Money and Means of Payment in Halakha (1)

 

I. INTRODUCTION - MONEY IN HALAKHA

 

            The use of money as a medium of exchange has been a feature of the economic landscape at least since the time of Avraham's purchase of a gravesite for Sara in exchange for "silver currency" (Bereishit 23:4-18).  However, the characteristics of money have changed considerably since the times of the Patriarchs, and economic and technical advances now augur further transformations.  It is worth examining the halakhic significance of these changes.

 

A. THE DEFINITION OF MONEY

 

            Although there is a general principle in halakha that "money's worth is as good as money" (shaveh kesef harei hu ke-kesef - Kiddushin 7b, among other places), there are several areas where there is a legal distinction between money per se and goods.  The halakha demands a definition of money in at least three areas:

 

            INTEREST: The laws of usury forbid the amount paid back for a loan to be greater than the amount of the original loan.  This requires a consistent standard of measurement.  Whatever is defined as "money" is permissible to loan for an equal nominal return, and it is forbidden mi-de'oraita to accept payment in addition to that amount.  Whatever is defined as merchandise, on the contrary, is sometimes forbidden to lend for an equal payback, since the price might rise (see Bava Metzia 75a).

 

            ACQUISITIONS: The difference between money and merchandise applies even at the mi-de'oraita level.

 

            Torah law dictates that money can not effect a barter transaction, since barter (chalipin) is based on the exchange of actual value for actual value, whereas money has symbolic value (Bava Metzia 45b).

 

            In the case of a purchase - the exchange of money for merchandise - the halakha is like Rabbi Yochanan, who says that according to Torah law acquisition is effected by the transfer of money, and not by that of the merchandise; and this is the rule in practice for real estate.  But for moveable property, mi-derabanan we condition the transaction on the transfer of merchandise only, so that the seller who has received money retains ownership and hence responsibility for the merchandise until he actually gives the item to the buyer (B.M. 46b).

 

            REDEMPTION OF TITHES: Ma'aser sheni must be eaten in Jerusalem.  Alternatively, the Torah allows transference of the sanctity of ma'aser sheni to a coin, which will then be used to buy food in Jerusalem; the sanctity will automatically be transferred to the food.  The Torah dictates that only minted currency - "kesef tzura" - can serve this purpose (B.M. 47b).

 

B. THE DEFINITION OF PAYMENT

 

            Just as the halakha distinguishes between the inherent value of merchandise and the symbolic value of money, it makes a further distinction between actual value and potential value.  Money is actually a good, but a debt is only a promise of goods.  (Of course, a loan may be accompanied by a lien, which gives the lender a possession interest in actual goods - usually real estate.)  This distinction is relevant in the following areas:

            "BEKHOR": The first born receives a double share of "muchzak" - assets that are in actual possession of the bequeathor - but only an equal share of "ra'ui" - claims due that have not yet reached the deceased's possession.  Some other rules of inheritance also make this distinction, as enumerated in the Mishna (Bekhorot 51b).

 

            "GUFO MAMON": Various areas of halakha are subject to a special "gezerat ha-katuv" which limits their applicability to objects which are "gufo mamon" - possessed of intrinsic value, as opposed to being a claim to value, such as a note of indebtedness.  For instance, there is no Torah prohibition of overcharging on notes, nor are they considered a bailment which obligates the bailee's oath (see the mishna in Bava Metzia 56a, and the gemara there).

 

            First, we will review briefly the function and historical development of money and other means of payment; then we will discuss for each area of halakha the relevant definition of money.  Of course, this article is not meant to provide authoritative halakhic decisions, but only to discuss the halakhic status of different kinds of money in certain areas of Jewish law, according to various approaches.

 

II. HISTORICAL TRENDS IN MEANS OF PAYMENT

A. THE ECONOMIC DEFINITION OF MONEY

 

            The conventional economic definition of money usually includes three properties:

            1. Medium of exchange;

            2. Standard of value;

            3. Store of value.

 

            These properties are interrelated - a person accepts money as a medium of exchange because it constitutes an accepted standard of value which he can store and later use in exchange for other goods in a predictable way.

 

            This mediation greatly facilitates commerce, because the provider of a good or service does not need to find a customer who can provide him with something that he needs - he can do business with anyone who can supply him with money.  This is money's ultimate defining property: a person accepts it not for its own sake, but rather as an intermediate stage to acquiring something else of value.

 

B. HISTORICAL DEVELOPMENT OF MONEY

 

            Originally, money was some merchandise - usually precious metal - which had properties which made it ideal for money: consistency, identifiability, durability, divisibility. (In POW camps, cigarettes have served as money; it is easy to see how cigarettes have all these properties.)  When Avraham bought the cave of Makhpela from Efron, the payment was in silver which was weighed out (Bereishit 23:16-17).  The standard of value was merely the actual quantity of precious metal.  (But see Rashi there, who suggests that the payment may have been in a kind of minted circulating coin.)

 

            By Tannaitic times, minted coin was already the norm.  Minted coins were made of precious metal, and their value varied with the value of the metal, but an official government stamp "verified" the weight of the coin and made it legal tender in the country of circulation.  The convenience of having an enforced standard - obviating the need for weighing metal for each transaction - made the coin somewhat more valuable than the metal content (cf. Krugerrands or American Eagles which trade at a significant premium to their gold content).  The result is that even short-weight coins would continue to circulate.  (See the mishna in Bava Metzia 51b which discusses the circulation of short-weight coins, and Bava Kama 98a which discusses possible liability for filing down coins.)

 

            Numerous discussions in the Talmud show that by the time of the Gemara, the force of these coins derived mainly from their official status, practically speaking; they did not circulate when forbidden by the sovereign (see the mishna and gemara in Bava Kama 98a) and their weight was occasionally altered, corresponding to modern day devaluations (see Bava Kama 97b and the Rishonim there).  For this reason, the gemara establishes "da'atei atsurta" - the receiver values them because of their "form," that is, the stamp which gives them formal value (Bava Metzia 45b).

 

            Minted coins with inherent value (even if somewhat short-weight) were the norm in the Europe and the Middle East at least from the time of Matan Torah (we know this because ma'aser sheni can be redeemed only on minted coin) until early modern times - in other words, at least three millennia.  Since then two main changes have taken place:

 

            1) In eighteenth century Europe, official paper money began to become widespread.  This so-called "fiduciary money" consisted of banknotes which were backed by gold or silver and usually freely convertible.  The government conferred legal tender status on official banknotes.  This kind of currency remain the norm until the middle of the twentieth century.

 

            The halakhic question which arises is, do we view banknotes as money, or as notes of indebtedness?  The Chatam Sofer (YD 134), Chochmat Adam (132:9), and other poskim concluded that banknotes had the halakhic status of money.  As proof, they cite the issue of short-weightedness.  What difference does it make if a coin is short-weight by 25% or by 99%?  In either case, the value of the coin in commerce is determined by its nominal and symbolic value, rather than its inherent value.  We have already pointed out that even in the case of coins made of precious metal, our sages determined that the acceptor is primarily interested in the formal value.

 

            In his responsa (YD 134), the Chatam Sofer points out that even regular coins have a metal content which often falls far short of the nominal value, and then writes:

 

But the definition of money is what the sovereign has            declared will be currency; and anyone who would refuse to honor this currency will be liable to the sovereign ... and it is considered money and "gufo mamon" and there is no distinction between gold or copper or paper.  [Unlike a note of indebtedness] they are not valued for the evidence they provide [of a debt] rather it is their legal tender status which maintains their circulation....  There is no doubt in my mind that these bank notes have the full status of money, even for matrimony... and automatically they are considered money for redeeming             hekdesh and tithes.

 

            A rare opposing view is that of Rav Shlomo Kluger.  In Ha-Elef Lekha Shelomo (CM 6), he writes: "On the question of banknotes ... it is obvious that they have the status of notes of indebtedness for all purposes."  However, he then limits this statement to ritual rules (including usury), but "As far as bailments are concerned, since they are a financial rule, this requires discussion, for it is quite possible that we rule by dina de-malkhuta and we consider them currency for all purposes, and especially for questions of the legal standard we certainly rule according to the law of the land."

 

            2) From the early eighteenth century on, there were various episodes of the use of "fiat money" - paper money not linked to a precious metal standard.  "Fiat money" is so called because it is not backed by any valuable commodity but merely by the "fiat" - will and directive - of the sovereign.  It has the legal tender status of backed money, but not the backing.  Withdrawal of metallic backing during wartime in France, Britain, and in continental and Civil War America were all temporary phenomena, and backing was restored (albeit often at a lower price) at the end of the emergency.  But after World War I, the gold standard in Europe and America never recovered, and fiat money has been the norm in all developed economies since the mid-1930's.

 

            It seems surprising, at first, that the question of the money status of banknotes was not re-examined in the wake of this seemingly revolutionary development.  But a careful look at the responsum of the Chatam Sofer reveals that the backing of the banknotes was never a determining factor.  Rather, the main factor was their universal acceptability, as backed by the force of law - "dina de-malkhuta " - which made them legal tender.  He explicitly took into consideration the fact that the inherent value was quite low.  (Apparently the banknotes in question were not freely convertible.)

 

            The convertible bank note, as its name suggests, was not invented by issuing governments, but rather by private banks.  Various periods in history have seen the circulation of such private money - having the backing of "fiduciary money," but lacking its legal tender status.  On the one hand, it circulated freely as money, and was superior to fiat money in the sense that it was backed by precious metal; on the other hand, it was not necessarily backed by the force of law, which is the dimension most emphasized by the Chatam Sofer and other poskim.  What is the status of this kind of money?

 

            The Arukh Ha-Shulchan (CM 278:13) considers government banknotes to be money, but denies this status to notes of private individuals, no matter how reliable they are; presumably the same would be true of notes of a bank.  It seems that the Chatam Sofer would make the same conclusion, given his emphasis on "dina de-malkhuta."  But it may be that this emphasis came to demonstrate the currency of the banknotes, whereas printed banknotes with adequate backing which actually circulate as currency do not need any justification, and there is no reason why they should be any worse than bank notes issued by the government.  (It may be added that Matan Torah was centuries before the known historical advent of official minted coin.  It may be that "kesef tzura" refers specifically to private mintage!)  The Chatam Sofer, later on in the same responsum, writes: "The requirement in the Torah for "kesef" (silver) is only an example, for we can redeem on copper; the important consideration is if it is generally accepted and current."  (See also Chatam Sofer, Choshen Mishpat 187, where he especially emphasizes the importance of government sanction.  But it is possible that he is referring to the permissibility as opposed to the mandatory nature of the circulation.)

 

            This last question, seemingly of purely historical and theoretical interest, is actually probably one of the most relevant and advanced.  Many transactions in the planned "cashless economy" depend on bank-backed money-like obligations which are analogous to old-fashioned private bank notes.