Law and Inflation

Law and Inflation

KEITH S. ROSENN
Copyright Date: 1982
Pages: 494
Stable URL: http://www.jstor.org/stable/j.ctt173zmbk
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    Law and Inflation
    Book Description:

    Inflation is an economic phenomenon that has profound implications for lawyers and jurists, because the great bulk of our laws and legal doctrines have been formulated on the assumption that the value of money remains relatively stable. Inasmuch as such an assumption is no longer tenable in much of the world, it threatens the operation of our most basic legal institutions.

    In this book, Keith Rosenn shows how inflation affects legal documents like contracts-how it distorts credit transactions, suits for damages, and laws of taxation-and he tells how current economic practices can be adapted to reduce or eliminate the impact. He explores the possibility of using a comprehensive indexation scheme for coping with inflation. Although Rosenn recognizes the deficiencies of price indexes, he considers the practical and theoretical implications of indexation. His analysis is firmly grounded in a detailed examination of the experience of countries like Argentina, Brazil, Chile, Finland, France, Germany, Israel, and Italy in adapting their legal institutions to the fact of inflation.

    eISBN: 978-1-5128-0902-2
    Subjects: Law, Political Science
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Table of Contents

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  1. Front Matter (pp. i-vi)
  2. Table of Contents (pp. vii-x)
  3. Acknowledgments (pp. xi-xii)
  4. TABLES AND FIGURES (pp. xiii-xiv)
  5. TABLE OF CASES (pp. xv-xxii)
  6. TABLE OF STATUTES AND DECREES (pp. xxiii-xxxii)
  7. International Treaties and Conventions (pp. xxxii-xxxii)
  8. ABBREVIATIONS OF NON-ENGLISH PERIODICALS AND REPORTERS (pp. xxxiii-xxxvi)
  9. PREFACE (pp. xxxvii-2)
  10. 1 INFLATION’S CAUSES AND CURES (pp. 3-20)

    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...

  11. 2 THE MEASUREMENT OF INFLATION (pp. 21-35)

    If a legal system is to take inflation into account, the law has to rely on some device to measure inflation. Most legal systems presently assign monetary values to rights and responsibilities. If one is to disregard the fiction that a currency unit is always equal to itself, the law has to find some way of quantifying the adjustments it will have to make to its normal measuring stick, the currency unit. The point is not that the law cannot take account of concepts which cannot be easily measured. Lawyers deal daily with concepts like negligence, pain and suffering, and...

  12. 3 THE VALUE OF MONEY FOR LEGAL PURPOSES (pp. 36-71)

    Money and “hard-core” pornography pose similar problems for the juridical mind. Mr. Justice Stewart’s classic nondefinition of hard-core pornography—I cannot say what it is, but I know it when I see it—might also be said about money. Common definitions of money, such as “the means established by law . . . for the payment of debts,” “the general medium of payment,” “a representative of goods and services,” “a measure of value,” or “a medium of exchange for goods and services,” are essentially circular.² Indeed, a good case can be made for the proposition that money cannot be defined...

  13. 4 STATUTORY AND JUDICIAL REVISION OF INFLATION-DISTORTED CONTRACTS (pp. 72-129)

    During severe inflation, the nominalist principle generally comes under greatest pressure in the area of contracts. Performance of agreements entered into upon the assumption that the value of money is relatively stable causes severe hardships when inflation vitiates that assumption. This hardship is most apparent in contracts whose performance is deferred over a considerable period of time, such as construction contracts, mortgages, leases, insurance policies, annuities, and installment sales. Banks discover that it costs more to carry mortgage loans on the books than they receive in amortization and interest payments. Beneficiaries find that the proceeds of life insurance policies do...

  14. 5 PROTECTING CONTRACTS FROM INFLATION (pp. 130-166)

    Rather than have judges or legislatures remake contracts for parties, it is preferable for contracting parties to consider the contingency of inflation and make express provision for it. Given legislative and judicial reluctance to permit escape from contractual obligations made burdensome by inflation, except under extreme circumstances, it is not surprising that lawyers have developed a variety of techniques for protecting the economic equilibrium of contracts from inflationary distortions. These techniques range in sophistication from simply avoiding any contracts that call for future performance at fixed prices to sophisticated index adjustments with complex mathematical formulae.

    This chapter will examine the...

  15. 6 LONG-TERM CREDIT TRANSACTIONS, INSURANCE, PENSIONS, AND ANNUITIES (pp. 167-219)

    The effects of chronic inflation are particularly pernicious with respect to three types of legal arrangements: (1) credit transactions extending over substantial periods of time, (2) insurance, and (3) pensions and annuities. All three might have been covered under the general topic of contracts; instead, each has been treated separately because each presents special problems in inflationary economics. Generally, these three areas have been the object of special legislation designed to counteract the adverse effects of inflation.

    The credit market is especially sensitive to an increase in the inflation rate. As soon as inflation exceeds a trot, long-and medium-term loans...

  16. 7 MONETARY COMPENSATION AND INFLATION (pp. 220-266)

    Chronic inflation can play havoc with monetary compensation awarded by the courts for such common actions as tort, breach of contract, and condemnation. The nominalist principle and a steadily depreciating currency, operating in tandem, effectively thwart the basic purpose indemnification—restoration of thestatus quo anteto the extent monetarily possible.

    Inflation erodes the value of monetary damages in a variety of ways. Where damages are liquidated or are calculated as of the date of the tort, breach of contract, or taking, inflation between that date and the day of judgment will reduce the value of the compensation awarded. If...

  17. 8 VALUE MAINTENANCE IN THE INTERNATIONAL SPHERE (pp. 267-294)

    Maintaining the economic value of legal arrangements during inflation takes on an additional layer of complexity in the international area. In addition to protecting the purchasing power of domestic currency against changes, one also has to consider the possibility of changes in the purchasing power and exchange rates of foreign currencies. These changes can fundamentally alter the economic assumptions upon which international transactions have been negotiated. They can also distort damage awards, bestowing a windfall on one party at the expense of the other.

    This chapter will focus on two related international problems. The first problem involves the various consensual...

  18. 9 INCOME TAXATION AND INFLATION (pp. 295-370)

    Inflation distorts the tax structure in myriad ways. Although the real value ofad valoremtaxes, such as sales taxes, is little affected by inflation, the real value of other taxes, such as real property or nominally specific excise taxes, is substantially reduced.¹ Examination of the effect of inflation on all types of taxes would require an entire treatise and is beyond the scope of this book. Instead, this chapter will focus on the effects of inflation on progressive income taxation, where the distortions are the most important and complex.

    The inequities accompanying the redistribution of income through inflation may...

  19. 10 INDEXATION: INFLATIONARY ANESTHESIA OR ADRENALINE? (pp. 371-410)

    Indexation is not a cure for inflation, nor is it meant to be. The aims of indexation are much more modest. Its primary purpose is the alleviation of many of the economic ills and distortions caused by inflation, thereby making it easier to live with inflation. Secondarily, it is intended to facilitate implementation of stabilization measures. Whether this form of inflationary anesthesia aggravates the disease is a much debated question. Detractors claim that indexation will exacerbate existing inflationary pressures, decrease the willingness of the body politic to accept austerity measures necessary to eradicate inflation, and institutionalize the existing rate of...

  20. APPENDIX A (pp. 413-413)
  21. APPENDIX B (pp. 414-416)
  22. APPENDIX C (pp. 417-421)
  23. Appendix D (pp. 422-423)
  24. APPENDIX E (pp. 424-424)
  25. SELECTED BIBLIOGRAPHY (pp. 425-436)
  26. INDEX (pp. 437-451)

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