Florsheim, Mark J.

English

St. John's University School of Law

St. John's Law Review Volume 46 Number 2 Volume 46, December 1971, Number 2 Article 31 December 2012 The Nominalistic Principle: A Legal Approach to Inflation, Deflation, Devaluation and Revaluation (Eliyahu Hirschberg) Mark J. Florsheim Follow this and additional works at: https://scholarship.law.stjohns.edu/lawreview Recommended Citation Florsheim, Mark J. (1971) "The Nominalistic Principle: A Legal Approach to Inflation, Deflation, Devaluation and Revaluation (Eliyahu Hirschberg)," St. John's Law Review: Vol. 46 : No. 2 , Article 31. Available at: https://scholarship.law.stjohns.edu/lawreview/vol46/iss2/31 This Book Review is brought to you for free and open access by the Journals at St. John's Law Scholarship Repository. It has been accepted for inclusion in St. John's Law Review by an authorized editor of St. John's Law Scholarship Repository. For more information, please contact selbyc@stjohns.edu. REVIEWSTHE NOMINALISTIC PRiNcIPLE: A LEGAL APPROACH TO INFLATION, DE-FLATION, DEVALUATION AND REVALUATION. By Eliyahu Hirschberg.Ramat-Gan, Israel: Bar-lan University. 1971. Pp. 138. $3.00With the national attention being increasingly directed toward theproblem of inflation,' a book that discusses the effects of changes in thevalue of money on legal rights cannot help but be timely and informa-tive. Eliyahu Hirschberg's monograph2 therefore commands our atten-tion, but at times only with difficulty.The value of this study is in its historical approach to the treatmentof money from both a legal and an economic viewpoint. The emphasisis weighted heavily in favor of a description of past crises arising out ofthe complete collapse of domestic currencies, such as the German markin 1922 and the Confederate dollar at the end of the American CivilWar, and of their effect on outstanding contractual obligations. WhileMr. Hirschberg's discussion of the future is couched more in economictheory than in pragmatic legal counseling, it does stimulate usefulthought on the drafting of legal documents, such as wills and contracts,with an eye to protecting them from financial unpredictability. Im-plicit is Santayana's warning that those who do not learn from historyare condemned to relive it.Undoubtedly the strong point of Mr. Hirschberg's study is hisanalysis of the three theories of money and their consequences. Themetallistic theory equates money to a standard metal. This theory wasprevalent in the Middle Ages and continued into the nineteenthcentury. Under this theory the various national currencies are given afixed value in gold or some other precious commodity and, in fact, aresurrogates for that commodity.3The metallistic theory has given way to the nominalistic approach,which predominates today. Nominalism attributes a legal value to cur-rency, which value is determined by legal fiat rather than through anyintrinsic worth of a commodity, such as gold. No matter what happensto the value of gold or to the underlying worth of the legal obligationI See, e.g., Exec. Order 11,615, 56 Fed. Reg. 15,727 (1971); radio-television addressof President Nixon: The Second Phase of Economic Stabilization, October 7, 1971.2E. IRsCHBERG, THE NOMINALISrIO PRINCIPLE: A LEGAL APPROACH TO INFLATION,DEFLATION, DEVALUATION AND REVALUATION (1971) [hereinafter t-IRSCHBERG]. The book is arevised version of part of Mr. Hirschberg's M. Phil. (Laws) thesis.BId. 13.ST. JOHN'S LAW REVIEWfor which the money constitutes consideration, we are told that "Adollar is always equal to a dollar."4Finally, we are exposed to the theory of valorism, in which legalobligations are not tied to any specific amount of currency but ratherto its purchasing power. The author favors this approach, at least withregard to long-term obligations,5 though just where we are to draw theline he doesn't say. Nor are we told why the parties to a contract cannotbe left to their own devices in considering such elements as the effectof inflation on the terms of their obligations.Cost of living escalators on wage agreements are an example of justsuch private law-making. Indeed, such escalator clauses are inherentlyinflationary, since each increase included in the cost of living statisticsautomatically activates further increases. This would be tolerable ifnations were able to isolate their economies, but even the United States,whose foreign trade accounts for only four percent of its gross nationalproduct,6 has been unable to avoid serious balance of payment prob-lems.7Mr. Hirschberg's description of attempts to cope with the break-down of nominalism, while spotty in its presentation, is quite fascinat-ing. We are given a detailed theoretical and historical analysis of mone-tary revaluation - the process in which courts or the legislature decidethat nominalism has so completely broken down that there is a need torevalue long-term debts at at least a portion of their originally intendedvalue. The prime example of revaluation occurred in Germany in the1920's. After the new Reichsmark was made the equivalent of onebillion former marks, the German judiciary and then the legislaturefound it necessary to permit certain classes of creditors to recover from15-25 percent of the prior value of their debt, so as to prevent unjustenrichment. Prior thereto, life insurance policies on which substantialpremiums had been paid became worthless in the hands of the bene-ficiaries." The problem of revaluing debts created during the American4 Id. 37.5 Id. 132.G In 1969, U.S. exports were valued at $37,988,000,000 at a time when the G.N.P. wasestimated to be $932.3 billion. U.S. BUREAU OF CENSUS, STATISTiCAL ABSTRACT OF THEUNrrED STATES 311, 777 (1970).7 See, e.g., Presidential Proclamation No. 4074, Aug. 17, 1971, Imposition of Supple-mental Duty for Balance of Payment Purposes, 36 Fed. Reg. 15,724 (1971).8HImcHBERG 96-97, 111. See also 6 A. CoRBiN, CONTRAcrs § 1360 (1962) and In reLindle's Estate, 250 N.Y. 502, 166 N.E. 182 (1929), in which the court held that a testatorintended his specific legacies to be valued in marks as they were worth at the time hiswill was drawn, rather than in the worthless post-inflationary mark.[Vol. 46:401REVIEWSCivil War and denominated in the subsequently worthless Confederatecurrency is also ably - but all too briefly- presented. 9This monograph contains abundant evidence both of the scholar-ship and of the sophomoric nature of graduate school writing. Thereader is treated to a work evidencing considerable research and fascina-tion, but to enjoy it he must put up with a plethora of errors'0 andsoporific prose.1 The book is also excessively repetitive and at timeslacking in depth. Thus, we are told that when the government injuresa private person by depriving him of his livelihood, he is entitled torelief, but when the state takes monetary action to the same effect, heis without legal remedy.12 Yet, this is the standard distinction betweenthe sovereign and proprietary acts of governments, not unique toeconomic problems. Nevertheless, the reader would be well advised toavoid becoming discouraged by these flaws.With inflation, as with so many other facts of modern life, aware-ness of the problem constitutes a substantial part of its solution. Onceparties (or their counsel) realize the dangers of inflation, they can con-sider them in structuring their transactions. Alerting us to the risks offluctuations in the value of money is perhaps Hirschberg's greatestcontribution.MARK J. FLopsHEim*9 IscHiERG 115-19. See also Effinger v. Kenney, 115 U.S. 566 (1885); Thorington v.Smith, 75 U.S. (8 Wall.) 1 (1868).10 E.g., the American Civil War is repeatedly, but not invariably, cited as having oc-curred between 1860-1865. t1mcsBERG 19, 42 & 67; but see id. 96 & 115 for the correctdates. Perhaps some of the many "typos" can be forgiven when one considers that thebook is published in a country where English is at best a second language.11Where, but in a master's thesis, could one expect to be told that "Money is ofimmense importance in the modern economy." Id. 11, and "A comparison between therevaluation in the Southern States and German revaluation reveals some similarity andsome dissimilarity." Id. 118.12 Id. 27.* Member, New York and District of Columbia Bars. A.B., Columbia College; LL.B.,New York University; MA., George Washington University.1971]

The Nominalistic Principle: A Legal Approach to Inflation, Deflation, Devaluation and Revaluation (Eliyahu Hirschberg)

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The Nominalistic Principle: A Legal Approach to Inflation, Deflation, Devaluation and Revaluation (Eliyahu Hirschberg)

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