§ 8. I proceed to the subject of Insolvency Laws. Good laws on this subject are important, first and principally, on the score of public morals; which are on no point more under the influence of the law, for good and evil, than in a matter belonging so pre-eminently to the province of law as the preservation of pecuniary integrity. But the subject is also, in a merely economical point of view, of great importance. First, because the economical wellbeing of a people, and of mankind, depends in an especial manner upon their being able to trust each other's en sailors of a whaling ship depend in a great degree, if not altogether, upon the success of the voyage for their compensation. Every master of a vessel trading in the Southern Ocean is a part owner, and the interest he possesses is a strong inducement to exertion and economy, by aid of which the people of New England are rapidly driving out the competition of other nations for the trade of that part of the world. Wherever settled, they exhibit the same tendency to combination of action. In New York they are the chief owners of the lines of packet ships, which are divided into shares, owned by the shipbuilders, the mer-gagements. Secondly, because one of chants, the master, and the mates; which last generally acquire the means of becoming themselves masters, and to this is due their great success. The system is the most perfectly democratic of any in the world. It affords to every labourer, every sailor, every ope. rative, male or female, the prospect of advancement; and its results are precisely such as we should have reason to expect. In no part of the world are talent, industry, and prudence, so certain to be largely rewarded." The cases of insolvency and fraud on the part of chartered companies in America, which have caused so much loss and so much scandal in Europe, did not occur in the part of the Union to which this extract refers, but in other States, in which the right of association is much more fettered by legal restrictions, and in which, accordingly, joint-stock associations are not comparable in number or variety to those of New England. Mr. Carey adds, "A careful examination of the systems of the several states, can scarcely, we think, fail to convince the reader of the advantage resulting from permitting men to determine among themselves the terms upon which they will associate, and allowing the associations that may be formed to contract with the public as to the terms upon which | they will trade together, whether of the limited or unlimited liability of the partners." This principle has been adopted as the foundation of all recent English legislation on the subject. the risks, or expenses, of industrial operations is the risk or expense of what are commonly called bad debts, and every saving which can be effected in this liability is a diminution of cost of production; by dispensing with an item of outlay which in no way conduces to the desired end, and which must be paid for either by the consumer of the commodity, or from the general profits of capital, according as the burthen is peculiar or general. The laws and practice of nations on this subject have almost always been in extremes. The ancient laws of most countries were all severity to the debtor. They invested the creditor with a power of coercion, more or less tyrannical, which he might use against his insolvent debtor, either to extort the surrender of hidden property, or to obtain satisfaction of a vindictive character, which might console him for the non-payment of the debt. This arbitrary power has extended, in some countries, to making the insolvent debtor serve the creditor as his slave: in which plan there were at least some grains of common sense, since it might possibly be regarded as a scheme for making him work out the debt by his labour. In England, the coercion assumed the milder form of ordinary imprisonment. The one and the other were the barbarous expedients of a rude age, repugnant to justice as well as to humanity. Unfortunately the reform of them, like that of the criminal law generally, has been taken in : 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 the 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 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 mis. conduct 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 morality between this conduct, and those other kinds of dishonesty which go by the names of fraud and embezzlement? a Such cases are not a minority, but 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 alto 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 fur-gether unacquainted; wild and absurd nished them with a sufficient equiva- investments in foreign funds, or in lent. But the doctrine, that the law joint-stocks; these are among the has done all that ought to be expected most innocent causes of bankruptcy."* from it, when it has put the creditors The experienced and intelligent writer in possession of the property of an in- from whom I quote, corroborates his solvent, is in itself a totally inadmis- assertion by the testimony of several sible piece of spurious humanity. It of the official assignees of the Bankis the business of law to prevent wrong- ruptcy Court. One of them says, doing, 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 "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 titled, Credit the Life of Commerce, by Mr * From a volume published in 1845, en. J. H. Elliott. culations in things with which they were unacquainted; three by neglecting 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 account-books, deserving any other name than memorandum-books. I know sufficient of the concerns of five hundred small tradesmen in the provinces, to be enabled to say, that not one-fifth of them ever take stock, or keep even the most ordinary accounts. I 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 in. solvencies 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. 50-1. This That which is given by retail dealers heinous that, for the sake of discouragto unproductive consumers is, no ing it, the spectacle should be brought doubt, to the excess to which it is car-home to every door, of triumphant rasried, a considerable evil. This, how-cality, with the law on its side, mockever, is only true of large, and espe- ing the victims it has made. cially of long, credits; for there is pestilent example has been very widely credit whenever goods are not paid for exhibited since the relaxation of the before they quit the shop, or, at least, insolvency laws. It is idle to expect the custody of the seller; and there that, even by absolutely depriving crewould be much inconvenience in put- ditors of all legal redress, the kind of ting an end to this sort of credit. But credit which is considered objectiona large proportion of the debts on able would really be very much checked. which insolvency laws take effect, are Rogues and swindlers are still an exthose due by small tradesmen to the ception among mankind, and people dealers who supply them: and on no will go on trusting each other's proclass of debts does the demoralization | mises. Large dealers, in abundant occasioned by a bad state of the law, business, would refuse credit, as many operate more perniciously. These are of them already do: but in the eager commercial credits, which no one competition of a great town, or the dewishes to see curtailed; their existence pendent position of a village shopis of great importance to the general keeper, what can be expected from the industry of the country, and to numbers tradesman to whom a single customer of honest, well-conducted persons of is of importance, the beginner, perhaps, small means, to whom it would be a who is striving to get into business? great injury that they should be pre- He will take the risk, even if it were vented from obtaining the accommo- still greater; he is ruined if he cannot dation they need, and would not abuse, sell his goods, and he can but be ruined through the omission of the law to if he is defrauded. Nor does it avail provide just remedies against dishonest to say, that he ought to make proper or reckless borrowers. 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.* 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 The following extracts from the French Code of Commerce, (the translation is that of Mr. Fane,) show the great extent to proper investigations provided for, by French which the just distinctions are made, and the law. The word banqueroute, which can only be translated by bankruptcy, is, however, which is distinguished into simple bankconfined in France to culpable insolvency, ruptcy 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 has 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 CHAPTER X. OF INTERFERENCES OF GOVERNMENT GROUNDED ON ERRONEOUS THEORIES. § 1. FROM the necessary functions | understanding the subject which it of government, and the effects produced meddles with, meddles to bring about on the economical interests of society a result which would be mischievous. by their good or ill discharge, we pro- We will therefore begin by passing in ceed to the functions which belong to review various false theories, which what I have termed, for want of a have from time to time formed the better designation, the optional class; ground of acts of government more or those which are sometimes assumed by less economically injurious. 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 his last account-taking that his debts exceeded his assets by onc-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 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 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: 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 fictitions 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. |
