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on the comparatively innocent. When it seeks to discourage any course of action, it does so by applying inducements of its own, not by outlawing those who act in the manner it deems objectionable, and letting loose the predatory instincts of the,worthless part of mankind to feed upon them. If a man has committed murder, the law condemns him to death: but it does not promise immunity to anybody who may kill him for the sake of taking his purse. The offence of believing another's word, even rashly, is not so heinous that, for the sake of discouraging it, the spectacle should be brought home to every door, of triumphant rascality, with the law on its side, mocking the victims it has made. This pestilent example has been very widely exhibited since the relaxation of the insolvency laws. It is idle to expect that, even by absolutely depriving creditors of all legal redress, the kind of credit which is considered objectionable would really be very much checked. Rogues and swindlers are still an exception among mankind, and people will go on trusting each other's promises. Large dealers, in abundant business, would refuse credit, as many of them already do: but in the eager competition of a great town, or the dependent position of a village shopkeeper, what can be expected from the tradesman to whom a single customer is of importance, the beginner, perhaps, who is striving to get into business? He will take the risk, even if it were still greater; he is ruined if he cannot sell his goods, and he can but be ruined if he is defrauded. Nor does it avail to say, that he^ought to make proper inquiries, and ascertain the character of those to whom he supplies goods on trust. In some of the most flagrant cases of profligate debtors which have come before the Bankruptcy Court, the swindler had been able to give, and had given, excellent references.*
* The following extracts from the French Code de Commerce (the translation is that of Mr. Fane) show the great extent to which the just distinctions are made, and the proper investigations provided for, by French law. The word banqueroute, which can only be translated by bankruptcy, is, however, confined in France to culpable insolvency, which is distinguished into simple bankruptcy and fraudulent bankruptcy. The following are cases of simple bankruptcy :—
"Every insolvent who, in the investigation of his affairs, shall appear chargeable with one or more of the following offences, shall be proceeded against as a simple bankrupt:—
"If his house expenses, which he is bound to enter regularly in a day-book, appear excessive:
"If he had spent considerable sums at play, or in operations of pure hazard:
"If it shall appear that he has borrowed largely, or resold merchandize at a loss, or below the current price, after it appeared by his last account-taking that his debts exceeded his assets by one-half:
"If he has issued negotiable securities to three times the amount of his available assets, according to his last account-taking.
"The following may also be proceeded against as simple bankrupts :—
"He who has not declared his own insolvency in the manner prescribed by law:
"He who has not come in and surrendered within the time limited, having no legitimate excuse for his absence:
"He who either produces no books at all, or produces such as have been irregularly kept, and this although the irregularities may not indicate fraud."
The penalty for " simple bankruptcy" is imprisonment for a term of not less than one month, nor more than two years. The following are cases of fraudulent bankruptcy, of which the punishment is travaux forces (the galleys) for a term :—
"If he has attempted to account for his property by fictitious expenses and losses, or if he does not fully account for all his receipts:
"If he has fraudulently concealed any sum of money or any debt due to him, or any merchandize or other movables:
"If he has made fraudulent sales or gifts of his property:
"If he has allowed fictitious debts to be proved against his estate:
"If he has been entrusted with property, either merely to keep, or with special directions as to its use, and has nevertheless appropriated it to his own use:
"If he has purchased real property in a borrowed name:"If he has concealed his books.
"The following may also be proceeded against in a similar way :—
"He who has not kept books, or whose books shall not exhibit his real situation as regards his debts and credits:
"He who, having obtained a protection (sauf-conduit), shall not have duly attended."
These various provisions relate only to commercial insolvency. The laws in regard to ordinary debts are considerably more rigorous to the debtor.
OF INTERFERENCES OF GOVERNMENT GROUNDED ON
§ 1. From the necessary functions of government, and the effects produced on the economical interests of society by their good or ill discharge, we proceed to the functions which belong to what I have termed, for want of a better designation, the optional class; those which are sometimes assumed by governments and sometimes not, and which it is not unanimously admitted that they ought to exercise.
Before entering on the general principles of the question, it will be advisable to clear from our path all those cases in which government interference works ill because grounded on false views of the subject interfered with. Such cases have no connexion with any theory respecting the proper limits of interference. There are some things with which governments ought not to meddle, and other things with which they ought; but whether right or wrong in itself, the interference must work for ill, if government, not understanding the subject which it meddles with, meddles to bring about a result which would be mischievous. We will therefore begin by passing in review various false theories, which have from time to time formed the ground of acts of government more or less economically injurious.
Former writers on political economy have found it needful to devote much trouble and space to this department of their subject. It has now happily become possible, at least in our own country, greatly to abridge this purely negative part of our discussions. The false theories of political economy which have done so much mischief in times past, are entirely discredited among all who have not lagged behind the general progress of opinion; and few of the enactments which were once grounded on those theories still help to deform the statute-book, As the principles on which their condemnation rests have been fully set forth in other parts of this treatise, we may here content ourselves with a few brief indications.
Of these false theories, the most notable is the doctrine of Protection to Native Industry; a phrase meaning the prohibition, or the discouragement by heavy duties, of such foreign commodities as are capable of being produced at home. If the theory involved in this system had been correct, the practical conclusions grounded on it would not have been unreasonable. The theory was, that to buy things produced at home was a national benefit, and the introduction of foreign commodities generally a national loss. It being at the same time evident that the interest of the consumer is to buy foreign commodities in preference to domestic whenever they are either cheaper or better, the interest of the consumer appeared in this respect to be contrary to the public interest; he was certain, if left to his own inclinations, to do what according to the theory was injurious to the public.
It was shown, however, in our analysis of the effects of international trade, as it had been often shown by former writers, that the importation of foreign commodities, in the common course of traffic, never takes place, except when it is, economically speaking, a national good, by causing the same amount of commodities to be obtained at a smaller cost of labour and capital to the country. To prohibit, therefore, this importation, or impose duties which prevent it, is to render the labour and capital of the country less efficient in production than they would otherwise be; and compel a waste of the difference between the labour and capital necessary for the home production of the commodity and that which is required for producing the things with which it can be purchased from abroad. The amount of national loss thus occasioned is measured by the excess of the price at which the commodity is produced, over that at which it could be imported. In the case of manufactured goods, the whole difference between the two prices is absorbed in indemnifying the producers for waste of labour, or of the capital which supports that labour. Those who are supposed to be benefited, namely, the makers of the protected articles, (unless they form an exclusive company, and have a monopoly against their own countrymen as well as against foreigners,) do not obtain higher profits than other people. All is sheer loss, to the country as well as to the consumer. When the protected article is a product of agriculture —the waste of labour not being incurred on the whole produce, tut only on what may be called the last instalment of it—tjie extra. price is only in part an indemnity for waste, the remainder being a tax paid to the landlords.
The restrictive and prohibitory policy was originally grounded on what is called the Mercantile System, which, representing the advantage of foreign trade to consist solely in bringing money into the country, gave artificial encouragement to exportation of goods, and discountenanced their importation. The only exceptions to the system were those required by the system itself. The materials and instruments of production were the subjects of a contrary policy, directed, however, to the same end; they were freely imported, and not permitted to be exported, in order that manufacturers, being more cheaply supplied with the requisites of manufacture, might be able to sell cheaper, and therefore to export more largely. For a similar reason, importation was allowed, and even favoured, when confined to the productions of countries which were supposed to take from the country still more than it took from them, thus enriching it by a favourable balance of trade. As part of the same system, colonies were founded for the supposed advantage of compelling them to buy our commodities, or at all events not to buy those of any other country: in return for which restriction we were generally willing to come under an equivalent obligation with respect to the staple productions of the colonists. The consequences of the theory were pushed so far, that it was not unusual even to give bounties on exportation, and induce foreigners to buy from us rather than from other countries, by a cheapness which we artificially produced, by paying part of the price for them out of our own taxes. This is a stretch beyond the point yet reached by any private tradesman in his competition for business. No shopkeeper, I should think, ever made a practice of bribing customers by selling goods to them at a permanent loss, making it up to himself from other funds in his possession.
The principle of the Mercantile Theory is now given up even by writers and governments who still cling to the restrictive system. Whatever hold that system has over men's minds, independently of the private interests exposed to real or apprehended loss by its abandonment, is derived from fallacies other than the old notion of the benefits of heaping up money in the country. The most effective of these is the specious plea of employing our own countrymen and our national industry, instead of feeding and supporting the industry of foreigners. The answer to this, from the principles laid down in former chapters, is evident. Without reverting to the fundamental