Fungible fungible and promise keeping
June 23, 2017 § 13 Comments
“But let your speech be yea, yea: no, no: and that which is over and above these, is of evil.” – Matthew 5:37
“Fungible” means interchangeable for use: one cup of sugar is fungible with another (assuming similar enough qualities) because when we put that sugar to use, we are indifferent as to which particular cup of similar-quality sugar we use.
“Recourse” (or “full recourse“) means that when some property is transferred into an individual’s (or group’s) possession, that individual (or group) personally guarantees to return, not the actual property, but some property with equivalent use. In short, recourse means that what secures contractual performance is a personal guarantee to restore the equivalent of what was borrowed.
Once one grasps that in a mutuum loan “fungible thing” means “treated as fungible by the contract”, fungible thing and recourse become convertible into each other. Fungible and recourse are fungible contract terms, if that isn’t too confusing a way to put it.
Now the security on a contract is whatever it is that secures the contractual performance of the contracting parties: whatever it is that ensures that the contracting parties each hold up their end of the bargain.
If a contract intended to produce profits is to be morally licit, the thing(s) which secure the contract cannot be treated as fungible (alienable) by the contract. The collateral which secures a bank loan may not (as per the contract) be sold until the loan is fully discharged, because once the collateral has been sold by the borrower it can no longer act as security on the loan.
If the agreement is that certain property bound to the contract may be consumed or alienated without discharging the borrower’s obligation to repay, that specific property cannot act as what ultimately secures contractual performance. A complex contract (a societas or census) may include other property which acts as security; but property which the contract treats as fungible cannot act as security.
A recourse contract – even if it also includes collateral as partial security – is ultimately secured by a mere personal guarantee or IOU. If the collateral is completely consumed or alienated the borrower remains personally obligated to repay the loan in full; so the collateral on any recourse loan is treated by the contract as fungible in the pertinent sense.
This is reflected in Pius V’s words in Cum Onus where he insists that any licit census contract must be secured by “a fixed immobile good”: by some property which the contract does not treat as fungible/alienable from the borrower or managing partner.
A non recourse contract is a contract which by definition does not involve making promises which the parties may not be able to keep. And a recourse contract by definition involves the parties making promises they most certainly might not be able to keep. This in my view is why St. Francis Xavier admonishes confessors to:
Ask [penitents] what profits they make, how, and whence? What is the system that they follow in barter, in loans, and in the whole matter of security for contracts?
You will generally find that everything is defiled with usurious contracts, …’
And this is yet another way, in addition to all the prior ways discussed, in which we might intuit the wickedness of usury: it involves profiting by deliberately insisting that borrowers make promises which they may not be able to keep.
Zippy Catholic 
Excellent. A promise that it might not be possible to keep is a sort of lie. So the usurer’s offer of a recourse note is a scandal to the borrower. If he accepts the offer, he is thenceforward implicated in the usurious system; dragged down into it, and – by paying economic rents to the usurer on values he was not lent, in the form of usurious interest – he finances the usurer’s subsequent usury.
I speculate that if the sovereign stopped enforcing recourse notes, there would still be some written. But the interest rates they charged would have to be incredibly high in order to cover the lender’s risk of default.
This logic also seems to rule out any guarantee of repayment even on the principal. It is quite possible a borrower might not be able to repay even just the principal, which means it is illicit to push him towards making such a promise. And this is how we can intuit that recourse loans are only ever licit as charity which knows that it is possible to not have even one penny repaid to the lender.
[…] Source: Zippy Catholic […]
I really appreciate this.
There’s often a human toll behind usury, a price paid by families, the ravishes of this particular sin that we can’t always see on the surface,stress, divorce, suicide, abandoned kids. So we have a lot of social ills stemming from debt, usury, people unable to keep their word financially, often through no fault of their own. Men especially, tend to have a lot of pride around finances and their integrity too, and when that rug is pulled out from under them, every thing else start falling apart, too.
You might at times feel as if you’re just repeating yourself, and what’s the point?
You are repeating yourself, but sometimes what people need is to hear the same message over and over and over and over and over ad nauseam.
Keep up the good work.
I appreciate that sometimes a particular phrasing might be just the thing that helps a particular person grasp a particular point. And while it is true that the bulk of my content is repetition/reinforcement, I do try to introduce at least one previously unstated substantive point into each post, so that the madness in my head is further revealed in a substantive way with each new post. In this post the new data is the interchangeability of “fungible” and “full recourse” once the former is correctly grasped, which has been one of those “obvious to me but I don’t recall really making it explicit” things.
Anyway the appreciation is reciprocal. I may not have the quantity of followers that other bloggers have, but quantity is more than compensated for by quality.
Thanks for this. I believe I understood the argument against usury but this helps me understand the connection with your peculiar terms with the Magesterium’s definitive use of “mutuum.”
semioticanimal:
Regarding “peculiar terms”, keep in mind that I came at this whole subject from a financial background not a scholastic background. I was a finance guy / reasonably successful entrepreneur trying to understand and take seriously the scholastic and magisterial sources, without assuming that they were all just idiots.
Even when I was just starting to work things out it was clear to me that part of the problem in talking about usury to moderns (including myself!) was a language barrier.
No surprise that the semantics ultimately come full circle: that what we moderns call “unsecured” or “recourse” loans are precisely the kinds of contracts which the medievals referred to as loans “of a fungible thing”, that is, of some thing(s) which the contract treats as fungible.
One of the saddest parts of the modern world (and maybe modernism itself?) is the assumption that a new name means a new thing, and we’ve reached a significantly higher plane of understanding than the poor medievals and ancients.
[…] prohibit any well defined objective behaviors, the part you aren’t supposed to notice is the whole matter of security for contracts. In this case the fact that insurance bonds (understood equivocally) were accepted as morally licit […]
This logic also seems to rule out any guarantee of repayment even on the principal. It is quite possible a borrower might not be able to repay even just the principal, which means it is illicit to push him towards making such a promise. And this is how we can intuit that recourse loans are only ever licit as charity which knows that it is possible to not have even one penny repaid to the lender.
Tim Finnegan, I think you have hit close to home here.
There is nothing wrong with making or taking a full recourse loan. That’s not the problem. It is the making a profit on it by charging usury.
But this means that when we borrow in a non-usurious recourse loan, we are “on the hook” for the principal…which we might not be able to repay. This is the risk that the lender takes.
The “guarantee to repay” just is the nature of the loan. That’s what a loan is: a promise to repay. There is nothing wrong with making such a promise – if we understand by the promise that it is necessarily qualified by “if I can repay”. If the borrower has nothing of worth for posting as security for the loan, it would be impossible to demand “security” of him other than his promise to repay. Which just is his natural obligation to repay to begin with, made out into words. It is no more wrong to promise to repay what you borrowed than it is to borrow to begin with, knowing you are obliged to repay what you borrowed.
Everyone who borrows in a non-usurious recourse loan has an obligation to repay if he can, and the obligation lapses if he cannot. This is in the nature of full recourse borrowing, there is no such thing as making a such a loan where the borrower is not obligated to repay, it’s not an added feature of the loan, it just is the loan arrangement. Lending where the borrower need not repay has a different term: gift.
[…] you cannot, at least not simply, because this is usury: you are demanding a personal guarantee of more than one sack of flour tomorrow, as payment for exactly one sack of flour […]
[…] is worth emphasizing that personal guarantees on invested capital (usury) are indeed very bad business in entrepreneurship, where capital and labor/expertise come […]