Thus without giving any particular thought to the subject, every one would instinctively feel that there is an essential distinction between the cases of lending a Book or a Horse, and lending £5. Or if he were so obtuse on the subject, the Law would point out the distinction. The Law would tell him that he might take away his own Book, or his own Horse, if he pleased; but that if he opened his friend's purse, and took out £5, he would be guilty of theft: and that he must request his friend to pay him, but that he must not help himself.

So if a man pays in money to his account at his banker's, i.e. lends him money, and if he drew a cheque on his banker for £20, would he venture himself to take 20 sovereigns off the banker's counter? Of course he would not. He would request his banker to pay him: and he must wait until his banker gives him the money of his own free will. If he ventured to take the money himself it would be larceny, and he might be given in charge to a policeman.

In fact though both these operations, lending a Book or a Horse, and lending Money, are called a Loan, they are of an essentially distinct nature. When a man lends a book, or other chattel, to his friend, he doe3 not part with, or dispossess himself of the Property in it. He is entitled to have that very Book, or the very Chattel, back again. There is no Exchange, and no New Property created. And only one person can have the use of the book or the chattel.

But in all cases whatever of a Loan of Money, the lender absolutely cedes the Property in the money to the Borrower, and it becomes his absolute Property. What the lender does acquire is the Eight, or Property, to demand back an equivalent amount of money, but not the specific money. A loan of money is, therefore, always an Exchange, and in all such cases there is of necessity a New Property created: and this New Property is termed Credit: and it may be sold and transferred like the Money itself.

The same principle is true of the Loan of many other things, such as wine, bread, meat, oil, etc. If I lend a loaf of bread, or a bottle of wine, to a friend, the only way he can use them is by destroying them, or consuming them. Hence I must of necessity transfer the Property in them to him: and what I acquire in return, is the Eight of demanding an equal amount of equal quality in return. It is the same with Money. A man can only use money by paying it away: and all he can do is to give back to the lender at some future time an equal quantity of money. In English Law the former kind of Loans (i.e. the loan of a book or other chattel) are said to be returnable in specie, that is, the identical things are restored: in the latter kind of Loan the things are said to be returnable in genere, or only similar things are given back. In the former kind of loan, the relation of Debtor and Creditor is not created: in the latter, the relation of Debtor and Creditor is created between the Borrower and the Lender.

Precisely the same relation is created on the sale of goods on Credit. The Property in the goods is ceded absolutely to the buyer: and what the seller receives in exchange for the goods is the Right, or Property, to Demand their Price in money at a future time: and this Right or Property, is termed Credit.

Hence it must be observed that the Economic Quantity called Credit or Debt, is the Right which is created on a Loan of money, wine, bread, oil and things of that nature, to demand back an equal quantity to the things lent: or the Right which is created on a Sale of goods on Credit to demand their Price in money at a future time.

Thus the confusion has arisen from the English language having but one word, Loan, to denote two operations of an essentially distinct nature: the French language is equally faulty. But the distinction is clearly pointed out in Roman Law, and the Latin language has a distinct word for each operation.

It is said in the paraphrase of Theophilus of the Institutes of Justinian, which we prefer to quote, because it is more full and distinct than the Institutes, and it superseded them as the authorised text book of Roman Law "A Real Obligation is contracted by an act, or by the manual delivery of something counted out: and this includes the Mutuum.

"A thing is a Mutuum when the Property in it passes to the person who receives it, but he is bound to restore to us, not the identical thing delivered, but another of the same Quality and Quantity. I said, so that the receiver becomes the Proprietor of it, that I might exclude the Commodatum and the Depositum: for in these latter the receiver acquires no Property. But he must be bound to us, to exclude the Donation, for he who receives one acquires the Property, but he is not bound to us. I said that he must restore not the identical things, but others of similar Quality and Quantity, that I might not deprive him of the use of the Mutuum. For a person takes a Mutuum, that he may use the things for his own purposes, and return others instead of them. For if he were obliged to give back the same things it would be useless to borrow them.

"But all things are not taken as Mutua, but only those which consist in weight, number, and measure, etc. In weight, as gold, silver, lead, iron, wax, pitch, tin: in measure, such as oil, wine, corn: in number, such as money. And in short whatever we deliver with this intent, in number, measure, or weight, so as to bind the receiver to return us, not the same things, but others of the same nature and quantity. Whence also it is called Mutuum, because it is transferred by me to you with the intent that it should become your Property (ut de meo tuum fit).

"But the Real Obligation includes Commodatum: as if any one were to ask me to lend him a book, and I lend it .. . But the Commodatum differs widely from the Mutuum. For the Mutuum transfers the Property, but the Commodatum does not transfer it, and therefore the borrower (commodatarius) is bound to restore the very thing lent.

So it is said in the Digest - "But it is called giving a Mutuum because from being my Property it becomes yours (quod de meo tuum fit); and therefore if it does not become your Property no Obligation is created."

But on the contrary with respect to the Commodatum - " We retain the Property and Possession of the thing lent (ret commodates)" - "No one by lending (commodando) a thing, gives the Property in it to him he lends it to."

Modern scholars repudiate the fanciful etymology of mutuum from (ex meo tuum fit), though it held its place so long in legal text books. Mutuus evidently comes from muto, as deciduus from decido, and dividuus from divido. It is so called because there was an exchange of Properties. But though the derivation is fanciful, it exactly expresses the fact. Unless there was an exchange of Properties there was no Mutuum. All commercial loans are Mutua, and not Commodata. Every loan of money is in reality a sale, or an exchange, in which a New Property is created, which is called Credit or a Debt: and when the money is returned, or the loan repaid, it is another exchange, by which this New Property is extinguished.