for Periodic Payment of Judgments Uniform Commercial Code (UCC),§ 2-615 UCC §§ 3-104, 3-106, 8-102, 8-105 Alaska Stat. § 45.45.010(b) Ariz. Laws 1980, Ch. 44 Calif. Civ. Pro. Code §§ 1251 and 1252 Calif. Ann. Rev. & T. Code §§ 17041, 17171 Calif. Const., art. 18, § 4 16 Col. Rev. Stat. 1973, § 39-22-103.5 Iowa Code Ann., §§ 422.4, 422.5 Minn. Stat. Ann., §§ 290.06 Laws of Mont., §§ 15-591, 15-595-96 Ohio Rev. Code § 1343.01(B)(4)

228-29 102-09 165n.l29 218n.l40 365n.l27 265n.l60 366n.l40 218n.l40 365n.l28 366n.l41 365n.l29 365n.l30 218n.l40

xxxii

TABLE OF STATUTES

Ore. Rev. Laws, Ch. 240, Sec. 3 366n.l42 218n.l40 Pa. Stat. Ann., tit. 41 § 101-605 R.I. Gen. L. Ann. § 10-17-1. (3) 257n.65 5 Code of Laws of S. Car. 1976, §§ 12-7-150, 12-7-160, 12-7-170 365n.l31 Wis. Stat. Ann., § 71.09 366n.l43 URUGUAY

Law No. 13.420 of Dec. 2, 1965 360n.56 Constitution of 1967, art. 32 243 Decree-Law No. 14.252 of Aug. 22, 1974 365n.l35 Law No. 14.500 of Feb. 25, 1976 158n.41, 254n.l8, 255n.27, 259n.89 Decree No. 175 of Apr. 5, 1978 361n.73 Law No. 14.948 of Nov. 7, 1979 365n.ll9 361n.73 Decree No. 73 of Feb. 6, 1980 VENEZUELA

Civil Code, art. 1737

63n.l6

INTERNATIONAL TREATIES AND CONVENTIONS Athens Convention on Carriage of Passengers by Sea 290n.21 Brussels Convention on Oil-Pollution Damage 290n.21 Brussels Convention on Shipowners' Liability 269, 271 Convention on Maritime Claims Liability 279 Geneva Convention on Shipowners' Liability 290n.21 International Monetary Fund Articles of Agreement 14, 51-52, 56-57, 68n.79, 69n.81, 270 London Convention on Oil Pollution Liability from Seabed Exploration 279 Paris Convention on Nuclear Liability 269 Treaty of Rome 285, 294n.80 Warsaw Convention on Air Transport 268-69, 270, 272, 273, 279, 289n.8

ABBREVIATIONS OF NON-ENGLISH PERIODICALS AND REPORTERS ARGENTINA

J.A. La Ley BELGIUM Pas. Rev. Grit. Juris. Beige (R.CJ.B.) Rev. Gen. Ass. et Resp. BRAZIL Arch. Jud. Conj. Econ. D.Just. Rev. Bras. Econ. Rev. Dir. Rev. Dir. Admin. Rev. Dir. Pro. Ger.

Rev. For. Rev. Juris. Guan.

Rev. Trib. R.TJ.

Jurisprudencia Argentina Revista Juridica Argentina La Ley Pasichrisie Beige Revue Critique de Jurisprudence Beige Revue Generate des Assurances et des Responsabilites Archive Judiciaro Conjuntura Economica Diario de Justiga Revista Brasileira de Economia Revista Direito Revista de Direito Administrativo Revista do Direito do Procurador Geral Revista Forense Revista de Jurisprudencia do Tribunal de Justiga do Estado da Guanabara Revista dos Tribunals Revista Trimestral de Jurisprudencia

CHILE

Rev. Der. Econ. R.DJ. Rev. de Der.

Rev. de Der. Pub.

Revista Revista Revista ciales Revista xxxin

de Derecho Economico de Derecho y Jurisprudencia de Derecho y Ciencias Sode Derecho Publico

XXXIV

ABBREVIATIONS

FRANCE

Bull. Civ. I

Clunet Grit. Droit Int'l Prive D. DJur. D.Chron. D.P. I.

D.P. Ill D.S. Jur. (Chron.)

Gaz. Pal. Gaz. Trib. J.C.P. Rev. Economique Rev. Trim. Droit Civ. Rev. Trim. Droit Comm. SJur. I SJur. Ill Travaux Sem. Int'l Droit

Bulletin des Arrets de la Cour de Cassation, Chambres Civiles, 1792-date. Premiere Section Civile. Journal du Droit International Critique de Droit International Prive Recueil Dalloz Dalloz, Jurisprudence, 1945-55, 1956-64 Dalloz, Chronique Dalloz, Periodique et Critique, 18251940, Cour de Cassation Dalloz, Periodique et Critique, 18251940, Conseil d'Etat Dalloz-Sirey, Jurisprudence, 1955-56, 1965-date, Chronique Gazette du Palais Gazette des Tribunaux Juris-Classeur Periodique, La Semaine Juridique, 1941Revue Economique Revue Trimestrielle de Droit Civil Revue Trimestrielle de Droit Commercial Sirey, Jurisprudence, 1791-1955, Cour de Cassation Sirey, Jurisprudence, 1791-1955, Jurisprudence Administratif Travaux de la Semaine Internationale de Droit

GERMANY

NJ.W. R.G.Z.

Neve Juristische Wochenschrift Reichsgericht in Zivilsachen

GREECE

Rev. Hellenique Droit Int'l ITALY Enci. del Diritto Foro Amm.

Revue Hellenique de Droit International Enciclopedia del Diritto

Abbreviations

xxxv

Foro Ital. I

Foro Italiano 1876-Corte Cassazione, Corte Coste Giurisprudenza Italiana

Giur. Compl. Giur. Ital. Rep. Gen. Giur. Ital. Rev. Dir. Comm.

Repertorio Generale della Giurisprudenza Italiana Rivista di Diritto Commerciale

SPAIN Rev. Admin. Pub.

Revista de Administration Publica

SWITZERLAND

B.G.E.

S.J.Z. URUGUAY Just. Urug. Rev. D.J.A.

Bundesgericht: Entscheidungen des Schweizeriches Bundesgerichts, Amtliche Sammlung, Civil Schweizerische Juristenzeitung Revista Juridica La Justicia Uruguaya La Revista de Derecho Jurisprudencia y Administration

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PREFACE Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the existing distribution of wealth. . . . As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the utimate foundations of capitalism, become so utterly disordered as to be almost meaningless.

. . .

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.1 J°hn Maynard Keynes

Inflation is currently one of the world's more pressing economic, political, and social problems. We are living in an era in which most countries have experienced double digit inflation, an economic phenomenon that has profound implications for lawyers and jurists. The bulk of our laws and legal doctrines have been formulated upon the assumption that the value of money remains reasonably stable. Unfortunately, this assumption is no longer tenable in much of the world. Modern legal systems rely heavily on monetary valuations for a wide variety of purposes. Property and income must be assessed for tax purposes. Businesses must record the results of their operations in financial statements. Values have to be placed upon the investment of public utilities for rate-making. Determination of damages in contract, tort, or condemnation suits requires pecuniary valuations. Even the criminal law relies on monetary valuations for determination of the seriousness of certain offenses and the imposition of certain sanctions. Modern legal systems generally adhere to the nominalist principle: the law presumes that for the purpose of discharging legal obligations the value of money remains constant. In an inflationary milieu, this presumption seriously distorts many legal institutions. For example, despite constixxxvii

XXXV111

PREFACE

tutional guarantees of due process and the protection of private property from confiscation, inflation transfers billions of dollars each year from some socio-economic groups to others. In the United States alone it has been estimated that each one percent of unanticipated inflation in 1971 transferred more than $30 billion from creditors to debtors.2 Nominalism is a highly useful fiction, and legislators and courts are understandably reluctant to abandon it. This reluctance stems not only from concerns about national prestige and the desire to avoid upsetting the security of legal transactions, but also from the difficulty of agreeing upon an alternative, for measuring changes in the value of money over time is no simple task. But the failure to discard the nominalist principle during severe inflation subjects many legal institutions to great stress. If severe inflation persists, failure to employ some kind of valoristic adaptation such as indexation will result in the malfunctioning or complete breakdown of certain legal structures. Inflation affects many legal institutions, and many legal institutions affect inflation. There are a myriad of interrelationships between law and inflation; were one to attempt to deal with all of them, this book would resemble the map of Jorge Luis Borges' mythical kingdom where the science of cartography was so developed that the map of the kingdom was the size of the kingdom. Instead, this book focuses upon three major areas of the law most seriously affected by inflation: contracts, damages, and taxation. A number of important aspects of law and inflation, such as wage and price controls, trusts and estates, and public utility rate regulation, have been omitted entirely. The first three chapters are introductory. The first explores the meaning and causes of inflation. The second explains the devices by which inflation is measured. The third is designed to provide historical perspective about the value given to money by the law. The next three chapters are devoted to contracts, broadly defined to include various forms of credit transactions, insurance, and annuities. Chapter 4 first depicts the historical experience with legislative and judicial revalorization of contracts whose underlying assumptions have been badly distorted by inflation and then analyzes the difficulties with the various techniques for affording relief. Chapter 5 analyzes the diverse methods for protecting contracts in general from inflationary distortion. Chapter 6 focuses on three types of contractual arrangements particularly susceptible to inflationary distortion: credit transactions, insurance, and pensions and annuities. Chapter 7 examines the diverse ways in which a number of countries have sought to prevent inflation from distorting the compensation awarded in suits for breach of contract, torts, and condemnation. Chapter 8 returns to the problems of inflationary distortions of contracts and damage awards, but with the added layer of complexity of international transactions. Chapter 9 ex-

Preface

xxxix

plores the ways in which inflation distorts business and personal income taxation and the techniques for eliminating such distortions. The book concludes with an examination of the implications of instituting widespread indexation and urges the desirability of the adoption of a proposal for partial indexation in countries like the United States. All translations are by the author unless otherwise noted.

NOTES 1. THE ECONOMIC CONSEQUENCES OF PEACE 235-36 (1920). 2. G. BACH, THE NEW INFLATION 24 (1973).

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LAW AND INFLATION

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1

INFLATION'S CAUSES AND CURES The term "inflation" is often used loosely in English to mean anything from pomposity to increases in money, income, and profits. 1 For the purposes of this book, inflation is used to refer either to a sustained rise in an economy's general level of prices or to a corresponding fall in the domestic purchasing power of an economy's currency. This working definition implies that inflation is a dynamic process in which the aggregate level of prices is moving upward over time while the purchasing power of money is in corresponding decline. It does not mean that all prices are moving upward uniformly, nor even that all prices are moving upward. It does mean that an economy is undergoing inflation when it presently costs more to purchase a representative sample of goods than it cost in the past. Inflation and its opposite, deflation, describe changes in a nation's internal price levels or its currency's domestic purchasing power. Changes in a currency's external purchasing power occur through adjustments in the foreign exchange rate. When the value of country A's currency declines relative to the currency of country B, there has been a devaluation of country A's currency. Correspondingly, there has been an upward revaluation in country B's currency relative to country A. In common parlance references to changes in internal and external purchasing power of a currency are frequently commingled; it is not uncommon to find courts confusingly referring to devaluation when they really mean depreciation in domestic purchasing power.2 In the long run, countries experiencing inflation rates higher than those of customary trading partners will be forced to devalue; however, in the short run, it is frequently possible for countries to maintain the same exchange rate despite substantial domestic inflation, or to devalue by less than the inflation rate differential.3 Countries also occasionally devalue more rapidly than their domestic inflation rates, such as Germany and France during the 1920s and Brazil in 1979. Economists customarily categorize inflations by reference to the curious combination of three equine and one infantile gaits: creeping, trotting, galloping, or runaway (sometimes called hyperinflation). There are, however, no clearly defined lines of demarcation. Many economists consider any inflation in which prices are rising less than 4 percent annually as 3

4

LAW AND

INFLATION

"creeping," and any inflation in which prices are rising at more than 50 percent per month as "runaway."4 But there seems to be little consensus as to when a trotting inflation breaks into a gallop. Most economists begin to refer to an inflation as "galloping" whenever the general price level increases about 30 to 50 percent per year. A BRIEF HISTORICAL PERSPECTIVE Inflation is hardly a recent or rare phenomenon. The ancient Greeks, Romans, and Egyptians all had inflationary experiences.5 China had severe inflations during the eleventh through fourteenth centuries.6 The huge influx of gold and silver from the New World generated substantial inflation in Europe during the sixteenth and seventeenth centuries.7 There was, however, a significant difference between the early inflations in the Western world and in China. In the Western world money was essentially units of precious metals; consequently early inflations in the West were relatively mild, at least until the end of the seventeenth century. Production costs served as a natural limit on governments' ability to increase the money supply. Discovery of new sources of supply or more efficient extraction techniques occasionally caused an increase in the money supply. If the supply of goods and services remained constant, the purchasing power of each monetary unit declined. Eventually, the decline in the purchasing power of money raised production costs to the point where the marginal mines closed down and less precious metal was produced. There were numerous instances of sovereigns debasing the value of metallic currency either by reducing the gold or silver content of coins or by simply decreeing increases in the nominal value of existing coins. Nonetheless, there were natural limits in the amount of inflation that could be produced by these measures. China, on the other hand, began to use paper money nearly seven centuries before the West. As a result, its early inflations were far more severe than those experienced in the West. Once governments began to make unbacked paper money legal tender, the stage was set for unprecedented galloping and runaway inflation. The first actors on that stage were the Chinese. Paper money began early in the eleventh century in Szechwan in the form of deposit receipts for iron coins, which people found too bulky to carry. Initially, the government conceded a monopoly upon the issuance of such receipts to sixteen private merchants. In 1016 this was replaced by a government monopoly. In theory these receipts, which came in various denominations and were called promissory notes, were supposed to be redeemed or exchanged for new notes every three years, but the rules about replacing notes and

Inflation's Causes

5

maintaining a fixed quota were quickly broken. The practice of printing notes as a currency gradually spread throughout China, and the number of notes in circulation steadily increased under the two Sung dynasties as the government realized that printing paper money was a convenient way to meet military expenditures. When the notes steadily depreciated, the government issued new notes along with decrees prohibiting further depreciation of the notes. Because the notes were nonredeemable for hard currency, such decrees were ineffective, and inflation continued. In 1260 a new kind of note was issued called a "primary treasure exchange note." These notes were intended to be convertible into silver or copper and were backed by reserves of gold and silver. In addition, gold, silver, and copper were demonetized. For two decades these notes enjoyed the confidence of the people, largely because they were fully backed and tight control was maintained over the issuance of new notes. During the 1270s, however, huge issues of unbacked new notes to finance military expeditions and religious ceremonies once again produced substantial inflation. Even though the notes could be used to pay the tax collector, their value shrank drastically. After 1356 so many unbacked notes had been issued that paper currency became practically worthless, and people were forced to resort to barter and copper coins.8 The distinction of having been the first government to issue paper money in Western civilization is usually attributed to the colony of Massachusetts, which issued "bills of credit" in 1690 to finance war against Canada. The value of these bills was originally declared to be equal to money, and like Chinese paper money, they were acceptable for payment in taxes. Two years later Massachusetts declared these bills to be legal tender. From Massachusetts the issuance of paper money soon spread throughout the American colonies. Though there was some depreciation in the value of this early paper money, particularly in Rhode Island, inflation did not really start to gallop until the time of the American Revolution.9 The American Revolution of 1776 was financed with massive issues of unbacked paper money called "continentals." Prices rose an average of 8.5 percent per month, and the continental depreciated so quickly in relation to gold that within a few years "Not worth a continental!" had become a colonial colloquialism for expressing valuelessness. In 1790 continentals were redeemed for one cent on a dollar.10 The French Revolution of 1789 was largely financed by similar use of the printing press, producing an average price increase of 10 percent per month. The French assignat quickly became about as worthless as the American continental and was similarly withdrawn from circulation.11 Between 1861 and 1865 the process was repeated in the United States, where the Civil War was financed in the North largely by the issuance of unbacked

6

LAW AND

INFLATION

notes known as "greenbacks" and in the South by the issuance of unbacked Confederate currency. Confederate currency's purchasing power depreciated rapidly during the course of the war, becoming entirely worthless after the military collapse of the South. The greenback, on the other hand, lost only slightly more than half of its nominal value in relation to gold, eventually recuperating to the point that the premium at which the gold dollar had traded disappeared completely.12 By far the most spectacular inflations have occurred during the twentieth century, and two factors combined to produce them: One was the enormity of the economic destruction and dislocation resulting from the two world wars. The other was the growth of central banks and bank credit, which greatly amplified the possibilities for monetary expansion through the familiar multiplier effect.13 The so-called ultimate inflation took place