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hand as an affair of humanity only, not of justice: and the modish humanity of the present time, which is essentially a thing of one idea, has in this as in other cases, gone into a violent reaction against the ancient severity, and might almost be supposed to see in the fact of having lost or squandered other people's property, a peculiar title to indulgence. Everything in ihe law which attached disagreeable consequences to that fact, was gradually relaxed, or entirely" got rid of: until the demoralizing effects of this laxity became so evident as to determine, by more recent legislation, a salutary though very insufficient movement in the reverse direction.
The indulgence of the laws to those who have made themselves unable to pay their just debts, is usually defended, on the plea that the sole object of the law should be, in case of insolvency, not to coerce the person of the debtor, but to get at his property, and distribute it fairly among the creditors. Assuming that this is and ought to be the sole object, the mitigation of the law was in the first instance carried so far as to sacrifice that object. Imprisonment at the discretion of a creditor was really a powerful engine for extracting from the debtor any property which he had concealed or otherwise made away with: and it remains to be shown by experience whether, in depriving creditors of this instrument, the law, even as last amended, has furnished them with a sufficient equivalent. But the doctrine, that the law has done all that ought to be expected from it, when it has put the creditors in possession of the property of an insolvent, is in itself a totally inadmissible piece of spurious humanity. It is the business of law to prevent wrongdoing, and not simply to patch up the consequences of it when it has been committed. The law is bound to take care that insolvency shall not be a good pecuniary speculation; that men shall not have the privilege of hazarding other people's property without their knowledge or consent, taking the profits of the enterprise if it is successful, and if it fails, throwing the loss upon
the rightful owners; and that they shall not find it answer to make themselves unable to pay their just debts, by spending the money of their creditors in personal indulgence. It is admitted that what is technically called fraudulent bankruptcy, the false pretence of inability to pay, is, when detected, properly subject to punishment. But does it follow that insolvency is not the consequence of misconduct because the inability to pay may be real? If a man has been a spendthrift, or a gambler, with property on which his creditors had a prior claim, shall he pass scot-free because the mischief is consummated and the money gone? Is there any very material difference in point of moralily between this conduct, and those other kinds of dishonesty which go by the names of fraud and embezzlement?
Such cases are not a minority, but a large majority among insolvencies. The statistics of bankruptcy prove the fact. "By far the greater part of all insolvencies arise from notorious misconduct; the proceedings of the Insolvent Debtors Court and of the Bankruptcy Court will prove it. Excessive and unjustifiable overtrading or most absurd speculation in commodities, merely because the poor speculator 'thought they would get up,' but why he thought so he cannot tell; speculation in hops, in tea, in silk, in corn—things with which he is altogether unacquainted; wild and absurd investments in foreign funds, or in joint-stocks; these are among the most innocent causes of bankruptcy.''* The experienced and intelligent writer from whom I quote, corroborates his assertion by the testimony of several of the official assignees of the Bankruptcy Court. One of them says, "As far as I can collect from the books and documents furnished by the bankrupts, it seems to me that'' in the whole number of cases which occurred during a given time in the court to which he was attached, "fourteen have been ruined by spe
* From a volume published in 1845, entitled, Credit the Life ofCommerce, by Mr. J. H. Elliott.
culations in thines with which they were unacquainted; three by neglectfug book-keeping; ten by trading beyond their capital and means, and the consequent loss and expense of accommodation-bills; forty-nine by expending more than they could reasonably hope their profits would be, though their business yielded a fair return; none by any general distress, or the falling off of any particular branch of trade." Another of these officers says that, during a period of eighteen months, "fifty-two cases of bankruptcy have come under my care. It is my opinion that thirty-two of these have arisen from an imprudent expenditure, and five partly from that cause, and partly from a pressure on the business in which the bankrupts were employed. Fifteen I attribute to improvident speculations, combined in many instances with an extravagant mode of life.''
To these citations the author adds the following statements from his personal means of knowledge. "Many insolvencies are produced by tradesmen's indolence; they keep no books, or at least imperfect ones, which they never balance; they never take stock; they employ servants, if their trade be extensive, whom they are too indolent even to supervise, and then become insolvent. It is not too much to say, that one-half of all the persons engaged in trade, even in London, never take stock at all: they go on year after year without knowing how their affairs stand, and at last, like the child at school, they find to their surprise, but one halfpenny left in their pocket. I will venture to say that not one-fourth of all the persons in the provinces, either manufacturers, tradesmen, or farmers, ever take stock; nor in fact does one-half of them ever keep acccunt-books, deserving any other name than memorandum-books. I know sufficient of the concerns of five hundred small tradesmen in the i provinces, to be enabled to say, that not one-fifth of them ever take stock, or keep even the most ordinary accounts. 1 am prepared to say of such tradesmen, from carefully-prepared
tables, giving every advantage where there has been any doubt as to the causes of their insolvency, that where nine happen from extravagance or dishonesty, one" at most "may be referred to misfortune alone." *
Is it rational to expect among the trading classes any high sense of justice, honour, or integrity, if the law enables men who act in this manner to shuffle off the consequences of their misconduct upon those who have been so unfortunate as to trust them; and practically proclaims that it looks upon insolvency thus produced, as a " misfortune," not an offence?
It is, of course, not denied, that insolvencies do arise from causes beyond the control of the debtor, and that, in many more cases, his culpability is not of a high order; and the law ought to make a distinction in favour of such cases, but not without a searching investigation; nor should the case ever be let go without having ascertained, in the most complete manner practicable, not the fact of insolvency only, but the cause of it. To have been trusted with money or money's worth, and to have lost or spent it, is prima facie evidence of something wrong: and it is not for the creditor to prove, which he cannot do in one case out of ten, that there has been criminality, but for the debtor to rebut the presumption, by laying open the whole state of his affairs, and showing either that there has been no misconduct, or that the misconduct has been of an excusable kind. If he fail in this, he ought never to be dismissed without a punishment proportioned to the degree of blame which seems justly imputable to him; which punishment, however, might be shortened or mitigated in proportion as he appeared likely to exert himself in repairing the injury done.
It is a common argument with those who approve a relaxed system of insolvency laws, that credit, except in the great operations of commerce, is an evil; and that to deprive creditors of legal redress is a judicious means of preventing credit from being given. • Pp. EO-1.
"i'tiat which is given by retail dealers "to unproductive consumers is, no doubt, to the excess to which it is carTied, a considerable evil. This, however, is only true of large, and especially of long, credits; for there is •credit whenever goods are not paid for before they quit the shop, or, at least, the custody of the seller; and there .would be much inconvenience in putting an end to this sort of credit. But a large proportion of the debts on •which insolvency laws take effect, are those due by small tradesmen to the dealers who supply them: and on no class of debts does the demoralization occasioned by a bad state of the law, operate more perniciously. These are commercial credits, which no one wishes to see curtailed; their existence is of great importance to the general industry of the country, and to numbers of honest, well-conducted persons of email means, to whom it would be a great injury that they should be prevented from obtaining the accommodation they need, and would not abuse, through the omission of the law to provide just remedies against dishonest or reckless borrowers.
But though it were granted that retail transactions, on any footing but that of ready money payment, are an evil, and their entire suppression a fit object for legislation to aim at; a worse mode of compassing that object •could scarcely be .invented, than to permit those who have been trusted by others to cheat and rob them' with impunity. The law does not generally select the vices of mankind as the appropriate instrument for inflicting chastisement 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 impunity 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 ablo to give, and had given, excellent references.*
* The following extracts from the French Code of Commerce, (the translation is that of Mr. Fane,) show the great extent to which the just distinctions are made, and the
J>roper investigations provided for, by French aw. 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 :— H 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 has spent considerable sums at piny, or in operations of pure hazard.
"If it shall appear that he has borrowed largely, or resold merchandize at a loss, or below the curreut price, after it appeared by
OP INTERFERENCES OF GOVERNMENT GROUNDED ON KRRONKOTW THEORIES.
§ 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 cla^s; 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 oupht 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
his last account-taking that his debta ex* ceeded his assets by one-half.
"If he has issued negotiable securities to three times the amount of his available assets, according to his last accounttaking.
"The following may also be proceeded against as simple bankrupts:—
"He who has not declared his.own insolTencv 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 compulsory labour (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: I
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 iess 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
"If he has fraudulently concealed any sum of money or any debt due to him, or any merchandize or other moveables:
"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 at regards his debts and credits.
"He who, having obtained a protection (muf-conduit), shall not have duly attended."
These various provisions relate only to commercial insolvency. The laws in regard to ordinary debts sre considerably more rigorous to* the debtor.
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 Droduced 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 lahour 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 cnpital 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, but only on what may be called the last instalment of it —the 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 tar, that it was not unusual even to give bounties on exportation,